Saturday, April 5, 2008

It must be a bull market

The title is written both with amazement and doubt. Lehman begs for more money and the market goes up. Merrill says we don't need no stinkin' money and the market goes up. And now Fitch downgrades MBIA and the market did not react.

Lest we forget, MBIA is one of those bond insurers that is in the middle of the CDO/subprime/credit crisis and lives and dies on its ability to bestow upon customers the umbrella of its own AAA rating. Now that is gone by the number 3 ratings agency.

The stock fell on the news, which came out about 2:30 Friday (NYT). The market softened but essentially ended at the flatline. Volume for both was rather boring, save for one spike at news time on the stock. Its price dipped and recovered immediately but ended up sliding from there anyway as the day winded down.

I'm not sure what to make of that. Initially, the news was shrugged off but then calmer head prevailed and it slid. So was it actually shrugged off?

I care less about the stock than the market at this point and the market yawned. We must be in a bull - a glorious bull market where life is beautiful and nothing can stop us now.

Oh wait, the economy. Now it is true that the stock market looks 9 month out and will, not can, but will start to rally before the economy rebounds. So if all news is good news, as it is in a bull market, then we have to assume that the economy will be hunky dory *whatever that means) by November.

Your call.


Anonymous said...

FASB Votes To Remove QSPE Concept From FAS 140, FIN 46R

Yesterday (April 2, 2008), FASB voted to remove the Qualified Special Purpose Entity (QSPE) concept (used for some securitizations) from FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and to remove the related scope exception from FIN 46R, Consolidation of Variable Interest Entities (VIEs). In addition to removing the QSPE concept, the board also approved amendments to the derecognition criteria in paragraph 9 of FAS 140 (changes shown in redline form on pages 1-2 of the board handout), and agreed to provide guidance on the ‘unit of account’ as relates to when a ‘portion’ of an asset can be derecognized - by requiring essentially the same characteristics as proposed in FASB’s 2005 Exposure Draft of proposed amendments to FAS 140 with respect to the definition of ‘participating interest,’ (definition appears on pages 3-4 of the board handout). FASB's project page currently states an amended Exposure Draft (ED) is expected to be released in the second quarter of 2008; in my estimation, the proposed changes decided yesterday are likely to be included in that ED or in a separate proposal document.

bye bye xlf bull market.

Anonymous said...

What does this mean in English?

Anonymous said...

some quotes from a forum:
"this is as good as done, just off the phone with the trader who sent me this.

Also notice:

in response to a request by
the Chief Accountant of the Securities and
Exchange Commission,

Like I said, IBs got 6 months to raise capital, after which they better take the asset back to balance sheet.

Now AFTER THAT, unwitting investors buying IBs today WILL BE SHOCKED to see a P/E ratio (by that time) of 100+"

"No I am not kidding. Take the pre-housing bubble/mortgage securitization revenue circa 2001-2002 earnings, sprinkle in some inflation/size adjustment etc, and throw the new amount of capital on top of that. You'll get BIZARRE P/E numbers for the IBs and securitized REIT investors"

basically all that off the books securitization? Not anymore! gotta bring everything on the books - probably by some time in '09

"Under FAS 140, a securitization of financial
assets is treated as a sale rather than as
a secured borrowing if the transferor is
considered to have relinquished control over
the transferred assets, and the transferred
assets will not be consolidated on the
transferor’s financial statements if the
securitization trust qualifies as a QSPE. The
FASB voted as part of its short-term project
to address practical accounting issues under
FAS 140 and, in response to a request by
the Chief Accountant of the Securities and
Exchange Commission, to clarify the QSPE
guidance under FAS 140 in time for new
guidance to be effective no later than the
beginning of 2009.
The FASB voted to remove
the QSPE concept from FAS 140 because,
members of the Board said, the FASB no
longer believes that the strict limitations on
QSPEs are practical in view of the amount
of discretion that servicers have over the
securitized assets in ABS transactions. Under
FAS 140, the activities of a QSPE must be
significantly limited, must be specified in
the documents under which the QSPE was
created, and may be materially changed only
with the consent of a majority of the nontransferor
holders of the beneficial interests
in the QSPE."

Anonymous said...

This is playing out to be one of the longest, most exhausting and persistent bear market anyone have seen.
The lag between the secters are so stretched out, at times, they appear as in opposite trend.
Residential property holdings reversed 2 years ago, yet commercial is barely turning down. The lag time between linked sectors are mind boggling, with equally insane complacency of pundits on big picture.

Anonymous said...

Oh one more, the lag between cash well drying out and manifestation of spending pinch is another thing that is freightening.
People who pulled max on ELC now holds the handle and blade is pointing to lenders.
Lenders are sending begging mails to keep paying them back.
Just look into the stretching lag duration. That will give you some ideas how long this thing will take to play out.

Quick Takes Pro said...

I won't disagree with any of that but I have to defer to the market itself when it comes to making trading decisions. Before today's fade, it did look as if the current rally would continue past resistance to some bear market rally high and then continue lower.

There is always the argument that as soon as the indices break out they will sucker in the meek and then collapse.

Either way, it is a trying time to be short and underwater. If there is some downside follow through now then I'll be happier.