Wednesday, January 23, 2008

Picked a bad week to go on vacation...

I should have checked my calendar more closely. I didn't realize this was "Market goes insane week."

Here are a few quick thoughts on the market's activities of the last couple days.

  • The stock market is trying to price in a recession. The credit market had already priced this in, and now it seems as though the credit market stands more to gain from here than stocks. Consider that credit benefits more directly from Fed cuts, which will help many firms sell new debt and survive. Stocks need profit growth.
  • Why did the Fed cut 75bps on Tuesday, but only 25bps at the last regular meeting? I know every one is asking the same question, but let me send out a big WTF to Ben Bernanke and Co. on this move. It seems clear to me the reason was in reaction to the severe sell-off in Europe and Asia on Monday. So now the Fed is directly targeting the stock market? I mean, that's how it comes off. The perception would have been different had they cut 50bps at the last regular meeting, and then did a inter-meeting 50bps on Tuesday.
  • Bail-out for ABK and MBI? Sounds more and more likely something is going to happen. The story from the WSJ makes it sound similar to the LTCM bailout, where a group of parties interested in seeing the bond insurers survive provide the capital, not as a strategic investment, but to protect themselves from bigger losses. I've said before that I don't like a government bailout, but if a group of banks/brokers have essentially bet too heavily on bond insurers surviving, then they should pay the price when the insurers need more capital. Nothing wrong with that.

More on the markets when I get back in front of a Bloomberg on Monday.


Anonymous said...

I also had a WTF reaction but correlation does not equal causation and I'm inclined to believe the Fed was looking at something considerably worse than a couple bad equity market days: The failure of one or more major banks perhaps?

Anonymous said...

See the story on bond insurers in today's NYT. Shares rallied on what could be complete dilution and management of ABK/MBI has been engaged on this.

Anonymous said...

hi, welcome back from the outer rim!

It's been a wild ride this week, many heart stopping moments I think.

Regarding the Fed cut of 75bps, I believe that it is essentially to prevent this much anticipated "recession" from becoming reality. I guess they only have a small window of time to act before all this talk about recession became self-fulling. After all, recession is essentially about human behavior, isn't it?

Look forward to your postings.
Appreciate if you could drop a line or two on the queries posted the past week or so.


flow5 said...

We've been practicing "Do Something Economics" for 36 years. Bernanke's a genius. We've just gone through a 2 year period of a "tight" monetary policy. Everybody should have known (and Bernanke did know) that at the end of the cycle the "front end" tapers off

Anonymous said...

SCA downgraded by Fitch to A. Is SCA the new ACA? ACA used to be A rated and insured many muni bonds. Can SCA make a go of it working that part of the muni market?

Anonymous said...

Well, if something can be said in defense of Bernanke, it would be that his portfolio is first and foremost the banks.

And, on the day of the cut, Wachovia and B of A had essentially reported going-out-of-business earnings.

So, here's the nub: if a bank like Wachovia or B of A goes under, the mall-addled, iPod-zapped, HBO-crazed general population is going to finally take notice.

No health insurance? I won't get sick.

Indiscriminate slaughter costing a billion dollars a day in Iraq? What's on TV tonight.

Glaciers disappearing around the globe and sea levels rising at an increasing rate? Can you say, "Boring!"

My bank has just gone out of business? My bank? Hey, they can't do that!

Vamsi said...

hi check myblog for insurance articles

Anonymous said...

So if my house burns down, and I find that the insurance company executives have gambled away the reserves at the track and can't pay the claim, I should loan them the money to pay me? Utterly #%$@&*! brilliant.

Anonymous said...


I think one of the long term casualties of this financial crisis will be muni bonds.

i realize right now they are fine, and many of them may or may not need the insurance and the ratings they are possibly going to lose.

on the other hand, i think the many foreclosures and defaults will dramatically hurt municipalities and will create real defaults in the muni bond market thus driving muni bond prices lower.

I would appreciate your comments on this. I am also curious if you know of any way to bet "against" the muni bond market -- can bond funds be sold short? futures?
other ways to short?

any input on the above is greatly appreciated.

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