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Thursday, December 20, 2007

Brief News Bits

MBIA (leading bond insurer) discovered it had forgotten to mention that it had 8 billion of exposure to some of those subprime CDO thangs, which may not be performing too well. Its stock is now headed into the toilet, and it has earned the undying hatred of many analysts who had given it unjustified recommendations. Coming on the heels of the ACA news yesterday, this is quite painful for fixed income markets. Actually it's quite painful for everyone; before the news hit stocks were headed higher for the day, but now....

Just to reiterate, the bond insurers cover issues like munis, which should be largely uncorrelated to the mortgage debt. Thus weakness in these companies serves to abruptly correlate the ratings and market prices of many debt issues which would otherwise have only weak linkage. MBIA's announcement is a major blow to the groin for this market. MBIA's book value last quarter now appears to be less than its total exposure to those thar subprimey CDO thingies. Do you feel the analysts' pain now?

Initial unemployment claims came in high. 343,000 is the four week leading average for initial claims, and continuing claims are now over 2,700,000. There has been good seasonal employment in retail in many areas because of expanded hours, and the spate of early retirees should be cutting overall unemployment down. Still, the employment weakness is becoming marked enough to generate uneasiness.

Leading indicators dropped again. I don't pay any attention at all to them, because it seems like it is always addressing a few months ago. My feeling about leading indicators is that they should lead rather than lagging, and the Conference Board's leading indicators are composed of lagging signals. Still, the leading index is down 1.2% from May to November, which should provide considerable cover for the Fed to cut rates again in January. It's looking more like 50 bps than 25.

SunTrust is coughing up 1.4 billion to cover several of its money markets. They say they don't expect to be doing this again. One doubts they could afford to do it again.

Doesn't the SunTrust news make you feel better about Bear Stearns' dinky little 854 million dollar quarterly loss (stemming from 1.9 billion in losses on mortgages)? It is Bear Stearns' first loss in over 80 years, but there's a first time for everything. Management has announced that it feels great shame.

Over 90 banks arrived for the Fed's Oliver Twist line for workout soup. When you find yourself shoring up your money market funds, cash can get a bit tight. Naturally they couldn't all win the auction, and pitiful cries of "Please sir, can I have some more" resounded through the Halls of Finance. That kind avuncular Fed is going to hold another auction. Dickens would be so proud.

I intend to have a good Christmas, and I hope you all will also. The New Year can just take care of itself for the time being.

I think the SunTrust statement was that they were "investing" in their money funds.

One should appreciate that the word "investing" sounds a lot better than "bailing out", "rescuing" or any other phrase that indicates that one is trying to extract oneself from the warm and smelly brown stuff which has just hit that rotating thingy on the ceiling!!.
When I was young, an unsympathetic police officer made me invest in the municipal court system because I passed a pass and just kept going at a rapid clip.

There are many types of investing. Some lead to more profit than others.
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