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IBDvalueinvestin (99.66)

Make or break day today, If the bulls manage to turn this day green then it could

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March 12, 2009 – Comments (2)

turn to real bull rally because it would make it 3 straight up days. Somehow they managed to turn yesterday green just before the close. If they succeed today then I will cover and go long until this bear market rally fizzles sometime during options expiration day next Friday.

One thing the bulls have on their side today is the Mark to Market hearing which could spark a big rally if seen positive for bulls.


Mark-to-Market hearing set for today at 10:00 am
This morning, the House Financial Services Subcommittee will be holding a highly anticipated hearing on the hotly debated issue of Mark-to-Market Accounting. The idea of potential changes or an outright suspension of mark-to-market rules has been debated for weeks, with persistent headlines on the issue illustrating the wide range of opinions. While we wouldn't expect a firm resolution to come out of tomorrow's hearing, the meeting does have the potential to impact the stocks most affected by market-to-market, most notably the banks and other financials... For some background, the mark-to-market accounting standard is laid out in Statement No. 157 from the Financial Accounting Standards Board, referred to in short as FASB 157. The rule requires companies to value the assets on their books to prevailing market prices. This is reasonable and works great in normal markets, but as liquidity dried up, asset prices plummeted and forced sales took place, the application of FASB 157 had significant negative implications for financial institutions that hold large portfolios of assets. The companies could no longer mark asset prices to what they believed they were worth based on cash flows or financial models, even if they had no intention of selling the assets. Instead mark-to-market forced them to take massive write downs, leading to inadequate capital levels and multiple rounds of capital raising. Nobody would argue that assets were overvalued on financial institutions' books and needed to be adjusted, but many would also agree that the application of mark-to-market may have exaggerated the problem by requiring certain asset prices to be overly discounted to the downside as well. While mark-to-market didn't cause the problems, it could be viewed as a problem given the rigid construct that assets need to be marked to market even if the holder has no intention of selling the asset... The proponents of change in the mark-to-market standard see it as alleviating pressure on financial institutions to raise capital and alleviating the credit crisis as financial institutions will be able to lend more freely. Although there would be plenty of uproar from the opposing side and arguments that a relaxed mark-to-market rule perpetuates moral hazard, there would be no financial cost to relax the rule... As mentioned there has been a lot of talk and speculation about the matter, with market rumors circulating earlier this week suggesting there would be changes to the accounting standard. Additionally, Reuters reported that US Representative Barney Frank said that the mark-to-market accounting rule must be improved made more flexible. While Fed Chair Bernanke said that although he supports the mark-to-market accounting goal making financial balance sheets as transparent as possible, he thinks there is room for improvement, according to Reuters. DJ reported that Bernanke noted that he would not support the suspension of mark to market but he thinks exceptions could be made for markets and financial products that are "highly illiquid and idiosyncratic."

 

2 Comments – Post Your Own

#1) On March 12, 2009 at 8:33 AM, IBDvalueinvestin (99.66) wrote:

Who the heck is cooking the retail numbers? How in the heck did we get back to back positive numbers while we are in a recession??? Something looks fishy...

 

08:30  February Retail Sales, ex auto +0.7% vs -0.1% consensus, prior revised to +1.6% from +0.9%
08:30  February Retail Sales -0.1% vs -0.5% consensus, prior revised to +1.8% from +1.0%

 

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#2) On March 12, 2009 at 9:58 AM, EHoyle80 (< 20) wrote:

Perhaps it’s a waste of time to talk of economic “consensus.” While many economists, both public and private, see a modest recovery beginning later this year, Gregor Macdonald sees nothing short of “collapse.” (http://seekingalpha.com/article/124983-recession-vs-collapse) Key quote: “While assets can certainly continue to deflate across the globe, my question is as follows: Can the US Dollar and US Treasuries bear that load without breaking? My answer is no. Only if every asset on the planet, in particular all other currencies and sovereign debt, were abandoned.”

Via Stock Research Portal 

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