At 3:30pm today US television financial station CNBC reported that sources told them that there ‘may‘ be a capital injection into Ambac (ABK). The source of this information is only someone that is "a person familiar with the matter" as Reuters and CNBC reported. No names, just someone familiar.

This person claims that a rescue plan may be announced Monday or Tuesday. And the rescue plan apparently involves the issuance of additional capital from some major banks into Ambac’s coffers. All in the attempt to keep the bond insurer afloat and keeping the ratings agencies at bay a little while longer.

I have to say that I find the "leaked" news at 3:30pm today regarding this situation to be highly suspicious. It was said at the beginning of this month that one of the ratings agencies would announce their findings/decision by around the end of the month. You will recall that I mentioned a couple weeks ago that if any of these ratings agencies were going to announce a downgrade of the bond insurers it would most likely take place on a Friday after the market closed. So as to reduce the impact to the markets somewhat. I strongly feel that today we were likely going to see such a downgrade and in an attempt to get a "stay of execution" this so called "person familiar with the matter" spread news to the media that a deal may be in the works.

Is there a deal? We don’t know. But why issue such news, without any substantial facts, at just minutes before the close of the market today, which of course was a Friday. Could this have been nothing more than an attempt to hold off the ratings agencies a little while longer so that these companies can continue to find a solution? Or is this for real? I guess we will not know until next week, but the way this unfolded today leaves many questions as to the purpose of "leaking" the news.

And if in fact it is true that the banks are going to capitalize them then how does this change the credit crisis? It does not. It simply allows for a slower deterioration of the assets that have been already losing value and are difficult to market. If the bond insurers were to have their ratings reduced then the values of those assets would be slashed in an instant. Instead, if the bond insurers survive and maintain their AAA rating (for now) it only creates a slow death as opposed to a swift execution.

I don’t want to come across as a conspiracy theorist type person. But having seen many corporate games unfold over time on Wall Street this just ranks right up there with some of the many famous Wall Street manipulations that have taken place in the past and were later found to be true.

The markets reacted to this "leaked" news and rallied over 225 points in those final 30 minutes. But those 30 minutes did not erase the fact that we are still in a bear market. Next week we have many potentially market moving events such as  Producer Price Index data, Richmond Manufacturing Index, Durable Goods orders, Preliminary Q4 GDP, Personal Consumption, and corporate earnings. Should be a wild week. We are still holding our short position on the Dow Jones Industrials.

More market analysis and charts over the weekend.

The market was stuck in second gear after lunch, then some shorts covered giving a little lift.  But, then CNBC’s Gasparino comes out and says Ambac may announce a re-capitalization plan as early as next week, and banks will bail out the company.   I thought the dang bond insurers didn’t need a bail-out.  Gee, wouldn’t it be nice to get something akin to the truth.  Like I said before, this is the same kind of junk we’ve been hearing ever since "bond insurers" became part of our vocabulary.  Buy into any rally on this type of news at your own risk.  I don’t want the bottom to fall out of our economy or the financials, but let’s get something going here that, at the very least, hinges on reality!  There are no definitive deals, no details, nothing.  We just have to see how it plays out.  Volume today was higher to the downside, but overall it was relatively light.  Moody’s reports that credit card performance continued to weaken in the 4th quarter.  No surprise there, at least to us.

We’ll have more later.

FDIC’S Bair is seeing a rash of first year defaults on Alt-A mortgages and sees more pain in months ahead as subprime and non-traditional mortgages reset.

S&P and Moody’s are going "cut crazy":

S&P Cuts 114 ratings on 17 US CDOS of ABS, affecting $12.68B

Moody’s cuts notes issued by three CDOS

Moody’s cutting or placing on review 20 tranches from five European CDOS

PIMCO’S Bill Gross says the Fed’s rate cuts aren’t helping mortgage rates with FNM 30 year rate at 5.75%.  He says a 20% decline in home prices represent a serious asset deflation (stating the obvious there).  Gross sees almost no chance of an inter-meeting rate cut by the Fed.

CNBC’s Gasparino has been covering the bond insurer problem, and says downgrades could happen anytime.  Everything being said right now is just a rehash of what we’ve been hearing for awhile, though.  There is the threat of downgrades, but a plan is being worked on to bail-out the bond insurers.  I’m afraid there isn’t any real progress yet, so we just wait to see who yells "Uncle!" first.

BSC Bear Stearns is moving on renewed rumors of a takeover.  I told you the dang thing doesn’t move without takeover rumors.  Several stocks are moving on the same type of rumors.  Morning trade continues to be weak and quiet on the news front.  Gold and Oil are fluctuating in a tight range, transports are down about one percent.  Retail is up for some reason, go figure.  I read nothing into that, just  "market fatigue" (tired of going down).

The premarket action is a bit muted, with no economic news this morning.  Futures are up, though.  MBIA is talking about splitting up the business, as FGIC and Ambac are weighing similar options.  I’m not sure how this will be accomplished:

New CEO Jay Brown “is signaling that setting up some form of good insurer and bad insurer is a live possibility for MBIA,” said Donald Light, an insurance analyst at Celent, a consulting firm in Boston. “It looks like there may end up being two distinct businesses,” Light said in a telephone interview.

Fannie Mae (FNM) and Freddie Mac (FRE) have been downgraded by Merrill-Lynch.  Some believe the downgrades and bad news are already reflected in the share price.  I don’t think so.