Feb

22

Stock Market Summary for February 22nd 2008

By Chuck

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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.