Grassy Knollish Financial Analysis from Egan-Jones
Alot of money is to be made if you can figure out the answer to a question that rages in financial circles today, namely, 'will the subprime mortgage fallout sink the bond insurance (financial guarantee) industry'? Check out the recent stock charts of Ambac (ABK) and MBIA (MBI), down 65% and 52% respectively since the beginning of October. If all this blows over, these could be home-run rebounds. If not, there could be more room to run lower.
In one camp is the view that the losses will be benign. In the other camp is the view that losses will be astounding and destructive. What is very interesting is that Egan-Jones is leading the charge in proclaiming impending doom. Egan-Jones's is a small, plucky rival of S&P and Moody's who rails against S&P and Moody's with messianic zeal. For instance they make unbelievable hay out of the fact that they beat their rivals to the punch in downgrading Enron and WorldCom ratings. So any chance to go against the grain of S&P and Moody's is hard to pass up. That alone doesn't necessarily mean Egan-Jones's analysis is wrong, but reading through their report it looks like the folks at Egan-Jones are hedging their analysis with a little political conspiracy theorizing: "Over-shadowing all the activity in the market is the Republican administration’s focus on maintaining the White House and minimizing losses in Congress. The incentives are high to defer the recognition of losses for the next 12 months. Unlike Enron, many players in the financial system are key to maintaining faith in the financial system, particularly after the departure of Merrill’s and Citigroup’s CEO’s. The result is likely to be the failure of a couple of firms and the crafting of a plan by the Administration to prevent or delay more failures."
At least the conspiracy theory is bipartisan, the Bush administration will ensure that the lid on the looming disaster is kept tightly sealed until after the election, but he'll have to work over time because Bob Rubin will happily wax Chuck Prince out of a job in order to make the financial system look shaky for the benefit of HRC & Co. Yes, that's it! This isn't just a buy or sell call, this is the nation's future at stake! I wonder if Egan-Jones thinks that David Petraeus can be brought in to keep mark-to-model accounting standards in place. Will Code Pink protest the Ambac annual shareholder meeting?
In one camp is the view that the losses will be benign. In the other camp is the view that losses will be astounding and destructive. What is very interesting is that Egan-Jones is leading the charge in proclaiming impending doom. Egan-Jones's is a small, plucky rival of S&P and Moody's who rails against S&P and Moody's with messianic zeal. For instance they make unbelievable hay out of the fact that they beat their rivals to the punch in downgrading Enron and WorldCom ratings. So any chance to go against the grain of S&P and Moody's is hard to pass up. That alone doesn't necessarily mean Egan-Jones's analysis is wrong, but reading through their report it looks like the folks at Egan-Jones are hedging their analysis with a little political conspiracy theorizing: "Over-shadowing all the activity in the market is the Republican administration’s focus on maintaining the White House and minimizing losses in Congress. The incentives are high to defer the recognition of losses for the next 12 months. Unlike Enron, many players in the financial system are key to maintaining faith in the financial system, particularly after the departure of Merrill’s and Citigroup’s CEO’s. The result is likely to be the failure of a couple of firms and the crafting of a plan by the Administration to prevent or delay more failures."
At least the conspiracy theory is bipartisan, the Bush administration will ensure that the lid on the looming disaster is kept tightly sealed until after the election, but he'll have to work over time because Bob Rubin will happily wax Chuck Prince out of a job in order to make the financial system look shaky for the benefit of HRC & Co. Yes, that's it! This isn't just a buy or sell call, this is the nation's future at stake! I wonder if Egan-Jones thinks that David Petraeus can be brought in to keep mark-to-model accounting standards in place. Will Code Pink protest the Ambac annual shareholder meeting?
posted by Donny Baseball at 12:31 PM
1 Comments:
Well, as of today, 12/20/07, MBIA has dropped over 24% in one day after announcing $30B CDO exposure, so it appears that Egan-Jones is very, very, very right.
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