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Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!

 
ºDIETº
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03/10/2009 08:42 AM
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Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Today Federal Reserve Chairman Bernanke will address the Council on Foreign Relations to discuss ‘overhauling the U.S. bank regulatory system’.
[link to www.google.com]

The key point to listen for is any hint from Bernanke that suggests relaxing the of mark-to-market accounting. In other words look for him to grease the skids for this Thursday’s 10:00 AM congressional house subcommittee meeting where they will discuss this issue.
A couple of posters in yesterday’s thread discussed this subject. Here is a good take at what is at stake.
[link to www.todaysfinancialnews.com]

Many investors want to get rid of mark-to-market accounting rules. Sure it will create a one-time trading opportunity. But in the end, it will only make things worse and could cost us all a lot of money.
If you think last week was a big one for the banking sector, this week could blow your mind. The catalyst will come at 10:00 a.m. this Thursday when a House subcommittee meets to discuss the near-term fate of mark-to-market accounting rules.

If the recent surge in calls for temporarily relaxing the market-regulating rules gains traction, we could easily see triple-digit share price gains at some of the nation’s most prominent banks. After all, without mark-to-market accounting, many banks could re-write their balance sheets. Assets that were once written down to nearly zero could be given just about any valuation.

Unfortunately, that is where the trouble and the opportunity lie.

With current accounting standards, banks must account for their assets, like bundles of mortgages and risky loans, at today’s prices. But nobody really knows what today’s prices are. After all, nobody is buying anything. That means banks have been forced to write down many of their least-liquid assets to nearly zero, the only price they know they could get.

But if the accounting rules are suspended, oh boy, banks could value those same assets at just about any price. Because there is no liquid market, finding a true fair price is nearly impossible. If a bank says its mortgages are worth six trillion dollars that is the price its balance sheet will portray. It will not matter if those same assets are listed as just a million dollars of value today.

Investors want to suspend mark-to-market accounting because it will lift valuations by huge proportions. As soon as the regulation is lifted, corporate accountants can start adding multiple zeros to all sorts of assets. And of course, those zeros would find their way to share prices.
With just one change in regulations, investors would go flooding back into the financial sector and send the equities market surging. It would make Washington look like the savior it has promised to be.

The end of economic trouble?

Of course, the gains would only be temporary. Before too long, the newly created bubble would burst and things would start crashing down once again. Even worse, investors would have no way to tell how accurate the new figures are. Without mark-to-market rules, there is nothing stopping a company from flat-out lying about its valuations. Enron’s books would look like a little, white lie.

Remember, mark-to-market is merely an accounting rule. It simply tells us how to price things on corporate balance sheets. It does absolutely nothing to represent cash flows. If banks are not able to rake in the kind of revenue an investor would expect from the newly created balance sheet figures (which is certainly going to be the case with the huge level of foreclosures and loan defaults), a revision in the law will do no good.

An accountant’s books are supposed to be a window into a company’s true value. If we paint a pretty picture on that window by lifting current accounting regulations, the same ugly scene will lie behind the glass.

If Congress starts to show ambition to change current mark-to-market accounting rules, be ready for a major charge in the equities market. But be ready to sell at the top. The gains will not last long. This is a temporary fix at best.
The only way to get out of this mess is to let the free market do its magic. Washington will keep trying to find an instantaneous solution. But we all know it will never work.
This week’s action may create some trading opportunities, but long-term investors should be wary of making any major moves.


There you have it folks! They did not like the way this bubble turned out so the rules will be changed and presto we have our new bubble or in this case the false rally so many of you have been calling for.

Forecasting a closing figure today is tricky. No hints at the subject material from Bernanke and the opening bell rally fizzles out. Hints at said subject material and watch the market take off. Given this dynamic I will post two projected ranges.

Today’s projected closing range:
Hint at mark to market change - 6750 to 6850
No hint at mark to market change - 6490 to 6590
Anonymous Coward
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03/10/2009 08:42 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Thanks for the analysis.
Anonymous Coward
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03/10/2009 08:47 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
bump
Anonymous Coward
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03/10/2009 08:51 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
I guess that explains why the futures are up today.

DJIA INDEX 6,655.00 127.00

[link to www.bloomberg.com]
Anonymous Coward
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03/10/2009 08:56 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
This is a recipe for disaster! At least we have some form of accounting now. Take that away and I may as well throw darts at a board full of company names ot determine stock picks.

I am appalled that this is even being considered.

wtf rant
Anonymous Coward
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03/10/2009 08:56 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
How does mark to market change the essential fact that the banks are endless money pits? Because we won't talk about it?
S.P.Q.R

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03/10/2009 08:58 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Thats the way to hedge your bet DIET.

Just teasing you ; ) all the best..thanks for your analysis
Anonymous Coward
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03/10/2009 09:00 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
How does mark to market change the essential fact that the banks are endless money pits? Because we won't talk about it?
 Quoting: Anonymous Coward 559493


Because we will be stripping away what little transparency is left in the market. How do you determine where to place your bets if there is a completely non transparent market. Valuation would be meaningless because any value could be attached to any asset. This is the most fuck up thing I have ever heard of.
ºDIETº (OP)

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03/10/2009 09:01 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Thats the way to hedge your bet DIET.

Just teasing you ; ) all the best..thanks for your analysis
 Quoting: S.P.Q.R

No pun intended right? LOL
hf
Anonymous Coward
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03/10/2009 09:03 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Thank you so much for taking the time to write such relevant, coherent posts on financial issues. I'm not sure why you do it, but I sure do appreciate it.
SHRModerator
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03/10/2009 09:06 AM

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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Citi floated some inter-office memo or something that stated they are actually showing a profit so far this year...well they took in TARP money so I'm sure that is included....that alone would buoy the market...we'll see if Bernake can torpedo the ship. Everyone seems to be salivating for MTM to be suspended...he'll likely say at least say something like "Some regulations are under review" and the market is dying to react to anything in a positive way....so it should be an up day if only for the reason that it's expected to be an up day.
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ºDIETº (OP)

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03/10/2009 09:06 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Thank you so much for taking the time to write such relevant, coherent posts on financial issues. I'm not sure why you do it, but I sure do appreciate it.
 Quoting: Anonymous Coward 323774

Your very welcome!
hf
Anonymous Coward
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03/10/2009 09:08 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Well he mentioned changes to accounting rules were currently under discussion but futures are dropping.
Anonymous Coward
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03/10/2009 09:08 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Really?!! Less transparency under the obama administration...who woulda thought.

ochange
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03/10/2009 09:09 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Citi floated some inter-office memo or something that stated they are actually showing a profit so far this year...well they took in TARP money so I'm sure that is included....that alone would buoy the market...we'll see if Bernake can torpedo the ship. Everyone seems to be salivating for MTM to be suspended...he'll likely say at least say something like "Some regulations are under review" and the market is dying to react to anything in a positive way....so it should be an up day if only for the reason that it's expected to be an up day.
 Quoting: SHR


You are spot on!
If it can be vaguely interpretted as a suspension of mark-to-market look for an all smiles day at CNBC.
Anonymous Coward
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03/10/2009 09:11 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
on the cnbc.com site it has breaking news banner stating this:

SEC Not Planning Suspension of Mark-to-Market Accounting: Reuters
Anonymous Coward
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03/10/2009 09:13 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
on the cnbc.com site it has breaking news banner stating this:

SEC Not Planning Suspension of Mark-to-Market Accounting: Reuters
 Quoting: Anonymous Coward 431716


bump
Anonymous Coward
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03/10/2009 09:15 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
He strongly endorses mark to market where possible and will not support any suspension. However the numbers can be misleading and the valuations must be looked at.

Taking questions, now.
Anonymous Coward
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03/10/2009 09:16 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
bump

good read
day traders will love this opportunity
antisoshal
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03/10/2009 09:18 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Double speak from the Benmeister while he tries to eek out the gains of suspending M2M without actually doing it. Good luck Ben. market will open high, peter out to some volatility, and if no specific changes are announced, should close down a modest amount.

Then again, maybe the meth and coke are good this week and a rumor of a rumor is all it will take to send it soaring. =8P
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03/10/2009 09:19 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
9:15 a.m. Bernanke: Won't support suspension of mark-to-market rules

[link to www.marketwatch.com]
Anonymous Coward
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03/10/2009 09:21 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
9:16 a.m. United Technologies to cut 11,600 more jobs
9:15 a.m. Bernanke: Recession over at year end if banks are stabilized
9:15 a.m. Bernanke: Won't support suspension of mark-to-market rules
9:15 a.m. Bond Report: Treasurys fall before record 3-year note auction
9:12 a.m. [DAL] Delta Air to reassess staffing needs
9:11 a.m. [DAL] Delta Air: Nearly 2,100 leaving with voluntary reductions
9:11 a.m. [DAL] Delta Air Lines to cut international capacity another 10%
9:07 a.m. Futures Movers: Oil gains on expectations of OPEC output cuts
9:04 a.m. Indications: U.S. stock futures climb as bank execs defend performance
9:01 a.m. Earnings Watch: Updates, advisories and surprises
9:00 a.m. Kroger earnings per share rise 10% in quarter
9:00 a.m. NewsWatch: U.S. stock futures climb as bank execs defend performance
8:56 a.m. Dow Chemical shares fall on Rohm & Haas deal
8:55 a.m. Credit Suisse cuts BJ's Wholesale to underperform
8:54 a.m. The Fed: Big banks will not be allowed to fail, Bernanke says
8:52 a.m. Texas Instruments narrows outlook
8:49 a.m. [KR] Kroger sees 2009 EPS of $2.00 to $2.05
8:49 a.m. The Ratings Game: Citigroup downgrades Wal-Mart to hold on unionization concern
8:46 a.m. [KR] Kroger Q4 EPS 53 cents vs 48 cents
8:42 a.m. United Technologies to cut 11,600 jobs
ºDIETº (OP)

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03/10/2009 09:22 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
on the cnbc.com site it has breaking news banner stating this:

SEC Not Planning Suspension of Mark-to-Market Accounting: Reuters
 Quoting: Anonymous Coward 431716

[link to www.cnbc.com]
Anonymous Coward
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03/10/2009 09:22 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
the DOW horror will begin soon.

It shall fall like a cloud turned into lead by a crazy wizard of hell.
Anonymous Coward
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03/10/2009 09:23 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
so what the hell does that mean we go down diet????
Anonymous Coward
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03/10/2009 09:24 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
futures dont seem to be dropping a lot with the news about mark to market
Anonymous Coward
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03/10/2009 09:25 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Diet can you give your analogies as to what this means and what it will do to the markets today???
falldown

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03/10/2009 09:25 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
Good analysis, in clear, blunt terms. hf

As you said, if this happens, there will be a burst, but the more I hear about this idea, I wonder if it'll last any amount of time at all. Most of the investors left in the market aren't sheep, they're the folks that watch the market closely and analyze companies. The majority will look at this, and aside from the hopeful ones, will see it for what it is.

It wouldn't surprise me if this move was met with the same "excitement" that the bailouts were. Rise in anticipation, then a quick sell as soon as it became fact. Maybe not, but I can picture the market falling through the floor as politicians pass such a measure.

It's amazing they can't seem to figure out that the whole reason we're in this mess is because of overly loose rules, deception, and fraud. They just keep piling more on and wonder why it's not working.

Gonna go wall till open...
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"He who does not understand your silence will probably not understand your words." ~Elbert Hubbard
ºDIETº (OP)

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03/10/2009 09:26 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
[link to www.cnbc.com]

Futures started off strong Tuesday with strength in banks after Monday's selloff. But gains began to evaporate as word trickled out that the SEC has no plans to suspend mark-to-market accounting rules.

Mark-to-market accounting rules have forced banks to make huge write-downs to assets and there had been some buzz in the market that if the rules were suspended, stocks could explode because it would take a lot of pressure off of banks. A House hearing on the matter is scheduled for Thursday.
antisoshal
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03/10/2009 09:27 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
He's not the one who makes that decision, but its unlikely the commitee would do it without his support. Hes hinted that he thinks that M2M is valid, but that the rules for valuation need to be changed, without saying what they should be changed to. This is very deliberate wording to give a glimmer of hope to avoid the expected dump if M2M wasnt suspended. hes got the world financial market hanging on his every word at the moment, quite literally.
Anonymous Coward
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03/10/2009 09:28 AM
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Re: Market Watch – Mar. 10, 2009 – Financial regulatory system change gives futures a boost. Eyes and ears on Bernanke!
ok thanks...

let us know more if it comes to you.

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