financials ready to explode

[chuckybrown70]

that is what this article says:


http://seekingalpha.com/article/124908-the-mark-to-market-bank-trade-this-week

i think this is the one. get in now before the news comes out.

other people are already in the know, that is why the FAS was at break even when the overall market was down 2%. image if the financials would have tanked today? might have been down 4%.

they know they have to suspend it this time

 

[Arnie]

OK, let me see if I got this. The banks are in trouble because they have to M2M some of their assets, but since nobody wants these assets, they are priced at pennies on the dollar becase nobody wants to buy them, which hurts the balance sheet.

So this guys wants to "mark to model" based on some other method of valuing. So now the banks will keep these assets no body wants to buy, but at inflated levels due to "mark to model".

Questions:

a) Isn't this just more of same that got us here in the first place? Mispriced securities.

b) How would this change anything? You still have "bad" asstets on the books. What difference does make how you "value" them if nobody wants them and they're on the balance sheet.

c) Is this what they call "putting lipstick on a pig"?

Here's what's needed. SOMEBODY needs to BUY the assets.....they need to be removed...permanently....from the banks books.

 

[JJacksET4]

Quote from Arnie:

Questions:

a) Isn't this just more of same that got us here in the first place? Mispriced securities.

b) How would this change anything? You still have "bad" asstets on the books. What difference does make how you "value" them if nobody wants them and they're on the balance sheet.

c) Is this what they call "putting lipstick on a pig"?

No. The problem with mark-to-market is that it forces a price that might be unrealistic for an asset. For example, lets say you owned a house that was "worth" $200K, but if you had to sell it in the next 1 hour, you couldn't be sure of getting more then say $100K

However, this doesn't mean your house is realistically only worth $100K - it is worth $200K, but if sold at a fire sale with only a few people even hearing of the sale, it would go super cheap.

So, these banks, etc. have assets that can have quite a bit more value then they are being credited with, because stuff is being priced as though it were fire-sale.

I think of it this way - let's say you had $2000 in cash to your name, and you had an inheritance coming in 3 weeks for $100,000. In the meantime, you put $3000 on your credit card for a big expense that comes up.

You would now be considered insolvent using mark to market, as it would value you at $-1000, despite the fact that the credit card payments aren't due yet, and the inheritance is coming!

At least that is my understanding and my opinion.

JJacksET4

 

[JamesVU2000]

wow. you must have gone to school with Bernanke.

 

[sirgiyan]

My idea of the market behavior for next 2-3 months is as follows

1) We have a sharp rally this week and financials will lead it
2) After this S&P will go to new lows within couple of weeks BUT financials will NOT make a new low. Instead I think that energy sector will be crashing.

If this will be the case (financials will be stronger than the market) - then we can assume a tradable bottom in place until late spring or so.

My position currently is FAS and once we get the rally to 4.5-5 on FAS I'll sell it and buy ERY for next leg down. Also this rally (if we get one) will definitely bring the PUT/CALL ratios as low as they were on the 9th of february - and that's what we need for a coming sell-off

I might very well be wrong but that's my plan

 

[chuckybrown70]

i agree with jack, but arnie is right too.

but more imprortant what is right or wrong is the fact there is a trading opportunity here.

there is definitely a committee meeting thurs and there will be action taken. i suspect it will be suspended. if u suspect the same then u might want to look into buying the options as suggested on the options show on cnbc

i can tell u this. if something is passed
the FAS will go to 10. this is an opportunity to make bake 10k of whatever u lost.

good luck, do research and add to the thread with your opinion.

 

[sirgiyan]

As for the coming meeting I think it will be classsical buy rumors sell news event. So I wouldn't hold FAS after thursday

 

[JJacksET4]

Quote from sirgiyan:

As for the coming meeting I think it will be classsical buy rumors sell news event. So I wouldn't hold FAS after thursday

That would of course be possible, but if M-To-M was truly removed or suspended for a solid period of time (say 1 or 2 years), I wouldn't want to get caught short financials - other things like bailouts, stimulus package, etc. would pale in comparison to the effect that would have for financials.

Personally, I am not convinced they will suspend M-To-M, but if they do, look out.

JJacksET4

 

[Allen3]

12 % of mortgages in this country are behind or in foreclosure. You see anything in the present that will reverse that trend. The people paying to that inflated level of home ownership that the government targeted (70%) are also paying on homes that were falsely inflated by the excess demand in the market place. Now everyone is at risk going forward. Your $200,000 house was actually a $100,000 that should have appreciated at a steady rate of inflation with some ebbs and flows as home ownership was in flux around 60%. How far is the price of that house going to have to fall to unwind that spring. To 100 grand, 80, 60???? Now leverage that at 30-50 times your capital. That's what those asset are worth. Mark to model is just a lie on top of a lie.

 

[sirgiyan]

Quote from JJacksET4:

That would of course be possible, but if M-To-M was truly removed or suspended for a solid period of time (say 1 or 2 years), I wouldn't want to get caught short financials - other things like bailouts, stimulus package, etc. would pale in comparison to the effect that would have for financials.

Personally, I am not convinced they will suspend M-To-M, but if they do, look out.

JJacksET4

That's exactly why I plan to short energy for the next leg down. Just to be on a safe side