As I’m sure with many kids, when my son was 3 he would cover his eyes with his hands and think he disappeared. When he put his hands down, he thought he suddenly reappeared. I make this analogy to the expected altering of the mark to market rules by FASB where with a quick vote, some of a banks troubled assets can turn into Fiona the beauty princess from Fiona the Ogre (from Shrek of course). I understand the need to properly value assets with no markets, I just hope clarity is not sacrificed in the process. Asian stocks roared led again by auto makers after NA sales were better than feared. That strength spilled over into Europe ahead of an expected 50 bps rate cut by the ECB. Helping the UK was a home price index that unexpectedly rose m/o/m. The 30 yr UK Gilt auction did have a bid to cover of 1.59 after last week’s failed 40 yr. Commodities also are rallying as copper prices are at the highest since early Nov.

Initial Jobless Claims totaled 669k, 19k more than expected and up from a revised 357k last week. Continuing Claims continued its march higher, rising to 5.728mm, 138k higher than forecasts and up 161k from last week. This, on the heels of the very weak ADP report yesterday certainly sets us up from a poor Gov’t Payroll figure tomorrow but the market action of late is evidence that participants are looking past this employment data and placing their chips on the ‘worst is over’ belief and the still worsening labor market is a lagging indicator. It’s hopes and wishes for now but we’ll see.

China’s March PMI mfr’g # rose above the magic 50 level for the first time since Sept at 52.4 and it’s at the highest since May ’08. This is in contrast to the CLSA mfr’g index that China released yesterday that fell to 44.8 from 45.1. I’m not sure of the difference in the two surveys.


The ECB unexpectedly cut interest rates by only 25 bps to 1.25% vs an expected move to 1% and they cut their deposit rate to .25% from .5%, keeping the 100 bps spread between the two that has been seen. We’ll hear from Trichet at 8:30am to see why he didn’t cut 50 bps but we can imply that the ECB fully understands that easy money again won’t cure a hangover from a period of easy money. And its easier to reverse the current accommodative policy if you don’t go down into the abyss of ZIRP that Japan has been stuck in for almost 10 years. Also, with deposit rates at only .25%, banks have almost NO incentive of keeping reserves parked at the ECB and are thus encouraged to lend it out to the private sector.

Category: Markets

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12 Responses to “Peek-A-Boo”

  1. ardano says:

    First there were exigent circumstances, now we’ve got significant judgment. If bankers had even the minimal judgment of a three year old we wouldn’t be in this mess. Rather than peek-a-boo this is more like the three monkeys and see no evil, hear no evil, speak no evil

  2. PrahaPartizan says:

    I can’t understand why the FASB rules can’t incorporate some sense that these assets represent long-term assets for the most part yet still retain the reality that current market values must be reflected in the asset entry. Why not just require that the value be calculated using some averaging algorithm which incorporates the value as determined over the last three years or last five years. Yes, the asset values will decline in the face of a persistent long-term bear market, but it will also reflect that over a long cycle the value will be moderated. That at least gives the holder some time to correct their capital positions. Of course, nothing will help greedy bastards who decide to kick the can down the road and pray that it just doesn’t happen on their watch.

  3. General Glut says:

    Management defeats capital. Little more need be said.

  4. OkieLawyer says:


    If bankers had even the minimal judgment of a three year old we wouldn’t be in this mess. Rather than peek-a-boo this is more like the three monkeys and see no evil, hear no evil, speak no evil.

    How do you know it isn’t just plain evil?

  5. leftback says:

    We should also point out that the strong performance in Japan is not unusual at the start of their fiscal year. New money flowing in from pension funds etc..

    I am a little surprised we did not see a stronger rally after the Mark to Magic announcement. The rally is tiring fast, let’s see what the factory data look like. Expect a late sell-off in advance of the NFP number.

  6. HCF says:

    I don’t see the “good news” that the propagandists keep telling us. Thanks Peter for telling it like it is…

    The markets are currently in a state where there is a triumph of hope over reality!


  7. Jdamon33 says:

    I think this rally will fade out right at the 8,000 level, but I do think 1Q numbers for the large banks are going to be much better than expectations. From what I am hearing, some of these banks are prining money with all the refi’s that are going on right now. I’m still slightly overwieght the banks until after 1Q earnings at which time I plan to sell.

  8. HCF says:


    >I’m still slightly overwieght the banks until after 1Q earnings at which time I plan to sell.

    You hit the nail on the head… Tactically, you can trade the financials up a little bit, perhaps, but medium term, the trend is still down. Toxic is still toxic and even if buried, it will percolate back to the top.

    Too bad I still have a few shares of SKF as a “legacy asset.” Perhaps I can mark them to model? I think $250 a share is fair value…

    =) HCF

  9. JohnnyVee says:

    Banks have stopped foreclosing and, therefore, they will appear healthlier than expected….but, they cannot hold a non-paying asset for long. The second half of this year and definitely next year will look terrible as this tactic only creates deaper and longer problems.

  10. Mannwich says:

    This is like the old UNC Dean Smith “Four Corners” hoops delay offense before the days of the shot clock. Delay the inevitable to buy time to pump up the confidence (reflation) game again. Paper over reality. It might work for a while but it won’t end well.

  11. Moosedog says:

    The pendulum swings again!! It wasn’t that long ago that there was more pressure to limit the amount of “judgment” used in MtM accounting. In truth, FASB is another scapegoat in this unraveling process… albeit a spineless one. Had the less restrictive accounting rules been in place, it would have only delayed the realization of how bad things were… While I do have issues with MtM and the growth of its application, it should be noted that it did provide a signal that “all is not well at home.”

  12. Todd says:

    FASB’s days are already numbered. Everything is going towards IASB and IFRS.

    Wasn’t the original intent of MtM to make the tech companies own up to their potential liabilities for all of the stock options they had issued.,or make it easier to track the potential impact of them. Now we are having to deal with the unintended consequences.