Tuesday, September 2, 2008

Schizophrenic Market

There is so much I could blog about today that it could take up multiple posts. Wall St come back to work today as we broke through 1.1 billion shares traded on the NYSE. I don't think we broke 900 million all last week. Yet obviously the vacation did not help as you had essentially a 300 point reversal from top to bottom. The buying panic at the open was absolutely insane. SPY (the etf that tracks the S&P 500) opened at 130.1 implying a 1301 S&P value. The S&P opened up at 1293 ish. I have never seen such a wide disparity as investors rushed for long exposure. It was insane. Then you started to reverse. The key was the VIX. The VIX never really turned negative which was a dramatic departure from previous days in even down days. The market pushed to have a legitimate breakout above 1300 and failed miserably. Usually reversals have their clues and I was watching the VIX and was like something is not lining up right. Sure enough the rally was short lived.

Financials for a second trading day in a row vastly outperformed. Remember Thursday and Friday you had absurd call volume being bought in the XLF. This makes me nervous over the short term as someone short financials. Fundamentally though I am not changing much.

There were two pieces of big news after the bell. Well piece as it affects the market. First Ospraie, one of the biggest commodity focued hedge funds in the world, announced they were closing their doors after being down 40% this year. How you can be down 40% this year in commodities I don't know. The reason this is big news besides maybe explaining the commodity slaughter today is that Lehman owns 20% of Ospraie. It is part of their asset management division which they have been trying to sell a portion of or outright. About this time Bloomberg came out with a report that talks with the Korean bank broke down on price. All this came out right before after hours trading closed. Still Lehman dropped 3.5% afterhours. Lehman can't catch a break. Write up below on the Ospraie closure.


The other news that came out was that Ambac got regulatory approval for a new bond insurance subsidiary called Connie Lee. Basically move their municipal bond business over here. What is completely unclear is how this would be structured. Is this the creation of good insurer / bad insurer? If it is not, if Ambac the parent debt holders have rights to Connie Lee the subsidiary how does valuation change? ABK was up 11% afterhours. If it does how in the world could regulators allow this to happen. Also if to does why would MBIA be down after hours by 1.5% on medium volume? MBIA will be right behind in trying to screw policy holders if this really addressed that issue. Details are very fuzzy. The link to this story is below.


This is in the writeup. If it is not a new company and the all creditors have the access to all assets how in the world would Connie Lee get a new rating? It's absurd.

However, for Connie Lee to be successful, the business will need top ratings from leading ratings agencies Moody's Investors Service and Standard & Poor's.

Ambac said on Tuesday that it's hoping to get Ambac AAA stand-alone ratings for Connie Lee and has worked "extensively" with Moody's and S&P.

The business will likely begin selling new guarantees by at least the fourth quarter of 2008, the company added.

Calculated risk also has a post on it with over 150 comments which I am reading through now.

Anyway a truly crazy nuts day. Fallout will carry over tomorrow.

No comments: