MBIA Downgrade

MBIA downgraded?? In case you missed it, don't feel bad. Two months ago you would have thought the world would have fallen apart if MBIA would have been downgraded. Now it happens during the trading day and the market ignores it just like it did the horrendous employment data. In fact I did not see it until about 5:00 p.m. on Friday!! I am short MBIA and was at a computer all day glancing at CNBC off and on and it was just not mentioned (at least not that I saw). When I found out my jaw dropped. I couldn't believe it.

There are a couple of reasons why it was ignored, none of them legitimate but it is the signs of the times. One is that Fitch has become the red headed step child of the bunch. Now correctly but they are saying things no one like to hear so they are being ignored. They have always been the smallest of the three but given as much credibility as the other two until they have started saying things that investors and companies do not like to hear. If things become really bad they will be in prime position to benefit as the next time around they may be the only one's standing of the three and will for sure have very high credibility. If things turn out okay they will lose market share and no one will want to do business with them even if MBIA is technically AA and not AAA. Because they stepped out and said look they are AA, if MBIA survives people will remember that not looking upon it kindly if they know they were right and Fitch will be punished as a result. Right or wrong that is the way Wall St. works so Fitch is taking a pretty big gamble.

The other reason why it was probably ignored was because MBIA and Fitch have already had a falling out so there is bad blood. Fitch was calling foul when MBIA was acting like everything was okay and MBIA did not like it. So if you remember MBIA asked Fitch to stop rating them. Fitch said no we will continue doing it and we will do it for free. MBIA screamed bloody murder.

Anyway I think this is more evidence of potential problems looking forward and gives me more conviction in not buying aggressively this latest rally.

Also, by the way, that "reasonably" big toll road bond they insured, yeah well reasonably was a definite qualifier.

http://biz.yahoo.com/bw/080403/20080403005866.html?.v=1

MBIA Insurance Corporation, a subsidiary of MBIA Inc., today announced it has guaranteed $373 million of a $3.0 billion bond issued by the North Texas Tollway Authority.

Yeah, so around 13% of one of the larger bond deals done in the last 6 months. A year ago they would have easily gone well over 40%. Hardly something they should be excited about though if you haven't had food for a couple of days and the day old hamburger starts to look pretty good.