Obamarket Update #52 for Wednesday, April 1, 2009: The Joke is On You Tomorrow
April 1, 2009
Filed under: Old Posts — John Galt @ 8:20 pm
By John Galt
Can we take a pause from today’s news and just play a game.
Let’s assume you’re driving your GM car and you hit a brick wall 20,000 feet high and 500 miles wide. You open your car door and realize that it was not some sort of mountain or rock or wall that you hit but a prehistoric turd that has somehow been dropped by what was supposed to be the extinct Accounterradactyl Rex, a large flying dinosaur that ate corporations and pooped on nation’s the world over with arcane disgusting rules that are drawn up to accommodate the political winds of the day.
Folks, we are down wind and those are flies not giant vultures swooping around your head.
The FASB meets and votes tomorrow on a new revision on the accounting rules in order to produce politically favorable results for the banking and insurance industry in Q1 of 2009. Is the mark to market model broken? Perhaps, but look who is screaming the loudest: The same people who called LTCM and Enron ‘viable’ entities worthy of piling your hard earned retirement dollars into until you were screwed and they get to walk away with fees and more. And why worry about being punished when the regulators are your ex-partners just move over to the government and vice-versa. That’s reassuring.
So let’s assume that these rules are modified under FASB-157e and play along.
Does this remove the toxic assets off the books of the banks?
No, it revalues them according to their previous mark to fantasy land rules.
Does the rule revision suddenly make an institution solvent?
No, it only creates an equity valuation which does not realistically reflect the value of assets on the books. What will basically happen is Level III will be moved up to Level II and the pig will change from red lipstick to pink lipstick.
Does the rule revision improve real estate values?
Only for the banks holding the paper. The market values of the underlying home will not be realistic if the property is put on the market so now the banks will carry properties on their books with mythical valuations for years until the real estate market in that area improves or the government finally demands a course of action including eminent domain seizures to eliminate the problem of dilapidated vacant properties, thus allowing the banks to liquidate the paper at their new “book” value and dump the losses on to the taxpayer.
Why do I feel such skepticism in this proposal?
Under FASB-157e section 12 on page 6, the wording is pretty straight forward:
“After evaluating all factors and considering the significance and relevance of each factor, the reporting entity shall use its judgment in determining whether the market is active.”
So basically we’re leaving it up to the FDIC (not such a hot idea), the Federal Reserve (a worse idea), and a TARP infected bank CEO who just witnessed what happened to GM’s chief to work with his accounting department and declare that 4 houses they bought on the courthouse steps at a foreclosure auction does not constitute a distressed market and thus creates an active market so they can keep their margins and bonuses intact? Yup, political accounting to insure the system of power contributions to corrupt politicians remains intact while unjustified bonus programs are awarded; what a great concept.
Will the proposed rules changes introduce more “transparency” as has been discussed during this entire crisis?
No. In fact it will give the banks a chance to obfuscate the holdings by proclaiming that cash flow models indicate long term gains on zombie securities.
Will the new rules changes improve the ratings system for the securitization process?
No. Sadly it will only allow the banksters and other issuers to distort the true valuations by providing theoretical future valuations even if the underlying properties never develop long term cash flow or resale value even close to the projected prices. This means the rating agencies have to trust what the banks offer as a prime asset even more rather than dissecting the actual underlying properties and securities they are supposed to rate. Unless the House and Senate introduce new laws under the leadership of Representative Barney Frank and Senator Dodd there will be no changes to the insider game of the ratings agencies for securities or public proclamations about the quality of stock offerings. You may stop laughing now.
There you have it. My take on the great con about to be foisted on the American people unless individuals with principle stand up and vote “no” tomorrow, thus risking a massive stock collapse. I’m sure that Turbo Timmy and Reuben won’t be on the phone reminding the accounting board of the correct decision to undertake and the perpetual risk of IRS audits and threats of seizure of their property should they vote “incorrectly” in this matter. Not that our government would ever use their enforcement powers to harass or threaten people, right?
I figure the changes will get voted in, we’ll see a 300 plus point rally on the Dow and a good chance we break some major resistance points in the next 7-9 days to possibly finish above the 8600 mark. There is no guarantee this will happen and from my perspective it is a dart board approach as the rigged market makes it hard to read just how much juice the government can put into the system to insure a stable cushion.
A stable cushion you ask?
Yes, they want to put one of those giant inflatable cushions for the inevitable fall from this faux rally. The earnings season is upon them and the P/E ration on the S&P 500 is still an absurd 12.43:1 as of today’s close and that is totally unrealistic in a major recession like we are experiencing now. Thus I stand by my projection of the S&P 500 dropping into the 600-650 range and almost anything could trigger it. GM is one problem, Citi another and worse the CRE problem is finally starting to be recognized. So the banksters have to have FASB-157e as soon as possible so they can call that empty strip mall a few minutes from my home an “active” market and proclaim its $2 million valuation instead of showing it as the empty shell it was built as two years ago and still is today worth maybe 25% of that total. The big lie is still the big lie and no matter the parlor tricks they pull now, it is all about the earnings and the myth they are going to foist tomorrow makes April 2, 2009 the OFFICIAL April Fools Day of 2009, not today.
On to the markets….
The Dow was up over 150 points today. Yawn just like yesterday as volume is non-existent. More companies went bankrupt today as usual, TMA finally died a merciful and long overdue death. The G20 rioters did their thing and the Brits much like our police missed an excellent opportunity to deploy GE mini-guns and reduce welfare dependency and inbreeding all in one shot in their nation. Basically speaking this entire two week period comes down to the FASB vote tomorrow and the unemployment number on Friday.
With that, the bananas are thrilled.
The UTT-BUGLY Chart of the Day is an easy one. It is the target of socialist scorn and the central planning commission says it best:
Screw everyone but the poll numbers!
GM is an easy one to select but the Halo’d one will do all in his power to save the company now that he is CEO.
With all that being said, I will be commenting a lot on the fiasco we will witness tomorrow. Be ready for anything but pray the regulations are streamlined to force some sort of transparency in the new standards.
Don’t hold your breath though. These guys have the entire weight of the world and the sidearms the government carries pointed right at their vote tomorrow.
Vote yes or “boom”…..