US stocks ended higher Thursday as aircraft maker Boeing Co took off after it said it expects the first flight of its long-delayed 787 Dreamliner by the end of 2009, thus boosting the DJIA, + the financial shares’ put air under broad market. It was the DJIA’s 8th straight gainer day.
The DJIA rose 37.48 pts, or 0.39%, to end the session unofficially at 9,581.00, the S&P 500 gained 2.86 pts, or 0.28%, to finish unofficially at 1,030.98, and the NAS tallied up + 3.30 pts, or 0.16% to close unofficially at 2,027.73.
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Paul A. Ebeling, Jr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
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Last week the fiercely independent Financial Accounting Standards Board agreed to alter a portion of the rules under extreme pressure from the US Congress. The MTM standards have forced many financial institutions to overstate losses on Trillions of US Dollars worth of assets that has intensified the global financial crisis. William M. Isaac, a former chairman of the Federal Deposit Insurance Corp., told a House Financial Services subcommittee hearing on March 12 that “MTM accounting has destroyed well over US$500B of capital in our financial system.
Moreover, since capital can be leveraged about 10 times in making loans, the rules have “destroyed over US$5Tof lending capacity,” said Isaac, now a consultant with the Secura Group of LECG Corp. The problem with Mark-to-Market accounting is that it officially has presumed there’s a functioning market in whatever asset is being valued, and that means a deal between a willing buyer and seller that is not being forced to sell. Actually, no such market exists for many mortgage-backed securities.
While bank stocks have been battered, it is the sector’s bonds and their spreads over government debt, that could provide early clues of an upturn. “The best news is that non-financial high-grade corporate debt has been behaving a lot better, but financial sector debt needs to be better bid,” said John Haynes, strategist at Rensburg Sheppard in London. He said a directional change in the iBoxx financial index, a benchmark for bonds from financial companies, was crucial. European financial bond prices have fallen almost 17% on average this year, the iBoxx financials index shows, suggesting investors are giving the sector a wide berth. Haynes said he was also watching the Platinum-to-Gold ratio. Platinum has a variety of industrial uses, notably in cars, while Gold is boosted by its safe-haven allure. The ratio of the two metals, in effect a ratio of economic growth expectations to investor fear, has moved decisively in the direction of fear. Platinum prices were double the level of gold in February last year, but now the ratio is close to 1 to 1.”You look at everything and try and work as you used to, said Fortis’ Gijsels. “But should have an open mind and understand that market internals have changed.”
A US House of Representatives panel got a pledge late last Thursday night from the Robert Hertz, Chairman of the independent FinancialAccountingStandards Board to issue guidelines within three weeks that will ease the Mark to Market (MTM) rules that force US banks to value assets at current prices. The head of the US House panel, Rep. Paul Kanjorski (D-Pa.), held out the threat of legislation to pressure the standard setting board and the Securities and Exchange Commission to take steps that would give relief to battered US banks and US insurance companies. The current MTM rule has forced US banks to take steep write-downs on some financial assets, especially securities linked to mortgages, even as they have suffered from the housing slump. As the financial crisis grinds on and world banks large and small founder and fail, the banking industry has pushed for the accounting relief.
The world’s major financial businesses are pushing for urgent action to help the flow of funding to their subsidiaries in emerging markets and providing more support to such regions, especially Eastern Europe. The Institute for International Finance, which represents major financial institutions, intends to lobby world leaders ahead of meetings in London involving the Group of 20 finance officials, central bankers and top private bankers, according to Charles Dallara, the institute’s managing director. Among other things, the large banks would like to see the establishment of a new, powerful and global financial regulation committee, which they see as crucial to improving rules, he said. “We have seen very negative consequences from the measures taken since the fall by governments and central banks,” Dallara said by phone from Zurich, where he was attending an institute board meeting. “There has been no sense of coordination.” Referring to the mix of capital injections, deposit guarantee plans, bad asset purchases and nationalizations undertaken by governments since last summer to try to shore up lenders hit by the plunge in asset values, write-downs and the collapse in confidence.
