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Thursday, March 12, 2009


Mark-to-market expiration rally

The FASB knuckled under before Congressmen dealing with the practical reality of a catastrophic credit crunch and agreed to relent on mark-to-market accounting in approximately three weeks, if not sooner. Though the academics, bears, and market cynics will recoil in horror at the blurring of real values on financial statements, the impact on capital requirements is what is really important. I don't even care how the income statement is presented. They can require notes concerning market values or report net income on that basis, whatever they want. But what they cannot require is for risk based capital calculations to be done on a market value basis. In good times, it creates bubbles by over expanding available capital. In bad times, you get what you have had for the past 15 months - devastating bear raids by short sellers and vulnerability to all manner of financial terrorism. Thank goodness that's over.

Actually, the man to thank is Ben Bernanke, of all people, who for weeks has been signalling his willingness to suspend mark-to-market of rarely traded securitizations. Whatever Ben's deficiencies as Fed Chairman, he has demonstrated on several occasions his willingness to be flexible, to learn, and to change his mind. Maybe George W. didn't make such a bad choice after all! Ben also seems to have a favorably strong influence on our hapless new Treasury Secretary, and that may enable him to survive what seems to be a really steep learning curve.

Next to come to heel should be the SEC on various short selling regulations, particularly the restoration of the underestimated uptick rule.

These developments, along with the obviously oversold and undervalued condition of the market, have set off what could be a very playable stock rally. This blog predicted a 2500 point bounce in the market Sunday night, and after a typically blue Monday, we had a "pivotal Tuesday," as my very first broker, Irving Padwa used to call it, that set the tone for the week. To keep things in perspective, 2500 points would only be a one-third retracement of the bear market plunge, so don't go remortgaging the house or anything to buy stocks yet. But readers of this blog know we have been nibbling steadily since September, and finally feel a little better about that this week. We'll see how long this good feeling lasts.

Meanwhile, I have to admit to taking some perverse delight in seeing panicky shorts run for cover for a change.


There was more good news this week when the administration's nominee for Director of the National Intelligence Council, Charles Freeman, was forced to withdraw. Mr. Freeman's background includes a longstanding close relationship with Saudi Arabia as head of the Middle East Policy Council. A consistent critic of Israel, he also was a cheerleader for China's repressive tactics at Tienanmen. In fact, he was critical of the Chinese government, since in his words, they made "the unforgivable mistake (of failing) to intervene on a timely basis to nip the demonstrations in the bud...Tienanmen stands as a monument to overly cautious behavior on the part of the leadership...I do not believe it is acceptable for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government, however appealing to foreigners their propaganda may be."

Predictably, Mr. Freeman blamed his withdrawal on the pro-Israel lobby, in a statement that fairly reeked of anti-Semitism. In fact, his downfall was greased by a timely WSJ op ed (containing the above quotes) written by Witherspoon Institute resident scholar Gabriel Schoenfeld. Soon after, he came under fire from leading Jewish legislators, Rep. Israel (D-NY) and Sens. Lieberman (I-CT) and Schumer (D-NY), all with considerably more credibility than the unfortunate nominee.

The question now is how long before we happily accept the resignation of National Intelligence Director Dennis Blair, who pushed and defended the Freeman nomination.


The newest Broadway star you never heard of is 21 year old Argentinean Josefina Scaglione. When Arthur Laurents, who wrote the book for West Side Story, decided to direct a revival, he sought a younger cast and one able to perform authentically a bi-lingual version of the play (where the Puerto Rican characters speak and sing in Spanish when it would have been natural to do so). He was referred to a U-Tube performance by Ms. Scaglione and brought her to America for an audition. When he heard her operatically trained voice in person, he knew he had found his Maria. The show is now in previews on Broadway following a brief run in D.C., but even before it formal late March premier, it is playing to packed houses.

I saw it with my wife and daughter Tuesday night, and I can say that this sparkling, harder edged version of the greatest Broadway musical of them all is simply thrilling. And the major reason is the fabulous Josephina, for whom many in the audience stood and cheered during the curtain call. If you are in NY, this is an option to consider very strongly, even if you have seen West Side Story many times before.

Monday, I bought 200 shares of Raven Industries (RAVN) at 16.30. OK, Monday wasn't the greatest day, but the last three days, RAVN is airborne again, and turned in decent 4th Q earnings as well. Quoth the RAVN, "Evermore!"

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