Close an Eye and Short The Bond Insurers

I was not going to short Ambac ABK and MBIC MBI tomorrow because technically they are still a bit over sold. At least they are not perfect shorts yet. Then I came across this great piece by Reggie Middleton's Boom and Bust Blog and my denial is defeated(Link 1). To me the title says a hell of a lot.

Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap

Painful though it is to say this may not be a pure technical trade any more. In a prior post entitled Close Your Eyes and Short The Banks I said that the banks exposed to subprime backed mortgage bonds are all insolvent. So why would the bond insurers be any more solvent? We maybe able to carefully enter at an optimal chart point, but to what advantage? I have been in and out of short positions on Countrywide Financial (CFC) from the forties. It would have been a lot easier and I would be a lot wealthier if I just went short and never looked at the chart. Before two days ago I never would of dreamed to think about shorting a ham and egg sandwich without a stop(and certainly not publicly). But ask your self this: if the Street criminals cannot keep Countrywide(Bear Sterns) afloat what chance does Ambac or MBIC have?
And notice how lately the rating agencies have found a relatively small pulse with regard to issuing downgrades compared to the noise about it in the financial press. If you didn't know better wouldn't you think the agencies were just charging to the rescue? These credit rating agencies who had been breaking their necks to see no evil now come out downgrade the same junk they knew was toxic while issuing AAA rating to them. So of course they are late to the party. From MarketWatch.com(Link 2) "Bill Ackman, who runs $6 billion hedge fund firm Pershing Square Capital Management LP, has criticized bond insurers and has been shorting, or betting against, them for years." FOR YEARS. That's what happens when there is a possible 6 Billion Large to score for using common sense. I mean I'm a construction worker who wouldn't lend a dime to an minimum wage earning illegal alien. I'd rather just buy him a beer. I like the guy don't get me wrong, but I know he's broke. So I buy each round not expecting him to buy the next. Then how could all these smart guys at Moody's, Standard & Poors and Fitch not know better? They rate the risk of buying beaucoups of bonds backed by subprime mortgages at AAA? Essentially saying that if I lend my money to the big Street firms I can expect with a AAA degree of certainty that my minimum wage illegal pal will repay the entire loan. Right! Apparently there is more profit for the raters to paint over the rust than to use common sense. More than the $6 billion Ackman made that is. Now a few warnings and fewer downgrades later and I am suppose to think what? That the credit raters suddenly found religion or maybe even just got a good scare from a highly publicised series of congressional harassment(Link 3)? Yes that's exactly what I'm supposed to think, but I don't and you shouldn't either. I do think it's a song and dance designed to rebuild public confidence in the Hindenburg of investment vehicles, prop up the share price of companies like Ambac and MBIA and score a few gratuitous points with the voters. A nice ancillary benefit nearing an election year, but it ain't meant to help you and me none and it wont. I love my charts and will never give them up, but the stench of the scam can't take shape on a chart. For that you need a lota smarts or lotsa bitter memories. The latter is clearly my forte. So tomorrow I will Alert you when I garner my nerve, close an eye and short the bond insurers-with the other eye lid twitching nervously toward the charts.

Link 1:http://reggiemiddleton.typepad.com/reggie_middletons_perpetu/2007/11/ambac-is-effect.html#more

Link 2:http://www.marketwatch.com/news/story/ackmans-winning-bets-against-mbia/story.aspx?guid=%7BFE2A0B83%2D4C2C%2D42A2%2D9B65%2DFB24A94D892C%7D&tool=1&dist=bigcharts&symb=ABK&sid=2096

Link 3:http://www.marketwatch.com/news/story/credit-rating-agencies-return-crosshairs/story.aspx?guid=%7BAFB9C89A-9AE3-4718-8817-39918E371C23%7D