Wednesday, December 5, 2007

Short The Bond Inssures with One Eye Closed

While the stock market is all giddy over the prospect of of a rate cut another monster has come up from the slimy depths. Bond insurer MBIA just had it's debt cut by Moody's and is down a wop ping 16% intraday.(Link 1). Fellow bond insurer Ambac ABK is down in sympathy. The market will get it's rate cut fix, but that won't fix a thing that's really wrong. In the ponzi scheme that is Wall Street companies raise cash by issuing bonds. They pay off those bonds with the issuance of more bonds and on it goes. And as long as it goes on everyone will think all is well and wonderful being none the wiser. But if anything interferes with this infinite fund raising the whole house of cards comes crashing down. The bonds that Ambac and MBIA are insuring are deemed less credit worthy than they were when they were first insured or more likely to default. Furthermore no one knows the credit worthy status of most of the bonds out or coming out. So no one wants to buy or insure or in Ambac and MBIA cases re insure any commercial paper, because it's all viewed with suspicion. It's got nothing to to with interest rates, no one wants to hold JUNK. You can cut the rate to zero tomorrow and no one will buy the bonds for the same reason I won't lend a weeks paycheck to unemployed friend of mine, he wont pay it back. The rate cuts will only help Paulson's carry traders and M&A insider pals for the rest of us it's a deadly bite out of our income called inflation that all most no one gets or complains about(save for Ron Paul).
Ambac and MBIA are each under the last real support they will ever see again. I will short the final phase of their decent onto the pink sheets. Wait for the alert.

Link 1:http://www.reuters.com/article/marketsNews/idUKN0562613320071205?rpc=44

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