Buzz Bits: Dow, Nasdaq Slide Lower
Your daily Buzz & Banter highlights.
Conflict of Interest? Of Course! - Kevin Depew - 3:48 PM
Moody's (MCO) at the UBS Global Media & Communications Conference was asked about an "implied conflict of interest" in their current business model, which quite a few professors have questioned over the past year, long before the current credit markets deterioration.
The answer, according to Moody's Chairman and CEO Raymond McDaniel is of course! "I think it needs to be said that of course there is a potential conflict of interest in this business model. Anyone who would assert there is not, I think probably doesn't understand the business."
The stock's off more than 2% as I write. The headlines are playing up the fact McDaniel said Moody's faces long-term revenue "impairment" of 10-12% due to weaker demand for ratings of credit derivatives going forward.
The more worrisome aspect of the presentation, however, is McDaniel's acknowledgment that there will probably be significant litigation coming out of the current crisis, "and some of that litigation is aimed at credit rating agencies."
Even more worrisome than the more worrisome aspect of "significant litigation" is McDaniel's unbending stance on the matter:
"It is probably going to be an incremental cost for us in the sense of defending those actions and we are absolutely going to defend those actions. This is not an area for settlement. We offer opinions about the future. That is what we are in the business of doing. They happen to have good predictive content. They have had for over a hundred years, which is why they are valued. But they are not guarantees of the future. They are opinions. They are not even opinions about the present or the past they are opinions about the future and if firms are not able to offer opinions about the future than we have got a much more significant issue than whether there is some liability associated with issuing credit ratings from the ratings industry. So this is an area that if you can't talk about the future without having to absolutely be right 100% of the time we are all going to have a problem."
And just when things on the call were going so well! This is a classic straw man argument and disingenuous at best. Moody's likes to get paid for having opinions, but who doesn't? The issue is not about being right "100% of the time," a ridiculous assertion coming from the chairman and CEO. The issue is the magnitude with which Moody's and the other ratings agencies have been wrong, and with the implicit conflict of interest (of course!) that fomented these wrong "opinions." It's not about perfection, it's about the magnitude of the imperfection.
Belle of the Buzz! - Todd Harrison - 3:40 PM
- You can't privatize gains when screens are green and socialize losses when the tide turns. The proverbial sword, as they say, cuts both ways.
- S&P 1490 seems to be the level of year-end lore. I'm simply wondering if a gap higher (from oversold levels directly into resistance) is too easy.
- Tomorrow is gonna be one of the trickier Turnaround Tuesdays that we've seen in a while. Good thing too, because the recent action has been so easy to game!
- We never stop working for ye faithful, this much I can assure you. In addition to MV Kids, The Exchange and Festivus (OK, that's for the kids), we've got some seriously snazzy professors on deck as we ready to turn the 2008 corner. Be excited. Be very, very excited.
- With that said, and apologies in advance, one of the reasons I'm so light and tight is the fact that we are rolling out so many programs into year-end. That, in addition to some TV time (tonight and Friday on FBN Happy Hour) has this Minyan running on fumes.
- I was about to offer that I miss the days of "just trading" but truth be told, I don't know what I would do without this Minyan thang. So for that, I thank you--as always--for sharing this fantastic voyage.
- Fare ye well into the bell, Minyans, and have a mindful night.
Position in SPY.
Thoughts on the Market - Sean Udall - 2:10 PM
- Does Florida's investment pool issues provide even more rate cut fodder? The Montana investment pool is suffering similar issues. How many other states will chime in with similar comments? Did we need any more rate cut fodder? If the Fed is still even thinking that inflation is an issue, then yes, we do.
- What if the actual losses from subprime issues end up being way lower than current estimates? Thornburg Mortgage's (TMA) comments Friday morning alluded to this. Note: TMA is considering paying dividends again and will decide at its next meeting, though it said credit conditions have tightened again.
- What percentage of mortgages have actually quit paying and how damaged is the actual cash flow generation from the CDO's going to be? Was E*Trade's (ETFC) sale of its mortgage assets a bottom tick trade? November just finished with the worst monthly return of the year for S&P, down around 4.5%. In 1991 we finished November down a very similar 4.4% but December then followed with over an 11% rally.
- Activision (ATVI), the latest company in tech land to get bought or have a significant investment was the second tech company to get taken out by a larger non-tech conglomerate. Tektronix (TEK) got acquired by Danaher (DHR) recently. The non-tech merger influence could help to spur technology leaders to get more aggressive in acquiring smaller competitors, lest they face those same competitors with a lot more capital behind them.
- Additionally, this nascent move by conglomerates buying (or buying stakes) in tech exhibits how larger slower growth companies will be looking to attain growth in earnings, revenue and cash flow trying to find growth.
- Were "data dependent" the worst words Bernanke ever uttered? Goldman's (GS) call on Tech -- timely or late? Bear Stearns (BSC) looks to be breaking or close to breaking the downtrend line on the dailies. The P&F chart is now mildly positive and I think a move to between $120-130 is underway.
- Based on the ratio between earnings yield and the 10 year Treasury, Don Hays (in Barron's), states that stocks are undervalued by over 40%. I would not agree with that statement for the whole S&P, buy many sectors are that cheap. I would stress that there are many sub-sectors within technology that are undervalued by an even greater amount. Other sectors in the market are similarly distressed, some deservedly so. Basically, the same bifurcated economic conditions that I spoke of in August/September still exist today.
Positions in BSC and ETFC.
The ECB's Gold Sale - Lance Lewis - 1:54 PM
Now we know what stopped gold in its tracks last Monday and then pounded it for four straight days...
The ECB announced today that it sold 42 tonnes last week as part of the sales allowed under the Central Banks' Gold Agreement. Interesting timing, don't you think?
In light of that official dump of metal, the gold market actually held up fairly well last week, as even an official sale of that size was unable to bust the gold price below its November 20th low. Does the ECB have another 42 tonnes to throw at the gold price on the next try to break above $850? We shall see...
Click here to enlarge.
Positions in gold, gold shares.
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