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Markets Shrug Off $1.6 Billion Ambac Loss


Do the financials care about the bond insurers anymore?

Traders seemed quite unsure of what to do today but stocks still managed to close in positive territory. The Dow Industrials finished +42 points, or +0.34% to 12763, the S&P 500 closed +4 points, or +0.29% to 1379, and the Nasdaq Composite settled +28 points, or +1.19% to 2405.

One of the top headlines was Ambac (ABK). The company posted a horrendous quarter, revealing a net loss of $1.66 billion a share, far greater than what analysts had expected. EPS came in at -$6.93 per share, $5.42 worse than estimates of -$1.51 per share.

The company didn't have many pretty things to say on its conference call either, stating losses on deals could reach as high as 80%. Interim CEO Michael Callen called the losses "extraordinary" but attempted to calm investors by saying "the worst may be behind us." With the company revealing $158 million in its cash account credit-default swaps on Ambac jumped 90 basis points to 793 bps, the most in two weeks according to Bloomberg. Still, CFO Sean Leonard said the company's liquidity position is strong and even S&P released statements saying it wouldn't cut the company's credit rating.

Wall Street apparently felt much different. Ambac shares dropped over 40% today to close at $3.08. The news took down competitor MBIA (MBI) as well as those shares dropped -33% to $8.79.

Months ago this news would have taken out the financials. Bears believe it's only a matter of time before investors realize the continued stress in the credit markets. SKF (Ultrashort Financials) near 100 is beginning to look very appealing.

Looking ahead to tomorrow, we see durable goods orders on the radar. Although the figure has been notoriously volatile, economists will still be closely watching this monthly figure. Consensus estimates call for a 0.15% increase in March and excluding transportation, which is the more important number to watch, 0.5%. Should the number exceed expectations, expect an upside move in Caterpillar (CAT), Boeing (BA), and General Dynamics (GD), albeit for the short term. But for more context on the economy, check out Professor Depew's Five Things You Need To Know.

Also click here for the full trading radar.

Hope you all had a great day! See you for Thirsty Thursday.
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No positions in stocks mentioned.

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