Wednesday, January 30, 2008

More on Gasparino

Reuters is miffed about Charlie's "gut feeling" that the rating agencies were going to downgrade the monolines. At 3:08, when Gasparino made his statement, the market started to tank. here's a bit of the Reuters report:

"My gut is telling me Moody's and S&P are going to downgrade either one or both," Gasparino said on air. CNBC later posted a report on its Web site saying the network had learned that the downgrade could come as early as Wednesday. The report cited no sources for the information.

Traders attributed the market's about face to the Gasparino report, noting the S&P 500 slid rapidly from its session high, reached at about 3:08 p.m.

"Once he started talking, we got the sell-off," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "Any time (Ambac and MBIA) go down, they take the entire market with them."

Since Charlie has been talking to Pershing Square's Bill Ackman; and Ackman sent his scathing letter to the whole world in financial regulation, did Ackman know the consequences and tip off Gasparino?

Here's the Bloomberg story on the rating's downgrades after the close.

Jan. 30 (Bloomberg) -- Standard & Poor's said it cut or may reduce ratings on $534 billion of subprime-mortgage securities and collateralized debt obligations, the most sweeping action in response to rising since home-loan defaults.

The downgrades may extend bank losses to more than $265 billion and have a ``ripple impact'' on the broader financial markets, S&P said in a statement today. The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The reductions may increase losses at European, Asian and U.S. regional banks, credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven't written down their subprime holdings to reflect a drop in market values and these downgrades may force them to recognize losses, S&P said.

``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said. The ratings company will start reviewing its rankings for some banks, especially those that ``are thinly capitalized,'' it said.

S&P downgraded $50.1 billion of subprime-mortgage securities, none rated higher than A+. More than 69 percent of the AAA rated subprime securities from 2006 and 46 percent from the first half of 2007 were placed on review.

The Fed cut 50 basis points today, and then we had this adverse reaction by the rating agencies. Does anyone besides me find this action peculiar? Was Ackman's letter the prod that caused the rating agencies to move?

Figure that on out for yourself, but the timing seems to be strangely propitious and peculiar.

Especially if you were short, and you wanted to blunt the impact of a Fed rate cut!

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