Even an uptick is a bad sign
Today the market gained a full 5%, bringing it out of the briny and terrible depths to which it had plunged late last week– could this be a sign of recovery?
The answer is … kind of.
Most analysts link today’s success to two bits of news, one of which is massively more important than the other. Citi posted earnings for the first two months of the year, and Ben Bernanke had a little chat with the press.
So, to quickly debunk the first one- CITI did indeed post positive earnings, but that is before they finish their ’special line items’. Those line items include things like ‘writing down bad debt’ … which is where the action is. Most of the banks have posted operating profits, but when they have to reduce their asset values to reflect the reality of the value, they end up in the hole for the time period being reviewed. This Citi excitement doesn’t mean much until they announce their full q1 information.
Ben Bernanke is really what pushed the value of the market higher today, because he came out and hinted at a policy shift in accounting practices which would benefit the banks [and any other company invested heavily in debt derivatives] by allowing them to hide the drop in asset value which is rapidly occurring.
The accounting method is called ‘mark to market’, and i wrote all about it a few weeks ago, but it looks like Bernanke may push for, as he asserted today that “Further review of accounting standards governing valuation and loss provisioning would be useful, and might result in modifications to the accounting rules that reduce their pro-cyclical effects without compromising the goals of disclosure and transparency”
That is all economist speak for ‘allow the banks to lie about the street value of their assets, so that even as the real world economic pain effects people’s home prices, job security, and consumer spending tendencies, the big financial services companies aren’t required to write down their assets.
Depending on how the accounting policy changes, it may lure scared money back into the stock market, allowing opportunistic short term traders to push the market higher. The only problem is that none of the real problems will have been fixed, and we’ll have simply kicked the can down the road… after already pouring over a trillion free dollars into the largest banks in the world.