...[T]he most amazing event of the week was MBIA’s (MBI) miraculous “save” of its prestigious “AAA” rating. To achieve this feat, MBI was forced to sell surplus notes at par yielding 14% to raise capital, which is way above the yield on current “junk bonds.” As Miller Tabak’s Peter Boockvar notes:What S&P is saying is that a bond yielding 14% in the marketplace is also a AAA [credit]. It’s now a game among rating agencies, regulators, and banks with whether the bond insurers are rated AAA, or not, when they clearly are NOT and their securities don’t trade as they are! This is being done in an attempt to prevent banks from going through another round of write-downs.
Write-downs, indeed, for if more write-downs are in the offing the collateral damage (read: forced selling) would surely be impactful for the various markets!
On the positive side, we had a number of our investment positions act exceedingly well last week with names like Covanta (CVA), Chesapeake (CHK), and Arch Coal (ACI) challenging new all-time highs, while Delta Petroleum (DPTR), Cogent (COGT), and Wyeth (WYE) all exhibited favorable pricing trends.
The call for this week: We agree with Warren Buffett, “It’s an enormously rich country, and we can continue trading it away for a very long time. It’s a powerful machine, and it can take a lot of abuse.” While it has been 20 years since he made that statement, we think it is as true today as it was then.
That’s why we are betting that this government-sponsored economic stimulus package will be like all the others since 1948 and be successful and allow the U.S. to skirt a recession. This morning, however, Mr. Buffett is waxing that the U.S. is already in a recession and that stocks are not cheap. Consequently, look for attempts to sell stocks off early week and then stability. We continue to be opportunistic buyers.