Could be something could be nothing.
We had the now customary machine traded ramp job in the last half hour of a day that saw the Dow up insanely only to loose the lot. It would have been down had the ramp job not squeezed out a positive headline for tomorrw with a 50 point gain. This will mean Europe won’t have to lose all that it gained today. Though that could still happen. The IPO for the over-hyped Testla car is now looking doubtful after its share price dropped today, to below the IPO price.
But the thing I noticed was this.
A little wire serivce squib about our old friend Ambac being warned by the NYSE that its share price is now too low. Ambac for those who might not know, is one of the largest insurers of bonds. Particularly bonds issued by municpalities, cities and states in the US. Were it ever to go bust, a very serious CDO and bond insurance event would be triggered causing all sorts of banks and municipalities all sorts of financial pain and damage.
Ambac for the last month or so, has been trading under a dollar! This means it will get de-listed unless it can bring its value back up above the dollar mark in the next six months. I took a little look at Ambac’s day chart and what do you know? Of all the financials, Ambac’s day chart has exactly the day end ramp job.
Up to that point in the day Ambac had been steadily losing, down about 2 cents to 62 cents a share. At about 3pm it shot down. One of those vertical, give-up -the -ghost drops. Like an animal that has just had enough. It was at precisely this point that the ramp job in the Dow appeared. Essentially, it looks to me, like someone stepped in and saved Ambac from a vertical decline, that from 62 cents didn’t exactly have far to fall till it reached zero.
Ambac is dead as a door nail but cannot be allowed to actually expire. But today it came very close. I suggest this particular ramp job can be pinned on saving Ambac.
If it needed saving today it will need to be saved again. It speaks of a growing problem with Municipal, City and State debts and the looming reality of State and municipal defaults. Those defaults would mean Ambac would have to honour its insurance. Which it definitvely cannot do.
Either Obama finds many more billions to pile onto the deficit, in order to prevent any state or muni from defaulting or he has to face Ambac collapsing. Signs are, worries about State insolvency and default are growing and headed Ambac’s way.
A canary in that particular coal mine I’d say.
Hi Golem,
I don't understand how significant the collapse of Ambac is. Considering they have been declining for 2 years, there has been plenty of time for the market to prepare for the inevitable and perhaps soften the blow with a pre-packaged bankruptcy deal.
Am I being hopelessly naive?
No I don't think so. There shouyld ceratinly be much less fall-out than there woud have been a year or two ago. But what never ceases to amaze me is how little everybody has de-leveraged and cleared bad positions.
All these companies are still labouring under the illusion, maybe they have convinced themselves, that a recovery is coming and so they are all focused, not on winding down but on getting deeper in.
Ambac is a shadow of its former self. But the danger, I think, in not to do with their size but with how unstable everything around them is.
As I say, however, this is more a tidbit than major news.