The market finally shook some of the intense pessimism and bounced up on news that the bond insurers may not go bust after all. The NY state insurance regulatory agency facilitated a meeting between banks and the bond insurers to ensure some stop-gap funding to keep them floating. It didn't need extra-ordinary intelligence to realize that having MBIA or ABK go bust was as bad as having one of the big 5 banks declare risk of bankruptcy! The Fed, regulatory agencies, banks and insurance companies cannot simply let that happen.
With that good news, C was up 8%, WB up 10%, ABK up 70%+ and MBI up 30%+!! If you think whoa! its time to load up these stocks, please wait. As mentioned in one of the earlier blogs, you STILL need to have guts to hold on to this sector this year - but if you can hold on and not let be swayed by needless pessimism or optimism, you will reap rich gains. I mean a minimum of 25% upside on any of the big fin stocks by Q1-Q2 2009. Use some of the plunges to play in options on these stocks to add that flavor!
Merrill tried to add to the overall pessimism by reporting that home market prices will plunge 15% this year and 10% in 2009. That's way too pessimistic - it'd be good if MER has some thing in the middle ground - between loading up on sub prime one year & dumping mortgage altogether for the next 2 yrs!
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