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Posted by Larry Doyle on April 1, 2009 10:02 AM |

End of quarter trading is often skewed with many fund managers buying winners and selling losers so as not to have to report those holdings in quarterly reports. Additionally, the market often finds reason to trade up on the last day of a quarter to “put a happy face” on a whining child.

The first day of the new quarter brings us a reversion to previous tough economic news. On the labor front, I commented yesterday in my March 2009 Market Review that a seeming stabilization in the labor market was a positive. That rug got pulled out from under investors this morning. ADP reports that jobless claims are rising from the 650k range to 742k. That 15% increase in projected unemployment is weighing on the market.

Additionally, investors should not view the relaxation of the mark-to-market accounting rule as a positive for the market. The WSJ reports this morning:

A rule change would be good for the banks — not good for investors who need accurate valuations of companies’ assets, reported clearly, on which to base their investment decisions. In fact, making things easier on the banks may only make already-cynical investors even more suspicious of the numbers that the banks are reporting.

This is happening now because of pressure on FASB Chairman Robert Herz from politicians who, at a recent hearing, threatened to eviscerate fair-value accounting if the changes didn’t happen. So it isn’t just the fair-value rules that are at stake here — it is FASB’s independence in setting all accounting rules. The risk is that plans to water down mark-to-market rules are only the start.

For those who missed the Congressional theater on FASB and the relaxation of the mark to market, please note that Senator Schumer railed on representatives of FASB to relax the mark-to-market or Congress would do it for them.

Ultimately I want an honest accounting, both literally and figuratively. I do not view Congressional actions in that vein. The WSJ provides a compelling analysis in Accounting Rules Should Avoid Impairment.

Senator Schumer and other Congressmen pressuring FASB may think they are doing banks a favor and thus the economy, but by their actions, they are no friend of free markets or investors.

LD

  • fiscalliberal

    I think we need to give up the idea that we are in a free market in the era of business subsidy’s and bail outs.

    I favor the tough love being given the automotive industry and am waiting for it to be applies to the banking industry.

    In a way, it realy does not matter what the accohnting rules are. Due dilligence is required. One cannot rely on regulators or the rating agencies to do their jobs anyway. So eventually the business will have to get back to simple banking. We need to let the banks holding these complex instruments fail and start putting money in the smaller banks monitered by FDIC.

  • Larry Doyle

    I agree that we need thorough due diligence but can investors perform that activity.

    Additionally the conflicts amongst the product pushers, the politicians, regulators/raters are so deep as to be virtually impossible to unwind.

    The emperor has no clothes.






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