News that Moves: Cisco Systems EPS, FDIC’s Line of Credit, Mark-to-Market Accounting Rules

RCM Comment: A real battle is brewing in the U.S. equity markets. The proverbial line in the sand has been drawn and the fight is on between bulls and bears. All three major U.S. indices are trading around key psychological support areas: Dow30 8,000, S&P500 800, NASD Comp. 1,500. What hangs in the balance? A move down that takes out the lows of November ’08 or the beginning of a base and stabilization after a terrible start to the new year. On the bullish side we have the government doing all it can to stabilize the markets. Every day another story crosses the tape with a new plan to bailout the economy, rescue banks or give handouts to borrowers under water. When these stories hit the tape the markets obediently rally. Of course, on the bearish side the government took these same actions last year to no avail and the economic and earnings stories continue to illustrate a dire situation. Example: Cisco Systems (CSCO) a bellweather of the economic situation, released earnings yesterday in-line with expectations. However, the company guided next quarter’s revenue number down 15-20% YoY.

So, who will win the war? I will let others guess at this age old question. Remember, the market makes fools out of most people most of the time. We are not interested in making guesses, we are interested in making money and protecting principle. In order to experience success in this business the ego must be left at the door when walking into the trading room. As my high school ice hockey coach used to say, “A net minder must read and react son, read and react.” The same can be said when minding a portfolio.

Ladenburg discusses FDIC request for increased credit line
Ladenburg Thalmann notes that the Federal Deposit Insurance Corporation (FDIC) has requested the U.S. Treasury to increase the FDIC’s line of credit from $30 bln to $100 bln. At last reading, the FDIC still had approximately $35.5 bln of its own. Firm says implicit in this request is a belief that bank failures are now likely to increase.

Reuters reports that it might be possible to modify mark-to-market accounting rules for U.S. banks facing steep writedowns of troubled assets without abandoning the underlying accounting standard, a senior Senate Democrat said. Sen. Christopher Dodd, chairman of the Senate Banking Committee, told reporters on Wednesday evening after a panel hearing that at least one former bank regulator was discussing how to approach the difficult issue without “walking away from” mark-to-market standards. The issue of how to value distressed assets held by U.S. banks has been one of the most difficult challenges in constructing a bank rescue plan, according to industry lobbyists and lawmakers.

RCM Comment: The markets rallied off the lows when this news hit the tape.

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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