FASB to Make Dramatically Favorable Changes in Mark to Market Rules

It looks likea return to mark-to-assumptions is in the cards. The prospective rule change is targeted at large banking institutions with hold-to-maturity MBS portfolios.

This rule change will be generally known as marked-to-official-policy accounting, wherein our desired objectives are achieved by definitional manipulation and corporate decree. This is consistent with our national currency.

If the holder of a financial asset cannot obtain an active price, they can assume the cash flows will be maintained to maturity and value the asset based on that.

This is not decided yet, but we would imagine FASB is under intense pressure from the federal government and the banking lobby.


FASB to Propose Improvements to Mark-to-Market and OTTI
The American Banker
March 16, 2009

The Financial Accounting Standards Board agreed today to propose alternatives for improving mark-to-market accounting in illiquid markets and for “other-than-temporary-impairment” (OTTI). ABA has been requesting improvements to these mark-to-market issues for the past year and for improvements to OTTI for many years.

Mark-to-Market.

The proposal for estimating market values will take into consideration whether there is an active market (such as the number of recent transactions, whether price quotes are based on current information, whether price quotes vary substantially, etc.). If there is not an active market, then the quoted price is a distressed transaction unless certain other conditions exist. For distressed transaction prices, “Level 3” techniques (such as present values of future cash flows) are used instead of the distressed prices and should reflect an orderly transaction between market participants, including a reasonable profit margin for uncertainty in a non-distressed situation.

Other-Than-Temporary-Impairment.

FASB will also propose that the full market loss continue to be reported through earnings (and capital) only if the entity intends to sell or will be required to sell the security prior to its recovery. For all other OTTI, the amount of market loss will be split between the credit portion of the loss, which will be reported in earnings, and the remainder of the loss, which will be reported in “other comprehensive income.”

Effective Date and Comment Period.

The proposed effective date is for periods ending after March 15, 2009. However, FASB is concerned that some may not be able to prepare the information in time for March 31, 2009, reporting, and will request comments on whether it should be effective for periods ending after June 15, 2009, with early adoption (for March 31, 2009) permitted. Comments are due April 1, and FASB hopes to make its final decision on April 2.

Alcoa Slashes Dividend from .17 to .03 Per Share

Alcoa is also planning new offerings of common and preferred stock to raise capital.

Too bad they are not a bank.

SP Futures Hourly Chart at 3:45 PM

The rally is looking a bit toppy but its not dead yet.

Watch the changing slopes of the support and resistance channels. If they keep rolling over and the SP breaks that key support at 740 it could be a real sleigh ride lower back down to 700.

The VIX was elevated all day, even at the high, so there is your 'tell' in addition to the shift in the trend channel to a softer slope.

Chances are they dump the market overnight if that is what is going to happen. But until there is a break through 740 this is just a pullback. We'll have to consult with other short term indicators to see if this is a top, or just a bear trap pullback.

Overseas Private Investors Sell US Financial Assets

Non-US private investors fled dollar asset in January, while their central banks continued to buy.

"Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion."

Foreign central banks continued to purchase Treasuries while shedding agency debt. This is largely in support of currency pegs for industrial policy and homage from client states like Saudi Arabia.


Treasury International Capital (TIC) Data for January

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for January 2009. The next release, which will report on data for February 2009, is scheduled for April 15, 2009.

Net foreign purchases of long-term securities were negative $43.0 billion.

Net foreign purchases of long-term U.S. securities were negative $18.8 billion. Of this, net purchases by private foreign investors were negative $10.2 billion, and net purchases by foreign official institutions were negative $8.5 billion.

U.S. residents purchased a net $24.2 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $60.9 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $30.9 billion. Foreign holdings of Treasury bills decreased $15.4 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $118.9 billion.

Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion.

Complete data is available on the Treasury website at www.treas.gov/tic.