Can someone please explain to me how this can be true yet not priced in to the equity prices. Its as if the equity is totally discounting this issue with paper profits or the article is completely off base.
http://online.barrons.com/article/SB1207361473918…
Any thoughts on this would be appreciated.
What makes you think this hasn't been priced into the equity value of financial companies?
Well personally i think that for the most part the market generally prices in things like this effectively. I am not a huge fan of traditional fundamental analysis. There just is no way that something this important could get past so many smart people without it being picked up. With that being said, does this mean the downside has already been priced in.
Financials are tricky, especially the ones that deal with more complex convoluted products, that the traders themselves dont completely understand just some quant jock that priced it. I think we saw our capitulation with the BSC event where the towel was thrown in and the market was able to reverse. Not sure where we are headed in the financials, what i can say with certainly about them is that the volatility will continue as long as the seesaw of good news bad news continues with the credit market developments.
Smu you trade equities right? What do you think?
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
I do not trade equities, I work in private equity (and as such, I don't doubt that there are more qualified experts in this forum).
It wasn't clear to me why you thought the impact of non-cash profits stemming from reductions to FMV of outstanding debt should have some profound impact on equity valuation. Even at a high level, the negative news that drives reductions to secondary market valuations of a firm's debt has a much more detrimental overall impact on equity than any gains resulting from discounts to FMV of the firm's debt. Also, these gains are non-cash in nature, so they're actually detrimental as they increase the firm's tax liability (e.g., it's not as if required interest payments are reduced commensurately with a FMV debt reduction - coupon payments are a product of the debt's initial book value).
I do not have an answer to this. My argument was i felt in general the market prices this type of information in. For this case in particular I admit i lack the accounting concepts. Accounting is one of my weaker links. I posted it to try to get a better idea on what it meant. Im not quite sure by what you are trying to say in your post there. Can you shed some light and perhaps simplify what you were able to get out of the article?
I admit it im totally stumped on this one.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
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