Ambac Settlement Bigger News for Munis Than Stocks Page 2
Currently, bonds insured by any of the downgraded insurers are trading as though the insurance has negative value. So any sort of stabilization would probably cause these bonds to appreciate in value.
However, I'm weary of the run-up in Ambac's stock price. Today the stock had risen over 60% at one point. In order for common shareholders to get value out of Ambac, the company will have to resume writing policies. While they might be able to do reinsurance with an AA rating, the opportunities will be limited.
Could Ambac regain an AAA rating? Consider Moody's rationale for putting FSA and Assured Guaranty on negative watch, namely uncertainty surrounding the future of monoline insurance in general. So even if Ambac, or other insurers, could significantly improve their capital situation, unless it is clear to the ratings agencies that Ambac's franchise is intact and they can resume writing new policies, they will not regain a top credit rating.
P.S. Will you be there when Cramer makes his next move?
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Bonds It's Too Early to Buy Bank Debt 7/25/2008 11:29 AM EDT Despite a recent rally, serious credit risks remain for financial firms.
Bonds Expand Your Time Horizon on Bond Insurers 7/23/2008 1:00 PM EDT I foresee significant liquidity issues in the futures, which means that the only type of investment to be made here is long term.
At the time of publication, Graff had no positions in the stocks mentioned, although positions may change at any time.Tom Graff is a Managing Director of Cavanaugh Capital Management, a registered investment advisor in Baltimore Maryland. The opinions expressed here are Graff's own and in no way are the statements of Cavanaugh Capital Management, and may or may not reflect the strategies being pursued for clients of Cavanaugh Capital Management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Graff appreciates your feedback; click here to send him an email.
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