The auction-rate fiasco is not over for banks. Having bought back about $55 billion of the paper, they are now faced with the reality that the bonds are only worth about $.80 on a dollar. The means the firms who were forced to take them off shareholder hands will probably have to account for $10 billion in losses.
According to Reuters, "The timing is not ideal given the balance sheets of a lot of these companies," said Walter Todd, portfolio manager at Greenwood Capital.
Even with this set of news, I still think that we will experience a major head fake coming from the financials and this overall market (ie we will rally from here). It is very obvious that this market is COMPLETELY ignoring the impending ALT-A POA debacle; Cramer just said the bottom in housing will come in Q3 of 2009, the exact time POA resets will be at their worst. My assumption is that "The Street" is looking at stabilizing subprime defaults and assuming that the worst is behind us.
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