AFP Blogs

Well, no one ever said we didn’t live in interesting times. One day the stock market is down because the Chairman of the Federal Reserve uses the word “uncertain”. The next day the stock market is up because earning reports came in better than expected. It feels like we are living each day at that very precarious point of balance. A light breeze in either direction sends us either soaring skyward or rocketing into the abyss.

During the times of the week when the market was focused on a slowing American economy, US Treasuries benefitted from a flight to quality. The two-year Treasury note touched an all-time low yield of 0.55% during the week. The ten-year Treasury note reached a 15-month low yield of 2.85%. The average 30-yr fixed-rate mortgage fell to another new 50-year low of 4.56%.

President Obama signed into law the Financial Reform bill, more affectionately known as FinReg. One of the first casualties of this law was the asset-backed debt market (ABS). The market basically came to a grinding halt when a number of the rating agencies (CRAs) refused to permit the underwriters of ABS deals to use the actual ratings of the underlying collateral in filings with the SEC. The CRAs withheld their ratings due to a change in FinReg that now exposes the CRAs to “expert liability”. It is expected that the 144a or private-placement market will pick up some of the activity but the capacity of the 144a-world is somewhat constrained. (more…)

Over the past week, we suffered from another bout of, “How slow is the US economy really recovering at” –itis. As the weeks go by, we seem to alternate between feelings of optimism and despair, call it a classic case of being bi-polar.

With the general economic news this week indicating a slow and steady improvement in the US economy rather than an explosion of economic activity, the market seemed to capitulate to the idea that generally, where we will be a year from now is where we are today.

On Friday the US stock market sold off: the Dow off 261.41, the NASDAQ down 70.03, and the S&P 500 falling 31.60 points. Using a little bit of rounding, we are living in a 10k Dow, 2200 NAS, and 1000 S&P world. Readers, this may be roughly where we are a year from now on June 30, 2011. The headwinds to our economy and to the economies around the world seem to indicate an extended period of positive but unremarkable growth. (more…)

It has been an interesting past two weeks. Concerns about the growth potential of the worlds’ economies and the threat of a double-dip recession have been the focus of late. We are really seeing the world split into three separate economies: the developing world, North America and Europe.

China has been a major area of attention lately. There have been recent indications that the incredible growth rate of China may be slowing down a bit. Due to the feeling that China has fueled the global economy during the recent financial crisis, the fear is that without their continued phenomenal growth, the world will sputter back into recession.

India has also been in the news. Last week, India raised its interest rates for a third time this year. The move from 3.75% to 4.00% caught the market by surprise, even though the IMF reported recently that it expects India’s GDP to be +9.4% during for the current fiscal year. (more…)

Public Company Accounting Oversight Board (PCAOB)

 This week I attended the PCAOB’s Standards Advisory Group (SAG) Meeting.  The topics discussed were (1) broker dealer audit considerations; (2) FASB/IASB projects and potential impact on auditors; (3) subsequent events; (4) auditors reporting framework; and (5) communications with audit committees.  (more…)

As we approach the end of the second quarter, the market was spooked this week by concerns that the hoped-for economic recovery may be losing steam. The economic and financial news released this week caused people to use terms such as ”double-dip recession”, “deflation” and “jobless recovery”. What has happened this week to drive such a sour mood?

 The three sources of this souring of popular opinion were Europe, the FOMC, and the US housing market. First of all, after a short period of relatively benign reactions to the economic situation in Europe, market participants again looked at the fundamental imbalances across the whole of Europe and concluded the situation is going to get worse before it gets better.

Greece continues to be a basket case. The cost to buy protection from the risk of default on Greek government bonds rose to a record high of 1140 bps. This is a month after the EU pledged a $1 trillion support package to prevent the Greek and other PIG governments from defaulting. The spreads on Greek, Spanish and Portuguese bonds also cheapened relative to benchmark German bunds. The fear continues that the sovereign debt issues plaguing Europe will overwhelm the ability of those economies to grow. (more…)