The headlines are already saying “stocks are SOARING” and whatnot today. Read a little into it & it becomes transparent as to why. Two things happened today (all emphasis mine):
- The Financial Accounting Standards Board diluted mark-to-market:
The nation’s accounting board voted today to give more leeway to banks when assigning a dollar value to distressed assets, following an aggressive lobbying campaign by lawmakers and the financial industry to change the rules.
The move by the Financial Accounting Standards Board revises fair value, or mark-to-market, accounting, which has been blamed for exacerbating the financial crisis by forcing banks to value home loans and other assets below their worth.
The new rules give banks more judgment in deciding how to value assets when the market for those assets is not functioning.
The impact of the rules change is so far unclear. Banks, which have been calling for the change since the onset of the financial crisis, say it will boost their financial position. But investor groups and auditors say the previous rules gave investors a transparent accounting of the real value of assets held by banks and today’s decision could in fact intensify banks’ troubles.
This is already showing up w/r/t bank values:
US banking stocks Citigroup, Bank of America and Wells Fargo all gained at least 7% as the Financial Accounting Standards Board voted to relax so-called fair-value rules, a move that may boost bank profits.
Two of those banks are on the Dow index.
- The IMF is getting more money, partly by selling gold:
Gold hit a low of $893.70 an ounce on Thursday after Prime Minister Gordon Brown said the G20 will ask the International Monetary Fund to bring forward its program of gold sales, and as equities extended gains.
They’re getting a trillion dollars. That’s $1,000,000,000,000.
All that, and it only musters (as I type this, 1:10pm Central) 266 points? Gee, if I didn’t know any better I’d say they were desperate!
BTW: last time there was a questionable “rally”, Brad Spangler called it out, pointing out that gold went up more than stocks did. Having argued that the dollar had pegged itself to oil by default, I expressed confusion about oil sinking while gold didn’t — seemingly a value contradiction. Brad replied with the following:
I’m not a commodities analyst, but if I may be permitted some loose conjecture, here’s what comes to mind…
It has long been rumored that central banks have been keeping the price of gold artificially low as a way of attempting to hide their inflation of money supplies. IF true, that practice may be coming to an end as their resources become strained.
If the overt price of gold is out of sync with actual supply and demand, more so than the price of oil, the price correction process could be “lumpy”, moving in fits and starts. As the value of the dollar declines, though, one could expect to see a matching rise in petroleum prices, even though it lags behind the correction in gold prices.
Last I checked today, oil was up almost 8%. Gold went down because the IMF is selling it to raise funds. Times like this I wish I had the money to invest, because I would’ve put a chunk on petroleum & left it. Then when oil went back to its highs it’d mean I doubled my money, and not just that gas is back to $3/gallon.