Ambac Financial Group Inc (AMBC)

[racereviews]

When you have a match and dry kinder you get a fire. If you add gasoline, you get a raging fire, sometimes called a bonfire, a blaze, a wildfire, forest fire, etc.

There are two ingredients necessary in stock market lingo. The first (match) is a “change in fundamentals”. The second is your friend in times like these (large short position) which supplies the gasoline.

You can go to the FASB web site here: http://www.fasb.org/action/sbd031609.sht...

The match is “mark to market accounting” or “fair value measurement” as FASB calls it. The 15 day public comment period ends 4/1/09. FASB has stated that they want this change “in time for Q1 reporting”. This means every bank who has written down their mortgage assets, etc. to ridiculous levels (based on the old rules) will report “very nice” upside Q1 reports. For ABK and MBI this is a gold mine as the “write ups” will be significant. How so? Here’s the info from the Q4 report.

all amounts per share) National MBIA Corp. ALM Corporate Total

Book Value $10.97 $5.16 ($10.53) ($0.82) $4.78
Adjusted Book Value* $17.99 $26.13 ($3.26) ($0.80) $40.06

This means when MBI reports Q1 later this spring, there will be a narrowing of the GAAP book value of $4.78 and adjusted book value of $40.06. Whether the new GAAP book value is $10, $15, etc. I don’t know. The point is analysts (for the time being) are projecting a $.76 net loss. The actual report should show a positive $2-$6 EPS (yes-that’s right). What do you think MBI will be trading at then?

What’s the gasoline to the above fire? As of 2/24, there are 30MM shares short. Ouch.

Enough said.