Zeev's Turnips Patch-No Politics (ZEEV)

[Joe Stocks]

ABK - Possible short candidate. I saw two mentions of ABK this weekend. First one is from OptionInvestor.com. the second is an excerpt from Doug Noland's essay at Prudent Bear. Followed it with a chart. JS

>>Ambac Financial Group, Inc. $57.53 (-3.44 last week)

Company Summary:
Ambac Financial Group is a holding company that, through its
subsidiaries provides financial guarantee products and other
financial services to clients in both the public and private
sectors around the world. The company provides financial
guarantees for municipal and structured finance obligations
through its principal operating subsidiary, Ambac Assurance
Corporation. Through its financial services subsidiaries, the
company provides financial and investment products, including
investment agreements, interest rate swaps, funding conduits,
investment advisory and cash management services to its
financial guarantee clients, which include municipalities and
their authorities, school districts, healthcare organizations
and asset-backed issuers.

Why We Like It:
It's a well-known market reality that any meaningful advance
for equities requires the participation of the Financial stocks.
Well, in the wake of the Fed's surprise 50-basis point interest
rate cut, Financial stocks have not been behaving very well, with
both the Banking index (BKX.X) and the Brokerage index (XBD.X)
closing in the red the past 2 days. After rocketing off the
early October lows near $50, shares of ABK have been running into
stiff resistance near the $65 level. The first bout of selling
after failing to penetrate resistance knocked the stock back to
its 200-dma near the $61 level. It looked like ABK might
actually consolidate before moving higher, but it wasn't to be,
as the bears pressured the stock below first the 20-dma ($61.56)
and then the 200-dma ($60.93). And then it got ugly. On
Wednesday, CSFB downgraded the stock to Neutral on a valuation
basis, motivating sellers to shave another 4% off the stock's
price by week's end. This week's decline put the PnF chart on a
fresh Sell signal, with a current vertical count of $50. If
achieved, that would be a retracement of all the stock's gains
since the October low. ABK came to rest right on the 50-dma on
Friday, and that might generate a bit of an oversold bounce next
week. If so, then we can look for the rebound to fail near the
$60 level, which is just below the 200-dma. Momentum traders
will want to wait for the stock to fall under $57 (just below
Friday's intraday low) before entering the play. Initial stops
are set at $61.<<<

>>>This week fellow Credit insurer Ambac reported that it owns $175 million of National Century Financial Enterprises (NCFE) notes (NPF XII and NPF VI conduits). This is a troubling revelation. We would hope that a company with $525 billion of “Net Financial Guarantees in Force” would be diligent and conservative in its investment approach. But, as is too often the case when it comes to the U.S. financial sector, we hope for too much. With “Capital and Surplus” and its “Contingency Reserve” combining for $3.6 billion, there is scarcely little room for error (Ambac has expanded its insurance “guarantees” by $49 billion y-t-d - a 14% rate). Yet somehow there was one gaping hole in Ambac’s Credit “analysis.” And if they were incapable of identifying conspicuous shortcomings and Credit issues related to NCFE, how much confidence are we to have in the Credit analysis used to establish one-half trillion dollars of Credit insurance exposure?



On the other hand, perhaps it had nothing to do with Credit analysis, being instead simply a case of CSFirstBoston (NCFE’s investment banker) needing to unload some NCFE paper and looking for a “favor.” We hope Ambac management would not purchase such bonds in hopes of garnering more (structured finance) insurance business or a “buy” rating on its stock (CSFB downgraded Ambac’s stock Wednesday). Sometimes - when we’re in one of those moods – we recall the Milken junk bond cartel fiasco and contemplate the “possibilities” for similar shenanigans on a much grander scale in the asset-backed securities marketplace. Too much “money” sloshing around; enterprising rating agencies, bankers, brokers, and accountants; too many securities without legitimate market prices; and scant transparency… Somehow, the ABS market remains off the radar screen when it comes to discussing conflicts of interest between commercial and investment banking. <<,

http://stockcharts.com/def/servlet/SC.web?c=abk,uu[l,a]daclyyay[dc][pc20!c50!f][vc60][iLb14!La12,26,....