Hi Morokko, ... right in the middle of the huge front page WSJ depression talk about the banks going under due to the LDC debt to Mexico, Brazil etc...... the DJIA bottomed at 777 and change on like July 15th 1982...... and man we were off to the races. DJIA was up to like 1300 by summer of 1983, then topping out on Jan 6th or 9th of 1984, into what turned out to be a very shallow "bear" market into late Juy of 1984 amd then boom..... we were shooting higher all through 1985.
Back in those days, You would come in on Mondays and find the latest take over at higher prices as equities became more cheaply valued, most singularly because interest rate came down, then came down more and then came down more. Plus the in process R&D write offs where pontificated by Arthur Anderson et al. and many other ways of adding luster to take overs.
Reagan's first two years where miserable on main street. I look back now and know smart parents of friends that where able to buy long term treasuries that paid huge dividends of 16% to 17% which just beats the living day light out of anything outside of full blown balls to the walls currency/commodity trading...
and then they sat around watching these bonds they bought at par provide them with capital gains of 40 to 50 to 60%.... while still paying off like engourged slot machines at the end of some poker tournament weekend at Vegas.
One problem that I have with the Beyond extreme price volatility of this year...... we should have a whole slate of companies that are going to blow up due to this insane price volatility and all the ways to lose endless streams of money in all this volatility.
No wonder the US Congress has been toying with relaxing or eliminating the mark to market accounting for the financial markets this year. I spent the better part of a year looking very very deeply into FASB 133 reset rules when underlying pricing of hedges changed beyond the 80% to 125% ratio..... you have half the companies in the world not in compliance with this. Half the damned world is not in compliance with any type of Basel II reserve and accounting rules.
-------------
FASB 133
From Wikipedia, the free encyclopedia
Jump to: navigation, search
Statements of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, commonly known as FAS 133, is an accounting standard issued in January 2001 by the Financial Accounting Standards Board (FASB) that provides companies with the ability to measure all assets and liabilities on their balance sheet at “fair value”. This standard was created in response to significant hedging losses involving derivatives years ago and the attempt to control and manage corporate hedging as risk management not earnings management.
All derivatives within the scope of FAS133 must be recorded at fair value as an asset or liability. Hedge accounting may be applied if there is hedge documentation and gains and losses in the value of the derivative with gains and losses in the value of the underlying transaction.
To be designated and qualify for FAS 133 hedge accounting, a commodity (hedged item) and its hedging instrument must have a correlation ratio between 80% and 125%, and the reporting enterprise must have hedge documentation in place at the inception of the hedge. If these criteria are not met, hedge accounting cannot be applied. The non-applicability of hedge accounting can lead to significant volatility in corporate earnings. Now, the financial community has had enough experience with FAS 133 that companies and constituents better understand this process and are less critical of the volatile impact on earnings.
Creating forward commodity values to determine correlation, required by FAS 133, is not perfect due to the nature of different OTC derivative commodities and the fact that they are not quoted in exchanges like NYMEX and ICE. Many companies outsource this data collection to insure that industry methods and standards are achieved. As important as FASB 133 is in risk management and hedging, this reporting system has limited some creative hedges solely based on the potential negative impact on the companies’ earnings.
--------------------------
and non of this meshes with IAS 39.
-------------
Editorial note from JP .. think about this we have seen crude prices go from 51 bucks two years ago to 147.85 and now back down to 70. Who of my readers really believes that any meaningful porportion (even 15%) of all of the global energy companies have properly constructed and accounted for their hedges of product in the ground. They have not. Is it impacting their balance sheets.... yes. Is it impacting cash flow statement mismatches.... most likely.
Now expand this calculation to all the other commodity producers and then all the companies doing currency hedges and see how you can see a 25% move in your currency hedge occur in 3 weeks. They are not adjusting their hedges in compliance with FASB 133 accounting... they can barely keep track of how fast actual currency market fluctuations are occurring.
If you want to make a great big bunch of money start a small executive search firm that specializes in these accounting professionals that can construct these and conduct IRS compliance of these situations. You can hire professionals that ca bill out to clients at a thousand bucks an hour and all these firms that just don't want to do their homework and get compliant will either be purging blood and going out of business/ and or wising up and becoming compliant.
The experts in the Credit Default Swaps area should all have 24/7 services to answer their inquiries.
NO WONDER THE GOVERNMENT was KEEN TO TABLE MARK TO MARKET PRICING>..........
John |
