Change in Mark-To-Market Accounting Is Good News!

Here is a Market Update provided by Austin Andruss, a mortgage broker from RPM mortgage. He can be reached at 415-869-6135.

Last Thursday the Financial Accounting Standards Board (FASB) issued a favorable vote to relax mark-to-market accounting, which many believe will help to unlock the continuing freeze in the credit markets. The significant changes in the accounting rules will allow financial companies to use alternate models, like cash flow analysis, in valuing their assets. This appears to be great news for the financial markets and our economy at large, as this will help money and credit flow more normally. Since the March 12th Congressional hearing on mark-to-market, Stocks have risen 23% just on the speculation a change could be coming. And just one short day after the FASB mark-to-market ruling, there were stories of banks already saying they may not need to sell assets to raise capital, as they will no longer have to take massive paper losses by pricing their assets to the “fire-sale” comps that were created in some of the illiquid markets. Capital ratios are now more in line for many institutions, which will also help their ability to lend – in turn helping consumers and businesses alike.

According to Friday’s Jobs Report the economy lost 663,000 jobs in March and 5.1 million jobs since the recession began in December of 2007. However, for the first time in a very long while, there were no downward revisions to a prior month’s reading, as February’s number came back with no change. This, as well the actual job losses for this month being improved from January’s levels, and not much worse than expectations, could mean there is some level of stabilization at hand for the labor market. Something else worth smiling over on the job front was Wednesday’s news that Challenger, Gray & Christmas, an executive outplacement company, found that planned layoffs at US firms fell in March to their lowest levels in six months.

While Stocks were buoyed by the Mark-to-Market announcement and optimism that the G20 meeting in London will lead to an agreement on ways to pull global economies out of the current recession, Bonds were unable to hold onto recent gains. As a result, rates ended the week .125-.25 percent worse than where they began.

There are few scheduled economic reports to talk about this week, but don’t expect the rest of the news to be quiet. First quarter earnings season begins, and while the change to mark-to-market take effect for the second quarter, it can be applied to first quarter earnings. In fact, rumors are already swirling that the change in mark-to-market will boost earnings of banks by 20% or more for the first quarter. In addition, the US is prepared to sell an estimated $59 Billion in notes and inflation-indexed securities this week, and it will be important to see what impact that supply has on Bonds and home loan rates. And as we continue to watch the labor market, it will also be important to keep an eye on Thursday’s Initial Jobless Claims report to see if the news is good, bad, or ugly. But remember: Strong economic news will likely cause Stocks to move higher, and Bonds and home loan rates may worsen in response as we saw last week.

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