Stock Market Analysis – 10-01-2008
There was a lull in the market today as everyone awaits the destiny of the new bailout plan. Lower volume and a narrowing range suggests consolidation again, but we’ll undoubtedly break out of this area soon enough again. The bailout bill passed the senate this evening, but the House was always the true road block.
Another interesting issue that’s come up over the past week is whether mark-to-market accounting should be suspended for banks. Why does that matter? Let’s make up an analogy and say you own some mutual funds that hold stocks. You probably like to know what their value is, so at the end of the day they typically add up the current market prices of all their positions and determine what the current value of a share in their fund is worth. Suspending mark-to-market accounting would be like making it so that funds could state their value as what they believe the stock is worth until they sold them.
Suppose they bought some GOOG at $700 and were sitting on it right now at its current price of $412. They would be able to tell you their fund is worth $700, and you wouldn’t know since they wouldn’t be forced to mark it to the current market value. Would you buy this fund? Not knowing how much you lost doesn’t make it go away.
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