05 March 2009

Catching a Falling Knife - Portfolio Changes

I caught some falling knives today by picking up additional shares of the 3X-Bull Financials ETF, FAS. Added to my position at $3.19, $2.93, and $2.75 bringing down the cost basis to $3.37.

This story
about the potential re-evaluation of mark-to-market accounting rules encouraged me to build up my long position in the financials:

NEW YORK (MarketWatch) - Equities investors looking for some hope in an ugly market on Thursday pointed to a news report that a House panel next week plans a hearing on mark-to-market accounting rules blamed by many for aggravating the financial sector's troubles.

Reuters on Wednesday quoted a source briefed on the matter who said the subcommittee on capital markets has tentatively slated for next Thursday a hearing on the rules that require assets be valued at current market prices.

"The accounting rule has been a major contributor to the debt spiral," Ed Yardeni, president and chief investment strategist at Yardeni Research Inc. Some financial institutions contend the rule compels them to mark down assets to artificially low prices.

Lifting the requirement "would not replace the Treasury plan to buy troubled assets, [but] it would increase the capital side of the banks' ledger and potentially alleviate the need for short-term capital from the Fed," said Marc Pado, chief market strategist at Cantor Fitzgerald.

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