Should These Guys Be Insuring the Market?

From the NY Times:

Moody’s Investors Service said on Wednesday that it was likely to cut the top ratings of the bond insurance arms of MBIA and Ambac Financial, in a move that may cripple their ability to write new insurance.

The companies, which are No. 1 and No. 2 in the business, have been struggling to raise capital to shore up their AAA ratings, which are under pressure on concern about losses from mortgage-backed debt.

“They are in a weaker position today than they were a year ago before the mortgage crisis, and the situation doesn’t seem to be getting better in that regard,” Jack Dorer, a managing director in Moody’s financial guarantor team, said in an interview.

Plunging share prices and the high cost of accessing the debt markets are hampering the ability of both companies to raise new funds, Moody’s said.

Shares of MBIA and Ambac plunged on Moody’s action, and the cost of insuring their debt with credit default swaps jumped. Shares of MBIA closed Wednesday at $5.63, down $1.06. Shares of Ambac closed at $2.49, down 51 cents.

The charts tell us the market is not confident in these companies at all.

First, there is MBIA:



This stock plunged at the end of last summer when the credit market started to really drop hard. I guess traders thought there was no way they could actually pay all the insurance policies they had written. The stock price stabilized in the Spring of 2008, but note the more recent drop in price. Also note the very bearish price SMA alignment:

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below the 200 day SMA

-- Prices are below all the SMAs



Ambak's chart isn't much different. Notice the following:

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below the 200 day SMA

-- Prices are below all the SMAs

Like the airlines, it sure looks as though the market is thinking bankruptcy is a possibility.