Weekly Wrap-up

This week, we saw the market sputter and move mostly sideways, after its rebound last week. The presiding fear was that the bond insurers would be downgraded. FGIC was, Ambac and MBIA remain up in the air. Like last week, we saw good stocks beat the market and bad stocks underperform. Perhaps that means that this rally has legs. However, I see downside risks underestimated. UBS was a case in point this week. They announced billions more in exposure to leveraged mortgage bonds and derivatives that are underperforming badly and losing principal at an alarming rate.
As the market took 15% off their value, they responded by warning that another $200 billion in writedowns face the entire banking industry.

I'm staying with my shorts and not cashing anything yet. The long weekend is just another chance for news to leak out, and chances are it will be bad. Of course, someone could start a rumor that the monolines have worked out a bailout deal, but I don't think that Governor Spitzer would take kindly to that sort of rubbish.