Ambac Rallies 50% On (Likely) Short-covering

Ambac rallied 50% today on what many media claims is collateral disclosure related to their GIC business. Speaking as a shareholder, that press release (i) was nothing anything materially new (prior presentations have provided similar, but not identical, disclosures), and (ii) is actually bearish (the company will be a billion short if it gets downgraded further and recall that William Ackman's bet against FSA is based on a similar scenario.)

My opinion is that the stock rallied on short-covering most likely related to Ambac being given the go-ahead to buy some stock. I have never been a short-seller and not exactly versed in it but today looks like short-covering. Fifty million shares were traded today versus a daily volume of around fourteen million. The monolines are very volatile and we had a case early in the year when Ambac fell around 50% within a few days only to rally 100% in one day. But of course, if you bought at a high price, you will still be down--hence the reason averaging down can be attractive.

I think the stock is going to sell off tomorrow and until we get some positive fundamentals--this basically means clarity regarding mortgage losses--this stock isn't going to go anywhere. The set up of Connie Lee, if it is successful, will help but I wonder how customers are going to insure with Connie Lee.

Here is a funny exchange between two users on Marketwatch.com's news comments about Ambac yesterdady:

Pertinax: Ambac will go down like a redwood.

dryheavesdaily: if i am not mistaken redwoods hardly ever go down and are impervious to fire. Am I wrong?


LOL... Here's hoping Ambac lives as long as a redwood :)

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1 Response to Ambac Rallies 50% On (Likely) Short-covering

July 11, 2008 at 3:09 AM

sorry you own this, but "rallies %50" is a headline you'll be able to write many times as this woofer bounces between 1/8 bid and 1/4 asked.

Its time to say of the credit markets "non credo"; the next time you hear someone say "I want to believe" its going to be Mulder's voiceover for the next X-Files movie.

The point of an insurer is that you can rely on them, that they are more reliable than what is being insured. What is the purpose of a speculative insurer?

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