160bps ahead already? is the year over yet?

Well just a few days into the new year and already the portfolio is about 160bps ahead of the S&P 500 -- of course since the index is down this just means I've lost less money than the index.

I had the chance to buy some MCO if I acted quickly this morning near $33 and change but I hesitated and the stock popped a dollar. Cramer's comments that everywhere he goes people ask him about bottom fishing in the financials got me scared. Lots of money has been lost by smart folks buying financial stocks too early -- warburg pincus with MBIA; Davis advisors with MBIA; B of A buying that Countrywide convert; some billionaire that has lost $250 mill buying 10% of BSC at over $100 per share; etc. Cramer himself argues not to buy financials until we see a lot more dividend cuts and bankruptcies.

On the other hand why I should have bought -- how many people do you see or hear talking about buying MCO or MHP? Many talk about the banks or the brokers or the bond insurers but how many talk about the rating agencies -- Barron's slammed them a couple of issues ago and talked about the conflicts of interest and how the business model needs to change, etc. David Merkel (see the links section for the Aleph blog) did a great response to the Barron's article on his blog if you are interested.

I was hopeful that I would get another chance at paying under $34 but I could be pushing it. If Cramer and many others are right that we are headed for recession then I shouldn't have any trouble paying under $30. Right now I'm still nibbling -- buying a little bit at a time and trying to buy only after its dropped since my last purchase. Keep in mind that they haven't reported since October -- fixed income has gotten worse since then (stock has dropped too) so the question is how much will estimates drop post report and how much of that is expected in the stock already.

Tony C., an economist who writes for Realmoney.com, pointed out that bank lending is growing -- partly due to banks bringing SIV assets on their balance sheet skewing the reported numbers but he also said C&I loans were up 30+% real estate was up too -- probably banks taking back some share from the capital markets due to less securitization and bond issuance. That's the near term risk -- slower growth in rated debt. I think this is known -- its driven by investors choking on too many securities and the market's drive to take less risk. This should be a temporary issue -- next year or two at most (presuming we miss the coming depression) because investors are too greedy not to take risks again in fixed income securities.

As we head toward $30, risk in buying MCO should be dropping.