After getting pressured into changing the M2M rules in early April, FASB is now talking about reversing parts of the rule change. In the same way that this sent banks stock soaring in March and April we could be looking at an increasingly risky time to own bank stocks as FASB sorts out the potential rule change. This could pose as a substantial headwind for the recent bull run.
Aug. 14 (Bloomberg) — Investors should beware the Financial Accounting Standards Board’s decision yesterday to consider expanding fair-value rules, said Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, Illinois.
“Like a horror flick monster that just won’t stay dead, FASB’s accountants are proposing to expand the application of mark-to-market accounting rules across the board to include all financial assets, including regular loans,” Wesbury said.
The CHART OF THE DAY, fashioned from one Wesbury is presenting to investors, tracks the performance of the Standard & Poor’s 500 Index since the Securities and Exchange Commission and FASB clarified the meaning of the rules in September 2008.
“Twice the market was teased with a sense of potential changes for mark-to-market accounting. Twice those hopes were dashed and twice the market fell to new lows,” Wesbury said.
The biggest reason that stocks have rallied since March, Wesbury said, is that the House Financial Services Committee forced FASB to loosen its mark-to-market rules. Other reasons for the rally are the easiest monetary policy in the Federal Reserve Board’s 96-year history and the end of panic selling, he said.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.