There are many that cover the markets that try to get you to worry about things that aren’t real problems.  Here’s a sampling for the evening:

1) Changes in accounting standards, or ineffective/opaque accounting standards.  Take Goldman Sachs and level 3 assets as an example.  The accounting standard is fine, so long as you understand it.  In general, the higher the level of level 3 assets, the more opaque the valuation of assets is, and a valuation haircut gets assigned to the stock.  This is proper, because it happens to all companies with high or cloudy accrual figures.  It makes it hard to estimate free cash flow.

Should we move from US GAAP to IFRS, it should not affect the valuations of stocks on average, though it will make it a little harder to do financial analysis.  What does not change is free cash flow, which is not subject to accounting rules.  The money that can be withdrawn from a business without harming its current prospects (free cash flow) is the key metric for understanding business value.

2) Counterparty risk.  In derivatives, for every loser, there is a winner.  So long as the appropriate margin levels are maintained at the main brokerages, and the main brokers don’t experience conditions that dramatically change their credit quality, counterparty risk is not a problem.  (Or maybe, I should say, worry about the brokers, not the other counterparties.)

3)  Investors moving to cash.  Money rarely leaves the market.  When funds raise cash (and here), others buy their shares at a discount.  Typically, they are stronger holders than those that sold.  I wouldn’t be too bullish over stories of investors moving to cash, but I certainly would not be bearish.

4)  Rating agency downgrades, unless they trigger a debt covenant.  For the most part, market spreads and yields are set independently of debt ratings.  Sophisticated investors dominate the market, not the rating agencies.  As an example, suppose the US were downgraded to Aa1/AA+/AA+.  After a week, I doubt yields would change much at all, because the fundamental view of the US would not be changed by a change in its rating.

5) High credit spreads.  Those are a reason to be optimistic, because it means pain has been taken already.  Spreads can’t get higher than a certain level, or companies start delevering, because it is profitable to do so.  So when you see spreads near record highs, that is a buying signal, at least for the debt.

6) Retailers in trouble.  Some retailers are always in trouble during hard economic times.  It’s a tough business model, so expect some defaults; it is normal and healthy for the economy as a whole.

7) Collapse of a large portion of the auction rate securities market.   Most borrowers will refinance.  In the interim, speculators are driving down the rates that get paid.

Downgrades of the major financial guarantors.  The market has priced it in, and perhaps we just run off MBIA and Ambac.

9) Tranche warfare in CDOs.  Read your prospectus with care, but when the seniors grab hold of a deal after and event of default, that is a step toward normalizing the market, though the mezzanine holders may ineffectively object as they end up getting nothing.

10) The ABX indexes, etc.  I’ve written about this before, but the various synthetic indexes — ABX, CMBX, LCDX, etc., are very hard to arbitrage against the cash market bonds that they represent.  The indexes should not be used for pricing as a result.  Whenever the synthetic market gets too much bigger than the cash market, it becomes a bettors market, and becomes incapable of delivering pricing signals to the underlying cash markets.

There are enough real things to worry about.  Perhaps I will write about those tomorrow.

For this quarter, I sold two my two placeholder assets, the Industrial and Technology SPDRs, and Arkansas Best, which had richened enough for me to trade out of it.

I had two rebalancing buys, Charlotte Russe and Avnet.  On Charlotte Russe, the rebalancing buy occurred because I tendered all my stock @ $18 in the Dutch Tender, and 45% of it got bought.  On Avnet, things aren’t as bad as the market thought on 4/15, in my opinion.  I had one rebalancing sell, Helmerich and Payne.  Just taking some off the table for risk reduction purposes.

Here is my final comparison file that was based off of data at the close of business on Monday.  To comply with the Bloomberg data license, all numeric fields remaining are ones that I calculated.  The columns of the file rank the 290 stocks on the following metrics (lower better unless noted):

• 52-week RSI
• Trailing P/E
• P/Book (2)
• P/Sales (2)
• P/2008E
• P/2009E
• Dividend Yield (higher better)
• Net Operating Accruals (2)
• Implied Volatility
• Neglect (higher better)

The grand rank sums up the ranks giving double weights to P/B, P/S, and NOA.  My current stocks are highlighted in yellow, except for the two middle ones, which are in orange.  Candidates for sale come from the lower half (high grand ranks), candidates to buy from the upper half.

Here were my purchases (P/2008E):

• International Rectifier — 9.5x
• Group 1 Automotive — 7.1x
• OfficeMax — 9.3x
• Universal American Financial — 5.8x

Cheap names all (and could get cheaper?).  If you asked me what my concerns might be over this group of names, I would say that credit quality is adequate but not stellar.  I would also confess a little doubt on Universal American.  It looks cheap, and lines of business they are in are stable lines.  They lost money on mezzanine subprime mortgage ABS.  I looked at the writedowns, and they seem adequate.  If you send the security vintages 2006-2007 to zero, this stock is still cheap, in my opinion.   What I can’t evaluate is whether they could have operational problems in their senior health insurance business.  It’s a good business, if managed properly.

As for International Rectifier and Group 1, I have owned them before.  With IRF, I like industrial technology — stuff that is harder to obsolete.  On Group 1, I looked at all of the small cap auto retailers, and picked this one.  I liked its business mix, and what seemed to be a clean balance sheet, with few immediate needs for liquidity.  The group as a whole has been smashed, and is discounting very unfavorable conditions.  I don’t think things are that bad, and besides, a lot of the revenues come from repairs and sales of used cars.

With OfficeMax, I think prospects are less cyclical than the market seems to believe.  Office supplies get purchased during bad economic times as well, and the current price already discounts  a lot of pain.

Well, those are my purchases.  Let’s see how they fare over the coming years.

Full disclosure: long HP CHIC AVT GPI UAM OMX IRF