Market psychology trumps em all.
Market is NOT going lower into m2m on April 2, it generates too much hope.
window dressing is just adding fuel to the Bull's fire here.
suspending or even eliminating m2m will NOT DO ANYTHING
So we have this m2m accounting, and the pundits are all crying that it's killing the financials.
Why, b/c its real true accounting? that is absurd! Here is why....
So if Bank ABC has a huge investment in let's say some crappy real estate, and that real estate is of course "market to market" and now the market value of that real estate is in the crapper, so pundits think that harms the banks. Well yes it does harm the banks and yes it should, it harms everyone, its part of the process. (they are no different)
So if suspend m2m or modify it, will that help the banks and resume lending? why? that's going to be the biggest fake, since oh I dunno... TARP 1?
So let's seriously and logically think about this:
If they let's say eliminate Mark to Market....what will the assets then be market too?
(that's the 64,000 dollar question)
They will be then market to peoples "PERCEPTION" of what they should be worth, that is what they will be market too, plain and simple.
So i suppose the REAL "$64,000 question" is then, What will peoples PERCEIVED value be??
.................... yep, you guessed it MARKET VALUE!
Ok, so let's say: (example)
If a Pento has a price tag of 2,300....people expect to buy it for 2,300, right?
If the next day they ELIMINATE the price tag, rip it off the window, do people all of a sudden pay MORE than 2,300? NO...WHY would they. It changes nothing!
Just like a few days ago, i saw a politician on TV, say "CHANGE THIS NOW....WHY HAS THIS NOT BEEN DONE!!" all hostile like, demanding and such.
Well anyone that acts that way in terms of a problem just ADDS TO THE PROBLEM. (ie: fear monger)
Remember the TARP fear "the world is going to end if you don't do this NOW. the sky is going to FALL!!!! we must have an emergency 20 second meeting and spend this 600 billions ASAP!
yea...right LOL. More like the spx is going to 666 ONCE ya do it! LOL smooth move guys, glad we all picked up the tab for that one.
So come (April 2nd), 3 possibilities of what might happen:
a) they SUSPEND m2m totally (we "might" get a small push higher of that, but it will be very short lived, like 1-2 days max, IMO as the pento is still a pento, price tag or not, and that's still a sell the news)
b) the MODIFY m2m (we likely start heading lower that day)
c) they do NOT change it (we tank HUGE starting right then)
ALL 3 results will result in massive intermediate sell off in the financials, imo. (they only differ in starting ASAP or delaying a couple days at most)
m2m will NOT change anything, pundits on TV have this "notion", that if they do this it will FIX all the financials.
How? I am no economic expert by any means, but last i checked for BANKS to be profitable, that means people have to WANT to BORROW money. How does accounting changes relate to the desire to take out new loans. (it doesn't)
Further more, the pento example, albeit maybe not the best. If the financials assets are NOT market to market value (which makes total sense)....then ok lets say the eliminate it...so what will they be market too?
They will STILL be market to market value!!!! Because then it leaves people to GUESS what they are worth. And the safest and SMARTEST and the most common "guess" will be the same, ie MARKET VALUE!!!
If anything, in my strong opinion messing with the M2M it will actually create MORE uncertainty, b/c now people wont even have a CLUE at ALL what the balance sheets are really like. (remember the market HATES uncertainty!).
This will create MORE instability in the financial sector, and it will not increase earnings power. They have NO relationship to each other.
If AAPL (apple), has materials and plants and such worth 1billions let's say (ie market value)...and they get the market value changed to "you decide what its worth value"...does that make people want to buy more IPODS? Does it cut the operating costs? Does it increase revenues?
I know this might sound "too bearish". But to "paper-fix" a balance sheet does by no means automatically translate into increased profit or desire of the product it's selling.
This rally is going to continue INTO April 2nd, and im not sure if it exactly stops in it's tracks right then, or perhaps it goes for another day? (i don't know!). But the financials have EARNINGS after that....and with this run up, who is gonna want to hold them. Earnings are from 1st qtr anyhow.
Have ya noticed that none of the financials are CHEERING for this? It's all politicians. I mean if it really was truly going to be the FIX ALL, i would assume that you would see a different BANK CEO on TV every 10 seconds proclaiming how "its the best thing to do". I haven't seen that. (b/c they know, imo)
The bulls will continue the parade till April 2nd, then turn out the frigging lights. M2M will go down as another worthless idea, and yes a GIMME short entry. I will be buying every FAZ call and GS put for MAY month (and a few April's too) i can find come Wed's close.....and then some more a couple days later.
Ok so "throw away the charts" let me take BACK that statement, that is excessive.
Here is what i see in the charts that points to this as well, as strong support. (basically the same post from last night, in regards to the Vix)
Look below at the VIX chart, as my last entry, it is NOT signaling this is a true bull turn, the vix is ALIVE and STRONG, as long as its over 38, period. There is no debating that, it's a technical line that has been there A LONG TIME (see chart).
Now the SPX weekly chart, just so ya know the weekly rsi has BROKEN out and above a resistance line that has held since MID 2007. (an extremely bullish signal, EXTREMELY bullish).
However, if the SPX weekly is EXTREMELY bullish breakout
but the VIX weekly is still above its SUPPORT line....
there is no reason YET to think this is real.
The spx should break OUT, and the vix break DOWN at basically the same time, to really signal a large bullish change, imo.
The vix does not measure market current sentiment, it measures the FUTURE market sentiment (ie 30 days ahead) as it's based on options. So just chew on that, part. and think about it a lil. As from my last post prior to this one AND actually best of all my very first post ever on this blog.
The vix to me, is going to be extremely beneficial to being able to differentiate a "bear rally" from a new BULL trend.
I expect this rally to TOP on April 2nd (b/c this is supposed date to the M2M rulings....and i expect the vix to BOTTOM at about 37.50 - 38.50
remember until the vix breaks BELOW that line, its NOT a bull market, its a trap, imo.
M2M is going to disappoint, and technically its showing here, b/c even tho the spx is breaking out (wait...look closer) the vix is NOT breaking down. (they should be in sync here, but they are not).
Bears are toast STILL until April 2nd, my apologies for the weekly calls, they will likely be off. LCC long still looks good, but goog and wfmi are NOT going to be winners.