Traders See Year Ending Around 10,000

It is not surprising that today's rally has been met with selling: that has been the pattern for the past week and a half.

Few traders think we will be off to the races any time soon. In a poll of several dozen buy-side traders this week, most felt that we would end the year somewhere near 10,000, but no one was more optimistic than that, and a few were considerably more pessimistic.

However, if Libor continues to come down, and the commercial paper market continues to unfreeze, the odds become longer that the market will be able to hold modest gains.

If this happens, then by the middle of next week we can expect that shell-shocked fund managers and analysts will begin the process of distinguishing between those stocks and industries where dramatic selloffs may have been warranted and those where there are real values.

The theory being floated around is that some sectors are discounting dire circumstances that may not materialize, even if a notable recession is factored in.

For example: commercial real estate investment trusts have been clobbered under two theories: 1) companies have significant short term debt that they will have trouble rolling over in 2009, and 2) commercial real estate will slow down significantly, and rents will be dropping.

There is certainly something to 2), but the assumptions around 1) may be wrong if the commercial paper market starts going back to something near normal.

Corporate paper rates may be higher, but it may not be impossible to roll over debt. If that is the case, we are talking about a hit to margin, not a catastrophic event.

With big names like Brookfield down 50 percent this year, it is possible this group may show some improvement when the CP market improves.

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