Now We Know What Moves Markets

The bears may be the majority, but shorts are clearly nervous.

The Dow rallied 60 points as the White House said Obama will outline a foreclosure plan on Wednesday, but has declined to provide details.

Prior to the news, the markets flailed around with little direction. It is a tad disconcerting that stocks AND bonds AND the dollar are all down today; the bond market is closing early.

At least we know what will move the markets. Remember the primary arguments the bears are making:

1) We will not have clarity on the pricing of the toxic assets for at least a week, if not more, so it is safe to short bank stocks—for a little while longer. On top of that, capping a bonus at 1/3 of your salary is not going to encourage anyone to stay in the business.

2) Longer term, second half 2009 earnings estimates are going to come down, which will lead to more pressure on the market as the "E" in P/E declines, the "P" must also come down.

And yet...the shorts are nervous. Bulls insist government intervention is a reality and will create a bottom sooner rather than later.

Some of these programs—particularly the Federal Reserve programs—are popular and are perceived to be working: the Primary Dealer Credit Facility, the Money Market Investor Funding Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility

The TALF program is coming.

The market clearly believes a foreclosure plan will have some kind of positive impact.



Questions? Comments?