Monday, March 30, 2009

Market Stumble

Today ended up being pullback Monday. No real surprise after two monstrous weeks. The market pundits will put the blame on numerous reasons but my guess is no matter what the market would have pulled back today. This week could continue to prove tough. I still wouldn't be surprised to see the 740 to 750 area which has sort of been my boogie on a pullback. I still don't think this bear market bounce is done with but we shall see.

Thursday is the much anticipated scam release, whoops, I mean FASB 157 announcement on the probable change of accounting rules for the banks. It is possible the banks will have some massive "gains" to book if they have their way.

Interesting route the government is taking with the automakers. I have a suspicion Paul Volcker is involved and taking the hardline (unlike the Geithner and Summers and the other bank cronies). My understanding is the economic advisory team is heavily involved which Paul Volcker is in charge of. Bankruptcy and warranty guarantees makes sense though I am not holding my breath that the government will figure out how to mess it up somehow before it is over with. Actually the auto space is the one area of the economy I think that looks pretty favorable over the next twelve months. The run rate on car purchases is way way to low. I think at the last few months purchase rate America would be replacing the cars every 27 years which is obviously not sustainable. This tax break that is being proposed could also cause some pent up demand to come forward (like me). In general, I don't see this as a big negative for the market if handled correctly and this is one of the few areas it looks like the government is handling correctly (x the billions we already put down the rat hole with the companies). Said differently, I don't see it as a systemic risk to the market. Yes some jobs will be lost, salaries coming down, but once the uncertainty blows over of exactly what is going to happen, I think it will become quickly a non issue. In fact, buying some speculative calls or leaps on auto suppliers may even be a bit interesting.

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