Market Comments

I have not editorialized on the market much recently because to put simply, I don't know (you never know, it is a probabilities game but when you don't know if the probabilities are not heavily in your favor). When you don't know it is often best to just sit back and do nothing. Doing something for the sake of doing something can be a killer. Anyway today was a definite reversal which was important. The question is how important. A day is not a market make. We broke through 1400 in the S&P and broke through 27 on the XLF but we were due a decent pullback even if it is only short term. I honestly thought the news flow was worse yesterday than it was today. Everyone who is blaming oil I think is looking at the wrong thing. Don't get me wrong oil is important. If the government is able to starve off a serious downturn for six months great, I think all you did was starve it off. The world needs a slowdown for capacity to catch up, get rid of excesses etc. That is why in economics your freshmen year in college you are taught that recessions are okay. They are normal and healthy. Instead you get every type of intervention possible to try and prevent one from happening. Well you can push it off but the unintended consequences (i.e. $200 oil) will eventually cause one. Anyway oil adding another couple of bucks did not all of sudden change the dynamics of anything. Market used it as an excuse but there is nothing fundamental concerning slightly higher oil than yesterday.

You also had people blaming the new SEC regulation that would require banks to disclose capital and liquidity levels. Please, somehow that is more important than say Ambac losing billions? It was an excuse to sell financials that have been on fire but the only fundamental thing about it is that it would expose the man behind the curtain. Of course if you know there is a man and you are just keeping up a dog and pony show that others don't know about then maybe it is fundamentally bad.

No the real true significant item in my mind (your not seeing much press coverage) is this.

http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080507%5CACQRTT200805071235RTTRADERUSEQUITY_0720.htm&selected=9999&selecteddisplaysymbol=9999&mypage=newsheadlines&title=Bush%20Threatens%20Veto%20Of%20Housing%20Bill

President Bush brought out the threat of a veto Wednesday, voicing his opposition to a housing rescue package working its way through Congress. The Democratic bill is designed to have the government insure up to $300 billion in new mortgages in an effort to prevent additional foreclosures.

I have said that if the Barney Frank bill gets passed it will cause me to seriously rethink my shorts. It is not that I think that after that the market compounds annually at 10% over the next five years. I think it does mean the market could tread water for quite a while and the true bear case of continuing declining housing prices would be seriously impaired.

What you could see is the market demand it until Bush has to react. Similar to what you saw with interest rates and Bernanke. The market would tumble, its own version of a tantrum, until the pressure came to great and caused Bush to buckle signing the bill.

Anyway in the short term that 1400 to 1410 level is critical. We broke below 1360 after breaking that important level to the upside before rocketing above it again. To finish out the week it will be very interesting if we stay below 1400 ish.

Like I said I just don't know. I usually have some probabilistic outcome scenario in my mind with how the market moves over the next couple of weeks that I use to hedge around fundamental picks but I don't know. As I said when I don't know, I just don't do much.

At the end stay focused on the fundamentals. All the other stuff doesn't mean much longer than a few days.