The Geithner public-private toxic asset plan presents hope but it is just another rock being thrown into the river to try to stop the water. Its a big rock, no doubt and it sits next to Bernanke's big rock, but there needs to be a lot more rocks to slow it down.
Has anyone heard the banks respond yet? Anyone? Of course not. Do you know why? Because the banks are loving the run up of their equities. They can sell shares at higher prices to build capital and to line their pockets. So why wouldn't they just come out and tell everyone they will fully participate in the plan? Obviously they would make their stock go up even higher.
But it would be a lie. And while banks would like nothing better than to say anything to bring stock prices up, there is no need to. The stocks are going up on the news driven event.
I believe banks have little intention of participating in a plan that only devalues their assets even more than M2M is doing now. They have no intention of exposing just how bad their values are. While M2M is a thorn in their side, the marks are higher than they will get via auction to private hedge funds. Likely, much higher.
What a wonderful rally. And it still has legs. Make no mistake, this is going to be an incredible shorting opportunity once this one runs out of steam and news of problems with the Geithner plan starts to unvale. Lets get Lewis or Dimon in a room with a reporter who will ask tough, direct questions about the plan. I bet not a single bank officer will step up and take on those questions. They want this runup to continue.
In the mean time, it is probably good to play the trend as a hedge or straddle positions on financials and tech are probably a wonderful place to be. At the end of this run, we should see some great short opportunities. The economy is not better today than it was yesterday. But this run can change in a heartbeat if news leaks that banks are not willing to participate. We probably will not hear that until Geithner makes the plan official.