Saturday, March 7, 2009

Why M2M rumors will cause Capitulation

I am hearing and reading a lot about Mark to Market (M2M) being suspended, modified, revoked, whatever you want to imagine. Most of what I read are from people who do not understand what it is, it's intent or ramifications of suspending. You got these talking heads on CNBC saying ridiculous things like bank stocks will double or triple within hours if M2M were suspended. I find statements like that to be unethical if these people truly call themselves professionals. Where does CNBC find these cartoon characters???

Lets be clear people, M2M will not just go away. It can't. Can it be modified? Yes, absolutely. But don't kid yourselves. The latest rumors on M2M are really the only reason we have not seen the S&P at 640 or lower right now. Bulls and speculators are holding on and buying into stocks and ETF's hoping some news comes out of the House meetings around M2M.

Will the market rally with rumors and news? It could certainly rally. And any sort of rally is another short opportunity for bears. The results of the House subcommittee meeting around M2M will result in the capitulation we need to get this wave of the bear market over. If nothing comes out of the meetings, the market will tank. If M2M is modified, the market will tank. Suspension or modifications of the M2M can only lead to more clarity of where the banks are. And I assure you, they are a mess. It would be like wiping the frost off of your window on a cold winter morning and realizing how ugly it is outside.

So, play the M2M rumor cycle if you like, just don't get burned by holding long positions for too long. You are better off having a cash reserve and waiting for the right moment to add to your short positions.

Good luck and have a great weekend.

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