A Couple Things
Max Pain
SPY max pain for FEB is 85; any thoughts on the market taking a quick stab at that level by op. exp? I've never watched max pain on an index proxy so I don't really have a good feel either way. Things do feel temporarily oversold to me. I think we make a run at the November lows on this swing but that expectation doesn't preclude an upside zag. Just something to watch for; we'll see.
Other than that I think the market will drift until Treasury comes out with the specifics on the plan to work out the toxic assets. There's nothin' doin' until we start to get traction there. Geithner was talking about a few weeks of canvassing before they lay out the full plan...probably after this housing plan gets installed. I heard somewhere that the housing plan wouldn't really get rolling for a couple of weeks but can't remember where and can’t find a link anywhere. At any rate if that's true then the timeframes line up. Not to mention all the cycle stuff S2 has been mentioning.
The Politics of Recovery
Love it or hate it, there's a huge political incentive for Obama to roll out home-owner (or should I say home debtor) relief before the administration rolls out Wall Street relief. Bottom line is that the people getting laid off elected Barak Obama, not the banks. That’s not to say that he doesn’t care about the banks but he would loose all kinds of credibility and support, the kind that got him elected, if he were to come off as putting the stock market ahead of the kitchen table.
Obviously the stimulus package wont fix the economy. No amount or type of stimulus could fix the real problem with the economy, which is credit and housing. The only thing it could do is reduce the number of jobs that are lost and tide those that do lose their jobs over until they can find another one. This package will do that.
So the pass the Novocain Package & roll out this homeowner thing to soothe main street, then have treasury roll out the plan to unwind the toxic assets to soothe Wall Street. If it all works out (big if) then he’ll have thrown bones everybody and still get to say that he held Wall Street accountable by making them wait and berating them publicly like he's been doing. When the next election comes no one will care about what he's saying if the economy recovers. Even if it doesn't work flawlessly or completely he'll be able to claim, legitimately, things were too effed up when I got here, I need more time. Personally I think it’s the shrewd way to play it. Not bad for 100 days work (probably less).
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