My Quest

The U.S. markets were up 6-7% today. Truly incredible. Days like today do not happen without a reason, so this evening I set out on a mission to discover the cause of this massive bounce. Join me in my quest for a logical explanation of the movement.

• An early contender for the prize is the unexpected bounce in existing home sales, up 4.4%. Oops, I am sorry, that was just a month-over-month increase and existing home sales usually go up from January to February. It is a seasonal thingy. YoY they are down 4.6% and that is with prices down 15.5%. Did I mention that distressed sales were 40-45% of sales. Guess my search continues.

http://www.ritholtz.com/blog/2009/03/existing-home-sales-fall-46/

http://www.calculatedriskblog.com/2009/03/existing-home-sales-turnover-rate.html

• But wait, here it is. GE leading the charge with a 9% gain. When such a big triple A player gains that much, the market moves big time too. Oops, my bad again. Though it was up over 9% today it also lost its Moody's triple A rating. Oh well, easy come easy go. Then again perhaps a triple A rating not that easy come by given the very few companies that have it. GE has had its Moody's triple A rating for around four decades. It will be hard to get back.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=angxVEiQaibk

• Perhaps it is Barton Biggs predicting a big market recovery. Then again I did not see this article until after the market close and the same article notes today's market rise, so perhaps he is partially a Monday morning quarterback.

http://www.bloomberg.com/apps/news?pid=20601087&sid=areCXRA8DzQQ&refer=home

• Try as I may and might, I cannot find a reason for the big gain today. Wait a second, I think I see something here. Yes, this could be it. Geithner came out with a new plan today. Who knew that was coming. Apparently he is planning on buying toxic assets from the banks. Where have I heard that before? I'm sorry, he is not buying them outright like TARP, he is funding the purchases about 93% with no recourse loans and letting private investors have most of any gains and very little of any losses. Now that works in my book. Glad I am not the guy getting the short end of that stick . . .

There is no doubt the Geithner plan was the basis for today's bounce. I have read today that most economists support it - but then again most economists did not see this mess coming. I prefer to follow people that I have followed for well over a year. They saw this mess coming and have generally been correct on how it has played out. So let's see what they are saying:

• Let's start with Naked Capitalism. Yves there is a major fan of the Geithner plan - not! In one of her longer posts that I have ever read, she seems to not like it much at all.

http://www.nakedcapitalism.com/2009/03/fed-rescue-programs-no-exit.html

• Paul Krugman, the Nobel laureate in economics, is not a big fan either. He provides some examples on the math of why it makes little sense.

http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/

http://krugman.blogs.nytimes.com/2009/03/22/brad-delongs-defense-of-geithner/

• Mish - a man against any government action - obviously views the "plan" as foolish. While you may not agree with his total anti-government case, he does make a good case for the Geithner plan not working in this linked article. Well worth the read as he spends some time making his case.

http://globaleconomicanalysis.blogspot.com/2009/03/geithners-galling-and-dangerous-plan.html

As he points out, the plan ignores reality. The problem is not a lack of credit, it is a lack of credit-worthy borrows who are looking to borrow. We are too debt-laden already. Moves to free up credit are doomed to failure.

And for a perhaps more balanced view of it all, here is a piece from Calculated Risk suggesting that Geithner is not totally full of it. I beg to differ, but I offer it for those looking for hope.

http://globaleconomicanalysis.blogspot.com/2009/03/geithners-galling-and-dangerous-plan.html

Overall, I must say I saw no reason for the bounce today other than desperate souls looking for a bottom and us bouncing off a quadruple witching last Friday. I did, however, that advantage of it to do a few put options in the last 15 minutes of the trading today.

Disclosures: I bought put options in GE, Alcoa and American Express in the closing minutes of today's market. I could not resist. I have not done put options in the last six months or so, but you have to invest it as you see it. By the way, I did less that$600 in each option. More of a bet than an investment.