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MV Weather Report: Government Finally Makes It Rain


Rain or shine, we review the day's biggest stock stories.

The talk of the day was the Public-Private Investment Program (PPIP), a partnership that could purchase up to $1 trillion in bad assets from banks, thereby enabling firms like Bank of America (BAC), Wells Fargo (WFC), JPMorgan (JPM) and Citigroup (C) to lend.

The market loved this news, as investors sent the S&P 500 up 54 points to 822; it was up just over 7% at closing, and well above its 50-day moving average. It was a once-in-a-trading-lifetime day for the bulls. It was the first time a government plan wasn't met with a sell-off.

There were a lot of opinions about the PPIP on today's Buzz and Banter. Minyan Peter said, "It is a long and winding road from the Treasury test kitchen to the private-market plate. The aroma is great, but I want to taste it."

New Minyanville Professor Tom Fant, of Atlantic Advisors, shared his opinion:

"At first glance, this makes very little sense to me. Geithner seems to avoid specifics like income tax. But from what I can tell, this is not going to help much. Enticing investors to buy loans that the bankruptcy courts can now modify (Home Affordability Act - see law of unintended consequences) is a tough sell to begin with, but sweetening the pot with cheap financing is almost ridiculous.

"Aren't they asking private investors to do what the banks never should've done which is buy bad assets and magnify returns with cheap financing? How can anyone be comfortable levering an asset where the underlying cash flows can be changed in a way that is nearly impossible to analyze? And even if I get lucky and make a huge return, I'm going to partner with a government that might take my bonus back? Not so much.

"Here's the fundamental problem that the government doesn't get but the late, great Blue Steel saw a long time ago: The banks CAN'T sell. There is no lack of buyers for these "legacy assets". After all, there's no such thing as bad bonds, only bad prices. The problem is where the bonds are marked relative to where investors will buy. If a bank sells a bond at 50 that they have marked at 95, the losses would pile up pretty quick until they are bankrupt. What to do? Toddo came up with an expression over the weekend: WWBD- What Would Bennet Do? I'm inclined to think that he'd fade PPIP and fade the rally. A Tale of Two Markets is still very much intact."

No matter what your opinion is on the PPIP, there's no denying the fact that the market believes it's a game-changer. Only time will tell.

The next question: When will this explosive move in the market end? Bulls should have an upside target at which to take profits off the table. Professor Jeff Cooper says:

"540 degrees up on the S&P from low is 830. With the conversion of the 50 DMA, will the index be magnetized to that level on the close today or on tomorrow's open?

"Although the Monthly highs are targeted, that may not occur until the first days of April so 830 may represent a level of pause, rather than paws."

There's quite a good possibility that S&P 830 will get tagged tomorrow - but Turnaround Tuesday is front and center.

Have a great night, Minyans!
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