The major indices moved sideways yesterday ahead of this morning’s announcement from the Treasury regarding details of the bank rescue plan. What struck us yesterday from Obama’s press conference was his reinforcement that many on the ideological right were unable to negotiate from any standpoint apart from; all government is bad, cut taxes, “government is not the solution, it’s the problem”, cut taxes, regulation is bad, cut taxes yada, yada. As we have seen over the past several years, it’s dangerous to mindlessly embrace an ideology without giving thought to the complexity of issues that will determine any solution. We concede that an economy runs best when its citizens are free to employ their entrepreneurship and have an incentive to do so without having to fight an overly penal tax code. No one is arguing this point. The problem occurs when you double the national debt in eight years through a combination of reckless spending and irresponsible tax cuts. The problem occurs when you allow bankers to run so free that they can transfer the risk of loan origination to a securitization pool that has blindly been assigned a triple A rating. This debate goes back to the onset of the Great Depression in 1929, and we had thought FDR won that argument against the obvious failures of Hoover. And yet here we are some eighty years later debating the exact same argument, and with legions of predominately southern Republicans unable to concede any ground to the virtue of Keynesian models during economic downturns. If you concede to the virtue of public works programs and deficit spending as a means to climb out of a deep economic down turn, then you are admitting to the failure of laissez faire and to the fact that government might not be the root of everything that is bad. The neo-cons can’t admit that. No, the same people that brought you the S&L crisis, are adamant now that less government involvement, and oh yes, more tax cuts, will solve all our problems. Are you kidding us? Neo-cons appear very eager to protect large special business interests, but so mindful of big government. Interesting that since 1927, small caps have outperformed t-bills by 18% a year under a Democratic government, as opposed to underperforming t-bills by 3% a year during a Republican government. Perhaps the interests of innovation and growth would be better served with more regulation of the banking sector but less lobbying influence for special interests. Anyway, the important fact that we want to stress, is that when this crisis first erupted, we beat the drum for a government sponsored bid for a collateralized mortgage obligation, and it was the neo-con ideology that so adamantly thwarted any such move on the grounds that the free market would cure all. We are still waiting. George Bush senior had the foresight to set up the RTC and tackle the S&L crisis head on, and even the courage to raise taxes because he was mindful of our deficit spending. The last administration, so ineptly bestowed in simpledom, so rigorous in their adoption of ideology, so concerned with their beloved loony fringe “base”, failed on all counts to do what was necessary to stem this crisis. We don’t believe that the present stimulus package is large enough in its attack on what truly lies at the heart of the issue; namely balance sheet erosion caused by an inefficient and broken market for illiquid mortgage debt. But we do feel it will open the door to more debate, and further measures that will eventually work, especially now that we are breaking free from the shackles of a failed ideology.

S&P 500 (869.89) look for support at the 20 day at 844. The chart has taken on a far more bullish tone of late and we would be looking to add exposure on weakness. A close below the 840 would be an early warning sign and a move below 827 would confirm the notion of yet another potential rollover to test November support. Given all the whipsawing going on lately we suspect this latest surge has some staying power. The increase in the Term Asset-Backed Securities Loan Facility to as much as a $trillion is a very encouraging move. The market is “selling the news” just as had thought, but would add exposure, especially around 844.

Nasdaq (1591.56) 10/50 day convergence at 1534/1535 offers strong buy set up point and we would add long side exposure at that point. The 20 day at 1516 offers more support and then the newly formed Up trend line off the Jan 23rd and Feb 2nd lows at 1490 gives us the final line in the sand support. Below 1490 we move into rollover territory again which would be very frustrating as we have been whipsawing around quite a bit already. Anyway, for now, the Nasdaq looks like a solid buy set up on weakness, especially if we see the 50/10 day pivot tested at 1535.