The stock market has rallied the past three days for any number of reasons, chief among them it was due for at least a technical, "dead-cat" bounce after hitting 12-year lows on Monday. One fundamental factor in the rise is Wall Street's increased expectation for at least some help from Washington D.C. on two issues: mark to market accounting and the uptick rule.
On Thursday, the House Financial Services Committee held a hearing on mark to market, during which Robert Herz, the chairman of the Financial Accounting Standards Board (FASB), agreed provide more detailed guidelines on the controversial accounting practice within three weeks.
Jon Najarian, co-founder of optionMonster.com, has been a vocal advocate of temporarily suspending mark to market, in order to give banks a "chance to breath" and (hopefully) sell toxic assets in a less pressurized environment and at something other than rock-bottom prices.
A full suspension of mark to market, even temporarily, seems unlikely given comments from Herz Thursday and earlier this week from Fed chairman Ben Bernanke. But some "relaxation" of the accounting rule seems likely.
Najarian is certainly betting that way; he has a leveraged long position on financials via ETFs and is long shares of JPMorgan, Wells Fargo and Morgan Stanley.
That bet is largely based on his hopes for action on mark to market but also on expectations for a reinstatement of the uptick rule, which prohibited the shorting of a stock unless it was rising.
Right or wrong morally, removing or redefining mark to market would likely have a tangible - and beneficial - result for banks currently saddled with toxic assets that are trading anywhere from 20 to 40 cents on the dollar (when they trade at all). Conversely, most traders believe reinstating the uptick rule will largely have psychological benefits, but few participants will shake a stick at anything that improves sentiment.
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