This Rally is no Overreaction

Uptick rule, shmuptick rule. Today's rally is holding because of the statement from Barney Frank about mark-to-market accounting and his emphasis on "significantly revising" these rules.

Investors may take a we'll-believe-it-when-we-see-it approach from here, waiting to rally this market farther until the rules are actually changed, but this is significant enough to now start hoping that an important market low is indeed nearby or even already in.

Now, I don't like the long-term implications of the hair of the dog gameplan here--curing a debt hangover by encouraging the extension of more credit--but clinging to one's perch on the soapbox and repeating the same tired dogma is not a strategy for crash-proof gains.

This change, should it come, will provide tremendous balance sheet relief to banks. And that will get them lending more actively. Indeed, with all the liquidity measures taken recently, markets might be suprised by the liquidity surge which results, which means this is also very bullish for hard assets (reflation trade back on?).

The risk is, maybe Frank's inference today about a pending rule change doesn't come to pass. Love him or hate him, however, I suspect Barney Frank is indeed smart enough to grasp this concept and thus wouldn't have uttered these words lightly. After Geithner's non-plan and Chris Dodd's speculating on bank nationalization, hopefully these guys realize now that their words have consequences.

Investors can take it as a given that the uptick rule will be revised. I doubt that was a measurable contributor to the sell-off, but so be it-- it's coming back. More importantly, it is reasonable for investors to be nibbling at stocks in here, believing that meaningful change to m-t-m accounting rule is coming. That is a very big deal, indeed.