Let’s pretend

The reason for the recent rally:

The Dow is heading up, and it’s not because Senatorial opposition to the stimulus is weakening. It started with the news yesterday that the Administration is on the verge of getting one huge thing right and will announce a suspension of certain mark-to-market rules on Monday. This will instantly reduce the risk for financial firms with bad assets on their books from future paper losses that could adversely affect their regulatory solvency.

So, if the financial authorities agree to pretend that the assets held by financial firms are worth more today than anyone is actually willing to pay for them because at some point in the distant future they are expected to be worth more, then investors can pretend that equities across the board are worth more today as well. Taking this logic further, if we all agree to pretend that half the people who aren’t working are actually employed, then the market should absolutely skyrocket!

I’m feeling more confident already. The animal spirits are unleashed. Make way for the Great Bull of 2009!

UPDATE – I don’t know about you, but I am feeling downright stimulated: Amid stunning new job losses and yet another bank failure, key senators and the White House reached tentative agreement Friday night on an economic stimulus measure at the heart of President Barack Obama’s recovery plan. Two officials said the emerging agreement was for a bill with a $780 billion price tag, but there was no immediate confirmation.