@Traders Expo: Government Unity, End of Mark-to-Market Accounting

by: Brian Kelly

I am just back from spending some time at the Trader’s Expo in New York, through the courtesy of Seeking Alpha. During a panel session, one of the moderators mentioned the organizers of the show were concerned that the market meltdown would make the Trader’s Expo a ghost town. To everyone’s surprise, this year was one of the busiest shows ever produced. The general explanation was that investors who have suffered losses from a buy and hold strategy are suddenly seeking a means to protect their assets. Speculation was that buy and hold investors were hoping to pick up techniques and technology that will make them money in this historically volatile market.

I attended a panel discussion where the aforementioned speculation was proven correct. The title of the panel discussion was “The New Washington: Tried and True Trader’s Best Ideas.” The room was packed with investors who had heretofore been buy and hold, but have seen their accounts dwindle and were looking to the panelists for answers. They could not have chosen a better group of panelists: Dennis Gartman, Eric Bolling Vince Farrell, Todd Harrison, and Jon Najarian. It was like watching Fast Money live.

While each panelist had their own perspective (some chops were busted, but it was all in good fund), all the panelists agreed on two themes:

  1. The markets will not improve until there is a unified voice in Washington.
  2. It is only a matter of time before mark-to-market accounting is suspended.

Of course, both of these are hot button issues. While the first theme may appear to be impossible to achieve even in the best of times, the general thought was that having several members of the same party holding separate news conferences with conflicting messages was doing nothing to restore confidence.

The second theme simply requires the political muscle to repeal or suspend the rule. All of the panelists thought that such a move would immediately cause a rally in the financial sector. While, it is likely that such a move would result in a big short covering rally, the long-term implications are less clear. Once the dust settles, investors will still seek transparency and the banks will become even more opaque. The winners will likely be the same banks that will lead the pack regardless of the accounting treatment, while those who have relied on accounting anomalies would remain suspect investments.

Both of themes are extraordinarily difficult to trade, in fact, many of the panelists advised against it. The biggest obstacle to establishing a position to take advantage of themes is that the Government continues to change the rules of the game. This, of course, feeds right back into the loop of the Government needs one unified voice! Oh, what a fine mess we have!

Disclosures: None