Here Comes Turbo Timmy's Troubled Toxic Asset Clearance Sale

Wall Street Journal
U.S. Sets Plan for Toxic Assets
By Deborah Solomon
March 21, 2009

WASHINGTON -- The federal government will announce as soon as Monday a three-pronged plan to rid the financial system of toxic assets, betting that investors will be attracted to the combination of discount prices and government assistance.

But the framework, designed to expand existing programs and create new ones, relies heavily on participation from private-sector investors. They've been the target of a virulent anti-Wall Street backlash from Washington in the wake of the American International Group Inc. bonus furor. As a result, many investors have expressed concern about doing business with the government in this climate -- potentially casting a cloud over the program's prospects.

The administration plans to contribute between $75 billion and $100 billion in new capital to the effort, although that amount could expand down the road.

The plan, which has been eagerly awaited by jittery investors, includes creating an entity, backed by the Federal Deposit Insurance Corp., to purchase and hold loans. In addition, the Treasury Department intends to expand a Federal Reserve facility to include older, so-called "legacy" assets. Currently, the program, known as the Term Asset-Backed Securities Loan Facility, or TALF, was set up to buy newly issued securities backing all manner of consumer and small-business loans. But some of the most toxic assets are securities created in 2005 and 2006, which the TALF will now be able to absorb.

Finally, the government is moving ahead with plans, sketched out by Treasury Secretary Timothy Geithner last month, to establish public-private investment funds to purchase mortgage-backed and other securities. These funds would be run by private investment managers but be financed with a combination of private money and capital from the government, which would share in any profit or loss....

US Dollar Weekly Chart with Commitments of Traders

SP Futures Hourly Charts at 1:45 EDT: Vertigo

Recall that today is a quad witch in the options expiration, which typically bring a great deal of market manipulation in the days preceding.

The rally failed at 800 resistance, which would the neckline of an inverse H&S bottom, and the answer to bully's prayers.

Since the economy is not recovering six months ago, we expect that failure to stick and a new leg down to precipitate. This setup is easier to see on the second chart which is The Big Picture.

As always, we will wait for confirmation of this breakdown before taking positions of size. However the trend of our hedges has shifted to the short side at the second failure at 800 on the hourly charts.