The Financial Accounting Standards Board, under pressure from Congress, which was under pressure from Wall Street, recently issued new rule changes that will be like throwing gas on a fire.

Whereas under the previous rules financial firms had to "mark to Market" the assets on their books (an we are being very generous in using the term 'assets'), under the new rules they can now "mark to model."

I do not believe this is a "practical valuation technique."

I believe it is a license to lie, and lie on a grand scale.

Whereas these financial firms were losing money hand-over-fist to the point that they needed hundreds of billions of taxpayer money in order to prevent their collapse (an action that I was strongly against - they should have been allowed to fail as a result of their poor decisions), now they will instead be able to report "profits" instead of losses (assuming, of course, that they have computer models that indicate their losses are instead profits. How difficult would it be to create a computer model that does that? Answer: not very).

This new rule change is going to skew the P/E ratio for the S&P 500.

Whereas under the old rules where losses had to be reported as such, the combined earnings of the 500 companies that make up the S&P 500 index were much less than what they will be going forward under this new rule.

Under the new rule change, losses are now profits because that's what "the computer models show."

This will have the effect of pumping up the combined earnings of the 500 companies that make up the S&P 500 index.

With the P/E ratio remaining the same, higher earnings will translate into higher stock prices.

Not that those higher earnings will be real, they will be fiction created by computer models. Nonetheless, this is going to throw more gas on the stock market rally.

This is the type of behavior that is typical of wave 2 rallies. It is only going to add to the over-valuation of the stock market so that when we finally reach the point where primary wave 3 down begins, it will fall in breathtaking fashion, which is also typical of wave 3's.

For now, though, expect this rule change to really ignite the stock market in the coming quarters as losses "magically" disappear only to be replaced by "profits."