Economists vs. Strategists

Stocks navigated choppy trading Tuesday afternoon, following nearly two weeks of consistent gains.

At 1:55 pm ET, the Russell 2000 (NYSE:IWM) is down 8.48, or 1.96%, at 425.54, while the Dow is down 0.29% at 7,753.08 and the S&P 500 is down 0.60% at 817.97.

Investors watched as Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner testified in Congress today over bonuses at AIG. Geithner asked Congress for greater power to safely dismantle giant financial companies such as AIG that pose risks to the economy.

Oil is hovering around $52 per barrel, and has risen more than 30% this month.

******497? What, the Dow Industrials can’t crack 500 points?

I’m kidding, of course. That was some impressive rally. The biggest one-day rally since October 28, 2008. And on the heels of Geithner’s re-hashing of Paulson’s bank bailout plan, too.

In Monday’s Small-Cap Daily, I wrote that most economists thought Geithner’s Public-Private Investment Program was an important step in freeing up our banking system to start lending. The smattering of opinion that was available Sunday night seemed to be positive.

By Monday morning, it was decidedly negative. Here’s a quote from Paul Krugman from the NY Times:

“…the real problem with [Geithner’s] plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.”

His views are shared by other notable economists including John Galbraith and Mark Zandi.

But analysts and strategists are saying that the Public-Private Investment Program, as it’s apparently called, could work. Or at least it will help. PIMCO’s Bill . . .

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