OK, I'll say it: I think the low is in.

I wrote the other day that the market wasn't overreacting to the news that changes were coming to mark-to-market accounting rules, but I actually believe the rally thus far is a severe under-reaction .

It's not just the spiraling effect current rules are having on banks' balance sheets, which is well known, it's the depressing impact m-t-m is having on new lending, which is less well understood; these banks won't make many types of loans b/c they're afraid of the balance sheet implications of such loans.

This effect cannot be emphasized strongly enough, and the real-world impact is that even companies with pristine financials are having trouble getting full access to the credit they need, which in many instances limits their ability to grow (if tied to bonding requirements, LOCs, and all manner of ordinary, daily financial transactions people don't realize are being killed by this credit freeze).

Look, I didn't apy any attention to this mark-to-market issue until last Fall and I don't consider myself an expert in the matter. At the same time, any in-depth studying of the issue makes it clear how central these accounting rules have been in torching this economy. I'm constantly stunned at the talking heads who rail against it; they either think they're being purists (a mistake because marking many of these troubled assets to a model would actually bring about more price discovery, not less) or else they're just ignorant of the topic altogether.

If it's the latter, which must describe the majority of market participants, then most investors should also be ignorant as to the beneficial impact a change in these arbitrary accounting rules will have, hence my belief this rally is an under-reaction so far.

The risk is, D.C. screws this up somehow and makes insignificant revisions or, worse, no change at all. It sounds, however, as though everyone's singing from the same hymnal on this one and that change is coming soon. And, let's be honest: the adminstration has been having a pretty good week. Its first week of looking like adults thus far.

With today's action, in percentage terms the market has bounced quite a bit so we could see some back-and-forth action in the near-term, to be sure, but I'm buying here because I believe Washington will actually get this one right (which I don't say lightly because I've been burned by these guys before ).

And while I don't like the long-term fiscal foundation that's being built, if substantial revisions to m-t-m accounting are indeed finalized, I would not be surprised if this economy returned to growth before the year is out.

I had refrained from calling an outright bottom (I don't really like even being party to that phrase) to this point because I had been looking for extreme capitulation , which I thought was missing. You don't always get every little piece to line up exactly how you want, however, and I'm willing to accept that we didn't get outright panic because investors had instead simply given up on the market. And perhaps that's a capitulation of sorts in itself.

Anyway, this change would represent such a significant fundamental development that it trumps any of those final anecdotal indicators. And it's one I'm willing to bet on, believing that the intra-day low of last Friday will mark at least an important intermediate-term bottom.