Subprime's Salvation Is Fed's Conundrum

The markets continued to rally Tuesday, and the S&P 500 closed above both its March 9 intraday high and March 12 closing high, which is a bullish technical sign. The S&P 500 closed up 0.6% at 1410.94 while the Dow Jones Industrial Average finished up 0.5% to close at 12,288.10. The Nasdaq Composite closed up 0.6% at 2408.21.

Farallon's loan to Accredited is just one of many examples of trades and investments founded on the idea that liquidity isn't drying up. The $30 billion worth of M&A deals announced in the first two days of this week are another example.

Tuesday was almost as robust as merger Monday:

Claire's Stores(CLE Quote) jumped 3.6% on news that Apollo will take the company private in a $3 billion deal. Cerberus Capital joined with Affiliated Computer Services'(ACS Quote) chairman in a $5.9 billion bid to take the company private, sending it up 16.9% on the day.

Meanwhile, handheld technology company Palm(PALM Quote) gained 3.5% on a news of a possible buyout.

Motorola (MOT Quote) rallied 2.9% after CEO Ed Zander canceled a scheduled appearance at a wireless conference, spurring speculation that either a deal or a change in Motorola's executive suite is in the works.

Oracle(ORCL Quote) jumped 2.2% and was gaining more ground in postclose trading after the company reported strong third-quarter earnings. The profit surprise was largely due to unexpectedly strong license applications. If companies are spending more on software and information technology than analysts expected, it is a sign of a strong economy, not a weak one.