Tuesday, February 10, 2009

Was that Sell The News or Sell Timmie?

Tim (Timmie) Geithner didn't win over many critics with his "we've got a plan to build a plan to launch a plan" speech. However, I think the near-400 point drop was more likely due to some combination of the following:

1) Sell the news again - We've seen every major news event where the expectations were high met with a market sell-off. I think expectations were high for this plan and the financials had a huge run in recent weeks. The Dow is back down to it's lowest levels of 2009 (Did anyone notice that crazy closing price - 7,888.88?).

2) Rumors - There were some crazy, crazy rumors about what was to be included in the plan which I won't repeat. When none of those rumors panned out, I think some people decided to sell first and ask questions later.

3) They held the line on Mark-to-Market - There was a rally last week on talk that the plan would include scrapping mark-to-market accounting. I think I've covered my concerns with that idea, but this was a big, bold decision and I'm glad to see the powers that be make a correct but unpopular decision.

We'll see how the market digests the balance of the news this week, but the corporate news remains bleak tonight (Applied Materials - "businesses are suffering their most severe fall off they have ever experienced", Sirius possibly filing for bankruptcy?, Walmart layoffs at headquarters?).

China is really starting to be more vocal in an effort to ensure the value of the US securities they hold.

Tonight this article at Bloomberg said:

"China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,”.

Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.

“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”

Well, that's kind of a chicken and egg scenario. The US can try to support the exchange rate all we want, but if China stops buying $'s our exchange rate will fall.

Crazy days.

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