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?).

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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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