Daily Market Reports | Feb 11 2009
By Greg Peel
The Dow fell 382 points or 4.6% while the S&P lost 4.9% and the Nasdaq 4.2%.
Rooky Treasury secretary Tim Geithner came out of his hole last night and saw his own shadow, leading Wall Street to declare there will be another six weeks of winter. The disappointment was palpable as Geithner rattled off a serious of support plans for consumer loans, mortgage holders, toxic asset purchases and bank capital injections that was big on Monopoly money dollar amounts but lacking in any detail. It was a statement of goals, not a statement of action. They are the same goals that both this and the previous administration have been bandying about since last year. On Wall Street, it’s Groundhog Day.
And so we are now back in November. The Dow closed last night at 7888, not far from the previous closing low. For a couple of months Wall Street has quietly been building up an expectation that the Obama administration would throw all its resources behind a comprehensive plan to save the world, starting with the US banking sector. Stocks have rallied gradually. There has been a timid return to commodity investment. US Treasury yields have edged up, suggesting an easing of the “flight to quality”. The yen has been once again sold against other currencies, including the Aussie dollar, in an indication that carry trade risk is slowly being accepted once more. Well, Geithner’s plan included “all resources”, but provided no new strategies other than those which have been discussed for months now. We are still talking in mission statements. It’s like a politician including in his platform an intention to pursue world peace.
There is US$1 trillion being promised for support of the consumer and small business loan market. This is the same Term Asset Loan Facility which has been around for a few months, only with a bigger number. There has been US$50bn promised for mortgage foreclosure relief. That’s not new either. What is new (if you don’t count the original Paulson-Bernanke plan from September) is a US$500bn public-private vehicle intended to buy up those toxic assets. This is an approximation of the Bad Bank concept, but with no further detail it remains only a hollow shell of a plan. There was no accompanying reference to whether mark-to-market rules might be relaxed. There was also a pledge to provide equity support for struggling banks, but again there was no detail other than a warning such support would come with a “stress test”. That last bit really spooked Wall Street, and the major banks all lost 5-15% or more of share price value.
It was all a big disappointment.
The market bought back yen positions and bought back US dollars against the euro in the return “flight to quality”. The Aussie was sold off by three cents to US$0.6512. The flight to quality extended to gold, where a sharp reversal of yesterday’s unwinding saw the metal jump US$20.10 to US$917.00/oz.
A combination of a return to US dollar strength and disappointment from an economic recovery point of view that no comprehensive plan is yet in place saw commodities sold off. Oil fell 4% or US$1.56 to US$38.00/bbl. All base metals bar nickel fell 2-3%. Nickel fell 5%.
The SPI Overnight fell 80 points.
The other vague element to Geithner’s vague plan is that in theory, the government only has about US$320bn of TARP money left before it has to go back to Congress to ask for more. Clearly the Monopoly money numbers mentioned last night exceed that figure by a significant amount. Is the Fed going to fund the balance? Will the administration need to return to Congress with its hand out? Geithner couldn’t say.
It is little surprise the VIX volatility index jumped 8% to 47 last night. If anything, it’s a surprise the jump wasn’t greater. Uncertainty rules again. Perhaps we should be sympathetic that a brand new administration made up of eager but green officials, who are still coming down from the euphoria, should need some time to settle in. But the situation is urgent, a plan was promised, and a plan was not forthcoming. Nero is fiddling.
