Saturday, November 22, 2008

The Geithner Rally?

In yesterday morning's blog, I mentioned that Obama's nomination of a Treasury chief would go a long way to ease the stock market and help slow or even reverse the 22 percent slide that we have seen over the last 12 days since the election. Late yesterday, amid another lackluster trading session, the name of New York Federal Reserve President, Timothy Geithner. was leaked. Shortly thereafter, the stock market rallied with Dow Jones Industrial Average ("Dow") reflecting a gain of 494 points. Even so, the Dow was still down 5.3 percent for the week; thus making the 3rd straight losing week since the election.

Did the Geithner leaked appointment cause the markets to rally? I don't know. Certainly, the market was ripe for a comeback; with or without the Geithner leak. Yesterday might just have been the result of the monthly expiration of stock market options and futures. These expiration days are always responsible for a lot of volatility. Normally, following a big run up in prices (as was the case on Friday), the next trading (or two) will see profit taking and the market could lose as much as a half to 2/3 of the prior day's gains. The investment community will have a whole weekend to mull over the Geithner appointment. If Monday's anticipated losses due to profit taking are tepid, or the market is even up, then I guess you could say that Obama got an all thumbs up with Geithner. Even if the markets do have sharp profit taking on Monday, any positive weekly gain for the Dow would also mean that they are a little more comfortable going forward. That, too, would prove that Friday's rally was a signal of hope and not some technical reaction to three down weeks.

I only have a limited knowledge of Geithner, but I feel that he is a "free-trader" at heart. I believe that he was on record as being against the the Lehman Brothers bailout. However, being a member of the Federal Reserve's highest echelon, he has a problem, in my mind, of being a little too academic. His views, as with Bernanke and Greenspan, are a little too top-down and hypothetical and inflation-centric for my taste. I have always blamed Greenspan's nearly two-years of unrelenting hikes of interest rates to fight some non-existent inflation, to be one of the reasons we are in the credit mess that we are in today. In many ways, Geithner's selection says that the money policy of the Obama Administration will be siding with the government's banking system; whereas, Hank Paulson, of the Bush Administration, had more of a business community leaning. Whether or not that is good or bad, I really don't know. I personally believe in having a more business oriented Treasury head.

I am still waiting for the day when Mr. Obama announces a delay, or a scrapping of his tax plans. That's the day the market will "really" rally. Until then, with Obama and the Democrats at the helm, I believe we will experience a long and a cold business environment, and the markets will keep responding with a continual downward movement.

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