Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.
Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market. From the squishy rhetoric about how complex the problem is to the lack of a clear time-frame for when specific weaknesses in the financial sector would be addressed, Geithner's speech did nothing to assuage the market's concerns about the nation's future.
Broadly speaking, reaction to the speech broke down into five areas:
1. There Really is No 'Change'
"Maybe there's not much that can be done right now other than let this work itself out." While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.
2. A Far Cry From Finished
If the administration was purposely setting out a general plan with the specifics to be crafted by Wall Street, then it may have accomplished something. With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.
3. Treasury Bubble Still Popping
While Treasurys rallied Tuesday on a further flight to safety, government debt prices are likely to fall as more and more supply comes on line while the government finances the bank rescue. The predicted trend reflects the difficulty the government will face getting a premium on bills it will be in a hurry to unload.
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"The idea that you can just borrow and spend, borrow and spend, run ever-larger deficits and essentially print money with no consequences is economically naive," says Mike Larson, analyst for Weiss Research's Money & Markets newsletter. "Yet no one seems to be talking about the unintended consequences until now."'
4. Money Will Stay on the Sidelines
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult. "The poor reception afforded to Mr. Geithner's speech in which little was revealed reminded investors that more turbulent times may be ahead without some sense of resolution to the health of the banks' balance sheets.
5. One Hope: 'Buying Begets Buying'
The one bit of solace from the post-Geithner selloff Tuesday was that you could have set your watch by it. As news spread last week that a rescue plan was in the making, the markets jumped. When the actual plan was unveiled, the market jumped back.
Buy-the-rumor and sell-the-news has been one of the few constants in a stunningly volatile market, and the continuing of the trend raised hopes that the selloff Tuesday would be a one-off event. more...
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