Obama's Dream Team Selection Stabilizes Markets ... For Now

On Thanksgiving eve, the price action in the currency market has been very erratic. Equities rallied for the fourth straight trading session while the US dollar weakened against the Australian and New Zealand dollars but strengthened against the Euro, British Pound and Japanese Yen.

Currencies appear to be decoupling from equities on this low volume pre-holiday trading session. Over the past few weeks, strength in equities has translated into strength in the EUR/USD but that was not the case Wednesday. US economic data was very weak, but hope continues to supersede reality as President Elect Barack Obama adds former Federal Reserve Chairman Paul Volcker to his team.

Obama’s Economic Dream Team

Rather than having to pick from Timothy Geithner, Larry Summers and Paul Volcker, Obama has decided to add all 3 of these well respected and talented men to his Economic Dream Team. The equity markets turned around after Obama announced that Volcker will be the Chairman of a new White House advisory board that is tasked with stabilizing the financial markets and pulling the US economy out of recession. This new Economic Advisory Board will give their opinions in briefings to the President and include experts outside the government with the goal of “infusing ideas from across the country and from all sectors of the US economy.” Even before taking office, Obama is proving to be a President who wants to hear every possible viewpoint before making his decisions. He is on track to hit the ground running come January 20th and the equity markets have responded very favorably to his appointments and the initial details of his economic recovery plan. Over the next 24 days, Obama will play a critical role in helping to maintain confidence in the financial markets.

Latest String of Economic Data Hits Multi-Year Lows

Confidence will be extremely important as the US economy continues to come face to face with weak economic data. On the eve of Thanksgiving, we have had a harsh reminder of the problems plaguing the US economy. With the shortened holiday trading week, there were a lot of US economic data released and a number of those indicators hit multi-year lows. As we have previously warned, because third quarter GDP only slipped by 0.5 percent, fourth quarter GDP could be very weak.

Is There a Risk of a Breakout on Friday?

For the currency market, the Thanksgiving Day holiday usually leads to low liquidity and thin volumes. Although this should mean range trading for all of the major currencies, watch out for a post Thanksgiving Day breakout. Low liquidity makes it extremely easy to exacerbate the volatility that we have been seeing in the currency market. In 2007 and 2006, the EUR/USD’s trading range on the Friday after Thanksgiving was more than 3 times its trading range on Thanksgiving Day.

Comments

[Anthony Alfidi:]

The Executive Office of the President will now have no less than three separate bodies dedicated to assessing the economy. Why not just consolidate them to avoid duplication of effort?

2008 Nov 26 07:52 PM

[Prudent Man...:]

"Dream Team". Same guys who gave us fifty times leverage and now the new guy is 81. Like these "new" faces because we know they are nothing but arrogant, statists. This is a "Nightmare Team".

What happened to Obama's "change"? He doesn't know anyone smarter and more experienced than these Ivy League Frat Boys? The "Chicago School" has sharper people than any of these Washington Insiders who have crafted our current economic problems.

If Governments could produce economic growth their would be no poor countries!

2008 Nov 26 08:47 PM

[DollarTalk:]

I am very thankful for the blessings that I have in my life. Now, regarding the market, the power of optimism never ceases to amaze me. In fact, we are missing a very large component of our view on the market and the economy in larger view when we discount the role of perception. Most of this market volatility was brought on by increased uncertainty and the perception that our credit crisis and financial difficulties were beyond our ability to solve as a free market. This, of course, was exacerbated by the media and capitalized on by the media in order to accomplish the election of now President-elect Obama. Now, the media has their man and would do well to continue to promote positive, uplifting views on the future direction of the economy and the solutions and people proposed by President-elect Obama. Otherwise, they will find themselves in the company of the Republican party when the public develops a pessimistic or negative perception of the new President and his leadership team. That's all for now. More on my blog.

2008 Nov 27 01:56 AM

[Asbytec:]

Well, Volker might be a good choice as a white house adviser. But, your point is taken, Prudent. I ask it myself the same thing.

It doesn't matter one iota if the Obama team simply tries to pump up the currently failing banking system. It is doomed to fail even if we just increase the amount of credit. He may well preside over the next depression.

I think he knows this, or he'd better. He may just need to direct his team down a different path. That is the change I 'thought' I heard when he mentioned the word. It remains to be seen.

And if he is innovative, the dollar should rally...on confidence. Ooops, that oxymoron, "dollar rally," and the term "confidence" will earn me some more "thumbs downs."

2008 Nov 27 09:01 AM

[NOWHEREMAN:]

Whatever will be, will be.

2008 Nov 28 04:04 AM

[guliamo:]

Check out this guy - he's running an obama portfolio on MarketGuru.. basically owning stocks set to pop due to Obama's victory... not doing too bad either... go Obama! :)
www.marketguru.com/Oba...

2008 Dec 08 11:11 AM