U.S. Government vs. the Stock Market

I view this week as a knock-down, drag-out battle between the US Government (Obama, Geithner, and the Senate who all want desperately to keep the stock market from falling) and the stock market itself which wants to drop precipitously. No doubt in my mind the government is aware that the timing of its news releases impacts the stock market drastically and this is why Geithner moved his speech from Monday to Tuesday. When the House passed its version of the stimulus package two weeks ago it was followed by a precipitous fall in the stock market in a classic “buy the rumor, sell the news” fashion. By postponing his speech until Tuesday, Geithner has the ability to make modifications for “damage control” purposes.

There will be no short supply of news this week with the Senate’s initial preliminary vote scheduled for Monday, Geithner’s speech tentatively scheduled for Tuesday, the Senate’s final stimulus plan vote also scheduled for Tuesday (which could easily be postponed), and many Senators believing a final bill will be on the President’s desk by Monday, February 16th as Obama has “ordered.”

In my opinion, the negative economic data is overwhelming at this point. The market actually rallied last week (especially on Friday), and at the very least we’re due for some profit taking sales. However, anticipation of all the news events scheduled for this week could actually prevent the massive sell-off that we’re due for, and who knows… Geithner and Obama may actually be able to pull some magical trick out of their sleeve that will result in an upward pop in the stock market the way it used to when the Fed announced an unexpected interest rate cut.

More likely, the bad economic data will be overwhelming and the S&P 500 will start moving downward. The big question for me is the timing of the short trade. Because the market rallied last week and because I believe we're due for a selloff, I'm looking for an entry point to get short again. Members will know if and when I hop back on the short side. And on a much bigger scale, this will undoubtedly be a very interesting week for the stock market.

Comments

[Tradememe:]

The "buy the rumor sell the news" tactic is the classic casino mentality that I hope will disappear as a result of this financial crisis.

Feb 09 05:21 AM

[joshuaodonnell:]

I believe this week may be the most important week in U.S history, economically anyway.... The govt. will make a decision on whether or not to borrow 800billion dollars of tax payer money to create jobs....

If it doesnt work?................. complete collapse and failure. There are no second chances with this kind of money. It either works or it doesn't and there's no turning back. Lets pray there all right about this. If there not and it doesn't work, will go into depression...if were not there already.

Feb 09 05:26 AM

[mr freddo:]

It might go up but it could go down.

No matter what happens, I can say that I was right.

Feb 09 06:28 AM

[morph366:]

Yet another week ahead that is the most important in a generation. Reminds me of the story of the boy who, playfully cried wolf so often that when a real wolf showed up on his doorstep everyone ignored him assuming it was another prank.
Needless to say the wolf had a good meal.

Feb 09 06:52 AM

[Erez Attiya:]

Every month has a new giant crisis and every new week delivers the "worse event in generations". Enough with these anger prophecies, there always a closer crisis that threaten the stability of our delicate financial markets, Don't forget that when the markets went up good and hard, not you and not anyone (except for some economic pros but certainly not you) has something bad to say, so please, let the professional do their work and if they'll (IF), then you'll have a chance to giggle on this figure or another.

Feb 09 07:22 AM

[ROLEX18:]

Ever week is a great week for the market and even every minute is important when you daytrade, let the government and market fight, let the traders make their mistakes, let me pocket the difference.

Feb 09 07:28 AM

[six:]

This week is the first week the new administration has a chance to implement plans to fix the economy. I agree with you that it is a titantic struggle between the "let me fix your problem" gov and the actual news. Last week was a great example of the market being irrational. The worst employment report since 1974 and the market goes up based on the hope the US Gov is going to fix things. That is a joke. I try not to trade trends that buck reality so stayed out of it. There is no question that the only way to play the market is go short, the only question worth asking is when to get in.... For now my bet is to trade the ultra short ETFs and time my trades in hours and minutes. Buy and hold? Good luck with that... unless you are Warren Buffet and have Goldman calling you with a special deal you better learn to hit and quit it or get out while you have the shirt on your back.

Feb 09 07:32 AM

[Richard Glenn:]

The drumbeat of dire economic data is nothing but bad, there is no arguing with that, but in spite of not a single piece of good news the market has refused to roll over for almost 2 months now. It has had some down days, yes, but so far it has managed to find a "reason" to quickly bounce back each time. I think we may still go lower, but I would caution against ignoring short term price action. Some of the best rallies happen in bear markets, and traders who don't listen to what the market is telling them will miss out. Right now, it seems that the market is whispering, "psst, i'm done going down. For now."

Feb 09 08:45 AM

[RonC:]

If we're not in trouble the bailouts/stimulus are the biggest heist in history of the universe. Which previous recession caused these kind of actions? The recession of the 1930's is the only one that comes to mind.


On Feb 09 07:22 AM Erez Attiya wrote:

> Every month has a new giant crisis and every new week delivers the
> "worse event in generations". Enough with these anger prophecies,
> there always a closer crisis that threaten the stability of our delicate
> financial markets, Don't forget that when the markets went up good
> and hard, not you and not anyone (except for some economic pros but
> certainly not you) has something bad to say, so please, let the professional
> do their work and if they'll (seekingalpha.com/symbo...),
> then you'll have a chance to giggle on this figure or another

Feb 09 08:46 AM

[Roberm73:]

buy the rumor sell the news has been around. In this case we may sell the rumor and the news. I not sure the Obama plans are new and may lead the market to a low as well.

Feb 09 09:00 AM

[grbn:]

"(Obama, Geithner, and the Senate who all want desperately to keep the stock market from falling)"
I don't believe they have any interest what-so-ever in the direction of the stock market. It's economic indicators and such that gets the press and is how they are measured.
The market only cares that a plan gets passed, period, and doesn't even judge it's contents. Otherwise, the author is correct. After the bill passes it is immediately forgotten. At that moment or the next bad data news comes the immediate sell off.

Feb 09 09:20 AM

[prudentinve...:]

It is unfortunate that politicians make laws that affect our future for years, based on how the stock market will respond for a few days. They even admit to this short-sighted view, as happened during TARP discussions.

Policy should be based on long-term fundamentals and values, and markets should be allowed to find their own equilibrium level. I'd go farther and suggest that markets would trend higher if investors believe that policy is being set for its long-term benefits.

Feb 09 09:21 AM

[bobbobwhite:]

Paulson's announcement of the giant bank bailout did nothing but drop the market more. Are the banks doing business as they were before 2008? No(except for bonuses). Are they lending as then? No. Did it make them honest forever? No. Are bank stocks way up? No. Have many gone under? Yes. Will more go under? Yes.

This next bailout for America is for a different purpose but will it be any more successful by itself in moving the country out of depression?

Feb 09 10:08 AM

[Larrysyr:]

This long-term/short-term conundrum has infected private companies as well for a long time. How many strings of great quarters are followed by a quick drop into bankruptcy?

On Feb 09 09:21 AM prudentinvestor wrote:

> It is unfortunate that politicians make laws that affect our future
> for years, based on how the stock market will respond for a few days.
> They even admit to this short-sighted view, as happened during TARP
> discussions.
>
> Policy should be based on long-term fundamentals and values, and
> markets should be allowed to find their own equilibrium level. I'd
> go farther and suggest that markets would trend higher if investors
> believe that policy is being set for its long-term benefits.

Feb 09 12:07 PM

[Tony Petroski:]

Prediction: Obama goes on the air (I won't be watching) and he tells us (he is the latest Dr. Doom) "All is lost unless the lawmakers (Senate/House) pass a stimulus package right now!" The lawmakers pass the package right now. The market rallies and then sells off. 6 months later we ask ourselves, "What was all that about?"

Feb 09 12:19 PM

[henarl:]

Your right Tony, in the next six months there will be so much more economic and financial happenings (possibly including another, even bigger bailout) that this current one will be all but forgotten, Who talks about the Lehman failure any more?

Feb 09 12:54 PM

[Moon Kil Woong:]

I am reminded of Donnie Darko. The plane has crashed folks. The market is in a fictitious government manipulated dream state. AIG, Citibank, Fannie Mae, Freddie Mac, BoA, et al are all the manipulated dead.

We are told to root with criminals telling us to be happy and everything is our fault as he commits unspeakable crimes in the dark. (In this case it's banks sucking public money, gambling on derivatives, and telling us helping them is good for us.) We are worried about the sparkle girls sideshow (stimulus, bailouts, Fed bond buying, Fed loan backing, Fannie and Freddie special deals, etc.) when we should be worried about our very existence as a capitalist society.

We need a wake up call. When government givaways of your money stops making the market happy, then and only then, maybe we can have a decent discussion about economic reality.

Feb 09 09:32 PM

[Gob:]

Tomorrow marks the day all of us are going to have trouble explaining to our grandchildren, who will get stuck with the bill we were to selfish and cowardly to pay ourselves.

Feb 10 01:25 AM

[Burticus:]

From the International Forecaster 2/7/09:
"Obama's stimulus plan, aka the Political Payoff Plan or PPP, together with the second half of the TARP, aka the Paulson Ponzi Plunder Plan or PPPP, will deliver a shot in the arm to our economy that will be both brief and shallow, sending us careening on our way to hyperinflation, which will deepen the depression we are already in by sending interest rates skyrocketing and killing off what little business activity remains. Interest rate swaps, with notional principal in the hundreds of trillions, will also implode at that time, administering the coup de grace to the world economy and financial system from which the Illuminati hope to form their one-world government, economy, currency, feudal society and religion.

The Illuminati may use the brief upsurge derived from the PPP and the PPPP as an opportunity to complete the Big Sting Two, where they dump their dollar-denominated paper assets in favor of tangible real assets via dark pools of liquidity and unregulated OTC markets out of the view of both regulators and the public, leaving all the non-insider sucker-dupes holding the bag full of the worthless fiat currency known as Federal Reserve notes (aka toilet paper) or paper assets denominated in such. Dollar surplus nations who are tight with the Illuminists will be allowed to go on a spending spree and join in on the fun by spending their once-sterilized dollars, and this will then very seriously aggravate an already deadly bout of hyperinflation. You won't know about what these other nations are doing, however, because the Illuminist-controlled FTC no longer publishes figures about foreign investment in the US. How incredibly convenient.

When the Big Sting Two is set into motion, gold and silver will then go on a moon-shot, and if you don't own any, you will be financially vaporized, and join the ranks of the other crispy critters who were too dumb to recognize that gold and silver are the only real money in this world."

Feb 10 01:23 PM