Saturday, November 22, 2008


I think Friday was an important day in the markets. It is the first time we had a good look at how the Obama administration will use market timing to its own ends.

Team Obama's timing of the Friday news leak was no accident.

On Friday, the market technicals were both very oversold and exhibiting positive divergences with the October 10th low, a condition that under normal circumstances would signal a huge rebound rally.
The markets have been very skittish lately, and biased towards being very negative because of perceptions of both uncertainty and indecisiveness in the response to the current fiscal crisis.

In the cross currents of an option expiration Friday, always good for a bit of volatility, the markets were moderately positive but indecisive. They needed a bit of news as a catalyst to fuel the strong rally late in the day.

The news tidbit was the name of President Elect Obama's appointee for Secretary of the Treasury, Timothy Geithner and it was leaked to wall street on Friday afternoon.

Without getting into the pros and cons of Obama's choice, the more interesting issue is the timing of the leak.

In order to send a strong message to both Wall Street and Main Street, a message that Team Obama was on the ground and taking action to insure the continuity of the response to the current fiscal crisis.

I believe the leak was shrewdly disseminated with an acute awareness of how to engender the most positive response from the equity markets.

1. The market technicals were screaming for a reversal but needed a news spark.
2. They waited until the technical condition was extreme, this could have happened Tuesday or Wednesday, it didn't.
3. The 'leak' happened on a Friday leaving the whole weekend for the markets to consider the news, three days for the price of one.
4. Coincidentally or not, it was an option expiration Friday.
5. A strong Wall Street rally would generate positive news surrounding the appointment.

Regardless of what one may think of Obama, he is the boss for the next four years. What he does will affect the markets, and it makes sense for us to pay attention to his methods.

This was very well played. Put it in the play book.

Following up in his weekly radio address Obama Targets 2.5 Million Jobs With Stimulus Plan
By Edwin Chen and Jason Gale
Nov. 22 (Bloomberg) -- President-elect Barack Obama said he aims to save or create 2.5 million jobs in a two-year plan to simulate an economy facing a “crisis of historic proportions.”

“It’s likely to get worse before it gets better,” Obama said today in his weekly radio address. He said that this week “financial markets faced more turmoil,” potentially leading to a “deflationary spiral” that may plunge the nation further into debt and cost millions more jobs.

The economic slowdown has been exacerbated by the worst credit crisis in seven decades. More firings will weigh on the economy and consumer spending, putting pressure on Obama and Congress to agree on legislation that will stimulate growth.
Three days for the price of one.

Obamarama will be the heading for an ongoing series of observations of the Obama administration's interaction with the equity markets.

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