Scaredy Cat Markets

Posted November 19, 2008

Secretary Treasurer Paulsen has a difficult time explaining use of bailout package in front of US House of Representatives panel. The G20 summit meeting over the weekend failed to accomplish much which fueled continued investor nervousness.


Kids call each other “scaredy cats” when one refuses to do something brave.  That concept can be extended to the markets today, because everyone is virtually afraid to do much to add to financial stabilization.  The reason this is true is because the current bailouts have re-established some control again in world markets, but not nearly as much as global experts had expected by now. 

But perhaps the heated discussion between Secretary Treasurer Paulsen and US House representative Barney Frank gives us a clue as to why this is true.  Barney insisted the bailout package was intended to help the mortgage market and contribute to economic stimulus.  Paulsen made it clear he disagreed and said that the Troubled Asset Relief Program was never intended to provide economic assistance to consumers and he would not support using the remaining money in that fashion. 

So here you have two of the most powerful and responsible people in the US government who cannot even agree on what was approved as a bailout package.  That is a sign of how unusual and severe and complex the financial market meltdown has been.  The new US President, Barack Obama, will have to decide how the remaining bailout funds are to be used. 

Another major issue that is affecting stocks and currencies is the one related to the US auto industry.  General Motors continues to tell US lawmakers the company faces bankruptcy without additional financial assistance.  The Ford Motor Co. and Chrysler LLC are not far behind.  The Japanese yen rose against the dollar yesterday, because Japan does not expect the US to fund the big three US automakers this calendar year. 

In other words, Congress is a big bunch of “scaredy cats” right now.  Do they or don’t they buy more stakes in US banks?  Do they or don’t they stop loan foreclosures?  Do they or don’t they….well….you get the idea. 

The US currency gained against all the major global currencies except the Japanese yen.  In terms of US dollars, the euro weakened to $1.2591; the British pound weakened to $1.4918; the Canadian dollar weakened to $.8097; the Australian dollar weakened to $.6458; the New Zealand dollar weakened to $.5487; and the Swiss franc weakened to $.8316. 

The Dow Jones Industrial Average increased by 151.17 points to close at 8,424.75.  The increase was attributed to Hewlett Packard announcing 4th quarter earnings would be higher than estimates, investor feelings the US will not allow the giant automakers to fail (despite Japanese predictions), and the knowledge that the US Congress and the White House at least are developing real opinions about the direction the bailout should take at this point. 

You have to remember that many times the equity markets move up and down based primarily on investor confidence.  In other parts of the world, the FTSE changed by 76.39 points  to close at 4,208.85.  The NIKKEI, on the other hand, dropped by 122.49 points to 8,205.92 as investors continue to absorb the news of declining exports and recession. 

So the scaredy cats are everywhere.  They are in Congress, in the stock markets, and in the currency markets. 

Oh yeah…they are also G20 members.  If you remember, the G20 met over the past weekend to begin addressing global financial regulations that will prevent a repeat of the financial market collapse from happening again in the future.  The results of the meeting were disappointing to say the least.  Virtually nothing was accomplished with the next meeting postponed until next April. 

The bottom line is that investor nervousness will probably be around for a while longer.