"Thank you very much. You've been a great audience."
In general, there does not seem to be strong empirical support for the proposition that derivatives increase volatility in financial markets. Volatility is not higher where derivatives are most prevalent.
Timothy Geithner March 2007 | Credit Markets Innovations and Their Implications
U.S. stocks on Friday surged on a report President-elect Barack Obama would nominate New York Federal Reserve President Timothy Geithner as Treasury secretary. The leap higher in the final hour of trade came on the heels of a two-session freefall and halved the market's weekly decline.
After a volatile session, equities rocketed higher in the wake of an NBC report that Obama would appoint Geithner to head the Treasury Department.
CNN | Stocks Trim Weekly Losses On Word Geithner Will Head Treasury
David Kotok, chairman of the money-management firm Cumberland Advisors in Vineland, N.J., welcomed the news about Mr. Geithner in particular, but he attributed the market rally to relief that Mr. Obama seemed to have made a decision. “The most important thing for the market and for the economy is that these decisions are made and uncertainty is removed,” Mr. Kotok said. “It probably would have been the same rally had it been someone else on the short list.”
New York Times | For Treasury, Geithner Said to Be Choice
Geithner has been deeply involved in virtually every step of the federal government's response to the financial crisis, from the subsidized sale of Bear Stearns last spring to the rescue of American International Group (AIG) this fall.
That experience could stand him in good stead as the Obama Administration takes office amid what is likely to be a bad recession, and possibly a continuing financial crisis. At the same time, it also opens him to criticism by those who say the government's response has been tepid, chaotic, and poorly conceived.
BusinessWeek | Geithner: Obama's Likely Treasury Choice
Mr Geithner has worked closely with outgoing Treasury Secretary Henry Paulson in addressing the credit crisis and finding ways to boost the economy. The 47-year-old played a crucial role in talks with Lehman Brothers before the investment bank went bankrupt. He was also instrumental in the deals involving insurer AIG and JP Morgan, another bank.
The NBC report was enough to counter concerns over the finance sector and in particular the future over banking giant Citigroup, which saw its shares plummet 20% as board members met.
BBC | US shares up on 'Treasury choice'
"The market's message is Geithner is a good choice. He's young, he's intelligent and he's experienced. What this country needs are people who are young, full of energy, and can put in 26-hour days. There's nothing like leverage," said Hugh Johnson, chairman of Johnson Illington Advisors.
MarketWatch | Stocks rally on report Geithner will head Treasury
An avalanche of reports on the economy next week, which will be shortened by the Thanksgiving holiday on Thursday, could also provide further evidence of the depth of the recession. But "there's a possibility that we have a decent week because there won't be many people at their trading terminals," said Paul Nolte, director of investments at Hinsdale Associates.
MarketWatch | Stocks look for respite in holiday-shortened week
Over the past few months, I've been trying to take our Global Economic Crisis (GEC) seriously. In fact, I've gone as far as following the markets — the blue-chip Dow in particular. I've come to realise that there is much that is bent and twisted about the so-called "markets" and that any bearing they might have on economic reality is purely coincidental. Even so, it seems some things follow each other as surely as night does day. Economy down = markets down and vice versa are supposed to fall into this category.
So could somebody please explain to me how Obama's forthcoming announcement that career-thug Timothy Geithner will succeed fellow Dartmouth old-boy King Henry should send a deeply troubled Dow, having lost ten percent of its value through a week spent in an economy destined for the dustbin, soaring 500 points.
Really. I've tried to wrap my head around this one, but can't. All I come up with is:
"Economics as practised on the trading floor is bullshit."Nothing else explains it. It seems that if Mr. Obama were to pay the NYSE a personal visit, the economy would experience a Siegessäule Moment — and the GEC would be behind us.
or
"The American capacity to indulge childlike behaviour is infinite."
I've bolded several telling comments and acronyms above. They tell their own story — one which, to my untutored mind, is far more revealing than the verbiage in which the words reside.
The BBC article contains a gem of British journalistic wit, i.e. Geithner's chief qualification for the job: "The 47-year-old played a crucial role in talks with Lehman Brothers before the investment bank went bankrupt," deadpans the Beeb.
MarketWatch goes the other way and, in an aside to the Geithner story, offers us this telling insight on Citi's woes from Oaktree Asset Management market strategist Robert Pavlik: "When a major institution has to consider selling itself up or selling assets at a discount value, that's not a good sign."
I wonder what he charges for such analysis.
I've not included in my overview an observation made by that most heinous of tabloids, the Wall Street Journal. On the timing of the "Geithner leak", it opines:
Amid the brief market euphoria, it is hard not to notice the leaks and air of disorganization coming from the Obama transition team on these important appointment decisions. The new President may come to appreciate George W. Bush's experience with lower-tier political players who put their own compulsions above his desire to govern.Now, everybody knows the Wall Street Journal's a bit past it for a fanatical right-wing dishrag but, c'mon, given its acceptance of the Bush regime's history of planned leaks, how the hell does the WSJ expect anybody to take such a comment seriously?
I suppose they're pandering to the question on everybody's lips these days: "How low can we go?"
Paul Nolte's comment is wonderful. Next week Monday sees reports on October existing home sales. On Tuesday, the S&P/Case-Shiller home price index for September and the Conference Board's consumer confidence index for November are due. Wednesday will see new home sales figures, weekly jobless claims, another reading of third-quarter growth, personal income data, a manufacturing survey from the Chicago region in November, and durable goods orders for October.
But everybody will be on holiday. So none of it matters.
If Nolte's statement doesn't inspire fear, surely that of Johnson Illington Advisors chairman Hugh Johnson, commenting on Geithner's appointment, must: "There's nothing like leverage," he says.
It's leverage that got us into this mess in the first place. Ask the twenty-second banker.
A right-of-centre Obama presidency — highlighting the business-as-usual nature of Geithner's likely nomination and the absurdity of Wall Street's response to it, is starting to look more like a Michael Jackson concert filmed by Disney than a shot at economic recovery.
Really, I give up. It's all beyond me.
Let the band play on. It's a real crowd pleaser.
Credit market innovation does not appear to have resulted in a large increase in leverage in the corporate sector, as some had feared.
Timothy Geithner March 2007 | Credit Markets Innovations and Their Implications
Note: The National Intelligence Council report, Global Trends 2025: A Transformed World, pointed to above, is a 8.5 MB pdf download. You might wish to save the bandwidth. Written by the usual suspects, it reads like Reader's Digest ...
... which this week features president-elect Obama's plan to save the U.S. economy.
