Media Misreads Bailout Plan Reaction
By Barry Ritholtz - February 11th, 2009, 9:13AM
I am out of the pocket most of today, but I had to address what I see as a misread of the reaction to the latest Bailout plan.
Both the NYT and the WSJ seemed to focus on the lack of details as the cause for the selloff. But that conclusion is belied by the “sell the news” reaction immediately as Geithner began speaking. No one could have digested anything iin that milli-second.
I have a decidely different take. Wall street was hoping for another multi-billion, no strings attached, taxpayer funded giveaway. Instead, they got something much tougher than they expected.
Hence, the selloff/tantrum.
They wanted their candy and didn’t get it…
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Markets not gaining confidence from policymakers
Chart via Merrill Lynch
February 11th, 2009 at 9:21 am
Much tougher maybe, but still somewhat incoherent.
February 11th, 2009 at 9:27 am
As the day went on , it was clear that the program is a fraud
When CNBC interviews leading Democrats and they have a hard time backing it , you know it was a mistake.
… and the beat goes on
February 11th, 2009 at 9:31 am
Reasons for sell off yesterday
1 As you said, sell the news played a part
2 Herd mentality – probably involving idiots and their computers. Volume was only moderate compared to the past few weeks. A large sell off with conviction would have had much higher volume.
3 Thieves were hoping Uncle Stupid would at least hint at another means to get free money. Instead, the plans involved trickle up (2B to 1T of consumer lending to be made available) and no quick bucks for the fast buck artists. Implications that Uncle Stupid might be growing a brain stem also frighten thieves.
4 No easy answers to complicated questions. People are stupid. They don’t like to be reminded of it, though. Thus, they feel better about themselves if higher ups come down to their level. Instead of a solution that could be printed on a matchbook cover, only the outline was provided with details to follow. Half wits find this to be insulting. Especially stupid ones with money.
5 Media conspiracy – bad news sells more than good news. The Media didn’t make the sell off happen, they just didn’t offer any analysis that would allow investors to more thoughtfully understand the events of the day. Tune in tomorrow to follow this breaking and potentially catastrophic story.
6) Astute investors not willing to fight the idiots. Good values are available for a lot less today because of panic stricken idiots yesterday. Many will wait to see if more idiots pile in today before taking advantage of bargains.
February 11th, 2009 at 9:46 am
Stocks likely went down because they had been pumped up on vague hopes and they went back to the secular trend that is down. The sell the news initial knee-jerk reaction was minor relative to the larger down-move in share prices as the speech went on and then got digested, however; so it is likely that the true reaction was indeed negative. Also, remember that the NYT put out the details of the “plan” on-line the night before.
When FDR took office, he presented specific proposals for the banking crisis in his Inaug Address and acted upon them immediately. The stock market tripled in the next 4 years and industrial production did very well. It’s time for action now. TBP presented a wonderful cartoon last summer of a burning bank, firemen putting out its fire (while the other parts of the economy burned unattended by firemen).
What action is Barack Obama actually taking/proposing for the financial institutions? What is “tough” about a speech that proposes or describes no specific governmental actions?
February 11th, 2009 at 9:46 am
As a non-wall streeter I was hoping for accountability. Instead everyone who helped cause the problems (including the builders) got a handout.
I’m with the simpletons now. Just mail every household a check and get it over with.
February 11th, 2009 at 9:49 am
seems to me there was only one detail that mattered most which was that it wouldn’t be a complete handout for the banks this time.
That, more than the, lack of details probably caused some selling.
February 11th, 2009 at 9:59 am
I agree, Barry, the market was primed to sell unless Tiny Tim and Helicopter Ben had walked in together with a wheelbarrow marked “$3T” and said, “here you go bankers, it’s all yours”.
Of course everyone on CNBC except Byron Wien was talking nonsense this morning about the reasons for the sell-off (what a surprise!). I think the sell-off was just technical. Indeed, Andy Tabbo called it perfectly, as did others.
What was interesting about this last few days of trading is that it was a case of “buy the rumour/sell the news”. Of course this is NOT the normal pattern for bear markets – where it is shoot first and ask questions later. So I am wondering if we are seeing a change in psychology here. I would not be in the least surprised to see some serious buying of selected sectors in the next seven days. We are starting to run out of bad news.
February 11th, 2009 at 10:01 am
BR: With you all the way. Wall Street wanted a committment to a huge bad bank that would take all the toxic stuff away. Because the treasury wasn’t loading up the semis with dollar bills addressed with a downtown Manhattan zip, they sold off and took some profit from the recent small rally. Personally I think markets will creep back above 8000 by the end of the week. The problem with way to much of the commentary here is that it is freighted with either too much morality bs or antipathy to the current administration, or a combination of the two. This is an immense technical problem not susceptible to the bumper sticker huffing and puffing of armchair moralists or partisans. If “The Street’s” reaction to the value of this proposal is our measure of how good it is …god help us.
February 11th, 2009 at 10:09 am
Although the pacing has varied – probably due to both the then margin requirements and the now massive government interference – the current stock market crash is tracking fairly closely to the last one (i.e. ‘29-’32).
http://dshort.com/charts/bears/four-bears-extended-large.gif
A market selloff? That’s what happens in a deflationary spiral.
February 11th, 2009 at 10:09 am
dead hobo Says:
February 11th, 2009 at 9:31 am
Reasons for sell off yesterday
…Hobo..you said it much better than I could. As you say halfwits abound looking for bumper sticker solutions to complex problems. I’m going to place a couple of buy orders today.
February 11th, 2009 at 10:12 am
We are starting to run out of bad news.
For right now, maybe. We are starting to act like Japan of the 90’s. It might take eight months to a year but more bad news is coming. Tell me which of the top 6 banks are solvent.
February 11th, 2009 at 10:21 am
This might be a good time to define the term ‘Halfwit’.
Probably the best definition was illustrated in a skit on the old Second City TV show, from the 1980s. It starred up and coming players like John Candy, Martin Short, Catherine O’Hara and all the others.
The skit was of a fictional tv show called “Halfwits”
The theme was that each contestant, a halfwit, looked normal and superficially presented themselves well and as an average person. You didn’t find out that a large amount of intelligence was missing until you started to draw them out. Then, each would get confused and use a fallback presentation that involved repeating a catchphrase over and over again. Nothing else, just the catchphrase. (Tax cuts, tax cuts, tax cuts?) This was a satire of a learned behavior that halfwits use to chase people away. The best halfwits don’t look confused when they repeat their catchphrase.
Now, for your assignment … today, observe the normal looking people you encounter and look for catchphrases that appear to be used to get rid of people while not answering questions. Try to figure out … are you witnessing a halfwit in action, a condescending bastard, or a condescending halfwit?
February 11th, 2009 at 10:23 am
From a technicians standpoint, the sell was in on Monday and Geithners announcement was just fuel for the fire. My system fired a “SELL” on monday at 1:30 on dried up momentum and double top.
February 11th, 2009 at 10:24 am
Leftback:
We are not running out of bad news if you are really paying attention..take for instance the trade numbers this morning…down 10 billion on both imports and exports…
http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx
Now if this was just us, ok, bad news but will get better, right? (And someday it really will get better..)
But this simultaneous contraction in imports and exports is affecting all countries now, China, Korea, Britain, Australia, Canada…the figures are very similar..this is again, a synchronous decision by the population of the globe to become fiscally more conservative as individuals…
I would consider this quite bad news…it is not so much the decision as the simultaneous nature of it that is disturbing to me..
February 11th, 2009 at 10:26 am
We are starting to run out of bad news.
“For right now, maybe. We are starting to act like Japan of the 90’s. It might take eight months to a year but more bad news is coming. Tell me which of the top 6 banks are solvent.”
None of them, of course. The bad news is going to come in waves over several years.
Yes, you’re right, but the question right now is: “can the can be kicked down the road for a few months to prevent economic collapse and allow for some degree of normal commerce?” – the answer, I believe, is “yes”.
February 11th, 2009 at 10:28 am
@dead hobo:
I believe Peter Sellars starred in a movie, as Chauncy Gardner, wherein people thought he was a genius, and in reality, was more of a moron than most of us…my point that I’ve made before is that expecting others to save you can sometimes be a very very long wait.
February 11th, 2009 at 10:30 am
I also think that part of it may have been that they really seem to have a hard time deciding what to do about this (they seem to want to do everything a little). Maybe a few people woke up and realized that there will be no quick easy solutions to fix these problems. Personally, I also was surprised that they were trying to increase consumer credit by purchasing some of that type of paper. Is that realy going to increase credit for those that need it or get banks more likely to give credit to those that cannot afford it. Either they are clueless or they know something about the unwillingness of banks to take risks that I don’t.
February 11th, 2009 at 10:32 am
An imbecile is much like a halfwit, only the imbecile can’t hide his deficiencies and doesn’t try. The flaws are obvious immediately or nearly so. A halfwit can blend in successfully a lot of the time.
February 11th, 2009 at 10:41 am
Handwriting is on the wall – shareholders are going to get wiped out. Maybe not today and maybe not tomorrow but it’s coming. With so many too-big-to-fail companies heading towards nationalization, it’s not at all clear just who that’s going to affect yet.
February 11th, 2009 at 10:41 am
We are starting to run out of bad news.
For right now, maybe. We are starting to act like Japan of the 90’s. It might take eight months to a year but more bad news is coming. Tell me which of the top 6 banks are solvent.
—————
Have all the 4Q08 results come out yet? And what about the 1Q09 results which will surely tarnish the 2009 forecasts?
February 11th, 2009 at 10:43 am
dead hobo Says:
February 11th, 2009 at 10:21 am
I don’t remember that show. However if you wanted a beautiful present day demo you should have seen that NOVA program on public tv last night that dealt with the “intelligent design” controversy in Dover DE a couple of years back.
leftback Says:
February 11th, 2009 at 10:26 am
We are starting to run out of bad news.
“For right now, maybe. We are starting to act like Japan of the 90’s. It might take eight months to a year but more bad news is coming. Tell me which of the top 6 banks are solvent.”
None of them, of course. The bad news is going to come in waves over several years.
Yes, you’re right, but the question right now is: “can the can be kicked down the road for a few months to prevent economic collapse and allow for some degree of normal commerce?” – the answer, I believe, is “yes”.
…Exactly. This is a continuum. Everything is not frozen in place. There are already signs some credit markets are starting to loosen. If the healing process continues then in 18 months time the banks that are technically insolvent now may be solvent again. The car companies or certainly two of them are technically insolvent but they are still producing cars and if the car market could climb back to around 14 million units most of their immediate problems would go away.
February 11th, 2009 at 10:47 am
dead hobo,
you are doing a little Mary Catherine Gallagher eh?
Leftback,
So you caught Wein this morning, let me ask you this, did you see that moron from Putnam around 8:15 EST or so?
He was talking about the “absolute return” funds they are coming out with. Wow was that embarassing.
February 11th, 2009 at 10:50 am
Leftback,
I also agree with the we are starting to run out of bad news stuff, at least short term. The news people responded with above (Bruce and danm) you guys are right, that’s bad stuff, but that is a known. Those things aren’t a surprise to us TBP readers. I mean take RIMM this morning, was that a surprise?
The bad news that could still come is the unknown, what are we missing should be what we are all thinking about and how to position for those unknowns.
February 11th, 2009 at 10:53 am
Yeah, ok fine. I agree about the millisecond – that could’ve been easily reversed. But, in fact, the markets spiked when the announcement was official @ 11:00. However, the sell-off continued and the market made new lows after 11:30. Certainly enough time to digest the “ramifications.” And who is exactly responsible for these expectations? No doubt, it was a sell on the news set-up. But, what made everybody pyramid their positions? How long have we heard the need for “transparency?” And what does Geithner give us? “We’ll let you know when it works”?!
The cynic in me leads me to believe that the sell-off went exactly how the administration wanted it to happen. What better argument for the need for urgency than a 5% sell-off?
February 11th, 2009 at 11:02 am
“The cynic in me leads me to believe that the sell-off went exactly how the administration wanted it to happen. What better argument for the need for urgency than a 5% sell-off?”
….Er….somehow I don’t the govt “wanted” a sell off right after this announcement. But then I don’t think they were unduly spooked by it either. Volume was relatively light, all the serious action was on the banks, bargain hunters including me are already out this morning, look for the markets to be back above 8000 by Friday. Passage of the stimulus bill is probably also going to give it a bit of lift.
February 11th, 2009 at 11:03 am
@ Cheese: “No doubt, it was a sell on the news set-up”
Of course, this was the PIT (plunge implementation team). The World is NOT Ending.
This is a stock-picker’s market. You just have to tiptoe through the minefield.
Avoid debt, leverage and nationalization candidates and you can make a lot of money this year.
February 11th, 2009 at 11:31 am
You called it. Shareholders wanted to know they’d get back on the gravy train. Instead they got audits of all the major financials! The terror!
The big picture shows tax payers and main street getting preference over Wall Street. Wall Street panicked.
For a very different take, watch the Ifel’s panel on the News Hour with a heavy hitting panel on the package. She had on Krugman, Rivlin, Rogoff and Marron.
http://www.youtube.com/watch?v=6fb33NOA5pE
They have a consensus that the audits will mean the death of many of the banks. A must see.
February 11th, 2009 at 11:44 am
Barry, I think your “decidely different take” is correct. In fact that’s why these days, I view SPY as essentially the Inverse Taxpayer ETF.
February 11th, 2009 at 11:45 am
the children at the bucket shop banks and wall street schlock shops all want an end to mark to market. they wanted tiny tim to pull that sucker out of his trousers. i don’t see an end to bad news like most have commented here. i continue to see massive layoffs and spending cuts at state and local levels. did anyone notice the wholesale inventory number released yesterday? (worst since the 2002 recession). oil inventories as well continue to pile up. this is far from bullish. what are the consequences to russia with oil below 40. it is catastrophic.
February 11th, 2009 at 11:51 am
And, of course, XLF would be the Double Inverse Taxpayer ETF.
February 11th, 2009 at 11:54 am
It also was a great time to sell. Stocks had become pretty overbought leading up to announcement.
February 11th, 2009 at 12:21 pm
They have a consensus that the audits will mean the death of many of the banks. A must see.
retrogrouch Says:
…Thanks for the link. I hadn’t seen this. First sensible discussion I’ve seen. My takeaway wasn’t the death of many banks, certainly not the major ones. Nationalisation, some adjustment of the business model then return to private sector. You have to remember Krugman is a long time proponent of nationalisation but Marrin from the private equity market wasn’t too enthusiastic. We’re certainly going to see more bank consolidation but the big six names out there are not going to disappear. As to whether nationalisation takes place that, as I thought was really the consensus, depends. It depends on what they find and they will make it up as they go along. There’s nothing wrong with that contrary to the belief of many here that we live in some perfect world in which some all encompassing plan can be produced to cover all eventualities. As Moltke pointed out no battle plan survives first contact with the enemy. Rogoff was right though about not coming clean on the cost.
February 11th, 2009 at 12:36 pm
I think we are going to find out, whenever we find out, that the reason for the bond action the last couple of days is that Helicopter Ben has started buying treasuries…
Otherwise, it doesn’t really make a lot of sense..
February 11th, 2009 at 12:46 pm
http://www.bloomberg.com/apps/news?pid=20601080&sid=azZmF1E7vv2c&refer=asia
Feb. 11 (Bloomberg) — Asia’s corporate loan market will be “miserable” for at least six months as banks hoard capital and avoid risk amid a worsening global economy, according to the head of a regional lender group.
“It’s a miserable outlook,” John Corrin, chairman of the Asia-Pacific Loan Market Association, said in an interview in Hong Kong today. “There are a lot of factors making deal origination very, very tough. I see it continuing at least for six months.”
…The problem of course, with deciding when to spend or get back in, is a lot like putting your business as the first business on a new road or bypass that should be a good location…what if it is not? And what if you are too early?
February 11th, 2009 at 12:50 pm
I agree with your take, 1,000%. Wall Street wanted its usual handout, no questions asked, and didn’t get it. Good. This tells me we may (key word being “may”) be on the right track here.
February 11th, 2009 at 1:03 pm
The question is, how much money will Obama ultimately give to the banks? His initial restraint could be interpreted as a good sign, but there’s no way that Obama is going to announce a multi-trillion dollar bailout of the banks before he gets is pork-laden “stimulus” package passed.
The banksters may ultimately get what they want (but I hope not).
February 11th, 2009 at 1:16 pm
DL Says:
February 11th, 2009 at 1:03 pm
The question is, how much money will Obama ultimately give to the banks? His initial restraint could be interpreted as a good sign, but there’s no way that Obama is going to announce a multi-trillion dollar bailout of the banks before he gets is pork-laden “stimulus” package passed.
…..Wouldn’t it be great if you folks would get off your politically hobby horses. Obama isn’t “giving” money to the banks any more than Bush/Paulson were. They are using their best judgement to bring a stabilization solution to a very complex set of problems.
February 11th, 2009 at 1:18 pm
Geithner Apologist!
If it had been Hank Paulson you would have been flaying him.
February 11th, 2009 at 1:23 pm
@ottovbvs. I volunteered for, gave money to (had never done either before in my lifetime for any political candidate), and voted for Obama, so this is not at all political with me. This is about pragmatism. I realize that O was handed a shit sandwich by the prior administration and Congress but I want whatever solution to actually work and want to ensure that taxpayer interests are protected here in any deal made with Wall Street. I understand that it’s a complex situation and that it could take time for things to play out, but I don’t think that’s too much to ask to ensure that we the taxpayer is accounted for in any plan. I’m willing to be patient if that means they ultimately get it right.
February 11th, 2009 at 1:25 pm
The markets had runup on rumors that mark-to-market would be temporarily suspended. The rumors continued to have life right up to yesterday because the Geithner announcement was widely known to be unfinalized, a work in progress, right to the last minute.
February 11th, 2009 at 1:26 pm
ottovbvs @ 1:16
You seem to think that I’m criticizing Obama at the same time that I’m praising Bush. Not true. Bush was at least as bad on this issue. The issue isn’t Bush versus Obama. The issue is that of the tax liability that Obama may (or may not) decide to impose on us.
February 11th, 2009 at 1:33 pm
Throughout 2006 and 2007, no major media outlet ever ran the headline “Market Rallies because of a flood of money in the system from bogus SIVs.”
They didn’t get it right on the way up, and there’s no reason to believe they’ll be anywhere close to right on the way down.
February 11th, 2009 at 1:35 pm
@vic: “Geithner Apologist!”
Paulson had a bit more than three weeks.
Two positives I see:
1) Banks have to show their assets which can then be evaluated.
2) Govt investment in the banks gets a return equivalent to any private investment.
February 11th, 2009 at 1:35 pm
“Wall street was hoping for another multi-billion, no strings attached, taxpayer funded giveaway.”
You’re joking, right?
February 11th, 2009 at 1:47 pm
Personally, I felt the readiness to sell the news was so pervasive, it *almost* made me want to lean against it.
February 11th, 2009 at 2:13 pm
Funny how different observers interpret the market’s reaction.
Denninger says it’s because we’re tired of lies (and quite a bit more):
http://market-ticker.denninger.net/archives/786-The-Final-Countdown.html
February 11th, 2009 at 2:29 pm
DL Says:
February 11th, 2009 at 1:26 pm
ottovbvs @ 1:16
You seem to think that I’m criticizing Obama at the same time that I’m praising Bush. Not true. Bush was at least as bad on this issue. The issue isn’t Bush versus Obama. The issue is that of the tax liability that Obama may (or may not) decide to impose on us.
….That tax liability of course would have nothing to do with years of deficit spending, during which we were repeatedly told “deficits don’t matter,” which resulted in doubling the national debt. The fact is, because we have a crisis on our hands, we now do need some deficit spending to substitute for, and encourage the return of, private sector spending. Ultimately this new debt and the roughly six trillion Bush left us with will have to be paid for with increased taxes which is totally apparent to honest economists of both left and right. At the moment the tax take is around 20% of gdp and when this is over it’s probably going to have to go to around 25%. This is economic reality.
February 11th, 2009 at 2:50 pm
You still think I’m praising Bush. I’m not.
Yes, we should run a deficit now. But should it be $1 Trillion…. $3 Trillion?
And what should be the mix of tax cuts for the middle class, versus “wastful” spending (in the eyes of the beholder, of course)
I suppose what I want is a smaller deficit than what you want, and more of the deficit used to fund tax cuts for the middle class (no, not for the “rich”).
February 11th, 2009 at 3:09 pm
DL Says:
February 11th, 2009 at 2:50 pm
You still think I’m praising Bush. I’m not
……I don’t although all your censure at least initially seemed to be concentrated on an admin that’s been in office for three weeks. My point is that politics don’t have much to with this at the current juncture. We are in a huge fiscal hole largely created by the previous admin and being forced on the current admin. The only route back to fiscal sanity in the long run is increasing the tax take. By definition because of spread this will fall most heavily on the top 20%, which includes me, but this is going to happen regardless of who is in power.
February 11th, 2009 at 3:21 pm
I believe Peter Sellers starred in a movie, as Chauncy Gardner, wherein people thought he was a genius, and in reality, was more of a moron than most of us…my point that I’ve made before is that expecting others to save you can sometimes be a very very long wait.
That’s Being There, directed by Hal Ashby (_Harold and Maude_).. Def. one of my favorite first 10 mins in any movie, and probably the last time Shirley McClaine wasn’t old in a picture.
Chauncey’s walk at the end sorta ruined it for me though.
February 11th, 2009 at 3:22 pm
Ottovbvs @ 3:09
“The only route back to fiscal sanity in the long run is increasing the tax take”
Or devaluing the currency.
(Or cutting spending).
February 11th, 2009 at 4:18 pm
Yea Barry! I fully agree, as I watched Dodd introduce Geithner, the market started selling off. Tim hadn’t even started talking yet!
I went to the site mentioned and read the ‘plan’. No, what was presented wasn’t a full plan, but an ‘outline’. Most people (CNBC cheerleaders included) would not have understood fuller details anyway.
Yes, they are afraid. The ’stress test’ jargon is timid speak for ‘nationalization’!
February 11th, 2009 at 5:42 pm
I think Stratfor has a reasonable take on the plan, which someone reproduced here:
http://eutrapelia.blogspot.com/2009/02/obamas-economic-recovery-plan.html
I agree with Barry’s description of a tantrum.
February 11th, 2009 at 6:03 pm
Calling yesterday’s market plunge a “temper tantrum” belies reasonable money making tactics.
That said, my opinion of Geithner changed 180 degrees after today’s Senate Budget grilling. In difficult and unknown territory, Geithner is correct in taking time with the intention of getting it right. I now see him as an excellent ‘facilitator’ of an extremely complex, multidimensional task. Rots of ruck.
February 11th, 2009 at 8:50 pm
“They wanted their candy and didn’t get it…”
Exactly as I see it. I’ll put it a bit more crudely: The banks arrived all hopeful and bright and shiny and well-scrubbed in their Brooks Brothers suits and Armani ties, holding in their hands the net and sum total result of the last few years of their productivity, a huge, steaming smelly bag of fully expecting to pass it on to the taxpayer. But instead, Geithner merely re-iterated the Paulson Principle, and said “we’ll get back to you in a few weeks”. Both Treasury and the banks know these banks don’t have a few weeks. They are still stuck holding the bag. They are not pleased. Things are about to get very interesting. At least that’s how I see it.
February 11th, 2009 at 10:35 pm
It was another bear raid, nothing more, nothing less.
February 12th, 2009 at 4:05 am
You naikled it: buy the rumor, sell the news+no candy = sell-off