Now that there is a new Treasury Secretary in place, a revised plan for the financial bailout is expected and that could be a factor influencing markets in the next couple of days.
Timothy Geithner, former New York Fed President, was sworn in as Treasury Secretary Monday night, after winning approval from a Senate divided over issues with his personal income taxes. He was sworn in shortly after by President Barack Obama.
Geithner and the Obama Administration are expected to quickly redefine the Troubled Asset Relief Program (TARP) and the way the $350 billion in remaining funds will be distributed. The Obama Administration has said the money would be used to help consumers, not just inject capital into ailing financial institutions like the first batch of funding.
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Speculation also centers on the creation of a "bad bank" that would be created from the toxic assets sitting on bank balance sheets.
"The debate is pretty heated on it on whether to do the bad bank or not," said Diane Swonk, chief economist at Mesirow Financial. "The real concern is what kind of shenanigans are going to come through with the bad bank loans. I understand the concerns. I also have a hard time seeing how they can move forward without moving the bad stuff off the balance sheets."
Robert Harrington, head of equities trading at UBS, said investors have been waiting for clarity on the TARP and rules for financial firms. "You need some certainty one way or another. You need to see what the rules are. People are confused about the rules," he said.
The markets will also focus on the progress of the fiscal stimulus proposal. President Obama visits Capital Hill Tuesday to discuss the stimulus plan, in the face of Republican opposition. The $825 billion package comes before the House of Representative on Wednesday.
On Tuesday, S&P/Case-Shiller home price data is reported at 9 a.m., and consumer confidence is reported at 10 a.m. The Fed also begins its two-day meeting. Swonk said she hopes the Fed clarifies some of its programs, including what it intends with Treasurys and its plan to buy auto, credit card and student loan debt.
Harrington agrees and says that's what the market is waiting for. "I think the big thing with the Fed is what they are thinking on the Treasurys. The question is will they go in to buy the long-dated Treasurys to keep rates where they want them," said Harrington.
The New York Fed, meanwhile, is expected to name its replacement for Geithner Tuesday. CNBC's Steve Liesman reports that William Dudley is the likely choice. Dudley was chief economist at Goldman Sachs before joining the New York Fed in 2007 as head of markets.
There is also another big crop of earnings reports expected Tuesday morning from DuPont, Verizon, Bristol-Myers Squibb, U.S. Steel, Valero Energy, EMC, Hershey, B.J. Services and McGraw-Hill, to name a few. After the bell, Yahoo, ETrade, Stryker and Norfolk Southern report.
60,000 in One Day
Stocks Monday firmed on better-than-expected existing home sales in December. But a flood of dismal earnings news also hit the market early, with companies announcing layoffs totaling more than 60,000 workers, as they released fourth quarter results.
Caterpillar, for one, forecast a 20 percent drop in sales in 2009and said it was eliminating 17,000 jobs and buying out 2,500 others in what it predicted would be the weakest year for business since the end of World War II.
A stream of other layoff announcements followed, and after the bell, Texas instruments warned that the downturn is not just an inventory correction but a broad economic slowdown that will weaken consumer consumption even further. Texas Instruments cut 3,400 jobsor 12 percent of its workforce, as a result.
"The nature of these cuts is that they are instantaneous.. It's how real time these layoffs are, and how they are getting worse instead of getting better. We knew the economy was getting worse. It's one thing to say that it's going to happen. It's another thing to live it. It's blue collar, white Collar, no collar jobs," said Swonk, who expects unemployment to peak at 9 percent.
"We knew that during the height of the credit crunch, we pulled the rug out from under the crumbling labor markets. The after shocks are much worse than we expected," Swonk said.
Swonk said the layoffs are part of a vicious cycle. How do banks lend when companies do not have visibility on their businesses? "They're also making the job cuts immediate because they have no credit to carry them through," she said.
The Dow Monday rose 38 points, or 0.48 percent to 8116. The S&P 500 rose 4.62 points, or 0.56 percent to 836, and the Nasdaq rose 12, or 0.82 percent to 1489. The dollar slumped 1.4 percent against the euro and gained 0.20 percent against the yen. In the Treasury market, the 10-year fell, and its yield rose to 2.643 percent. The two year yield rose to 0.826 percent.
"It feels like the market is kind of oversold," said Harrington. "But there's a lot less leverage in the system to be the fuel. You need to see money come off the sidelines, and I don't think we're at that point yet. It might be difficult for rallies to sustain themselves for awhile, because people are not going to want to chase them until it's clear there's something concrete" on the banks, he said.
On the Agenda
Also on Tuesday, the Senate Banking Committee holds a hearing on the Bernard Madoff mess and how regulators could have missed the biggest Ponzi scheme ever. The hearing starts at 10 a.m.
Agape! It sounds jaw dropping but that's not the way you pronounce the name of the firm in the center of the latest Ponzi scam to be uncovered. AuthoritiesMonday arrested the CEO of New York firm, Agape Worldwide, for running a suspected Ponzi scheme. Nicholas Cosmo was supposed to be providing commercial bridge loans, but authorities say he was instead running a Ponzi scheme that drew in $400 million.
Oil finished a volatile trading day at $45.73 per barrel, down $0.74. inventory data from API is reported at 4:30 p.m., moved forward from Wednesday morning. EIA data will be reported Wednesday morning, as usual. Platts survey expects a build of 3.4 million barrels in crude oil stocks in this week's report.
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