Sell On The News?
Bank stocks and the rest of the market dropped as details of the Geithner speech have leaked out.
It's not a big surprise, we noted last week that the markets were up on "buy the rumor, sell the news" over the stimulus/TARP/TALF plan.
Charles Biderman at TrimTabs called to tell me that there were notable inflows into stock mutual funds in the last week ($7 billion in the 4 days ending Friday), indicating investors believe the stimulus package will hasten a bottom in the economy, and the stock market, and that shorting financials and consumer discretionary stocks might be a bit riskier in the future.
Makes sense, but unless some miracle has occurred, this bottoming process will likely take longer than most people think.
The problem is not spending: it is income. People don't have it. When I asked Biderman how serious it was, he noted that:
1) There's $24 trillion in corporate and private debt outstanding (banks have $7 trillion of that);
2) Banks have only $1.3 trillion in equity;
3) Incomes have dropped 5 percent in January compared to the same period last year
With that much debt, and incomes down, the first priority should not be to increase spending.
The first priority is to create more income (jobs). You have to give incentives to employers to hire.
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