The market has moved lower at Citigroup has broken below $10. Traders obviously felt it was safe to short the market ahead of Mr. Paulson's speech; the most important question now is whether they feel equally confident to short ahead of the G-20 meeting this weekend.
Bulls note this is part of the continuing process of increasing international cooperation. Bears insist nothing substantive will come out of the meeting, and even if broad principles are agreed upon it will not affect the downward trend of the markets.
If the standard pattern of the last few weeks hold, we are due for a modest rally. But the conviction is not high. Mr. Paulson's speech did advance our understanding of the TARP plan and made it clear what his priorities would be for the remaining two months of the Bush administration:
1) keep building capital;
2) help consumers get access to credit by finding a way to back up the asset-backed securities market, and
3) support mortgage modification.
Unfortunately, it raised many questions, including:
1) what will happen to the rest of the TARP money, since he made it clear before embarking on a second capital purchase program, the first one would need to be evaluated, and
2) how to have a facility to back up the asset-backed credit market when this market is regulated by the states.
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