Since Thursday, the incoming Team Obama (TO) has been hard at work and they have been listening to what the markets have been saying. The markets have been clearly disappointed with TO's first attempt to punt on the dire economic situation by holding their press conference and saying that there was only one US president in charge at a time. This move was rounded booed as equities collapsed and the belief was the US was a rudderless ship sinking until January 20th.
Fortunately, they righted the ship in the face of the storm and acted. This started in earnest on Friday with the announcement of their pick for US Treasury Secretary Tim Geithner. The Dow promptly rallied about 500 points on the news. The pick of Geithner indicates that the new Obama administration is taking steps to calm markets by eliminating uncertainty in naming his future economic team prior to January 20th. Geithner was directly in the middle of the credit crisis working with both Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Hank Paulson. Clearly, the incoming Obama administration wants a continuation of the aggressive polices and programs that are in place to deal with the credit crisis.
Those aggressive polices continued with Obama's radio address on Saturday. He stated that, "I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011—a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We'll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead."
TO named Larry Summers to head NEC and to be in charge of putting together the stimulus package. Not to be outdone (shone), US Democratic Senator Chuck Schumer stated that the package could be between $500-700 billion over two years. This is similar to what Nobel prize winner and NYT op-ed writer Paul Krugman suggested the stimulus should be. As a blowback to his handling of the crisis, Ben Bernanke is coming under suspicion of losing his job to Summers.
Lastly, members of TO were on the airwaves and talk shows all hinting, suggesting, and signaling that they would not raise taxes in 2009. If true, this would be a major positive for stocks into year end as it would take away the potential for capital gains selling in December. Friday night on Kudlow, Larry asked me what I thought would be needed to stabilize the stock market. I said naming a team, doing a stimulus, and explicitly stating that TO would not raise taxes. So far, Obama and his team are 3 for 3. Along wit the Citigroup news, this is why we're seeing extended gains for equities to start today.
I wrote on Friday that events move much faster than individual corporations, unions, and governments can act. However, they all are finding ways to adjust. Clearly, TO is processing fast and things have already improved. Given our dire economic circumstances, this is the best that we could've hoped for at this time.