Finally we have seen President-elect Obama stick by a campaign promise. It took long enough. I am of course referring to the nomination of the Treasury Secretary position today. Tim Geithner will replace Paulson and Larry Summers will lead the National Economic Council, which is a positive to a degree.
I had remarked a few days ago that President-elect Obama has broken several campaign promises since the election. One of the most troubling to me was the delay he placed in selecting a Treasury Secretary. That problem has now been allieved to a degree. But by no means should the public think that Wall Street is in love with this selection (the Dow dropped 123 points from 323 up at the start of his speech today to 200 points by the end).
While removing Bernanke and Paulson are important moves, who replaces them is important. And the positive move in the early trading today is not a signal of the confidence of those moves but the response to Citigroup being bailed out again. It is the stabilizing action to world markets that the Dow reflects. The reaction to the economic team is just starting to settle in.
Why am I not totally enthused? Well first off, the most important selection to the Obama Administration is the Treasury Secretary. By naming a new face the markets can calm since they are aware of someone being in place. Uncertainty on that position is a negative for the market. The delay has helped to drag the markets lower.
The other factor is the fact that Larry Summers was in charge once before. Under the Clinton Administration from 1999 until 2001. Those dates should be a lightning bolt for those familiar with the market. It is that time where the stock market peaked and began the internet bubble implosion. And Summers let it happen.
The Clinton Administration was a beacon of inaction in the face of pressing need. There is no doubt that all who served were qualified, just as there is no doubt that they failed to act. I am not saying that the internet bubble was preventable, but I am saying the degree and manner in which it fell apart could have been dealt with better. So having a key figure that allowed massive devastation, which lasted for years beyond the initial meltdown, does not make me feel much better. Though I think it’s hard to screw up as much as Paulson has.
Adding to my concern is the incredible number of former Clintonites in the new Administration. It is as if President-elect Obama is reaching into the past because he hopes to repeat the luck of the last Democratic President. And such an opinion is silly at best.
The Clinton Presidency was a symbol or preservation. They did little to change the economic path the nation was on, which allowed things to prosper. And because little maintenance was done what prospered rotted as well. Now we get many of the same people picking up in a worse economic environment. That means they will either shine brightly, or all be replaced within a year.
Considering that President-elect Obama is not going to rush into raising taxes (a promise he implied would not be altered right up to election day) there is a positive out there. But that is sullied by the prospect of a now $500 – $700 billion stimulus plan. My belief is that is akin to burning the money in front of the NYSE. I hope to be proven wrong.
Looking at the new National Economic Council director, his connection to Robert Rubin and thus Citigroup, and his performance in the past I have slightly more confidence now than with Paulson and Bernanke. But that is not enough to alter my opinion of what will happen. I have predicted that the market will drop on inauguration day, by 500 points. I stand by that thought. I have said that I believe the Dow will hit 7600 in the 1st quarter of 2009. I reconfirm that outcome. And I have stated that I believe the Obama Administration will lead the nation into a depression – which I again state.
I do not say these things with cheer. I desperately hope to be proven wrong. I will be happy to admit my mistake if the stock market were to run, and the economy gain its legs. But that would be no different than looking at Hope in Pandora’s Box and assuming it was a gem of redemption among pestilence.
Senior Drill Instructor Sgt. Williams once told me to prepare for the worst to survive the best, and I have lived by that as a stock broker and business owner. Improvise, adapt, and overcome a motto for more than just Marines. I hope both of these thoughts are paramount in the minds of the Obama Administration even though none I am aware of have ever served in the military.