segunda-feira, 24 de novembro de 2008

The Obama Put

After providing a big boost to the equity markets in the afternoon of Friday, November 21 with the well-timed leaking of New York Federal Reserve Bank president Timothy Geithner as Treasury Secretary, it looks as if Mr. Obama has taken another decisive step in an effort to quell the financial panic during the transition period.

“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,” he said during the Democratic Party's Saturday radio address.

The initiative will focus on “this immediate crisis” and represent “long-term investments in our economic future that have been ignored for far too long,” he said.

“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,” Mr. Obama said. “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.”

Mr. Obama’s proposal would most likely require the new administration to go back to Congress for approval of a significant jobs and infrastructure program. The initiative is also likely to be much larger than the $175 billion stimulus package he spoke about during the campaign.

“I know that passing this plan won’t be easy,” Mr. Obama said. “I will need and seek support from Republicans and Democrats, and I’ll be welcome to ideas and suggestions from both sides of the aisle.

“But what is not negotiable is the need for immediate action,” Mr. Obama said. “Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week’s paycheck will cover next month’s bills. There are Americans showing up to work in the morning only to have cleared out their desks by the afternoon. Retirees are watching their life savings disappear, and students are seeing their college dreams deferred. These Americans need help, and they need it now.”

In order it smooth the way for passage, Mr. Obama could appease congressional republicans by letting the Bush tax cuts expire after 2010 rather than ending them sooner. This would create extra revenue for the government when it will be required while avoiding the need to have democrats vote for a tax increase.

“The potential for equity markets seems to be fairly obvious, if the news regarding Mr. Geithner’s appointment is any indication,” said Matthew Carniol, chief currency strategist at “Volatility cuts both ways, which means the markets could be set for a potentially strong rally into the end of the year.”

The S&P might first move towards the 21 day moving average, which is currently sitting near 900. A sustained break above there could see it head towards the 50 day moving average in the upper 990’s, close to where resistance was last seen at 1010.

On the currency side we could see prices head back towards where they were at the end of October, which means the yen will weaken against the majors including the dollar while the greenback itself declines against the higher-yielding euro, pound, Australian and New Zealand dollars. USD/JPY back near 100, EUR/USD at 1.30 and GBP/USD to 1.60 or better puts EUR/JPY and GBP/JPY at 130 and 160 respectively.

Commodities, including gold, would also be likely to reverse course and appreciate as the dollar weakens. Crude may well be back to $70 per barrel before long.

As an update this which further strengthens the argument for a positive market reaction, Senator Charles Schumer of New York said on ABC’s “This Week” program that the package will be between five and $700 billion.

“I think Congress will work with the president elect starting now and will have a major stimulus package on his desk by Inauguration Day,” Schumer said. “I think it has to be deep. My view it has to be between $500 and $700 billion.”

House Majority Leader Steny Hoyer of Maryland,said on “Fox News Sunday” that he believed the Inauguration Day goal would be met.

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