The markets can remain irrational longer than you can remain solvent. Today’s market action was just bizarre. Obama’s speech last night had nothing in it that should have triggered the drop we saw, unless the markets were hoping that he was just going to roll over and abandon his prior stated positions altogether.
One of the “legs of the stool” that Obama outlined was a stimulus package that passed today in the Senate. The contents of the Senate’s version of the this bill has been pretty well known for days, so any new negative reaction to it today is odd.
Another leg in the stool is getting credit flowing. Geithner’s speech laying out the broad outlines of his plan certainly did lack specifics, as he has said all along would be the case. So, if the markets were hoping for strong assurances that current investors in the financial sector would be made whole going forward, there was reason for disappointment. But, that seems like an unreasonable expectation to me.
So, I have to chalk this one up to pure human emotion, underlining once again the difficult position that believers in efficient markets have been placed. Behavorial investing seems to offer a more plausible explanation for current investor behavior.
While I am certainly disappointed in the lack of specifics in the Geithner plan, he warned us of this so it is not surprising. My outlook for the markets holds: trading in a tight range where we have seen the bottom, or something very close too it, but are unable to break through to new highs until significant new economic news emerges.