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Market Drops – Investors Freightened by Washington Statements

I know that the new administration is learning to deal with the media, but it can sure be painful when someone speaks out of turn. Here is an article written by Jason Schwarz that will give you more details.

Mark

Today marks the first day in over a month that financials are back in the clouds of uncertainty. The banks themselves have exceeded expectations with their surprisingly strong Q1 earnings reports but 2009 is a year in which the government is in charge and when the government is uncertain about their next move the stocks will suffer accordingly.

…Jaime Dimon’s comment last week that JP Morgan will not participate in PPIP definitely rattled the administration…Chief of Staff Rahm Emanuel floated out the idea that bailout funds might all be converted into common stock. These announcements raised the level of uncertainty and have brought back a significant perception of fear to the sector. Nobody wants to own a bank that will have to convert shares to the government in the near future. Until these issues get resolved, we will be looking at a difficult few weeks.

Uncertainty is worse than bad news. It has been such a problem that I blamed it for the market lows of 2009 when I wrote that the bubble of uncertainty was about to burst on March 9th when the Dow was trading at 6500. Since that time, the index has rallied 1500 points and bank stocks have enjoyed a rally based on the details since released. Today, however, we enter a two week period of uncertainty ahead of the May 4th stress test results. Whenever Treasury Secretary Tim Geithner is in control, investors can expect stocks to sell off; and he is in control over the next few weeks.

There is more to the article, but it is very negative against Geithner. I didn't want to skew your opinion with the writer's opinions, but you can read the entire article here if you'd like: http://www.economicweatherstation.com/

The point is that in a market recovery as fragile as we've had, just about anything can set it back. The leaders of the market since the March low (energy, financials, tech) were crushed today – many 2X to 4X worse than the broader market.

Ouch.

My best estimate is that this will be used by investors who did not get invested early enough as an opportunity to buy into the market and move us back up. We will likely see a a bit more downside before we move back up – unless someone in Washington says something without understanding what the consequences might be before they speak.

Mark