Published February 16, 2009

Wall St desperate for details of bank rescue plan

Vagueness from new administration will keep markets down and listless

By ANDREW MARKS
NEW YORK CORRESPONDENT

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WHEN the closing bell chimed a week ago Friday, a mood of hopeful expectation pervaded the floor of the New York Stock Exchange as traders waited for the new administration to reveal how it planned to heal the wounded financial system.

'Even if the plan they come out with isn't to our liking, at least we'll know what we're working with,' observed Eric Maxwell, an equities trader at Atlantic Asset Management.

Flash forward to this past Friday afternoon, where not a trace of that hopefulness could be found among traders.

'We get a new administration and big promises of a new direction, but instead all we got were more vague plans and reassurances based on promises. The market doesn't want promises, it just wants something solid to work with,' said a frustrated Mr Maxwell after last Friday's closing bell.

Indeed, the one improvement US stock market traders and investors were hoping to start this coming holiday-shortened week with was the one thing they didn't get last week: a sense of decisions being made, a course of action being laid. In other words, some certainty.

When Wall Street begins the work-week tomorrow, the market will once again be riveted on Washington, DC wondering whether officials will begin to offer up details on how they expect to right the faltering economy and revamp the banking system.

This week, however, the wait for specifics on Treasury Secretary Timothy Geithner's proposed US$1.5 trillion plan to bail out the financial system by recapitalising banks and incentivising the private sector to buy their bad assets, will be tinged with doubt rather than hope, which bodes ill for stocks.

'Zero has changed,' said Michael Cohn, chief market strategist at Atlantis Asset Management. 'With no clarity on how they're going to deal with the non-performing assets, all they've done for the market is make us all wonder whether they're any more up to this task than the last administration.'

Meanwhile, the economy struggles and stocks continue their swoon. The latest new jobless claims data came in at 631,000, which was worse than the expected reading of 610,000, as businesses large and small continue to slash operating costs.

On Friday, the progress on the US$780 billion stimulus bill and word that the Obama administration is working on a US$50 billion plan to subsidise mortgages in order to help homeowners avoid foreclosures couldn't offset the dour mood over the financial sector, which sank another 4.2 per cent on the day amid news that UK-based Lloyds had reported a nearly US$10 billion loss.

For the week, the Dow Jones Industrial Average lost 5.2 per cent, the S&P 500 shed 4.8 per cent, and the Nasdaq gave up 3.6 per cent. The trend could reverse this week if Treasury Secretary Geithner offers some details of his bank rescue plan.

President Obama is also expected to sign the US$789 billion stimulus package into law today, which could provide a little boost, and then on Wednesday the administration is expected to announce details of the foreclosure plan.

'The market will gladly welcome a plan to help the housing market, but even US$50 billion to prevent foreclosures is only a relative drop in the bucket,' said Merrill Lynch chief US economist David Rosenberg.

There is also a slew of pivotal economic data coming this week, including the National Association of Home Builders' February survey tomorrow, housing starts and building permits reports on Wednesday, along with import and export prices and industrial production. The minutes from the last Fed meeting are scheduled for a Thursday release.

The coming week is the last big one for first quarter earnings, including a long list of consumer-oriented and retail company luminaries led by the biggest of them all, Wal-Mart, and after last week's surprising economic data showed an unexpected one per cent rise in retail sales in January.

Investors will be casting an especially hopeful eye as to whether those results show up on companies' bottom lines, or if the uptick was a mere illusion in the face of weak consumer demand.

'I don't think we'll see much of a reaction, either to the downside or the upside, unless we get some really big numbers in the earnings reports,' said Tobias Levcovich, chief market strategist at Citigroup.

'People have already long ago written off the fourth quarter results as a complete loss,' he said, referring to what will be the sixth consecutive quarter of negative growth, a run not seen since 1952.