Geithner: Will He Disappoint? Excerpts from Upcoming Speech

The focus in the financial markets this morning is on US Treasury Secretary Timothy Geithner. He is set to unveil the Obama Administration’s Financial Rescue Plan and the TARP portion of the plan is being rebranded as the Financial Stability Plan and the big question is “Will the rescue plan be enough to turn around the US economy or will the critics crush any optimism?”

Currencies are trading lower ahead of Geithner’s 11am ET speech because there is talk that a bad bank will not be apart of the plan. Excerpts from his upcoming speech have already been released and so far, there is nothing to get incredibly excited about. If Geithner is not completely confident about the Treasury’s plan, traders could plow right back into the US dollar on the fear that the US government is rolling the dice once again.

Expect a cocktail of initiatives that may include a bad bank that buys up the toxic debt or at least some sort of asset guarantee, more oversight, a plan on how to use the remainder of the TARP funds, expansion of the Term Asset Backed Securities Loan Facility to help private investors and direct assistance for homeowners facing foreclosure. One of the big questions will be how the toxic assets will be priced. If they are sold at market values, banks may have to report significant losses, which would erode their balance sheets even further.

Here is a reformatted version of excerpts from Geithner’s speech courtesy of Bloomberg News:

Wire: BLOOMBERG News (BN) Date: 2009-02-10 13:44:56
Geithner’s Feb. 10 Speech on Financial Recovery (Text Excerpts)

Feb. 10 (Bloomberg) — The following is a reformatted
version of excerpts of prepared remarks for Treasury Secretary
Timothy Geithner’s speech on the financial-recovery program
today. Geithner is scheduled to speak at 11 a.m. in Washington.

As President Obama said in his inaugural address, our
economic strength is derived from “the doers, the makers of
The innovators who create and expand enterprises.
The workers who provide life to companies and, with their
earnings, support families and invest in their future… This is
what drives economic growth.
The financial system is central to this process,
transforming the earnings and savings of American workers into
the loans that finance a first home, a new car or a college
education, the credit necessary to build a company around a new
Without credit, economies cannot grow, and right now,
critical parts of our financial system are damaged.

Instead of catalyzing recovery, the financial system is
working against recovery, and that’s the dangerous dynamic we
need to change.
It is essential for every American to understand that the
battle for economic recovery must be fought on two fronts. We
have to both jumpstart job creation and private investment, and
we must get credit flowing again to businesses and families.
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Will There be An Obama Bounce?

In my Daily Currency Focus for GFT, I talk about whether there will be a bounce in currencies on Obama’s Inauguration Day:

On Tuesday, the United States of America will swear in a new President. Unlike many other Presidents in the past, the Obama phenomenon spans the globe. This global support has spurred speculation that we may see an Obama Bounce in US equities and currencies on Tuesday. However based upon the past price action of the Dow Jones Industrial Average on Inauguration Day (Jan 20), investors should think twice about an Obama Bounce.

Taking a look at 50 years worth of data which spans 10 Presidents, Inauguration Day result in more down days than up. The Dow fell on January 20th 12 out of the past 16 Inaugurations. Although the trend was much more significant in the 60s and 70s, it has been relevant since then. The pattern also does not hold any bias to the party of the new President as exactly half of the positive days occurred during either parties new administration.

However it can be argued that the global adoration of Obama is unique. Many people call Barack Obama the John Kennedy of our times and it should be worth noting that stocks rallied on the day that Kennedy took office. History does not support arguments for an Obama Bounce but it is still a possibility. Since currencies are taking their cue from equities, if investors express their optimism towards Obama in equities, we could see a bounce in currencies as well.

For my Bank of Canada Interest Rate Preview, please read my Daily Currency Focus on GFT

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