Markets Rally On Bernanke Comments, Citigroup Profits

The market began to rally today after Ben Bernanke said that accounting standards for illiquid assets need to be revised, and a leaked Citigroup memo had the CEO telling employees that the bank posting substantial earnings so far this year. What’s the over/under on how long before the the MDMA wears off?
[WSJ, NYT]
Full Text of Bernake’s Speech [Federal Reserve] (Photo: AGRR 4059)

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  1. NoO and A_GitEmSteveDave says:

    Not being politically biased or anything, but has anyone noticed that when Ben speaks/makes a statement, the market rises, but if Obama speaks/makes a statement, it drops? Just something I noticed.

    • Bladefist says:

      @NoO & A_GitEmSteveDave: Yes, but to quote a recent xkcd comic, correlation doesn’t always imply causation.

      But Obama has scared the stock market several times with talks of raising capital gains taxes, and nationalization of banks. Same thing happened to Bush. But Bush and Obama are fiscally liberal, which can often scare the markets.

      • NoO and A_GitEmSteveDave says:

        @Bladefist: I looked at some DJIA history graphs, and it seems to happen with VERY high frequency w/Barry, and less w/Bush. The day he was inaugurated, it dropped. The day of that big prime time speech a few weeks back, the market was up. Then next session after he spoke, DOWN!

        • MostlyHarmless says:

          @NoO and A_GitEmSteveDave: Which is proof enough that markets are not a good indicator of anything because of their asinine behavior.

          1. Obama’s inauguration became more or less a fact on 4th Nov. Even if something terrible happened, most likely a Dem would have been a president come 20th Jan.

          2. The stimulus was passed by the senate the preceeding Thursday. It became a certainty that night itself. He signed on Tuesday. If the markets HAD been reacting to the stimulus, it should have been on Friday.

          Moreover, the tuesday drop in stocks was because of the housing report, not the speech.

          Another reason, as johnva mentioned, is that unlike the previous admin, which was more about “fix it for now, worry about it later” Obama’s stance is along the lines of “Screw now, fix it so that it remains fixed in the long term.” essentially, “there is no easy fix to this, everyone will have to take the hit”, which is something markets dont like. They want everything now and in their favor. Quite honestly, I find it selfish and immature.

          • NoO&A_GitEmSteveDave says:

            @Lucifer_Cat: Well, on 11/04/2008, the DJIA closed at ~9625. On 11/6, it was ~8695. Nearly 1,000 points in two days.
            [www.google.com]

            Between 11/05/04-11/12/04m the market steadily climbed ~200pts.[www.google.com]

            Now true, between 11/05/00 and 11/17/00, the market did fall by ~200 pts [www.google.com] , but I think it’s important to note that the election was in flux around that point, and it rebounded, and hit it’s pre 11/05 number by Feb. 2001

            • MostlyHarmless says:

              @NoO&A_GitEmSteveDave: In hindsight, doesnt that only make you trust the markets even less?

              To be fair, Bush did come in saying “Tax breaks for companies! make merry!” and Obama said “Tough luck mates, we’ve gotta bear this out.”

              Obviously the markets reacted favorably to Bush. But does that make it a good thing?

      • Tightlines says:

        @Bladefist: Um, Obama has specifically said he would not nationalize. And I don’t remember him saying anything about capial gains taxes. If you could point to where he has, please let us know.

        • Bladefist says:

          @Tightlines: ugh. The government bailed out the banks. The government bought shares in the banks. Shares = ownership.

          • johnva says:

            @Bladefist: That wasn’t just Obama…these policies started with Bush. It’s not going to work to try to pin all of this on Obama. It’s his problem NOW, but he didn’t create the problem.

            • Bladefist says:

              @johnva: I fully agree. I noted above Bush/Obama have the same liberal economic policies. Obama continued out what Bush would have done. Same if McCain won, he would have done the same.

              But Obama won, so I get to blame him. But don’t worry, I blame Bush too. I am not a cheerleader for the republican party.

              • johnva says:

                @Bladefist: You’re not a cheerleader for them, except that you have a Republican elephant as your user pic? Okay…..

                Actually, if you look more deeply at this, it wasn’t either Bush or Obama’s policies that created the crisis (although Bush’s failure to regulate when the bubble was inflating didn’t help). Their RESPONSE to the crisis was similar, but the root cause of the crisis actually had more to do with Congressional Republicans in the late 90′s (with whom Bill Clinton was complicit). Phil Gramm is probably more responsible for this crisis than any other one person alive, since he was the driving force behind a great deal of the investment bank and derivatives market deregulation that enabled all this ridiculous over-leveraging.

                • Trai_Dep says:

                  @johnva: You can’t really say that Clinton was complicit if the GOP-held Congress delivered veto-proof bills to dismantle sensible oversight and anti-trust. Granted, his “triangulation” contributed to it, but this whole direction towards unregulated, Free Market Fundamentalism was completely driven by the Conservatives. It was their stock in trade, in fact.

                  • Bladefist says:

                    @Trai_Dep: You are definitely a cheer leader for the democrat party, and your true loyalty remains to them, and not to your country.

                    Johnva is a long time liberal on this site, and the second he admits its a bi-partisan problem, you disagree with him.

                    You have lost all objectivity. Why so loyal to a political party? I could understand being loyal to an ideology, like myself. But politicians will always let you down.

                    • Trai_Dep says:

                      @Bladefist: In the words of Ronald Reagan, “There you go again…”
                      You seem obsessed with making this catastrophe a (r) or (d) issue, and it seems a tactic that Conservatives are fond of. Everyone else looks at it as an issue that breaks across ideological lines: the Free Market Fundamentalists, which draws primarily from Conservatives and deeply from Republicans.
                      Was there cross-over? With hundreds of millions of dollars in campaign contributions? Sure. But who drove it? Who made it the core of their being? The “Free Marketers”, primarily Conservatives and mainly Republican. (see below for a party breakdown of the vote to repeal Glass-Steagall, which enabled much of this madness)

                      It must be comforting to kick up a dirt storm to obfuscate. It probably annoys that 95% of your party enabled something so reckless and so damaging to this country. But much in the same way that 95% of your party gave immunity for the telecoms spying wholesale on us (low, but consistent, blow), it’s who they are, deep in their genes. It’s simply that they mouth pleasing words to the rubes since they know this will suffice. Tell you what you want to hear, then act to reward their real constituency.
                      Which is fine, if what you’re after is comfort, not truth. But in the long run, isn’t truth better? As bad as it is to watch Charlie Brown get sucked yet again by Lucy Van Pelt holding out her football, isn’t it even worse to be Charlie Brown?

                • Bladefist says:

                  @johnva: Dude, it’s icon. It doesn’t mean anything. It does however piss some people off, so the icon comes with perks.

                  I disagree. I would blame the congressional democrats (maxine waters, barney frank, etc) who completely ignored the regulators warnings on fannie and freddie.

                  The presidents, Bush and Obama’s failures are in their responses to the situation. Everyone says Bush wanted deregulation, but does anyone mention why? He wanted more minorities to have the American dream. A very liberal viewpoint if you ask me.

                  • johnva says:

                    @Bladefist: Fannie and Freddie are not the root cause of the crisis. The I-bank overleveraging via derivatives is (and derivatives are the reason this is STILL going on, and that the banks and AIG, etc are STILL insolvent and taking government bailouts). Mortgages were just the vehicle they used for their gambling and rampant high-stakes speculation. If it hadn’t been that, it would have been something else like credit cards, student loans, commodities, etc.

                    Also, Republicans had control of Congress until 2006. Most of the damage was done BEFORE then, because that’s when a) the totally irresponsible derivatives and I-bank deregulation was passed, and b) when the real estate bubble inflated because of all the speculation by said deregulated I-banks and derivatives traders. 2006 was WAY too late to do much of anything about it except manage the crisis. And again, if you think this is a “subprime mortgage crisis” as opposed to a “credit crisis” then you don’t understand what is really going on. Republicans didn’t deregulate in order to help “minority” homeownership (your racism is showing there); they deregulated in order to help bankers and traders steal hundreds of billions from taxpayers. A lot of it was engineered by Phil Gramm in order to help his buddies at Enron in their schemes. If we’d had a decent president, Enron should have been a huge wakeup call about financial regulation.

                    And to think that if we had elected John McCain, Phil Gramm might be Treasury Secretary or something. That alone was reason enough to vote Obama (McCain’s selection of Gramm as an economic advisor).

    • johnva says:

      @PirateCaptain_GitEmSteveDave: Maybe it’s just that Obama is being more of a realist about the economy. Just saying. He’s probably concerned with managing so-called “future shock”: he doesn’t want to promise too much because it’s totally impossible to deliver anytime soon. The financial system is a complete mess, and it was that way before Obama took office.

      Here’s the thing: Obama’s job is NOT to “fix” the stock-market in the short-term. His job is to do whatever he can to fix the country’s economy. Something as insubstantial as day-to-day swings in the stock market is almost totally irrelevant to that. That so many Republicans are seizing on this (and I’m not saying you are, necessarily) tells me that they are either desperate politically or just supporting the same short-term profit and speculation that got us into this mess in the first place. Again, it doesn’t matter whether the stock market goes down or up on a day someone gives a speech. It matters whether the economy recovers within a few years.

    • floraposte says:

      @NoO & A_GitEmSteveDave: It’s more fun if your statement is about Ben Popken.

  2. oneliketadow says:

    OMG! It’s up 250 points! BUY BUY BUY!

    Sorry for the sarcasm, but the fundamentals still suck for pretty much the entire market. People aren’t buying anything, even if the can afford to. Companies are doing layoffs, etc etc.

  3. bender123 says:

    Its good to hear the banks are turning back up. They were the starting point for the mess. When they start turning profits, they will need to loosen up to keep it going. This should bring rates back in line with the prime rate and start investment again. One domino down, a lot to go.

  4. PencilSharp says:

    @NoO & A_GitEmSteveDave:
    Oh, yeah. That’s because Ben is a part of the market, while the Prez has been doing very un-market-friendly things and speaking non-stop negativity.

    BTW, on behalf of everybody with a 401K…

    WILL YOU PLEASE SHUT UP FOR THE NEXT THREE MONTHS, MR. PRESIDENT!!!

    Thank you…

  5. ADismalScience says:

    If banks can turn Q1 profits it will be the beginning of the end of the recession. All this noise about “global insolvency” will go away. Keep in mind, the truly awful bears have been claiming “global insolvency” every year since 1982 because they don’t believe in leveraged banks.

  6. HIV 2 Elway says:

    @PirateCaptain_GitEmSteveDave: If you really want to quantify the damage, run an event study and see the deviation from expected return. I have academic papers that discuss the methodology if you’re interested.

    • MisterE says:

      @HIV 2 Elway Resurrected:
      I am interested.

      As a side note, Citibank just increased my wife’s credit card limit to $13,500. Although we use the card, it’s always paid off monthly. We had it for the past 15 years.

  7. 3drage says:

    Citi is only turning a profit because they jacked up their interest rates for everyone. First they get a bail out, now they screw the taxpayers. You’ll likely see a ton of people paying off their accounts or filing bankruptcy because of their new monthly payments. It won’t last for long.

    • sn0zc0r3 says:

      @3drage: Guilty. Just paid off my Citi credit card and I don’t plan on using it as long as I can. Had to talk to the jerks 3 separate times after they raised my APR from 7.99 to 21.99. After the 3 talks, I finally got them to lower it to 5.99 (though I think it’s only for a certain period of time and then they jack it up again).

      I guess this is the thanks I get for never missing a payment and paying more than the minimum every month. Assholes.

  8. cabjf says:

    @ADismalScience: Honestly, all we need are a few major signs that businesses aren’t doing that bad. The only thing keeping markets down right now is a fear, confusion, and a lack of confidence. Once there are a few signs pointing back up, and it doesn’t even need to be that far up, the market will stop the crazy up and down (and down) that is feeding the consumer confidence (which in turn is causing feedback in investor confidence).

    • ADismalScience says:

      @cabjf:

      Paradox of thrift. Perception is so much worse than reality. People haven’t stopped the vast majority of their consumer behaviors and have made no long-term modifications.

      For example, I love to use the Prius as an example of how fast things can change. It became some zeitgeisty thing to own a Prius, they were flying off of shelves, people were buying them at huge markups on dealer values. Then oil crashed back down, Prius sales collapsed, and SUV sales ticked up. And that was right after Katrina! That same cycle has happened again.

      The economy can turn around virtually instantaneously if investors would put their cash to work. The key is giving them the all-clear – a profitable quarter from Cit and BofA would be a clarion call to all that money on the sidelines.

  9. downwithmonstercable says:

    You know what is irritating, is that the market will swing +/- 250 points each day no matter what it seems like. Everyone is excited and celebrating today, but tomorrow I bet it drops right back down and wipes out the gains we’re seeing now. I don’t get it. The economy has tanked, we all know it. Either get out while you can, or stay in for the long haul. The market will turn around, and stocks are a long haul investment anyway.

    • johnva says:

      @downwithmonstercable: But, stocks are NOT a long-term investment if you’re one of the speculators who profit from lots of volatility in the markets. That’s why the interests of people like hedge funds are different from the interests of long-term investors. This whining about short-term market swings you are seeing is probably propaganda being generated by the people who PROFIT from short-term market swings.

      America needs to decide what the purpose of the stock market is: is it a giant rip-off machine run by wealthy speculators where it’s all about minute-by-minute profit and the fundamentals are irrelevant? Or is is a sane way to assign capital to worthy projects over the long term, and a way for individual Americans from all walks of life to save for their retirement? We need to pick a course, and design the regulation accordingly. If it’s for speculators, we shouldn’t encourage individual investment. If it’s for long-term individual investment, we shouldn’t encourage speculation. Either of these choices has large ramifications for the structure of our society.

      • downwithmonstercable says:

        @johnva: Yeah … I guess I should’ve known it’s those short sellers mucking around with things just like with oil last year. I understand it and I get why they do it, and it’s a free market and everything…I just wish there was an easy answer that says “you guys are ruining things for a lot of people, stop doing it, let’s all play nice, there are other ways to make money in the same fashion that doesn’t hurt anybody.”

        • johnva says:

          @downwithmonstercable: Don’t get me wrong: short-term speculation has its place. The problems come in when it’s allowed to run TOO rampant, with too little regulation of the people doing it. I don’t think there’s anything wrong with short-selling, for example, but I think there need to be strict controls on it to prevent it from being abused too much.

          I think a lot of the problems we’re having now are based on the fact that individual Americans have become too dependent on the stock market. Lots of people are panicked by the drop in the markets because they were sold a bunch of BS about how investing would secure their retirement and/or make them rich, etc. And there is nothing wrong with people investing to try to have a better future for themselves and their family. But it shouldn’t be the ONLY means of retirement. It used to be that retirement security in this country was based on a “three-legged stool” of Social Security, pensions, and savings. Now pensions are basically gone except for public sector workers or people in a select few industries, Social Security isn’t enough to live on, and no one saves enough independently for retirement (and what they did save has just gone up in smoke in the markets). 401(k) plans are essentially a failed experiment as far as providing adequate retirement savings for the average worker (they work out great for the most highly paid workers, but are wholly inadequate for lower paid people). I think we need to get back to some more of this risk being taken off of individuals.

  10. Craig Woods says:

    This is all about the markets extort the gov’t to suspend “mark to market” accounting practices (IMHO of course.) If they do, the Dow will fly, but I don’t see how it solves anything. Housing prices will likely take 10 years to recover– not 1 or 2 as the pushers say.

    • Trai_Dep says:

      @Craig Woods: Read the article. :)
      “Bernanke said he did not favor a suspension of the mark-to-market accounting standards, but said that the weakness in current rules should be identified and corrected.”

    • chauncy that billups says:

      @Craig Woods: “Extort”??? Mark-to-market, a rule set partly in 2007 (2 YEARS AGO) has been crushing the value of assets that should have value, because the market sees them as zero. It is clear that mark-to-market provides a cyclical deterioration of asset value in a non-standard market. Favoring the suspension of such rules, rules that are less than 2 years old and therefore unproven except in their ability to depress asset value, is hardly “Extort”ion.

  11. u1itn0w2day says:

    I guess doubling customer’s interest rates when they are one day really pays off .So do the excessive fees .

  12. Telekinesis123 says:

    @ADismalScience:

    Thats it brah, pump the propaganda, pump it.

  13. mac-phisto says:

    @ADismalScience: i have seen a change in behaviors…one only needs to look as far as their favorite restaurant’s parking lot. my place of business has seen consumer lending drop off almost entirely.

    however, in discussing this with a few friends, it’s my opinion that things may start to change this spring. i think a lot of folks have tightened their belts to weather a coming storm & if that storm doesn’t hit by may, they’re going to be displaying a little cabin fever.

    th big IF imo, though, will be gas prices (again). if they remain at or about current levels, i think we’ll be fine. if we see another sharp increase, we might be in some trouble.

  14. lpranal says:

    @NoO and A_GitEmSteveDave

    • NoO&A_GitEmSteveDave says:

      @lpranal: So are you saying that if Barack speaks when the market is down, if it improves he will stop talking! MUST STIMULATE ECONOMY!

  15. ojzitro says:

    People missed the most important element of this rally. Ben Bernanke has said the Fed is aware of slanted accounting rules that need retooling, that is “Mark To Market”.

    You allow banks to start writing up assets to reasonable levels, long term assets like mortgages no longer look like ticking time bombs, but instead like money making machines. P/E ratios come way down, and people start buying the equities again.

  16. ADismalScience says:

    @mac-phisto:

    Commodity prices have already started rallying. All the pieces are there for an L-shaped stagnant scenario through the end of the year. All the Federal borrowing will have unavoidable inflationary consequences, especially when all that pent-up investor money pours from treasuries into commodities and, to a lesser extent, stocks.

  17. Tightlines says:

    @Bladefist: That is a totally different thing from nationalization. A 36% stake does not equal nationalization.

  18. Trai_Dep says:

    It must be because of Cuomo and Frank’s letter demanding the list disgraced bankers who walked off with a >$1M bonus.

    > Arrest a few of these bast*rds and watch the Dow skyrocket!

  19. Landru says:

    I think I’ve heard of this as “the dead cat bounce”.

    • freelunch says:

      @Landru: I always thought at was the strangest term…

      though the typical dead cat bounce seems to be in the scope of 5-10% in the affected market segments… I’m seeing gains of 8-19% (if you ignore the banks in the 30%s)… this is geniune optimism…. but tomorrow or the next day it will suck back a little as folks sell to take their gains.

  20. Trai_Dep says:

    Bernanke, in above NYT article:

    “Strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim,” Mr. Bernanke said.
    He said that the failures of government oversight systems and private risk management helped to precipitate the economic crisis by not ensuring that a flood of foreign money into the United States was prudently invested.

    Which indicates to me that Ben and Barry are saying that Shadow Banking Systems won’t be allowed to co-exist with the regulated one, and that sensible regulation will be the hallmark going forward.

    So, the surviving institutions will no longer have to compete against unregulated river boat gamblers (while Ayn Rand weeps bitter tears), thus lessening pressures for insured ones to shoot the moon to satisfy short-sighted Wall Street brokers.

    …It makes sense that that’d cause a rise in the financial sector’s stocks. Even if it means that some of them might be induced to divest until they’re a more manageable size.

    By the gods, it’s great when policy is set by pragmatists and not ignorant ideologues. It’s been a loooong eight years.

    • Trai_Dep says:

      @Trai_Dep>: “[Bernanke] said the United States could take a ‘macroprudential’ approach – surveying the breadth of markets and financial institutions for signs of bubbles, growing risks like the subprime mortgage market, or risks shared by interconnected markets. Congress could empower a government agency like the Fed to take on that task.
      …Policy makers also need to examine the problem of institutions deemed “too big to fail” because of the role they played in the broader system. “ibid.

      Holy cow, the more I read the article, the more I like. Clear-headed sensibility has finally re-entered the corridors of Washington.
      Greenspan, Gramm & Rush must be so disappointed.

  21. ADismalScience says:

    @freelunch:

    This is more than an oversold rally or “dead cat bounce” unless the Pandit memo was inaccurate and the new m2m rules are poorly designed. It won’t sustain until those Q1 reports come out and more can be known, but if banks were PROFITABLE in this hurricane? You’ll see a huge rally. Something to the effect of one to two thousand points in the Dow, from my perspective.

  22. johnva says:

    @Trai_Dep: I don’t disagree that the conservatives were the ones actively pushing this stuff. I just wish that Bill Clinton had been more unapologetically opposed to it. His short-term political gain was our long-term loss, because it helped to legitimize the garbage the Republicans were pushing. That’s all that I mean by “complicit”.

  23. John Sakalauskas says:

    What I don’t see regarding Pandit’s email being widely reported is:

    “Provisions that could offset all or part of the operating profit include credit losses, write-downs and additions to loan-loss reserves. Pandit did not disclose the size of any potential provisions.”

    Pandit’s comments are fairly qualified in that
    - C was profitable for the first two months of Q1, which doesn’t say much about how the loss in March will be;
    - C still has a lot of room to miss its current earnings estimate for this quarter of a loss of .30 per share;
    - C has also has a temporary moratorium on foreclosures in place until March 12th.

  24. MostlyHarmless says:

    @ojzitro: But isnt that what caused the collapse in the first place? People bought into ticking timebombs thinking that they were money clocks. What would have been an isolated slowdown in the housing market (and agruably a good one too, overall) suddenly turned into a violent and catastrophic implosion with things dragging more and more things along.

  25. Craig Woods says:

    No, I stick with my “extort” comment. Even if I accept you view of “mark-to-market” as gospal, Wall Street can still be practicing “extortion” to get rid of it. Watch any 15 min. stretch of CNBC and you will find a pundit saying we are all doomed unless we suspend “mark-to-market” accounting. And there are plenty of analysts who said the recent down markets are due to the Gov’t not suspending it.

    Yes, I was wrong… Bernake did say he was not in favor of suspending it, but was in favor of “improvements” to it. I’m assuming that means he wants to decouple the current value of these assets somewhat from banks balance sheets or reserves.

    The bigger point is that this “mark-to-market” discussion is happening in the background. Will it just kick the can down the road? All I’m hearing is accountant gobblee-gock.

    The housing market in many markets will not be back in 1 to 2 years. And banks seemed to have been perfectly happy with the cyclical inflation of assets during an up market.

  26. squishyalt says:

    Bullshit… How can anyone possibly tell what makes the stock market go up or down. Saying that a single person, statement or event is the reason for a market movement is simplistic and reveals ignorance of how complex market movements are.

    Were markets so simplistic, people would be exploiting this to make millions.