Market Response to Geithner'sToxic-Assets Plan

On Monday, March 23, the market closed up a remarkable 497 points in response to the government's unveiling of a new plan that would create a public-private partnership to buy up toxic-assets from troubled banks. Purchasing these assets would allow the banks to take these toxic-assets off their balance sheets and as a result, increase financial stability. The market responded positively to the plan, moving up throughout the day.

The plan allows private investors put as little as 10% of their money to purchase these assets, whereas the Treasury would contribute the remaining 90%. The market's broad-based rally is a reflection of the investor-friendliness of the plan. The risk for the private investor is minimal because he can walk away from the investment if the value of the assets falls further.

Furthermore, there was additional supporting data that make the rally legitimate and not just a bear rally. According to Reuters, existing home sales unexpectedly rose 5.1 percent in February, which is the largest increase since July of 2003. What makes the rally so strong is that it was broad-based. The Financials led the way but at the end of the day, all 30 of the stocks in the Dow and 98 out of 100 in the Nasdaq were up.

Since then, we have seen the market move higher consistently with supporting positive economic data. While I remain cautious about investing all at once, this could be the beginning of a turnaround.

Image source: http://img.timeinc.net/time/daily/2009/0902/tim_geithner_0210.jpg