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Mark's Market Blog

10-17-09: Tarp Oversight Criticisms

By Mark Lawrence

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Last week I predicted "The market opened the week on Columbus day to very light trading and an unconvincing rise, then spent the rest of the week declining a bit as 3rd quarter results came in not quite as good as hoped for. The decline was lead by financial stocks." How did I do? Not all that well, but not completely wrong. Below is last week, S&P in blue, financials in red:


S&P 500 (blue) & Financials (red), October 12 2009 to October 16 2009

This continues to be basically a bull market with short term reversals. I expect a pull back in the S&P this coming week, but that too will pass and stocks, including financials, will continue their insane upwards trend.

We haven't looked at oil since it was $42 / barrel. It's up a bit. Some of this is due to increased demand, and some due to the dollar's roughly 20% decline in the last six months.


Oil price per barrel, October 12 2009 to October 16 2009


US dollar against basket of currencies, October 12 2009 to October 16 2009

In the foreclosure capital of America, Las Vegas, home prices are down more than 50 percent from their peak in 2006, but the inventory is down to a less than 3-month supply. Properties are getting multiple offers within a few days of being on the market, with some getting as many as 44 offers. 40% of all transactions are cash purchases.

Global warming will leave the Arctic Ocean ice-free during the summer within 20 years. Peter Wadhams, professor of ocean physics at the University of Cambridge, said much of the melting will take place within a decade, although the winter ice will stay for hundreds of years. The changes will mean the top of the Earth will appear blue rather than white when photographed from space and ships will have a new sea route north of Russia. As Arctic ice melts in summer, it exposes the darker-colored ocean water, which absorbs sunlight instead of reflecting it. An ice-free Arctic will put a lot more water vapor in the air, which means more rain and snow in the north. Interestingly, the Acrtic is usually ice-free during ice ages.

Harley, the icon of Yuppies that won't age, is continuing to suffer setbacks. Their sales are down by about 30%, and this week they announced they were closing down their Buell brand entirely.

Elizabeth Warren, chair of the Congressional Oversight Panel, admits to being "speechless" at reports of record bonuses on Wall Street. "I do not understand how financial institutions could think they could take taxpayer money and turn around and act like it's business as usual," Warren says. "I don't understand how they can't see that the world has changed in a fundamental way - it's not business as usual. All I can say right now is they seem to be winning this argument."

Comparing the situation today vs. a year ago, Warren observes:

In sum, "all the things going on [a year ago] that were serious, serious problems for the financial institutions seem to me are still serious, serious problems," she says. On former Treasury Secretary Hank Paulson for his failure to put any restrictions on or monitoring of the initial TARP funds, and for using the money for something other than "toxic asset relief," as originally intended, she declares. "I have a real problem when we describe to taxpayers their money will be taken and used one way and in fact it's used another way," .

"We see things getting worse in the housing market," Warren says, citing the pernicious effects of foreclosures, which rose 5% in the third quarter to a total of 937,840, according to RealtyTrac. "The long-term impact of high foreclosure rates on our housing market and overall economy would be disastrous," Warren warns, citing estimates that 10 to 12 million U.S. homes could ultimately go into foreclosure. "We have to get foreclosures under control." Why the sense of urgency? A single foreclosure property brings prices down an average of $5000 for every house in a two-block radius and costs investors an average of $120,000, she says.

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