|
| Mark's Market Blog
10-17-09: Tarp Oversight Criticisms
by Mark Lawrence
|
|
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:
.png)
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:
- Even Too Bigger to Fail: A year ago the big concern was systemic risk and how to deal with 'too big to fail' firms, she
recalls. Now "the big are bigger, we wiped out a lot of small folks and there's more concentration" in the banking system.
- Still Toxic: TARP was created explicitly to remove toxic assets from bank balance sheets. "They're still there by and
large."
- Stress Test Failure: Unemployment has "blown through" the worst-case scenario in the stress test from February, Warren
notes. But "we haven't repeated the stress test, or revealed any more information about what's going on inside these financial
institutions."
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.
Table of Contents
Next Entry
Previous Entry
