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Will TARP Paybacks Bring Indices Down?


Rising 10-year yields will put a damper on the housing market

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

My gnome high in the Appalachians pinged me this morning:

"Confiscatory tax policies, disdain for rule of law? Welcome to the United States of Venezuela."

Will bait-and-switch techniques wear out and undermine the agenda sooner rather than later?

It's clear the business environment has been chilled for now. Otherwise, banks -- from Bank of America (BAC) to Citigroup (C) to JPMorgan (JPM) to US Bancorp (USB) -- wouldn't be in such a hurry to pay back their TARP loans. That environment isn't positive for risk-taking and the economy over the long term.

In the short run, how much will the capital sucked out of the market on the banks secondaries affect the indices?

In the intermediate term, the steepening yield curve is beneficial to the banks' earning power, assuming you can find continuing loan demand. However, even assuming a pick-up in loan demand, rising 10-year yields will have a dampening effect on the housing market - and there are large housing inventories which will retard any new building for years. New building has been a large contributor in past recoveries.

At the same time, no one knows how many homes for sale are waiting in the wings, ready to appear given any uptick in the real-estate market.
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