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TARP, Though Wasteful and Unhelpful, Lives On


For nine more months money will continue to flow away from Main Street.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

The TARP has been extended by the Obama Administration to October 3, 2010

Treasury Secretary Timothy Geithner tells Congress that the Treasury will keep TARP protection for another nine months, as "The Great Credit Crunch" has another rain delay of bad loans and mortgage defaults.

In a letter to House and Senate leaders, Geithner said that the TARP is needed to assist American families and stabilize financial markets. (See also, While TARP Celebrates, PPIP Stumbles)

The $700 billion TARP has been credited for rescuing Wall Street, but attempts to help Main Street have failed miserably. Unemployment rose higher than expected, home foreclosures are rising unabated, and despite TARP being given to at least 500 community and regional banks, bank failures have reached 155 for the year and 180 since "The Great Credit Crunch" began, and more failures are on the horizon.

Even though $75 billion has been given to banks for mortgage mitigation,
actual mortgage modifications are only around 10,000 homes.

Geithner says that Treasury "will continue to mitigate foreclosure for responsible American homeowners as we take the steps necessary to stabilize our housing market."

Geithner says that Treasury "recently launched initiatives to provide capital to small and community banks, which are important sources of credit for small businesses. We are also reserving funds for additional efforts to facilitate small business lending."

All mortgage modifications have failed to slow the rise in mortgage defaults, and the only program I know of that could help is my "Mortgage Mulligan", which removes Fannie Mae (FNM) and Freddie Mac (FRE) as the middlemen, and provides funding directly to qualified homeowners at 100 basis points above US Treasury yields.

I originally made this recommendation in February 2008, and the Obama Economic Transition Team received my idea and ignored it shortly after the election last November.

Community banks are saddled with construction and development loans and commercial real estate loans, and this overexposure is the cause of the domino-effect of almost all bank failures.

There are nearly 3,000 banks that have this affliction and giving TARP money to weak banks doesn't increase lending. Community banks have taken this money to shore up balance sheets instead of for lending, and now TARP-banks are among the recent failures.

Today the US Treasury auctions $13 billion 30-Year bonds -- Yesterday's 10-Year auction was weaker than my key levels, and the key level for the 30-Year bond is 4.405 as support lags at 4.478. Note that the 30-Year yield has stayed above the 200-day simple moving average at 4.177.

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Source: Thomson / Reuters

Comex Gold traded as low as $1117 on Wednesday then returned to my quarterly pivot at $1135 today. The parabolic bubble has popped. Supports are $1107 to $1094 with resistances at $1166 and $1179.

Source: Thomson / Reuters

Nymex Crude Oil traded as low as $70.13 on Wednesday, approaching my annual pivot at $68.81. The 200-day simple moving average is $65.33 with the 50-day at $76.52. Today's pivot is $73.24.

Source: Thomson / Reuters

The euro
is below its 50-day simple moving average at 1.4877 after failing above 1.50 as expected. The risk is to the 200-day at 1.4127, as the dollar bottoming process continues.

Source: Thomson / Reuters

The Dow shows risk to my annual pivot at 10,012 as resistances build at 10,440 to 10,550.

Source: Thomson / Reuters

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No positions in stocks mentioned.

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