Farrell: A Julia Roberts Movie Becomes Real Life
I like Julia Roberts. I also like Clive Owen. I didn't like their movie "Duplicity." A bunch of scoundrels double crossing one another and redoubling the cross and acting like double agents that got turned into triple agents. I couldn't follow the whole thing and I figured why should I bother to spend $11 on a movie ticket (this is NYC remember) when I can turn on the news and watch the real thing come out of Washington on a daily basis.
Talk about the double cross and setting people up. Here- take the TARP funds even though you don't want them and we'll come in and tell you how to run the place and how to pay your people. Or get William Liddy to come out of retirement at the government's request to work for $1 a year and then try to destroy him at a Congressional hearing for all of AIG'sills. Set up Bank of America to bail out Merrill and then say "who me?", we never put pressure to bear on BAC. Just because we're their regulator doesn't mean we would force them to do anything.
The thing that amazes me is there are still groups willing to partner with the government. TALF (term asset based lending facility) is struggling because of the private sectors caution about getting involved with the government. But last week did see $11 billion in asset backed paper get placed and the trend seems to be picking up. Mike Jackson of AutoNation thinks car sales could rise 20-30% if financing were available.
None of us want the unbridled easy credit that got us into this mess, but availability of credit is key. If the TALF continues to progress, auto loan backed paper could contribute enormously to the recovery that seems to be emerging. A broad gauge of money- M2- is up 8% year to date. Home sales are stabilizing in many sections of the country. Both consumer and business confidence surveys have improved, and inventories appear to be getting to levels that practically insure an uptick in production to restock the barren selves.
Auto sales have slumped to a startling low annual rate of 9.3 million vehicles. There are about 250 million vehicles in the US and about 5 percent get scrapped every year. That means around 12 million get junked and right now we are only producing around 9 million. The total could move down if a stretched consumer decides to do away with a second car but the gap is still large.
If we stay too long at a sub replacement rate, the average car will soon have 100,000 miles on it. As the economy improves, car sales will catch up and we would favor Ford as the way to invest. Mike Ward of Soleil/ Ward Transportation Services figures that the stock could double or even more over the next few years. At $6 it is up from a historically low price of just $1, so at any time profit taking could hit the stock. But be prepared to buy it if you can have a time horizon of more than next week.
The ten year Treasury bond has moved rapidly up in yield to the 3.3 percent area. It was 3 percent when Ben said the Fed would buy bonds to keep interest rates low. It moved to 2.5 percent in response to that announcement and has since reversed. I think the rapid rise in rates is an acknowledgment that deflation is not on the horizon, but that the economy is picking up.
Also the size of the deficit financing is jolting the market to understand that Treasury paper will be coming to market regularly and for a long time. Since mortgage rates are so directly influenced by the yield on the 10 year, it will be interesting to see at what yield level the Fed gets aggressive in its repurchase program.
If you want a good Clive Owen movie to rent try "Inside Man" co starring Denzel Washington, Jodie Foster, Christopher Plummer and William Dafoe. Good story line and very good acting. _______________________________________