December 15, 2009
December 15, 2009 by admin
The stock market sold off sharply on Tuesday following another major bank announcing they would be exiting the TARP program ahead of schedule. Wells Fargo follows fellow industry giants Bank of America and Citigroup with early repayment of TARP funds in move designed to distance itself from government oversight and position the company for long term growth opportunity. The company announced they would be issuing common stock among other avenues in an effort to raise billions of dollars in new capital. The banking and finance industry are coming under heavy criticism from the government for a failure to lend to the smaller and medium sized markets. Speculation over the last two weeks that big banks would pay back the TARP funds ahead of schedule in order to free up funds to pay bonuses is only adding fuel to the fire. On Monday, President Obama summons key banking executives to the Whitehouse to stress a renewed urgency to improve lending and the role of the banking markets with helping to pull the country out of the recession. There remains a large divide between Main Street America and corporate level bankers and the President is adamant to try and bridge this gap.
Mortgage rates remain in a state of uncertainty today. The drop in the market has had little impact on long term bond yields, which have risen almost forty basis points in the past thirty days. National mortgage lenders are offering thirty year loans well above five percent as interest rates have risen by over .25% during this period. Fixed rate fifteen year home loans are being offered in the high four percent range, but there remains selling pressure in the bond market as investors are growing more confident over the long term prospects of the equity markets.
The major economic news of the day was the release of the PPI (Producer Price Index) for the month of November. The wholesale inflation report rose nearly two percent, driven by a sharp increase in energy prices. Inflation has not been a significant factor within the economy since the start of the recession over one year ago, and low levels of inflation help provide the FOMC time to keep monetary policy friendly. There is a strong sentiment that the Fed will need to tighten its monetary policy beginning in early to mid 2010 to help fight the risk of inflation and potentially strengthen the dollar.