Transparency and TARP

So why does the negativity and the bearish activity remains despite: (i) an identification of the problem; (ii) a less than crazy impactful Financial Reform Bill being shaped in Congress; and (iii) the promise and issuance of a European TARP to backstop debt problems.

I mean, the US did the TARP thing to perfection (relatively speaking) and it calmed the markets and led to the bull run of the past 12 months.

But the beast is a bit different in Europe. For one, people don't believe that austerity measures will work in Europe - whereas the US benefits from being the world's #1 lender and hasn't had to implement such austerity measures yet. Now when its force to in 2012, will it be able to or will it experience a similar meltdown? I don't know, but its not a present issue. Second, US banks were mostly exposed for what they owned and played by (if not manipulated) the rules. European banks (Spain and Greece) cheat and lie alot more. So lack of transparency = uncertainty = confusion = fear = bad market vibes and flight from risky assets.

Add to that the following 2 factors -- (1) China was the global engine of growth for the past 12 months and in order to avoid inflation it has intentionally slowed its own rate of growth, or at least is implementing measures to slow growth; and (2) the US consumer is constrained; yes, he/she has somewhat stabilized but foreclosures are still growing, home prices are slightly declining, and jobs are not being created, which means that the US consumer can't buy the world out of this problem.

Stir it all together and you get a growing global economy, but at a much more limited, dis-inflationary pace than was predicted in the V-shaped recovery and priced-into the V-shaped market recovery.

On another note -- today is an interesting day to see if the S&P will break and close below the psychologically and technically important 1050 level. The US market should perform better between noon and 4pm since the European markets close at noon and US companies are in relatively strong financial shape currently (this gives US markets a chance to rally on their own fundamentals). If the markets dive into the 4pm close AGAIN today, AND close below 1050 -- that starts to look like some real negative momentum continuing this correction further.