Market Talk

- “Here we are, up 70% or so from the lows of over a year ago, and there is no uniformity of thought – which is probably a good thing,” Barry Ritholtz says.

- Treasury’s Geithner insists a resolution authority will help manage a failure of a large cross-border financial institution. “It simply will not,” former IMF chief economist Simon Johnson writes. “Mr. Geithner wanted to sound tough. But is he really coming out to fight? Or did he and his colleagues already throw in the towel?”

- Palm hopes distribution deal with AT&T (T) will boost sagging smartphone sales, but analysts aren’t so sure, John Paczkowski reports.

- “The home buying tax credit expires at the end of April and time is running out,” Miller Tabak’s Peter Boockvar says. “Bottom line, the next big test for this phase of the housing recovery is just ahead.”

- February existing home sales are proof the home buyer tax credit “has run out of gas,” Karl Denninger writes at the Market Ticker.

- Year-over-year decline in housing inventory is getting smaller. “This is something to watch,” Calculated Risk says. “This slow decline in the inventory is especially concerning with 8.6 months of supple in February – well above normal.”

- “Once upon a time, you could set your watch with the Google-Goldman super-tell duopoly,” Todd Harrison says at Minyanville. “As both are pointing due south today, it’s worthy of a mention.” Google (GOOG) drops 1.5% to $549; Goldman Sachs (GS) drops 0.8% at $174.83, but the Dow Jones Industrial Average rises 103 points.

- UK authorities arrested of six men, including an employee of hedge fund Moore Capital and another from Deutsche Bank, in what’s being billed by the government as a major crackdown on insider trading, WSJ reports.

- Solar stocks, which got hit hard during the bear market, have been really struggling during the recovery, Bespoke notes. For solar stocks over the last six months, “it’s not a pretty sight,” firm says. “Is now the time to buy or will solar continue to trade lower?”

- Jeff Saut, Barry Ritholtz, Bob Doll and Mike Santoli all correctly called the bull market, Josh Brown writes at The Reformed Broker.

- Microsoft (MSFT) doesn’t want to talk about the Courier, a rumored response to Apple’s (AAPL) iPad, but it’s willing to concede the blogosphere is a great way to read about it. All Things Digital says MSFT’s JobsBlog tells those looking for a job to check out “online chatter” about, among other things, “the upcoming Courier digital journal.” The JobsBlog links to a post on Engadget that claims exclusive pictures and details.

(UPDATE: Looks like someone at Microsoft’s (MSFT) JobsBlog might be in trouble. MSFT has now deleted a reference to its rumored Courier tablet from a JobsBlog post. “Hilarious,” All Things D’s Peter Kafka tweets. The post is still on JobsBlog but no longer mentions the Courier.)

(Editor’s note: for maximum effect, this post should be read while listening to King Oliver’s Canal Street Blues.)

In his early comedy films like “Sleeper” and “Take the Money and Run,” Woody Allen always had at least one montage of his characters going through a series of silly, zany scenes, always set to some whimsical Dixieland jazz. There’s Miles Monroe trying to steal giant vegetables, 200 years in the future; there’s Virgil Starkwell on the run; there’s Feilding Mellish, becoming a revolutionary down in South America.

Doesn’t it seems like the actors down in Washington these days are running around in a montage like that?

There’s the Fed chairman, dropping dollars out of a helicopter. Darn, that didn’t work! There’s the President, promising an economy-saving stimulus package. Didn’t work! There’s Congress running around like their hair’s on fire. There’s the Treasury Secretary, and he can’t figure out why the banks’ books don’t add up. There’s the Fed chairman, barely holding on as he sprays dollars through a fire hose. Rats! There’s the President, promising to modify everybody’s mortgage. Not working! Congress is still running around like mad. Back to the Treasury Secretary, who still can’t figure out why the banks’ books don’t add up. Ooh! he yells as he smacks himself on the head.

Turbo Tax!

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It's still too expensive

So not only are senators close to a deal that will extend the first-time home buyer tax credit, but now the deal may expand to some buyers who already own a home.

Dow Jones reporter Jessica Holzer says the credit could get extended to April 30 and certain “step up” buyers – who’ve been in their current home at least five years – would qualify.

There’s been lots of pressure to extend the tax credit, especially as housing prices are starting to recover. Home prices recorded their third straight monthly increase in August, according to Case-Shiller.

Still, some market observers remain critical. The credit effectively “boosts the price of a transaction that would have happened anyway,” Simon Johnson and James Kwak write on a Washington Post blog.

Sure it may help increase transactions and temporarily stabilize the housing market, but intervening in the economic cycle usually doesn’t end well.

“If someone could not have afforded a house without the tax credit, then what is he or she going to do when the tax credit goes away and the price of the house falls?” the bloggers ponder. “In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads.”

Critics also scoff at the price of the credit. Calculated Risk does the back-of-the-envelop math and figures if 350,000 new sales occur because of the credit, as pegged by the National Association of Realtors, the government is essentially paying $43,000 for every extra house sold.

The tax credit is merely a “weak attempt to price fix a collapsing market,” the Pragmatic Capitalist blogger says.

“The problems in housing are secular in nature and cannot be fixed with some short-term government stimulus,” blog says.

The same thing occurred with cash for clunkers this past summer and auto sales collapsed once the program ended. “The only way to create sustainable economic growth is by promoting good business practices, ethical lending, fiscal prudence and innovation,” blog says.

“We aren’t going to create a short-term fix for a long-term problem.”

My old Kentucky home (is worth an extra eight grand right now.)

Rumors circulating that Congress probably won’t extend the $8,000 tax credit for first-time home buyers, which is one of the things weighing on the market today (but, let’s face it, is ultimately the right thing to do.)

Research firm ISI Group has the details:

“There could be an agreement reached as early today on the Reid/Baucus amendment that would PHASE OUT (not extend, as we originally understood when the idea was first proposed last week) the home buyer tax credit,” ISI analysts said in the note. “The phase out is worse than a straight extension and probably worse for housing than the consensus.”

As we detailed earlier, recent housing starts and existing home sales data have been better-than-expected largely on the basis of the generous tax credit. Growth can arguably be attributed to the credit, meaning the recent trends become irrelevant if the credit doesn’t get extended.

Some market observers have even suggested a “cash-for-clunker like hangover” could hit the housing market if and when the credit gets phased out. As is evident in the auto industry, cash-for-clunkers didn’t exactly boost demand. It just pushed up demand so people who were already going to buy a car late this year or in 2010 decided to buy one earlier than expected.

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This baby's still available

Home building rose for the third time in four months, but keep in mind this trend’s sustainability is certainly in question.

Housing starts increased 0.5% to a 590,000 annual rate, albeit less than economists were expecting, which proves that the housing market is still very reliant on government support and low interest rates despite earlier signs of recovery.

With the $8,000 first-time home buyer tax credit set to expire and no imminent signs that it’ll be extended, it’ll be interesting to see how the housing market will react if the government support doesn’t continue.

“The recent trends in starts becomes irrelevant in extrapolating future building if the tax credit doesn’t get extended,” says Miller Tabak equity strategist Peter Boockvar.

He thinks another “cash-for-clunker type hangover” could occur in the housing market, especially since “most of those who took advantage of the tax credit were going to buy a house anyway,” he notes.

“All we did was pull forward demand,” similar to what the auto industry did this past summer.

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