Friday, October 31, 2008

Where is My TARP?

Chances are the question on voters’ minds this next Tuesday will be, “Where is my TARP?” TARP - it stands for Troubled Asset Relief Program - is the federal government’s rescue plan for U.S. banks. After all, who doesn’t have a trouble asset on their hands these days! Homeowners, business owners, stock owners…nobody’s net worth looks good these days.

The credit sector implosion could not come at a worse time - during a presidential election year. Tough economic times have left the incumbent president in worse than just lame duck status. He is nearly a pariah within his own party. When was the last time a sitting president made NO campaign appearances whatsoever for the candidate of his own party? It is the Bush administration who has borne there greatest blame for the situation that required a $750 billion program when the most improbable of short-names - TARP. It reminds me of the improvised body wrappers used when there are unexpected mass casualties from a natural disaster.

Where IS my TARP? Some would like to see funds going toward infrastructure spending rather than propping up banks run by executives with dubious track records for making smart portfolio choices in the first place. Estimates suggest that over 25% of roads and bridges around the country need structural reinforcement or replacement at an estimated cost of $140 billion.

No matter who wins the presidential election, that cry for infrastructure spending is not likely to go away. Followers of local and state government programs suggest projects valued in the billions are poised for implementation and could break ground within weeks of allocations, if Congress would create a “tarp” for local and state government.

Who would benefit? Heavy construction companies for a start. Likely beneficiaries are heavy construction companies such as Fluor Corp. (FLR: NYSE), Perini Corp. (PCR: NYSE), and Meadow Valley Corp. (MVCO: Nasdaq). These three and the rest of the heavy construction sector appear to be trading at bargain basement valuations. Investors should wait until the ink is dry on any funding package before jumping into the highly volatile and sometime unprofitable construction sector. Beta volatility measures on construction company stocks are high for a reason.


Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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