Market Talk

Newswires editors Eduardo Kaplan and Madeleine Lim discuss Ben Bernanke’s comments on Fed’s plan for balancing its sheets, Bank of England not tightening credit and no word yet on the possible Greece bailout. It’s Tomorrow’s News Today.

- If Greece gets fixed, who’s next in line? “The hazard here is that countries, seeing the Greek precedent, refuse to take tough fiscal steps unless the path is sweetened by Germany and France,” Reuters blogger Felix Salmon says. “This isn’t the end of the euro crisis: it’s only the beginning.”

- New York Times posts decent quarterly results, at least by newspaper standards. MediaMemo blogger Peter Kafka gathers commentary from the earnings call about ad sales and pay walls.

- US trade gap widens more than expected. “Overall trade continues to increase, although both imports and exports are still below the pre-financial crisis levels,” Calculated Risk says.

- California’s debt problems makes PIIGs look miniature. “Perhaps the solution to California’s woes is for Arnold Schwarzenegger (who is from Austria) to join the EU,” Barry Ritholtz writes. “Then, they might qualify for a bailout from Germany.”

- Google says it’ll begin selling ultra-fast Internet access to consumers, a test that could threaten telecom companies’ grip and demonstrate new uses of the Web, WSJ says.

- Looking for robust growth in consumer spending? Last Friday’s report on consumer credit should give you pause, Atlanta Fed’s Macroblog says.

- Google Buzz proves exactly why Google originally wanted Yelp so badly, according to The Big Money.

- Footnoted plans to expand post-Morningstar deal.

- Populist outrage “will persist until economic conditions improve, labor markets in particular, and there is some sense that justice has prevailed,” Mark Thoma says.

- Coupons are back in fashion, which certainly says a lot about this economic recovery.

- Northeast was pounded by a blizzard that halted transportation, knocked out power, collapsed roofs and brought the federal government to a virtual standstill, WSJ reports.

Stocks post modest declines, but bulls can mark it as a minor victory as they’re able to fend off bears and erase most of some sharp, early session losses.

Headlines from Ben Bernanke’s outline on the Fed’s exit strategy spook investors, at one point sending the Dow Industrials down almost 100 points.

Financials the only sector to finish with gains; Materials, energy, health-care and consumer discretionary all weak. Ten-yr auction met with tepid demand, Treasurys sell off pretty hard, 10-yr yield back up to 3.69%.

DJIA falls 20.26 to 10038.38; Nasdaq Comp slips 3 to 2147.87; S&P 500 ends 2.39 lower at 1068.13.

Bernanke sounds pretty confident that the Fed can essentially thread the needle with its extrication plan, withdrawing its loose monetary policy and myriad support programs while not upsetting any nascent economic recovery.

Not impossible, perhaps, but roughly equivalent to yanking the tablecloth out from under a round twelve-top, fully adorned with complete settings of expensive china, sterling silver utensils,  fine stemware and a luxurious floral centerpiece — and leaving it all still resting perfectly.

Should be quite a feat to behold.

It pains me to write this headline. It truly does. But it’s hard to argue the facts.

From an injury-ravaged 2009 season, to a lackluster offseason without any splashy transactions and diminished expectations heading into Spring Training, Mets fans don’t have much to get excited about.

And from a financial aspect, there’s more bad news surrounding the franchise. The New York City bonds issued to build the new Mets stadium – Citi Field – have been downgraded to junk by S&P and Moody’s.

NYT’s Floyd Norris has the details:

Standard & Poor’s and Moody’s have finally discovered something New York baseball fans figured out last summer. The New York Mets are junk.

O.K, that is not fair. But the New York City bonds issued to build CitiField have been cut to below investment grade by the rating agencies. The agencies blame the cuts not on the Mets’ woeful performance last year but on the standing of the bond insurer Ambac, which guaranteed the bonds.

Ambac is all but broke, with ratings in the nether worlds of junk.

The part of this that is most amazing is that the bonds were sold in 2006 and 2009. That investors would regard an Ambac guarantee as worth something in 2006 is understandable. But by 2009 it was pretty clear the firm was in trouble, even if the rating agencies were slow to announce it.

Paying for these guarantees certainly looks questionable. But maybe the moves aren’t surprising considering the Wilpon family , which own the Mets, was also invested with Bernie Madoff, Norris notes.

“So it is clear their financial clairvoyance may be no better than their ability to pick and sign the stars of tomorrow in the annual draft,” Norris says. “At least they managed to sell the stadium naming rights before that market caved, even if the buyer did need to be rescued by the government so it could keep paying the money.”

On top of all that, the Phillies have appeared in two consecutive World Series and the Yankees are defending champions.

Mets fans really can’t catch a break.

Fed policy, illustrated.

It’s appropriate that Fed Chairman Ben Bernanke’s exit strategy plans were released in the middle of a major snowstorm. Because if what the Fed chairman laid out is what he really plans to do, the central bank will be removing all that credit it’s put into the system at an absolutely glacial pace.

Everybody knows that at some point, the Fed is going to have to raise interest rates. Because the Fed went way beyond even what would be considered a “neutral” rate, and dropped the hammer all the way on the floor.

This was done because of the very real fear of the kind of deflation that made the Great Depression the Great Depression. I fully believe that if the Fed hadn’t gone overboard, and they did go overboard, we would’ve been hit with a full-on deflation. Great if you don’t own anything, like, say a mortgage. A lot harder to bear if you do.

But now, Gentle Ben’s got to walk the finest line perhaps any Fed chairman has been faced with. He went full throttle to stoke inflation. Even Easy Al cut the fed funds rate to only 1%, and for less time. But Bernanke went all the way to the hardwood, and he’s left the rate there going on 15 months. That kind of stimulus has never been applied to the economy.

Now he’s got to unwind it, before the inflation he’s stoked with a six-foot pile of dry wood, plenty of tinder and a gigantic bellows actually takes hold, while at the same time avoiding tilting the economy right back into the tank from which he’s trying to pull it out of.

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President Obama strikes a curious chord, to say the least, in his latest comments concerning bonuses given to Goldman Sachs chief Lloyd Blankfein and JPMorgan CEO Jamie Dimon.

Obama says he doesn’t “begrudge” the multi-million dollar bonuses they received, noting some athletes make more dough than these two folks. From Bloomberg:

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

Umm, we’re not even sure where to begin on this one.  Free-market system? That went out the window when the government engaged in its bailout binge with the nation’s largest banks. As former IMF chief economist Simon Johnson points out: “Not only were their banks saved by government action in 2008-09 but the overly generous nature of this bailout means that the playing field is now massively tilted in favor of these banks.”

And wasn’t it only a few weeks ago that Obama was ripping “fat cat” bankers on Wall Street for their “obscene” bonuses? From fat cats to savvy businessmen, that’s quite the reversal.

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So the big east-coast storm has not only sent home unessential workers like, well, Congress, but I’m stuck at home, too, trying to finish up tomorrow’s column for the paper and contribute from home. It’s hard, because for one thing, there’s a battle going on here for control of the TV. I want business news, my wife and son want Barney. And Barney just creeps me out.

So, I just wrested control back, and see that stocks are now down fairly sharply. Seems every incremental bit of news, or lack thereof, coming out of Europe is driving US stocks, and currently driving them down. The trade deficit report didn’t help matters either.

Dow’s down about 70 around 10000, and S&P’s clinging to the 1060 level; keep an eye on the latter. A “trapdoor” could open just beneath it. Markets were expecting some kind of definitive statement — some news that the stronger EU countries would come to the aid of their weaker brethren — but they didn’t get it.

Keep in mind, market internals are also at play here. The market’s in the middle of a correction, so we are going to see selling no matter what the news is. Some newsy reason for it will be applied later.

But whatever decision the EU finally arrives at, any plan is going to both depend upon, and bear down upon, the Greek people. And they’re not all so happy about these, how does one call them, spartan measures.

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Today’s Upshot column takes a look at dividends; scoffed at during the go-go days, an attractive haven during turbulent times. And while corporate profits are returning, and more companies are starting to increase dividends, the numbers don’t quite match the profit growth.

February is a big month for dividends; companies have closed the books on the old year, shareholders meetings are coming up. So we may see a trend emerge this month. But it hasn’t quite happened yet.

From the Journal (yes, it’s behind the pay-wall; subscription required):

Nothing spells success to a corporation like rising cash balances. And nothing signals a company’s good fortune quite like a juicy dividend increase.

That’s why the early look on dividends this year is so disconcerting. Corporate profits are rebounding and more companies reporting they are feeling better about their finances. But a smaller number are being more generous toward their shareholders.

We noted yesterday at this time that the burden was on the bulls to prove they could keep the uptrend intact, and yesterday’s rally was a pretty good showing. Weak US dollar and encouraging headlines related to Greece and the European situation were supportive, and that continues to play out this morning.

Yesterday’s rally was sparked by rampant rumors that the Germans are in one way or another going to bail out their Greek partners. Nothing official has been reported. But even if they do offer some kind of life line, it is fraught with moral hazard and unintended consequences. It may alleviate the “event risk” type of stuff the market hates, but it is not, as no bailout ever really is, some kind of overnight cure-all.

US dollar index down 0.2% at 79.79. December US trade deficit on the schedule for 8:30 a.m., no indication that will be delayed because of weather. S&P futures up 3.80; DJ futures up 36. Ten-year flat, yield at 3.63%.