Market Talk

- Wall Street bonuses jumped 17% last year. “For most Americans, these huge bonuses are a bitter pull and hard to comprehend,” NY State comptroller Tom DiNapoli says. “Taxpayers bailed them out, and now they’re back making money while many New York families are still struggling to make ends meet.”

- Costs of recessions run deep. “Recessions cause skills to depreciate, there are psychological costs, there are costs to family members, the loss of a job generally means loss of health care, the costs to working class households go on and on,” Mark Thoma writes.

- “The alliance that has held back reform begins to crack,” former IMF chief economist Simon Johnson says. “The middle of the consensus has started to move, against mega-banks and against dangerous over borrowing by the financial sector. This will be a long hard slog, but we are finally heading in the right direction.”

- “Expensive and ineffective attempts to fight foreclosures at all costs” has been one of the Obama administration’s most disappointing policy initiatives, Barry Ritholtz notes.

- “The slowdown in the foreclosure rate (now about 1/3 of sales down from a high of 1/2), the home buying tax credit, and the artificial suppression of mortgage rates have all helped to cushion the decline in prices,” says Peter Boockvar. “But when much of this wears off this summer, the market will be put to another test.”

- Problem bank list continues to expand. Hits 702 banks with $403 billion in assets – the largest amount since 1992. “Not all problem banks will fail – and not all failures will be from the problem bank list – but this shows the problem is significant and still growing,” Calculated Risk writes.

- Wal-Mart (WMT) should’ve made the bigger bet on Netflix (NFLX), Dan Frommer argues at Silicon Alley Insider after WMT paid a reported $100 million for video streaming service Vudu.

- Twitter reaches a fresh milestone, saying it’s publishing 50 million tweets a day, or about 600 messages a second.

- Pent-up iPad demand seems to be exceeding demand estimates when original iPhone was released, which is surprising, John Paczkowski says. “The iPad is, after all, an entirely new device category between the laptop computer and the smartphone. And, unlike the iPhone, its market is unproven.”

- Atlanta Fed’s macroblog takes a deeper look behind the core CPI data reported last week.

- Yves Smith’s take on Vogue profiling Tim Geithner: “I suppose puff pieces to hide the true character of what passes for our leaders are a more civilized way to distract the public from the rot in the empire than killing gladiators, but it sure doesn’t feel that way.”

Wall Street may be great at many things, like making money (however they manage to make it,) but they stink at one thing: regulating themselves. Amid all the things that need to be fixed about the financial industry that we’ve focused on this week, we’ve neglected to mention the issue of self-regulation.

Our colleague Kristen McNamara filed this snippet earlier this afternoon that corrects that oversight:

Congressional efforts to reform the financial regulatory system haven’t adequately addressed the failures of self-regulatory organizations charged with protecting investors and maintaining financial market integrity, the Project On Government Oversight, a nonprofit government watchdog, wrote in a letter to Congressional leaders.

The group urged Congress to take a closer look at the Financial Industry Regulatory Authority, which oversees the securities industry

The watchdog says Finra failed to prevent scandals, including the fraud committed by Bernard Madoff and Allen Stanford, due to its close relationship with the securities industry. Congress should consider curtailing the power of SROs in favor of independent regulation, the group wrote.

US stocks slide as the risk trade comes apart amid a number of discouraging reports both here and abroad that cast a shadow over the global recovery.

DJIA slides 101 (1%) to 10292, the Dow’s biggest slide in two weeks, since Feb. 8. S&P 500 loses 13 (1.2%) to 1094, Nasdaq Comp falls 29 (1.3%) to 2213. NYSE volume’s higher than recent days, but nothing crazy at about 4.5 billion shares traded.

Consumer confidence takes a big slide, which really sparks the selloff. In Europe, there are fears the recovery has “stalled,” as BofE says. Regional Fed reports this week have seen weakening in the manufacturing sector, too. Retailers like Home Depot posted good earnings growth, but sales growth is far more muted.

There’s been a small trickle of bad news emerging lately: the consumer confidence numbers, the Richmond Fed report, The Dallas Fed report, the FDIC report on its “bad bank” list (up to 700,) report that 25% of mortgage holders in the US are underwater, word that the eurozone recovery looks to have stalled.

Stalled. Keep that word in mind. Might come in handy some time soon.

February regional business activity surveys so far this week from the Dallas and Richmond Feds don’t show much evidence of a vigorous economic recovery, certainly not the one implied by the fourth-quarter’s 5.7% GDP growth. And the comments from survey respondents in Dallas make you wonder if the recovery might even be fizzling already.

Dallas Fed’s survey out yesterday said factory activity continued to expand, but fell to 2.3 from 7.4 in January. Of the survey’s 15 current business activity indicators, only four were positive, and one — capacity utilization — remained flat. Inventories, employment and capex all continued to contract for more than 18 months now.

Dallas Fed said the business activity and company outlook indexes both slid back below zero “due to an increase in the share of manufacturers reporting deteriorating conditions.”

Deteriorating conditions? Uh-oh.

Continue reading…

Simon Johnson looks at the prospects for real financial reform, and while he doesn’t seem very optimistic, he sees the odds growing, mainly because the banks themselves make a convincing argument, through their actions if certainly not their words.

I asked this morning just how powerful is the banking lobby. Apparently, pretty powerful, because the same group led by Geithner and Summers that was so successful in Korea and overseas has turned meek and mild when confronted with our own crisis. “The Obama administration’s generally weak and unfocused financial reform proposals have morphed into generally weak and unfocused congressional bills,” Johnson writes.

That said, the banks’ own behavior may ultimately do them in. “Despite – or rather because – of all the arrogance and misbehavior among our more prominent financial players, we are making progress on the bigger agenda: Changing the consensus on what is regarded as safe and sound in all kinds of banking.”

From Johnson:

You can strike out one more purported reason why we should keep massive global financial institutions.  They do not enhance transparency, they do not bring clarity, they do not keep governments accountable.  Instead, they are paid a great deal of cash to mislead people.  What is the social value of that exactly?

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I’m always suspect of consumer confidence reports, no matter how rigorously they are prepared. Much like polls, the surveys are based on a sample of people, and the results are extrapolated to encompass the whole nation. So when you get a report like today’s from the Conference Board, and the whole market tanks on it, well, there may be something else happening.

Yes, today’s confidence report was surprisingly bad. But there’s more going on than 5,000 people having a case of the Monday’s because it’s February. For one thing, regional Fed reports from Texas and Richmond have been less than inspiring. For another, the dollar’s up today, which these days almost always pushes stocks down. And the dollar’s up because they euro’s down. And the euro’s down because suddenly the recovery in Europe looks like it’s stalled. And that’s not me saying it.

The Bank of England’s Mervyn King said the eurozone recovery “”appears to have stalled.” Sentiment was down in Germany. Sales were down in France. Greece, Spain, Italy, Ireland, well, you know the story with them. All of that is putting pressure on the UK’s economy, which relies greatly with those nations as its main trading partners.

Of course, Greece has faded from the front burner, mainly because everybody’s waiting to see how this bond offer goes off. It’s not going to happen tomorrow, not with a national strike on tap, but it could come Thursday or Friday.

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Do we look confident to you, mister?

Maybe it’s time all that recovery talk turns into double-dip chatter.

OK, that lede may be a bit premature, but from the consumer’s point of view, the economy’s not exactly peachy these days.

This morning’s consumer confidence data, from Conference Board – a private research group, portrays a nervous consumer as the firm’s confidence index slipped to 46.0 this month, from a revised 56.5 in January. February’s reading was far below the 54.8 economists were expecting.

“The consumer confidence data was very disappointing,” RBS’ Alan Ruskin writes. “The breakdown shows particular weakness in the few components that have a reasonable coincident correlation with personal consumption,” like the present situation index and jobs data. That latter hasn’t shown any improvement in six months, he points out.

While there has been some encouraging data on the spending front, “it is clear that generating a virtuous cycle from employment to income to consumption and back to employment is going to be unusually slow by the standards of most recoveries, although more in keeping with the sluggish recoveries seen after most financial crises.”

On the bright side, the index historically tends to offer weak readings in February, FT’s Alphaville blog points out, which offers some solace that the bleak report isn’t the beginning of a new downward trend. Nevertheless, this is still a weak report and “one that should give the bulls pause for thought,” blog says.

Sentiment surrounding the labor markets took a big hit as the percentage of respondents who think jobs are “hard to get” rose to 47.7% in February from January’s 46.5%. Conversely, folks who believe jobs are “plentiful” fell to 3.6% from 4.4%.

“There is no way to spin that data as being positive,” says Michael Shedlock, an investment advisor for Sitka Pacific. “Housing has stalled with another leg down coming, jobs are pathetic, taxes are headed higher, and debt levels are unsustainably high,” he adds. “Pray tell what is there for consumers to be optimistic about?”

Our Dow Jones colleague Kathleen Madigan may have said it best in her Big Picture column this afternoon: “At the end of the day, consumer spirits won’t perk up until the labor markets do.”

(Paul Vigna contributed to this post.)

Congress takes another look at the AIG bailout.

Bloomberg is out with an ire-raising breakdown of the AIG bailout and its aftermath, especially the details that emerged from the notorious “Schedule A” list of AIG’s counterparties to its credit default swaps, a document the government fought for more than a year to keep suppressed.

If you haven’t kept up on this little topic, and feel like raising your blood pressure for masochistic some reason, read the whole thing. But, curiously, Schedule A was inserted into the public record in January by Rep. Darrell Issa during the January Congressional hearings on the bailout (here’s a Reuters story on it from late January, which includes a link to the document itself; print it out if you want a true piece of Americana scandaloso.)

It’s curious that Bloomberg published its story now, though, when the documents have been in the public realm for some time. But it does show that rancor over the bailout isn’t going away, Yves Smith notes at naked capitalism. And the bailout still needs to be more fully addressed.

A further investigation of Goldman, SocGen, Deutsche Bank, the major AIG counterparties, is long overdue. Having wrestled with the data in the public domain, we can only conclude it is impossible at this juncture to understand the motives of the major players, which is essential to determining how much of this disaster was due to incompetence versus nefarious intent.

Now some may complain that people will continue to harp about AIG regardless, but that’s a spurious argument. Its rescue was a huge taxpayer commitment, done in great haste, and much of the background and the critical decisions remain in the dark. Sus looking details, like the decision to pay the counterparties at 100% of notional value of the CDS, were investigated by SIGTARP and criticized roundly in its report.

Note to Fed: if you want the media to stop worrying at the AIG bone, disclose all information that will give insight into the roles and objectives of the major AIG counterparties, including details of the Abacus deals. And if this step does not provide answers, it’s time for SIGTARP and the Financial Crisis Inquiry Commission to demand information from the counterparties themselves.

If this is true, and I’m a different P.V., I think I’d be pretty PO’d:

The Obama administration is backing off a plan to bar commercial banks from engaging in proprietary trading, favoring instead a watered-down version of a key tenet of the proposed “Volcker rule” governing how banks operate, according to people familiar with the situation.

Sources told The Post that instead of issuing an outright ban on prop trading — or trading done on behalf of only the bank itself — the White House will propose that federally insured banks keep higher cash reserves if they want to run such trading desks.

The about-face comes amid signs the administration faced an uphill battle selling lawmakers and Treasury officials on an outright ban.

So let’s get this all straight: the White House brings Paul Volcker on board last year because they needed somebody with some gravitas who commanded respect. They then promptly handcuffed him to a radiator in the basement until they needed him, finally unleashing him last month on the banks with this Volcker Rule. Now they’re back-tracking on it?

(Read the addendum at the bottom; the White House came out and said it still backs the rule.)

Not that I want our colleagues upstairs at the Post to be wrong, but on this one I want them to be wrong. Are we to assume that the White House, with majorities in both houses, with half the country ready to tar and feather the bankers, with the obvious, desperate need for root reform after the worst financial crisis in 80 years — a near-total, self-inflicted meltdown caused precisely by a lack of regulations — can’t get its own proposals through Congress and the Treasury Department?

Is the banking lobby that powerful?

Continue reading…

Our cat-fish margins are so much better this year than last year.

Today’s slate of earnings reports is dominated by retailers: Home Depot, Sears, Macy’s and some others. For the most part, they’re all doing their shareholders proud, with solid profit growth as margins have bounced back after last year’s margin-killing discounts.

But as a measure of the broader economy, the reports fall short. And that’s because of one thing: sales.

Remember, these are fourth-quarter reports, compared to last year’s fourth quarter, the worst single quarter for earnings ever, at least as measured by the S&P 500 components. That retailers are still struggling to build sales off that nadir says a lot. Let’s go to the videotape:

Home Depot posted a profit of $342 million, up from a loss of $54 million a year ago. But total sales were down 0.3%, and US same store sales were down 1.1%; same-store sales overseas were better, leading to an overall gain of 1.2%.

Macy’s posted a profit of $466 million, far better than last year’s $4.77 billion loss. But they didn’t swing that through higher sales. Sales were down 1.1% to $7.85 billion, and same-store sales were down 0.8.%.

Sears posted a profit of$430 million, up from $190 million last year. Pretty sweet, huh? But sales were down 0.2% at $13.25 billion.

Target was one company that managed to boost both earnings and sales, the former by a hearty 54%, the latter by a much more tepid 3.2%.

And last week, the big kid, Wal-Mart, showed the exact same pattern: better earnings, worse sales. The assumption then was that people were going upscale amid a recovery. Corroborating evidence was supplied by Whole Foods, which saw both total and same-store sales rise. We’d take that with a grain of salt; organic sea-salt, coarsely grounded, of course, that costs twice as much as the stuff on the shelf at the local Foodtown, but salt nonetheless.