Market Talk

It’s now downright painful to watch the government helplessly flail away at the US foreclosure mess.

Tortuous, really. Like standing there watching Sisyphus struggle to push that big rock up the hill, time and time again, only to have it roll right back down. Feels like a punch in the gut.

And so it goes with the administration’s latest scheme, now to get mortgage servicers to reduce principle.

The move comes on the heels of the latest mortgage metrics report for the fourth quarter from the Office of the Comptroller of the Currency and Office of Thrift Supervision. The report says more than half of modified loans fell more than 60 days past due by 9 months after modification, and it’s closer to 60% of mods re-defaulting after 12 months.

Somehow, we’re not feeling too confident that this latest attempt is the magic elixir.

As the OCC report says, servicers expect new foreclosures to increase in upcoming quarters “as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted.”

Exhausted, like Sisyphus, pushing that rock.

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US stocks close relatively flat, but only after another volatile day of trading.

DJIA adds 9 to 10850, S&P 500 gains 1 to 1167, Nasdaq Comp slips 2 to 2395. Dow was up almost 70 early, before news of the sinking of a South Korean naval vessel sparked a selloff. To us, the fact that stocks would sell off so sharply on a vague piece of news, there still isn’t a definitive statement, just illustrates that the market’s getting jittery, and we wonder if that’s a sign of a top.

Still, it’s the fourth weekly gain for the indexes, their longest such streak since August. An average volume day on the NYSE, with 4.7 billion shares trading hands.

It’s the second day where stocks see a big run-up early that evaporates as the session wears on. UBS’ Art Cashin noted this morning that yesterday’s turnaround was a “possibly significant reversal” so we wonder how he’ll feel about two of them. And while we still believe the bulls are dead-set on taking Dow 11000 and S&P 1200, we wonder if Mr. Market’s got his hand on the bell, waiting for just the right moment to ring it. Make hay while the sun’s shining, bulls.

The Greece crisis settles down considerably, but that little EU fix may be short-lived. 4Q GDP gets whittled down a bit. White House doubles down with yet another home-owner bailout. South Korean naval ship sinks, rattling markets, but it’s still not clear what happened.

Treasurys had a rough week, with a series of poorly received auctions, and the goings on in that market might start taking up space on the front page if it seems the bond vigilantes are trying to force some austerity measures of their own on Uncle Sam. On the other hand, if the recovery sputters, Treasurys could start looking mighty attractive again.

Euro at one point this week seemed to be in free fall, but yesterday’s announcement of that deal put a floor under it, for now at least. Dollar fell sharply today, but still rose this week and is up 6.7% against the euro this year.

Dow Jones Newswires reporter David Benoit writes:

As the Obama administration throws another buoy to underwater home owners, there’s some anger billowing in the blogosphere.

Treasury’s latest revision of the Home Affordable Modification Program (HAMP), “earned principal forgiveness” plans, as also announced by Bank of America this week, aren’t exactly going over well, particularly among those that feel helping struggling homeowners is unfair to responsible owners, and a moral hazard Uncle Sam has to get away from.

There sits Reuters blogger Felix Salmon posting a letter telling BofA they’ve lost a customer on their forgiveness plan.

“Principal forgiveness is an affront to every responsible, non-delinquent borrower in your book of assets,” the customer writes to CEO Brian Moynihan.

That type of anger has Salmon doubting the movement will even get its foot off the ground.

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Time alone heals all wounds they say. But until such time as that slogan can get a politician elected, they’ll continue to throw money at problems.

Let’s get through this quickly, because there’s nothing new here, just numbers that reinforce our current opinions.

Fourth-quarter gross domestic product was revised down to a 5.6% annualized rate, from the 5.9% revision last month (it was originally reported at 5.7%.) Here’s the key rundown:

-Consumer spending was revised down, to 1.6% from 1.7%.

-Business spending was revised down, to 5.3% from 6.5%.

Consumer and business spending was weaker than originally reported. Consumers, until this battering recession, had been the driving force behind the economy. With them kaput, hopes turned to business spending. But while businesses are obviously buying some things (I got a new chair a few weeks ago, for instance,) we’re not convinced they’re buying enough things to spark an upswing in the economy.

-Inventory liquidation was revised higher, to $19.7 billion from $16.9 billion. In the third quarter, inventory liquidation was $139 billion. The way this affects GDP, falling inventories subtract from GDP, rising inventories add. So if inventory falls less than it did the previous quarter, by a quirk of accounting, this adds to GDP. Thus, inventory liquidation alone contributed 3.79 percentage points to that 5.6% print.

-Real final sales, which is GDP less inventories, was 1.7%, revised down from 1.9%.

That last bit is the most important. Strip out the inventory adjustments, which is strictly an accounting measure, and GPD was 1.7%. Combine that with what we reported yesterday about personal income, and ask yourself how strong is this recovery, which according to the Street started last summer.

And still, the economy isn’t adding jobs. Even if next week’s report shows a net gain in jobs, it will come from the effect of snowstorms on February’s report (kind of similar to that inventory accounting) and Census Bureau hiring. We’re not convinced the snowstorms had as big an effect as the Street thinks it did, and the Census gig’s a part-time job.

So where’s all that strength being priced into the stock market coming from?

The social cotract must be upheld.

Let’s get a few things straight: the Germans and the French are going to bail out Greece, with money, which they don’t want to do to begin with, and for which the Greeks have not been asking for for weeks, but only if they really, really need it, as in “there’s a Cyclops (or market speculator) biting my head off over here I need some help” need it. Oh, and the IMF’s going to chip in, too. There, glad we got that straight.

In a space of two days, we went from Germany not even wanting to talk about Greece at this EU summit, to a full-blown bailout package. Is that really what happened? Well, no, not exactly. Let’s look at the five W’s, as reported by the WSJ:

Leaders of the 16-nation euro zone, bridging sharp philosophical divides that tested the decade-old currency bloc, backed a deal under which they and the International Monetary Fund would jointly bail out Greece should the country’s debt troubles intensify.

The agreement won’t immediately trigger a Greek rescue, but it lays the groundwork for both the first intervention by the IMF in a euro-zone country and a major relaxation of the tight restrictions on country-to-country bailouts that have been a feature of the currency union since its birth. The accord suggests Greece’s financial travails are forcing the euro zone further along a path to greater economic coordination that has been resisted by national governments.

So, the first thing that should jump out at you and scream is this: “should the country’s debt troubles intensify.” Intensify? Greece is on the verge of being swallowed whole by its own debt; how much more intense would they like it?

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Bulls look to regroup, and perhaps attempt to mount another assault on DJIA 11000 after a rather ugly reversal in yesterday’s action.

US dollar’s retreat after a strong surge higher late yesterday gives bulls an opening, and premarket US stock futures show a modest advance. Gold and oil also bouncing. Stocks were strong in Asia overnight, European markets now moderately lower.

Final look back at 4Q GDP due at 8:30 a.m.; Reuters/Univ of Michigan’s final gauge on March consumer sentiment set for 9:55 a.m. ET. Dollar index recently at 81.75 after climbing well north of 82 late yesterday. S&P futures up 3.90, DJ futures up 34. Ten-year higher, yield at 3.86%.