Market Talk

Treasury Department will begin unloading its $142 billion stash of mortgage-backed securities in an “orderly wind down” beginning this month, which raises an interesting question: Will these sales shed any light on the valuations of MBS that commercial banks are still sitting on?

Banks have not been eager sellers of their inventory of troubled MBS and other non-performing real-estate loans, as bids for the stuff have generally been well below what the banks are willing to accept. And as long as FASB isn’t forcing banks to mark these securities to market, then there’s no strong incentive to sell.

But the Treasury has incentive to sell, noting in its Q&A on the wind-down that its “mission does not typically include managing a large mortgage portfolio.” At least Treasury’s willing to admit it now. The Fed hasn’t yet reached that conclusion.

As of now, Treasury plans to sell $10 billion in MBS per month until it’s all gone, but could suspend sales “if market conditions become less favorable.” Any suspensions or slow pace of sales should offer some gauge on whether bidders continue to low ball, or if Treasury — like banks — is still asking too high a price for the debt.

Treasury says it’ll post its portfolio holdings at the end of each month,  including any sales that were completed, broken down by coupon and agency here.

It’s no secret that banks are parked over a mother lode of bad loans, mainly residential and commercial mortgages, and they prefer to not publicly acknowledge (by marking to market) what those loans are really worth. That tactic has helped banks recuperate and appear healthy, but it’s a stance that’s also costing at least of few jobs, in a roundabout way.

We’re a little late to this story, but our new-found fascination with state WARN notices led us to find one from a California company called Kondaur Capital, which said about a month ago that it plans to lay off 161 workers by April 18. A little searching brought up an article last month by the accomplished Paul Muolo at National Mortgage News.

Seems Kondaur buys nonperforming loans, and finds itself needing to layoff workers because there aren’t enough bad loans available to buy.

Come again? Aren’t banks still sitting on mountains of toxic debt? Can’t find enough to buy? Continue reading…

Doesn’t look like I’m going to have a chance to dig into the FCIC’s report on the history of and causes of the housing bubble/financial crisis/Panic of 2008. From the bits and pieces I’ve seen, mainly taking Barry Ritholtz’s take on it, it’s a very comprehensive and insightful report, and for that we should all be thankful.

Look, it’s great that somebody in an official capacity has finally pinned the blame on Alan Greenspan. But, really, it’s too late, because Congress already passed all their laws.

My only comment, which I don’t even need to read the report to make, is this: why is this report, from this commission that Congress chartered, coming out now, months after Congress wrote up its “comprehensive,” and I use that word very lightly, financial-reform plan, voted on it, sent it to the President and watched him sign it into law?

Honestly, what was the point of even having this commission if nobody was going to wait around to see what it had to say before constructing an entirely new regulatory edifice?

Continue reading…

Japan comes out says it will buy European debt. The market sighs in relief. Stocks rise.

Um, why?

Why would anybody consider it a good thing that Japan, one of if not the industrialized world’s most indebted countries, is the latest sovereign to jump into the European debt market? First China, now Japan. Is this not a sign, another in a long, long string of signs, that Europe’s problems are beyond its control? It’s comical at this point to hear yet another government official, in this case Portugal’s prime minister Jose Socrates, avow as that their country doesn’t need “help.”

It’s not that Japan is buying European debt. We’re fairly certain this isn’t the first time they have. But the fact that not only are they buying bonds for the bailout fund, but that they’re making such a big deal about it (and buying such a big chunk of it.) Sure, they’re trying to help keep the yen down. But they’re also looking at a major market that’s on the edge of something very dark.

This is a bad thing. It should actually terrify people that the Japanese have stepped in. We all know the U.S., though the auspices of the Fed and its open swap lines, has been up to its elbows in helping to prop up Europe. Last week, the Chinese made a big public show of getting involved. Now the Japanese are. What’s driving the world’s three largest economies to take very public stances in support of Europe?

Fear.

Continue reading…

Here’s your pop quiz for the day. Consider the following statement:

“Portugal will not need a bailout, ” Spanish finance minister Elena Salgado said Monday (subscription required for link, incidentally.)

Where did Ms. Salgado make this statement? Was it:

- A: in an interview on Spanish radio station Cadena Ser.

- B: open mic night at Chesterfield’s.

Okay, fine, it was A. But the line would’ve gone over better if she’d said it a comedy club. Because that line’s a laugh riot.

How many times have we heard that one? The housing market won’t collapse. Lehman won’t fail. Greece won’t need a bailout. Ireland won’t need a bailout. Do you see a certain progression here?

What makes Ms. Salgado’s statement all the more ironic is at the same time as it’s making the rounds, Der Spiegel is reporting that France and Germany are pushing Portugal to accept a bailout.

What Ms. Salgado is perhaps actually thinking about is the fact that if and when Portugal’s domino falls, the next in line is Spain’s, and that’s when it gets really interesting. Because Greece, Ireland and Portugal are relatively small economics. What makes them dangerous is this whole globalized, interlinked economic system. But Spain is the world’s seventh largest economy. If it needs a bailout, especially coming after three previous sovereign bailouts, it will seriously test the steel of Europe. As Satyajit Das writes over at naked capitalism:

In order to restore solvency, overburdened borrowers must stabilise debt and begin to reduce the level of borrowing. This requires GDP growth exceeding interest rates, a budget surplus (through spending cuts and/or tax cuts) or a combination of these.

EU/IMF assistance to Ireland was designed to address the high yields on Irish bonds, which curtailed the State’s ability to borrow. But the 5.80% cost of the bailout debt requires an equivalent growth rate and a balanced budget simply to stabilise debt at current very high levels.

Based on the IMF’s best estimates, there is little prospect of many European countries returning to balanced budgets any time soon. Given the toxic conjunction of high cost of funding, low growth and high starting level of debt, it is near impossible for these countries to contain the spiral to a restructuring of their debt or default.

It is not technocratic economists who will win the day and pull us out of our cul-de-sac, but angry Irishmen and Spaniards who challenge, on moral terms, the right of German bankers to impose vast deadweight costs on current activity because they lent greedily into what might easily have been recognized as a property and credit bubble.

- Steve Randy Waldman, Interfluidity

I’ll tell you a secret: when the Irish crisis was at its worst (so-far worst, I suppose would be accurate,) I quietly hoped that somebody in Ireland would make some kind of stand that would scuttle all the bailouts, all the forced concessions, that would really expose the bankers to the losses sitting on their balance sheets, and once and for all get this crisis to where it must eventually go: recognizing losses wherever they lie, clearing out all the bad bets and lifting the governmental protections from the favored classes.

It didn’t happen. So far, at least. Hey, it didn’t happen here in the U.S. either, and the biggest problem with the credit crisis is that it remains so far unresolved. The Fed, two administrations and now two Congresses merely succumbed to pressure from the banking lobby, threw trillions at the system, saved the banks from their own recklessness, codified the notion of too-big-to-fail, and put the weight of all the bailouts on the backs of the taxpayers. But it didn’t solve any of the underlying problems.

That’s how I read the last three years. That’s why I don’t buy all this recovery talk.

Now, I’m no economist. I’m just an untrained journalist. But it doesn’t take a Ph.D. in economics or political science to understand that something very, very wrong went down. The argument sold to us at the time — that while distasteful, the bailouts were necessary to prevent a wider melt-down — hasn’t exactly held its own against the weight of time, as fully 10% of the work force remains unemployed, as even more millions are stuck in low-paying part-time jobs, as millions more are seeing their wages held down, all while Wall Street returns to its free-wheeling and massively profitable ways

Meanwhile, the debt bombs haven’t been defused, they’ve just been move up the ladder, from individuals and corporations to central banks and sovereign states.

Continue reading…

Someone run and grab a snow shovel, a large garbage barrel and some sawdust. Better yet, call that crew of of guys in dark jumpsuits that follow after the elephants at the circus. We’re gonna need them.

Warren Buffett has another op-ed piece in the NY Times.

Interesting thing about these Buffett op-eds and their timing — they have a way of appearing right around the point when the stock market is looking pretty dicey. Remember “Buy American. I am,” published on October 16, 2008? That one popped up right after the S&P 500 fell nearly 10% in two days. Then there was “The Greenback Effect” on August 18, 2009, which appeared on NYT’s opinion page the day after a 2.4% drop in the S&P 500 and Dow Industrials fell 186 points. And today’s missive, of course, comes after the DJIA shed almost 180 points yesterday, as air pumped into stocks courtesy of the Fed’s QE2 plans has begun to leak out.

Seems as if someone’s selected Warren as the go-to guy to soothe market angst during times of increased stress. Maybe he himself considers it part of his duty. But his shtick is as transparent as it gets, citizens. Regular readers know we’re not the biggest Buffett fans. Our big gripe is that this guy is crafty at talking his book, and the media acts as if he’s graciously dispensing to us peons his pearly investment wisdom. Perhaps that’s more a problem with the media than with Buffett, but he rarely turns down an opportunity to plug what’s good for Warren. Continue reading…

There’s a new movie about Wall Street and big business coming to theaters. No, not Oliver Stone’s over-hyped sequel to “Wall Street,” which as we all know gets released today (honestly, I feel like the only business reporter who hasn’t already seen it, seems like everybody in this ro0m except for John, Steve and I got invited to some press screening.) It also isn’t “The Social Network,” the anti-Zuckerberg screed being released today as well.

(Great side note: Zuckerberg is going on Oprah today to announce a $100 million donation to the Newark, N.J., school system. Of course, we’re all supposed to believe it has absolutely nothing to do with that movie. Of course not.)

No, the movie I’m talking about is “Inside Job,” which is being released here Oct. 8. It’s a positively scathing documentary about the financial crisis, and makes no bones about who is to blame: just about everybody inside banking and the government. I’ve seen only the trailer, again, no special press screenings for this reporter, but if you care about the things that this blog cares about, and if you’re reading I’ll assume you do, it ought to hold your interest.

(Interestingly, these aren’t the only business-related movies coming out; seems Hollywood is rediscovering Wall Street. Imaging how long it takes to get a movie from script-form to its premiere at Cannes, those producers must’ve jumped into action about Sept. 15, 2008.)

Yves Smith over at naked capitalism has a review. “‘Inside Job’ (is) an ambitious picture, clearly aiming to stir public anger and action by showing how criminally corrupt the financial services has become and how it has subverted government and the economics discipline,” she says. The film may not star Michael Douglas (although it is narrated by Matt Damon,) but then again old Gordo never wrecked the entire financial system. Just Bluestar.

Continue reading…

- With earnings season only a few weeks away, Josh Brown notes a pattern that’s developed in last six quarters. “A run up in stocks at the beginning of earnings season’s opening month followed by the almost inevitable denouement as hearts are broken and focus is diverted elsewhere,” he says. “The Ghosts of Earnings Past are haunting the nascent rally even as you read this.”

- Now that the recession is technically over, Yves Smith wonders if this is what a recovery really feels like. “The ugly fact is that serious financial crises take a very long time to resolve and result in a permanent fall in the standard of living,” she writes. “The best we can hope for, absent aggressive government action, is an economy that bumps along at a low level of what is technically growth, but is very far from what most businessmen and consumers would consider healthy.”

- Larry Summers’ decision to step down as one of Obama’s top economic advisers is a long-time coming, FusionIQ CEO Barry Ritholtz says. “Summers was a defender of the status quo…The change people voted for never appeared, and the Summers-led economic team gave us two more years of Bush bailout policies. For that humongous error, his departure is a welcome change.”

- Mark Thoma questions why the Fed’s taking a “wait and see” approach on whether more QE or other stimulative measures are needed for the economy. “The Fed should have learned that it needs to act preemptively from its mistake in dealing with the housing bubble,” Thoma says. “Cleaning up after the fact, which is what ‘wait and see’ amounts to, is inferior to preventing problems before they appear.”

- Google’s M&A department has thrown lots of money at many different ideas, but it’s hard to argue with some of its successful wagers throughout the years, including Android and YouTube, Digital Daily blogger John Paczkowski says. “Of course that’s just two acquisitions out of the 80 or so that Google’s made since 2001,” he notes. “But obviously the threat of a clunker investment or two isn’t going to temper Google’s aggressive acquisition strategy.”

- Bullish sentiment among advisors hit 41.4%, according to the Investors Intelligence weekly sentiment survey, which marks its highest level since early August. But, as Bespoke points out, bullish sentiment has hit that level a few times in recent months, with stocks not experiencing much success in the aftermath. “Will the third time be the charm or are we in for more of the same?”

- Keep an eye on the “quiet expansion” of Treasury Secretary Tim Geithner’s duties, especially in the aftermath of Larry Summers’ resignation, Yves Smith notes at naked capitalism. “The speculation has long been that he would not stay much beyond the mid-terms, but that looks like a far less sure bet than it did a few months ago.”

- Housing prices continue falling in wake of government’s home-buyer tax credit, dropping to lowest level in nearly six years, according to FHFA home price index. “With the two-year tax credit experience in the rearview mirror, officials probably need to be thinking about going back to the policy drawing board,” Ryan Avent writes.

- The recession’s officially over, but Tyler Cowen says it’s premature to believe the economy’s bottoming-out process is over. “It looks like a recovery only because things were, for a while, so extremely bad. I don’t yet think of us as being in a true recovery mode at all.”

- Runners are abandoning races with quirky distances in favor of the standard marathon or half marathon.

- “In this recovery there is less job creation, less household formation, and less demand for housing units than a normal recovery. This is sort of a circular trap for both GDP growth and employment,” Calculated Risk says. “This is one of the reasons I expect the unemployment rate to tick up over the next several months.

- FusionIQ CEO Barry Ritholtz makes the argument that US bonds are resembling tech stocks during the dot-com bubble. “What made the dot-com situation so pernicious was that anyone who was judged on relative performance (i.e., mutual fund managers), were all but forced into these names in order to keep up,” Ritholtz says at The Big Picture. “Very few people — Buffett and Grantham come to mind — managed to both avoid both chasing these names and losing their client base.”

- There’s no denying the strong quarterly profit reports coming from S&P 500 companies in 2Q. But the notion that strong profits actually represent good news is “murky at best,” Derek Thompson writes at the Atlantic. “High unemployment is, strangely, both dampening revenue and enhancing profits.”

- Mortgage Bankers Association reports refinance activity surged 17% amid historically low interest rates. But Miller Tabak’s Peter Boockvar notes purchasing fell 3.4% and remains just 3.5% off lowest level since 1997. “This economic response to low rates is indicative of our whole economy that has the Fed now pushing on a string,” Boockvar says. “In times of deleveraging, lower rates only encourage refi’s, not new economic activity whether the purchase of a home or the expansion of a business.”

- Boston Fed argues economists aren’t to blame for missing the housing bubble, which absolutely baffles naked capitalism blogger Yves Smith. “It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the runup to the financial crisis,” Smith says.

- UPS recently said in a 10-Q that the impact of the health-care reform legislation “was not material” to its financial results, which shocks Footnoted blogger Michelle Leder, especially since many companies have said they’ll take big charges related to legislation, including AT&T’s (T) $1B charge.

- Since Fed’s announcement last week to reinvest proceeds from expiring MBS, the dollar’s risen while crude oil and S&P 500 have tumbled. “A cynic, however, might look at the lackluster reaction and think that the US central bank is losing some of its market-firepower in terms of unconventional monetary policy,” FT’s Alphaville says. “And an even bigger cynic might think that the market is simply holding out — or pushing — for a bigger bout of unconventional policy. Either way though, something’s out of sync here — the market or the Fed.”

- Tech blog Download Squad says Google (GOOG) and hardware maker HTC (2498.TW) are teaming up to build a tablet device that runs GOOG’s Chrome operating system. The blog says the tablet will be offered in conjunction with Verizon (VZ) and launched on Nov. 26, or Black Friday, the busiest shopping day of the year in the US.

- Is the Web really dead? The blogosphere debates.

- Looking to succeed at the dating game? Maybe its time to get off match.com and other dating sites and hit the athletic fields. WSJ explains.