Market Talk

Strong wire-to-wire gains for stocks, led by the energy sector as oil prices climb again, and by a beefy performance from industrial stocks.

The perception of an improving situation in Japan offered bulls some running room, even as conflict in Libya remains nasty and helps drive up oil.

Steep drop in existing home sales, and word that Portugal will likely seek a bailout both get shrugged off as well. Financial stocks gain, but are notable laggards, along with health-care sector.

Today’s big move comes as stocks recover from oversold conditions. Sustaining these gains will be the test this week. DJIA rises 178 to 12036, while Nasdaq Comp adds 48 to 2692. S&P 500 ends 19 higher at 1298.

Note that the S&P 500 closed in the lower part of a resistance band that some technicians note between 1297 and 1308. S&P Equity Research’s Mark Abeter said after running into all this overhead resistance, “we think the S&P 500 will drop back and at least retest the lows” of last week.

Mary Ann Bartels at BofA Merrill echoed that sentiment, noting that an uptrend since last summer’s lows was broken, and along with a break last week of 1270 “on big volume,” it suggests “at least a test of the recent low of 1249 with possibly the need to test second support at 1220-1170.”

(Tomi Kilgore contributed to this post.)

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…

Stocks succumb to a selloff that’s been lurking out there, and comes as little surprise to anyone who’s watched markets rise nearly uninterrupted for almost six full months now.

Heady gains since late August collide with spiking oil prices and building geopolitical unrest to create a potent catalyst for a selloff. Exxon Mobil, Chevron and Kraft the only Dow components to escape declines. Materials, financials, industrials and consumer discretionary the hardest hit sectors.

Bulls have shown a remarkably strong ability lately to rebound from setbacks like this, which will be tomorrow’s test. In addition to what’s likely to be another day of violence and protests in North Africa/Mideast, investors get a chance to react to January existing home sales, and H-P’s disappointing outlook.

DJIA falls 178.46 to 12212.79, and Nasdaq Comp slides 77.53, or 2.7% (equal to about 335 DJIA points) to 2756.42. S&P 500 ends 27.57 lower at 1315.44.

Couple factoids: S&P 500 today saw it’s biggest percent and point drop since August 11; biggest point drop for Nasdaq Comp since June 29, and biggest percent drop since Aug 11. Also the biggest percentage and point drop for Russell 2000 since last August.

From Newswires Tom Fairless in Frankfurt:

Use of the European Central Bank’s emergency marginal lending facility rose further Thursday after hitting its highest level in more than 19 months Wednesday, the ECB said Friday.

This thing set off some bells yesterday when the borrowing spiked up Wednesday night to about 16 billion euros (daily average was around 700 million), highest since mid 2009, but no one could discern any stress in the financial system. Well, maybe they’re not looking hard enough because the borrowing was up big again last night, as Fairless notes.

The first time was generally played down as some aberration, perhaps even a fat finger, and it seems observers are still working that line. Maybe one time,  chalk it up as some kind of mistake. But two days in a row? This just doesn’t smell right, folks.

Story quotes Unicredit economist Marco Valli who says the borrowing may reflect “that a bank or banks are tapping the overnight facility as they wait for next week’s main refinancing operation.” Really? Why hasn’t that happened before, and if it has, why are these amounts so high?

He adds that there is “no perception that some banks are suddenly facing big problems.” Yeah, and there was no perception banks here in the US were facing big problems three years ago, either.

Here’s a classic dog-ate-my-homework attempt at an explanation, from a guy at Commerzbank: “My explanation is that someone forgot to bid at the main weekly refinancing operation,” said economist Michael Schubert.

Forgot to bid? Good one. And now has to borrow at the facility’s “punitive” rate of 1.75%? Imagine the conversation with his boss.

There’s an odor on this thing, and demands better explanation. Hopefully we’ll see one soon.

Addendum: FT’s Alphaville has an item that sheds some light on the situation, but still unclear what’s behind the borrowing. Seems as if it was a mistake, it needs to be repeated until about next Wednesday or so, when all will be revealed.

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…

The Dow Jones Industrial Average closed slightly lower as another round of interest-rate hikes in China weighed on blue-chip index.

DJIA drops 18 (0.2%) to 11555, with Procter & Gamble and Kraft leading declines. The Dow traded in another narrow range, falling as much as 55 points while rising less than a point before reaching the closing bell. The narrow range marked 16th straight day that the index had a swing range of less than 100 points. The last time such a streak occurred was in 1996.

Meanwhile, S&P 500 rises 0.1% to 1258 behind strength in financial sector. Nasdaq Comp gains 0.1% to 2667.

Holidays combine with big winter storm to cause trading volume to slow to a crawl. Monday contained the lightest volume of any fully day of trading on the New York Stock Exchange in 2010.

H&R Block drops 7% to $11.80 after disclosing HSBC Holdings is ending its long-term contract for controversial refund anticipation loans. AIG gains 9.3% to $59.38 after securing three credit facilities totaling $4.3B.

Hope you’re not still wondering about the effectiveness of the Fed’s QE2 program, as there should be no more debate: Dow Industrials close at their highest level since August 2008; S&P 500′s highest close since early Sept 2008; go back almost three years to see Nasdaq close at this level.

Fed officials have proffered that one ambition for QE2 was to help increase stock prices. Well, mission accomplished so far. Sure, it’s lighter, pre-holiday trading, but gains are gains, right bulls?

Feel wealthy, citizens? Case closed.

Financials soar, followed by materials and energy. CAT, IBM and JPMorgan contribute 50% of the Dow’s gain. DJIA rises 55.03 to 11533.16, and Nasdaq Comp climbs 18.05 to 2667.61. S&P 500 ends 7.52 higher at 1254.60. Continue reading…

Off to a slow start this week, but mulling over a couple things from this morning, including St. Louis Fed President James Bullard’s appearance on CNBC. Didn’t see the segment but read a write-up. Spoiler alert: there’s no Hoenig-like straight talk to be found here. Instead, we get this (from Dow Jones Newswires’ Mike Casey):

Asked whether the quantitative easing program, which has been dubbed “QE2,” was a factor behind the strong gains in commodity prices, he said the gains were most likely led by normal demand and supply factors and saw “no evidence” that Fed policy was behind it. However, he did say the relationship would need to be studied.

That “no evidence” part catch your eye, too? Thought it might. Reminded us of proclamations from certain Fed officials five or six years ago that there was no evidence of a housing bubble. Just like when the Fed says something’s “contained,” it probably isn’t; when they say “no evidence,” there’s probably conclusive evidence circulating. Why else would he admit the relationship between QE2 and commodity prices needs to be “studied”? Continue reading…

The Financial Crisis Inquiry Commission has seemed like an afterthought for some time now. It was especially telling that Congress didn’t even wait for the board’s findings before passing its financial-overhaul bill. There have been one or two moments that were television-worthy, but overall the group has worked in what can charitably be called a state of benign neglect. Nobody in Washington really wanted anything constructive to come out of this effort.

But the latest episode, in which the board’s four Republican members are publishing their own breakaway findings, really brings the point home that the entire thing has been a waste of time, and that the ultimate cause of the housing/credit/banking crash, while painfully obvious to anybody with an even slightly objective lens, is something that just isn’t talked about down in DC.

The bank-lobby apologists would have you believe it was the CRA, or government policy toward housing via Fannie Mae and Freddie Mac that caused the crisis. That is absolute horse manure. The causes of the crisis were, in no particular order: scuttling Glass-Steagall, not regulating derivatives in 2000, Greenspan cutting the fed funds rate in the early 2000s (ultimately to 1% in 2003) and leaving them low for too long, and the SEC’s decision to take the leverage caps of Wall Street banks in if memory serves correct 2005. Those are the four biggies, off the top of my head, and three of the four center on a specific philosophy: deregulating the financial system.

The Times reports today that:

The Republican members of the commission appointed by Congress to investigate the causes of the financial crisis plan to release on Wednesday a document that assigns government housing policies substantial blame for the origins of the 2008 financial crisis.

The release of the 13-page document is an indication of a major partisan division within the 10-member Financial Crisis Inquiry Commission, which was required to deliver its report on Dec. 15 but has pushed that deadline back to January.

This is pathetic. These jokers spent more than a year and I don’t know how much money, and in the end they’re no nearer any agreement than the left/right panelists on a Sunday morning talk show. What was the point of this whole exercise? It wasn’t to uncover the truth; that had come tumbling out in the panic of September 2008. Let’s be for real; Congress didn’t need this commission to find the truth. The truth smacked knocked them on their backsides the weekend of Sept. 12, 2008.

What it needed the commission for was to whitewash the truth, because the people who pay the bills in Washington (incidentally and largely the same people responsible for the crisis) want no part of the truth. They want business as usual.

This was never going to be a modern Pecora Commission. But it didn’t have to devolve into a total joke. Yves Smith over at naked capitalism goes pretty apoplectic over it, and rightly so:

The intent is pretty transparent: to discredit an effort at fact finding into the roots of the crisis, what was hoped to be a Pecora Commission, by making it appear partisan and launching an alternative narrative to muddy the waters. And the reason is clear. Even though FCIC is certain not to have the same effect that the Pecora Commission did, of discrediting major financial services industry figures and exposing various forms of chicanery, it appears that even lesser forms of criticism of the banksters must be sandbagged (the bizarre part of this drama is that at least some Democrats and very selectively, Republicans in office are willing to call out the predatory, extractive behavior of the large banks. But no one has the guts to buck an industry that is a major paymaster in a very serious way.)

This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth. Yes, the US and other countries provide overly generous subsidies to housing, and curtailing them over time would not be a bad idea. But that’s been our policy for decades. Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy, In reality, both the runup to the crisis and its aftermath were on of the greatest wealth transfers from the citizenry at large to a comparatively small group of rentiers in the history of man.

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…