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…

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…

We’re not tough enough to take the pain.

That’s why it’s come down to this, citizens — the Fed priming more QE, doing “whatever it takes” to alleviate the hardship. The ceaseless efforts to artificially prop up asset prices. The extraordinary amount of Americans’ monthly personal income now derived directly from Uncle Sam.

It should be much more expedient and ultimately less costly for the government to simply step back and let the economic chips fall where they may. But it’ll hurt, and the nation’s leadership doesn’t think we citizens can handle the sting.

Indeed, we often come across like a society of coddled whiners who can’t stand to even be the slightest bit inconvenienced, never mind subjected to any degree of physical or psychological travail. We can’t handle bad reception on our iPhones, why should the government expect us to deal with the hardship that would come with allowing home prices to reach their natural level, to finally unleash market-clearing prices and probably the failure of more big banks and other institutions? Continue reading…

- The 10-year yield has fallen 40 bps during the past month, James Hamilton notes at Econbrowser. “If you wanted to attribute all of this to expectations of QE2, and if you were assuming that $400 billion in long-term bond purchases could lower the rate about 13 basis points, you might think the market has already discounted some $1.2 trillion in additional large-scale asset purchases,” he says. “All of which raises the interesting possibility that if the Fed were to announce in November another trillion in purchases, nothing would happen, because the market has already discounted it.”

- “The fact that an IMF meeting ended with the participants unable to feign a narrowing of differences on the currency front is further evidence that positions are hardening,” Yves Smith writes at naked capitalism.

- Bank stocks no longer driving this rally. “That old adage of ‘as financials go, so goes the market’ — I don’t think that’s tru this time,” said John Lynch, chief equity strategist at Wells Fargo Funds management Group.

- Next-gen 4G mobile phone systems promise faster speeds and better audio. Various US carriers have already promised to roll the new technology out within the next couple of years, but Apple (AAPL) will wait until the technology is more mature before adding it to the iPhone, according to TechCrunch. Instead, the blog speculates that AAPL will release phones next year that are compatible with many more carrier networks using different technologies.

- The Reformed Broker blogger Josh Brown channels his inner Alanis Morrisette as he discusses Dow 11000. “When I consider the state of the market rally, I can only think to myself, ‘Isn’t it ironic, don’t ya think?’”

- Piper Jaffray’s Gene Munster tells Silicon Alley Insider that tablets built with Google’s (GOOG) Android software will provide some “very stiff competition” to Apple’s (AAPL) iPad. While Apple will probably ship about 20M-25M iPads next year, Munster says “ultimately we think that Apple won’t have the majority of the (tablet) market share. It’ll probably be with Android-based tablets.”

- “The biggest problem with TARP is that the other portions of the response were so poorly crafted,” the Economist’s Free Exchange blog says. “And the legacy of that underperformance — a weak American recovery alongside continued wealth on Wall Street — is what continues to give political TARP-bashing its potency.”

- Southwest (LUV) announces it’s ending its eight-year tenure as the “official airline” of the NBA after the two sides couldn’t agree on an extension. Farewell then to Slam Dunk One, a specially painted plane that marked the partnership which is now destined for a new color scheme. “With our tough financial climate and limited resources, we had to make the tough decision to say goodbye to one of our dear friends and partners, and both sides agree — we’ll miss each other!” gushes Southwest’s blog.

- Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false,” he says. “The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives.”

- Jets-Vikings: the hyperbole bowl, WSJ’s Jason Gay writes.

So which one of you beauties will be first to "restructure"?

“As the summer draws to a close, it is becoming increasingly clear that neither the European sovereign debt crisis nor the banking sector crisis has been resolved,” Morgan Stanley economist Joachim Fels writes.

So far, it seems the euro and the single currency’s frequent escort, US stocks, haven’t received that memo yet. They show no signs of the turbulence ignited by the last flare-up in May. But that probably won’t last.

“The sovereign and banking crises continue to mutually reinforce each other because governments need to backstop banks, while banks own large amounts of peripheral government bonds,” Fels writes. “So, not much has changed since we last described (in June) this vicious circle, called for a circuit-breaker, and concluded that the obstacles to a real solution of the banking and sovereign crisis were formidable,” he says.

Continue reading…

Bernanke launching "unconventional measures."

Sounds as if former Fed vice chairman and Princeton professor Alan Blinder has changed his tune a bit. Hat tip to Gluskin Sheff’s David Rosenberg for pointing out this Blinder quote in a NY Times story late last week:

The Fed has run out of the strong tools, and is turning to the weak ones…When you’re fighting in a foxhole and you’ve used up the machine guns and hand grenades, then you pull out the swords and start throwing rocks.

The Times went on to quote Blinder as saying the economy seemed “substantially worse” than it did three months ago.

Interesting, Alan. Three months ago, eh? That’s around the time the good professor penned an op-ed for the WSJ (so rich we had to clip it out and save it in the bottom file drawer), titled “Government to the Economic Rescue.”

Continue reading…

- Gold dropped to a three-month low yesterday. “For gold, the battle now is between short-term traders, who see the metal’s rally as played out for the moment, and the true believers, who see gold as the only refuge from the risk of further government-engineered debasement of paper currencies,” Tom Petruno says.

- Harvard economics professor Martin Feldstein describes how difficult it truly is to forecast economic growth. “While it would be rash to forecast a double dip as the most likely outcome for the economy during the rest of this year, many of us are raising the odds that we attribute to such a downturn.”

- Nonfinancial companies in S&P 500 have a record $837B in cash, according to S&P, which is 26% higher than year-earlier figures. “The odd thing about this gigantic cash pile is that these companies are barely being paid any interest by keeping this money in cash,” Eddy Elfenbein writes at Crossing Wall Street. “It shows you just how scared they are.”

- Princeton economist and NY Times columnist Paul Krugman is baffled at the Obama administration’s waffling on whether to appoint Elizabeth Warren to head the new Consumer Financial Protection Bureau.

- Unemployment remains stubbornly high and GDP growth is slowing, but that doesn’t necessarily mean investors should avoid stocks. Peridot Capital’s Chad Brand compiles S&P 500 returns from 1958 through 2009 and concludes: “Investors choosing to own stocks only in years with negative GDP growth would have earned nearly four times as much than investors choosing to invest only when GDP was growing at 5% or better.”

- “If BP emerges from this debacle fatter and happier than anyone imagined a few months ago, whatever happened to the idea of corporate accountability?” former labor secretary Robert Reich ponders. “Does this mean any giant corporation can wreak havoc and then get back to business as usual?”

- Selling Phibro may be one of Citigroup’s best moves. “It isn’t often these days that Citigroup comes out ahead of the Wall Street pack,” WSJ’s Deal Journal says. “But at least for now, the Phibro deal is proving to be a plum.”

- “The administration would have been in a much better position today had it made a concerted effort months and months ago, even an unsuccessful one, to give the economy the help it clearly needed,” Mark Thoma writes.

- Durable goods orders slid for a second straight month, which comes as no surprise to Michael Shedlock, an investment advisor for Sitka Pacific Capital. “I cannot help but laugh at economists who refuse to see the economy is slowing dramatically, and somehow think manufacturing is going to lead the way to recovery,” he says. “That was an across the board stunningly bad report.”

- A new paper from two economists says without the Wall Street bailout, bank stress tests, emergency lending and asset purchases by the Fed and Obama’s fiscal stimulus program, GDP would be about 6.5% lower this year.

Excuse me sir, can I interest you in a brand new Cadillac?

With all we’ve been through, have we learned nothing, GM?

After the financial and economic disaster experienced in the past few years, mainly at the hands of shoddy lending practices, GM apparently is hot to drive back down that road once again.

WSJ’s Sharon Terlep reports GM is negotiating with “financial institutions” in a bid to gain wider access to auto loans for its customers, “particularly those with weaker credit.” Weaker credit. Uh-oh. Why, GM? Why? 

Terlep tells us:

GM wants to boost sales “at a time when the company is looking to become more attractive on Wall Street ahead of an initial public stock offering.”

Continue reading…

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.

Continue reading…