Market Talk

Dateline Washington: “Treasury Secretary Timothy Geithner on Tuesday told policy makers and entrepreneurs that U.S. small businesses need greater access to capital in order to spur innovation,” Newswires’ reporter Jeff Sparshott reports today.

“The financial crisis caused a great deal of damage to the capacity of innovators to access capital, and we can’t promote innovation and investment in the United States unless we help innovative companies get the funding they need to succeed,” the secretary continued.

Makes for a nice sound bite, but it seems Geithner hasn’t kept his finger on the pulse of small business. They aren’t clamoring for capital. In fact, here’s what they said about credit markets in the latest monthly survey by the National Federation of Independent Businesses:

Overall, 92 percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied, and 51 percent said they did not want a loan.

NFIB said a net 11% reported loans “harder to get” compared to their last attempt — asked of regular borrowers only — up from 10% in January. The organization also says 28% of owners said weak sales continues to be their top problem, and “the historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to ‘pay back’.”

Seems pretty simple, but it’s really more business that small businesses need, not more capital, right now. And demand spurs innovation (remember necessity is the mother of invention?), not capital. Sounds like Geithner, and the White House, doesn’t get that.

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…

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

Criminy!

I almost fell off my chair when I read the story in today’s Journal on A6 about a pilot program the Treasury is running to give some taxpayers their refunds via debit cards. They’re going to send an offer out to 600,000 taxpayers, in the lower brackets, mind you. The idea is that many of them don’t have checking accounts, and this is an easier way for them to get their refunds, and less costly than those check-cashing joints.

But to me this is another stealth stimulus. Sending debit cards loaded with cash to poor people? (Can we call them poor anymore? Are we allowed to use that word? Well, come on in and scrub the post if you want; if they can do it to Mark Twain, they can do it to us.) You can’t tell me the subtle goal here is to get people to go out and spend money. We all know, or have been told repeatedly, that “lower-income” people (not poor, mind you, nobody in America is poor) are more apt to spent their income immediately; I imagine that’d go for refund checks as well.

So, our profligate government is encouraging profligacy among the what are likely its least financially sophisticated citizens. Welcome to Bizarro America, folks.

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…

GM stock is on track to return to public trading Thursday, and the hype is ramping up, which reminds us of another highly anticipated and sought-after IPO: Blackstone Group.

Remember that one? Everybody wanted a piece of Blackstone when it first offered shares to the public in late June 2007, just a few months before US stock markets hit an all-time peak. “Shares are so oversubscribed that some Wall Street analysts fear that irrational exuberance will send investors tripping over themselves to get the first publicly traded piece of the private-equity boom,” the Washington Post wrote on the day of BX’s IPO. Some headlines wondered: “Is Blackstone the Next Google?” Continue reading…

Verbal jousting over currencies has heated up in the wake of the Fed’s QE2 launch last week, with German finance minister Wolfgang Schaeuble firing off a fusillade in a Der Spiegel interview over the weekend, countered by a rather limp but pointed retort from President Obama today.

“It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar,” Schaeuble said.

Got to admit, the gentleman has a point.

Meanwhile, President Obama responded by saying his and the Fed’s mandate “is to grow our economy, and that’s not just good for the U.S. That’s good for the world as a whole.”

Careful, Mr. President. Be very careful. As we are all too well (and perhaps painfully) aware, what’s bad for the US — like an asset bubble disguised as economic growth (see, um, housing) — is also bad, in fact, for the world as a whole. 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…

GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:

In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Enjoy the rest here.