Market Talk

- AIG and Treasury reportedly discussing an accelerated sale of the government’s stake. WSJ reports Treasury’s likely to convert $49B in AIG preferred shares to common and gradually sell its stake.

- “In case you lost track of this sorry affair, AIG, the biggest ward of the state in human history, continues to get the kid glove treatment,” Yves Smith writes at naked capitalism. “Funny, isn’t it, how creative and accommodating the Treasury can be when dealing with large distressed firms, and its skill seems to evaporate when contending with underwater homeowners.”

- This is not a typical stock picker’s market. Far from it. Since the May 6 “flash crash,” correlation of S&P 500 stocks to the overall index has reached its highest level since the 1987 crash. “The stock market has turned into a schizophrenic herd of sheep,” the Pragmatic Capitalism blog says. “Currently, the herd is grazing happily with not a care in the world. But don’t be fooled — when something spooks them you’ll get trampled if you don’t run with them.”

- Retail sales rise for second straight month and the 0.4% rise in August is the highest percentage gain since March. “If we look at the monthly trend of late, there’s an upside bias,” James Picerno writes at The Capital Spectator. “It’s hardly definitive or strong enough to close the book on worries, but considering what might have been it’s okay and more than welcome.”

- Microsoft’s (MSFT) Bing has overtaken Yahoo (YHOO) as the No. 2 search engine in the US, at least according to Nielsen’s August report. Firm says Bing had 13.9% search share last month, compared to Yahoo’s 13.1%. This will “will surely cause a firestorm of controversy in the search arena today,” Kara Swisher says at All Things D. Regardless, Google (GOOG) still dominates as it holds 65.8% of search, up 0.9% month-over-month and 0.5% from a year earlier.

- The outcome from Basel III has been critiqued left and right, but Reuters blogger Felix Salmon finds some positives, calling Basel III a “quiet victory” and saying the banking restraints are fairly constructive. “The Basel committees did a masterful job of depoliticizing the process as much as possible,” he says. “If politicians and the media had got involved, that might have made the process more democratic, but it would also have made it much more chaotic and quite possibly would have derailed any chance of an agreement at all.”

- Couch potatoes rejoice! Google TV, the new Internet television product Google (GOOG) is rolling out, will hit stores in the middle of October, possibly on Oct. 17, Engadget reports. Citing an internal memo from Best Buy (BBY), the blog says BBY had originally planned to begin selling Google TV on Oct. 3 but the launch has been pushed back by two weeks.

- Investors who try to time the market may be better off sticking with a buy-and-hold strategy. Barry Ritholtz posts a chart at The Big Picture looking at how investors would do if they bought the S&P 500 in 1993 and how their performance would be dictated if they missed the 10 best days or avoided the 10 worst days.

- Rimarkable blog wonders why the BlackBerry Curve 3G doesn’t run on BlackBerry 6 out of the box. Research In Motion (RIMM) says BlackBerry 6 will be available for the Curve 3G upon network certification in the coming months. And RIMM notes the device, which will sell initially through Verizon Wireless, is BlackBerry 6 ready. But for now, it will run on BlackBerry 5, prompting Rimarkable to wonder why RIM would release a device with an “old deprecated OS” a month after the debut of its next-generation operating system.

- Rafael Nadal finally solves New York. Congrats Rafa.

Just when I thought I could not possibly get more outraged by anything I hear about government bailouts, I read this from the Times:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Societe Generale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

Um, excuse me? Am I to understand that the U.S. government, which was about to hand over nearly $200 billion to AIG, forced it to agree not to sue any of the banks it owed money to, even if it should it later find out that any of them committed, oh, you know, fraud? Is that what my government brokered?

This is the kind of agreement that, say, a corporation might make one sign when they’re letting you go, but giving you a little severance package, know what I mean? Why in the world would the U.S. government, which was about to fork over an almost unheard of amount of taxpayer money, want to force to AIG to give up any legal chance to recoup any of that money? It would make sense if it was the banks forcing that issue, but for the government to…

A-ha! A-ha!

“Another way to read this requirement is that the Fed and Treasury were opposed to having fraud at the banks exposed, period,” Yves Smith writes at naked capitalism. “That is a very troubling stance for bank regulators to take.”

Continue reading…

- Economists expect strong jobs number later this week, but don’t be fooled by great headline number as May is the peak for Census hiring, Bill McBride cautions at Calculated Risk.

- As Apple (AAPL) shares keep running higher, some believe the run-up is only setting investors up for a bigger fall. Reihan Salam, who actually describes himself as an “Apple devotee,” worries that the “Apple magic [will] evaporate” whenever CEO Steve Jobs leaves the company. “Surely he’ll one day tire of wielding his charismatic authority as CEO of Apple,” Salam writes. “And there is no woman or man alive who could fill that man’s turtleneck…Apple won’t be able to defy gravity forever.”

- S&P 500′s 1.7% decline yesterday marked the second-worst start to June in last 50 years, according to Bespoke Investment Group. Only the first trading day of June 2002 was worse, as index dropped 2.5% that day. Additionally, yesterday’s late-day swoon sent S&P 500 into “extreme oversold” levels, which Bespoke describes as two standard deviations below the 50-day moving average.

- The $35.5 billion global life-insurance deal that would have remade the industry landscape has collapsed, WSJ reports.

- Google (GOOG) has acquired ad tech startup Invite Media, Peter Kafka reports at All Things D, citing multiple sources. He believes GOOG paid in the $70M range for the startup. “People familiar with the transaction say Google’s plan is to leave Invite running as a stand-alone unit, which will work at arm’s length with exchange’s like Google’s AdX as well as competitors like OpenX, Yahoo’s (YHOO) Right Media and Microsoft’s (MSFT) AdECN,” Kafka says.

- BP’s massive oil spill is a major “wake-up call for Western society,” Harvard economist Kenneth Rogoff writes, and adds yet another front to the regulation debate. Is regulation destined to perpetually miss the mark?

- Even as the unemployment rate hovers near 10%, there doesn’t seem to be a sense of urgency in the Obama administration to get people back to work, which mystifies UC Berkely economics professor Brad DeLong.

- AT&T (T) eliminating unlimited data plans marks step in wrong direction for wireless industry, especially since the mobile web is about to “explode with new devices and new uses for us all to be ubiquitously and constantly connected,” BuzzMachine blogger Jeff Jarvis says. But “AT&T says it wants nothing to do with that explosion (because it would have to work harder and invest more to do better),” he notes.

- Friday’s jobs report won’t say much about America’s growing anxious class, Robert Reich says.

- Keep following WSJ’s All Things Digital tech conference as some of the biggest names in tech check in throughout the week.

- John Hussman writes about a subset of market conditions that have historically been associated with sharply negative implications for stocks. “The combination of unfavorable valuations and collapsing market internals is a sharp warning to examine risk exposures carefully here,” he says.

- Job prospects are showing signs of life for college graduates. But make no mistake, they the labor market is far from thriving.

- European banks not for the faint-hearted investors. “It makes more sense to simply bypass these stocks until the story is over unless you are more of a trader or don’t mind very big swings,” writes Roger Nusbaum. The consequence for being wrong is greater with these banks. Obviously this will be too conservative for some folks but ultimately this is a know thyself question.”

- Facebook CEO Mark Zuckerberg addresses new privacy settings in a Washington Post op-ed, hoping to quell privacy concerns. But his memo seems like a “classic non-apology,” MediaMemo blogger Peter Kafka says. “He’s sorry that Facebook ‘move[d] too fast.’ That’s the kind of thing you say in a job interview if someone’s lazy enough to ask you to describe your biggest weakness — ‘Sometimes I try too hard.’”

- The fact that current and former AIG executives won’t face criminal charges seems baffling. But “if you rope your advisors like your accounting firm into signing off on your stupid or possibly even criminal behavior, then you get off scot-free,” Yves Smith writes at naked capitalism.

- Existing home sales increased more than expected, but keep an eye on inventory levels, Bill McBride notes at Calculated Risk. Inventory rose to 4.04M in April from 3.63M in March. It’s also an increase from April 2009, breaking a string of 20 consecutive months of y/y declines in inventory. “The increase in inventory is the big story.”

- Twitter announces it’s banning in-stream advertising from third-party developers, which “are not necessarily looking to preserve the unique user Twitter has created,” COO Dick Costolo writes on Twitter’s corporate blog. “We believe it is our responsibility to encourage creative product development and to curb practices that compromise innovation.”

- What are the implications of Twitter’s move to ban third-party ad networks? “Twitter has now reduced the number of companies trying to figure out their optimal business model from thousands to 1,” angel investor Chris Dixon says in a tweet.

- Intel (INTC) introduces a series of low voltage chips that could make the price for ultra-thin laptops more attractive and affordable, Digital Daily blogger John Paczkowski says, which “bodes well for the ultra-thin laptop which hasn’t had much success staking out a middle ground between the netbook and the laptop because its performance often doesn’t justify its price.”

- Some excellent explanations of the Lost finale.

- It shouldn’t come as a surprise that AIG’s reportedly considering suing Goldman Sachs (GS) and other Wall Street banks over soured mortgage assets, Yves Smith says. “Other shoes are starting to drop on the Goldman CDO front.”

- “The real scandal isn’t the Street’s unlawful acts (i.e., SEC vs. Goldman Sachs) but legal acts that have reaped the Street a bonanza and nearly sunk the rest of us,” former labor secretary Robert Reich writes.

- “The thing which struck me most about Goldman’s earnings call this morning was how guarded they were,” Felix Salmon says. “For a company which has happily been talking to the press and leaking the letters it sent to the SEC, no one on the call seemed to want to talk candidly.”

- Banks posting “favorable” earnings on lower loan-loss provisions isn’t necessarily cause for celebration, John Hussman writes. “Keep in mind that Enron and Worldcom were able to report outstanding earnings for a while by adjusting the manner by which revenues and expenses were accrued. I suspect that the US banking system has become a similar breeding ground for innovative accounting.”

- “For years, sophisticated investors and big financial institutions, all run by very well-paid individuals, invested huge sums of money on the basis of a few pearls of folk wisdom (‘housing prices never fall’) and the words of some highly conflicted players, like the ratings agencies,” James Surowiecki notes. “This was a recipe for disaster, and disaster was what we got.”

- “There are simply no social benefits to having banks with over $100 billion in total assets,” former IMF chief economist Simon Johnson asserts.

- Dept. of Transportation reports miles driven in February fell 2.9% from a year earlier. “If vehicle miles continues to decline on a year-over-year basis, it might suggest high gasoline prices are starting to impact the economy,” Calculated Risk says.

- “The key factor for a sustained recovery will be a continued improvement in job creation rates at existing firms and stabilization in the rate of new business formation,” Ellyn Terry writes on the Atlanta Fed’s macroblog.

- Citigroup shares once again toeing the $5 line.

- Lawmakers took aim at Lehman and federal regulators for the investment bank’s collapse, accusing the firm of manipulation and its watchdogs of negligence.

US stocks rise slightly, with the S&P 500 making a tepid stab at 1150 and the Dow actually spending a lot of time in the red.

DJIA inches up 3 at 10567, S&P 500 rises 5 to 1146, and rose as high as 1148.26, close again to that magic 1150 level that represents the January high and also has the bulls excited, imagining another leg in the rally lies above there. Nasdaq Comp gains 18 to 2359, as tech shares perform well. NYSE volume’s heavy. Crude rises too, edging over the $82/barrel mark.

Financials rise sharply, as investors seem to be betting something good’s coming down the pike for the bankers. AIG up another 11%, now up 50% in March alone. We don’t know for sure what’s going on, but there is a lot of bees buzzing around this particular flower.

The gains among financials were spread pretty broadly. Yesterday, the sector’s main winners were Citi, AIG, Fannie and Freddie, the well-known wards of the state. There’s a rumor floating around that the government would ban shorting in them, which UBS’ Art Cashin said “seemed wacky and unfounded.”

Still, he says, “a rumor is not responsible for who believes in it.”

- Mark Hulbert says some are drawing the wrong lessons from this week’s market anniversaries.

- The view from the bottom. Our MarketBeat bud Matt Phillips compiles some quotes from market watchers when stocks were bottoming out this time last year.

- “As we celebrate the one year birthday of the current bull market, a key characteristic that still looms one year in is the lack of conviction and confidence in the economic outlook for those on Main Street versus the more optimistic view of those who work on Wall Street,” Peter Boockvar writes.

- Wards of the state enjoy a nice day. Citi (C), AIG, Fannie Mae (FNM) and Freddie Mac (FRE) all rally.

- Small business owners now say conditions will be worse six months from now. “It’s not a pretty picture,” Economist’s Free Exchange blog says. “The problem is clearly not labor supply. Rather, the economy’s principal job creators are seeing too little demand to justify increases in hiring. That’s the drag on recovery.”

- Cisco (CSCO) says faster router “will forever change the Internet? Does the announcement live up to hype? Shares close flat at $26.13.

- Government has bailed out the banks, now it’s time to bail out our nation’s schools, former labor secretary Robert Reich says.

- An improved Web browser on Amazon’s (AMZN) Kindle is long overdue, MediaMemo blogger Peter Kafka notes. “At this point having a wireless device that only grudgingly accesses the Web makes no sense. And it certainly won’t fly once Apple’s (AAPL) iPad ships next month.”

- “The biggest banks in some European countries today are already too big to save,” former IMF chief economist Simon Johnson says. “Unless we take immediate and real action to reduce the power – and size – of our largest banks, we are heading in exactly the same direction.”

- Monetary policy and unemployment: Should the Fed have done more? Mark Thoma ponders.

US stocks finish slightly higher, but not by much, and jump through a lot of hoops before settling essentially unchanged. And given that this is the ’09 rally’s birthday, well, it’s oddly appropriate now, isn’t it?

DJIA adds 12 to 10564 after rising as much as 60 early. S&P 500 inches ahead 2 to 1140, Nasdaq Comp gains 8 to 2341. NYSE volume’s high. Dollar rises on warnings about European credit quality.

It’s a strange, jittery day. Dow crossed 10600, the S&P came within a percent of the January high of 1150, a line in the sand that many see as the demarcation between a new leg in the bull market, or a tumble back to something much darker. And it got weirder from there.

Citi, AIG, Fannie and Freddie all surged seemingly out of nowhere. The rumor mills were creaking, but the likely culprit seems to be a Fox Business report from Charlie Gasparino that the feds are mulling selling their Citi stake. But something spooked the shorts, and as much as we respect Charlie, we have to wonder.

Cisco ends absolutely flat at $26.13, not up or down even a penny, after making a big deal out of its new router.

What a difference a year makes.

As investors celebrate the bull market’s one-year anniversary, US stocks are up yet again today, although there’s some curious trading occurring in some beleaguered financial stocks.

Several government-owned financials, including Citigroup (C), experiencing big gains after Fox Business reported the government’s discussing plans to sell its 27% stake in the bank, perhaps as soon as the next three months. Citi was recently up 6.4% at $3.79. AIG, Fannie Mae (FNM) and Freddie Mac (FRE) also seeing big gains.

The curious trading today largely symbolizes much of the trading experienced since March 2009. The Dow Jones Industrial Average sank to a 12-year low on this day one year ago, as pessimism was running rampant through the market. With the Dow trading around 6500, there was little hope that good times were on the horizon.

Fast forward one year later and investor sentiment has definitely shifted for the better, prompting a 60% rally. While jitters about the recovery’s sustainability still exist, investors for the most part feel much better about the economy’s prospects than they did a year ago.

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- An increase in temp hiring is usually an early sign of recovery, but that trend hasn’t lived up to expectations, so far, in this purported recovery, Financial Armageddon blogger Michael Panzner says.

- EU appears to have a financing package in the works for Greece, but the “main goal seems to be to buy time — hoping for better global outcomes — rather than dealing with the issues at any more fundamental level,” Peter Boone and Simon Johnson write.

- Even as Google (GOOG) continues to grow and faces further antitrust scrutiny, it in no way deserves an Italian court conviction of three executives for privacy violations, Kara Swisher notes. Lesson: don’t get into any legal tangles in Italy.

- Asset allocation looking trickier ahead. “This isn’t a shock, but more of it is probably coming, meaning that a new set of challenges await for managing asset allocation relative to the trend for much of the past 12 months,” James Picerno says.

- “The Republican base is fired up. The Dem base is packing up,” says Robert Reich, former labor secretary in the Clinton administration.

- Apple’s (AAPL) iPad availability may be limited for its expected launch later this month as production delays could lead to tighter inventories, Digital Daily blogger John Paczkowski says.

- Credit default swaps are more toxic than most realize, Yves Smith writes at naked capitalism. “The more we can to contain this product the better, but I am afraid it will take another meltdown to teach us the lesson we should have learned from the last one.”

- “Is it any wonder that Republicans have suggested the bailout of Fannie and its sibling Freddie Mac ‘will almost certainly be the most expensive of the financial crisis’”? FT’s Alphaville says. “And given that the other contenders to that dubious crown include AIG and the US car makers, that’s saying something.”

- AOL continues its radical remake, selling Buy.at – an affiliate marketing company it bought two years ago – to Digital Window. “Another marker in [CEO] Tim Armstrong’s campaign to undo just about every part of the old regime at AOL,” Peter Kafka writes.

- Corporate insiders are sending fairly positive signals about the market, NYT says.

- The best journalism in 2009.