Market Talk

Or, at least, Google was weighing on the market. Stocks certainly have taken off since our report at 10:30 in the a.m. Guess the markets put those disappointing earnings reports behind them, and are buying the Fed’s argument that there isn’t any inflation, at least any that’s going to last.

Good luck with that one.

Big show today. We covered Bank of America’s earnings, the SEC’s likely settlement with the banks over the issue of mortgage-backed securities, and the potential Groupon IPO.

Lackluster earnings results from Google last night and BofA this morning don’t bother investors much, as US stocks look to open generally flat to a shade lower, based on indications from equity futures.

Markets currently modestly higher in Europe, while stocks were mostly lower in Asia overnight. We’ll get some sense of how much higher producer prices are feeding through to consumers with release of March CPI at 8:30 a.m. ET.

New York Fed’s April Empire State manufacturing survey also set for 8:30 a.m.; March industrial production & capacity utilization due at 9:15 a.m.; and Thomson Reuters/Univ of Michigan prelim April consumer sentiment at 9:55 a.m.

S&P futures down 3.60, DJ futures down 34. Ten-year note higher, yield at 3.47%. Crude floating around the $108/barrel mark.

Meanwhile, our colleague Dave Benoit sums up all the news surrounding Bank of America this morning:

Bank of America (BAC) announces a whole lot of news all at once this morning. A quick summation: $2 billion in earnings, at 17c a share misses expectations of 27c a share. But revenue beats. Deposit-group and investment-bank earnings are both down from year ago, the latter sharply from strong 2010. And CFO Chuck Noski is out, moving to a vice chairman role in a company with a separate chairman and CEO already. He’ll be replaced by chief risk officer Bruce Thompson. Chief counsel is also changed. The 2010 year of rebuilding appears to be continuing into 2011. BAC is paring bigger premarket losses minutes earlier, with shares now up 0.8% at $13.23.

Our colleague and Dow Jones Newswires columnist Tomi Kilgore penned the following today:

The bank sector has given up its dividend boost, and then some. The SPDR KBW Bank ETF (KBE) gained 0.6% last Friday, after the many of the biggest banks got the Fed’s approval to increase dividends. The KBE has lost 1.9% since then, and is now 1.3% below last Thursday’s close. In addition, most of the banks that raised payouts are also now trading below their respective Thursday closes. The first to raise its dividend, BB&T (BBT), is now down 1.6% since then. Meanwhile, JPMorgan (JPM) has slid 2.3% in the last three sessions, but it still up 0.7% since Thursday.

Of course, the sector is also being dragged down by the likes of Bank of America, down another 2.5% today, which saw its bid to raise its dividend squelched by the Fed.

So the guessing game is on. Julian Assagne, the founder of Wikileaks, says he’s going to go after a “major American bank” early next year, according to an interview with Forbes. More than go after; actually.

Early next year, Julian Assange says, a major American bank will suddenly find itself turned inside out. Tens of thousands of its internal documents will be exposed on Wikileaks.org with no polite requests for executives’ response or other forewarnings. The data dump will lay bare the finance firm’s secrets on the Web for every customer, every competitor, every regulator to examine and pass judgment on.

Assagne says he already has the documents, and likens them to some of the revelations that came out about Enron. So the question is, what bank? If we’re really talking about a “major” American bank, then it’s already whittled down to a handful of megabanks. Business Insider thinks it may well be Bank of America, seeing as Assagne noted in an interview last year that he was sitting on five gigabytes worth of BofA material that he got from some executive’s hard drive. Of course, if he had the information last year, why has it taken so long to release it? That’s a legit question.

But whatever bank it is, what more can really be said about them, Barry Ritholtz wonders aloud at the Big Picture.

Here is the sad reality: Can you really embarrass any of these banks? They were incompetently run, with criminally inept risk management. They blew themselves up, and exist today only due to the largesse of the taxpayer. They gratefully took all they could grab and more.

What else can you release to embarrass them?

Unless they have 5GB of video showing their CEOs engaging in bestiality, its hard to imagine Wikileaks embarrassing the big banks.

True, the time when shame would have any effect is long past, and we basically know every lousy thing the banks did. But for the most part, they’ve portrayed themselves as victims of the “perfect storm,” and the government allowed that fiction to persist, since it decided saving the banks equaled saving the system.

But what if actual, concrete, real incriminating evidence was put into the public domain? What if the words of some executive, or group of executives, makes it clear that it wasn’t just a storm? That they knew exactly what they were doing? Might some prosecution be in order then? Maybe.

Is Assagne a hero or a criminal? Guess it all depends upon where you’re sitting.

The market got a fresh jolt this afternoon, when it was reported that the NY Fed is one of the entities suing Bank of America over mortgage secutiries in an attempt to get BofA to buy back soured mortgages. The inclusion of the names seemed to really grab people’s attention; after all, the story had been reported this morning in the Journal, but sans names was buried in the public consciousness under China’s surprise rate hike and high-profile earnings.

So, why is the Fed forcing an issue like this? Whether BofA should be forced to absorb those loans isn’t the issue I’m getting at. This move runs counter to everything the Fed’s done to prop up the banks since the crisis started. It just seems, well, odd.

The consortium includes the NY Fed, BlackRock and Pimco, according to Bloomberg. Those are big, big names. Those are names that carry a lot of water in the markets. The NY Fed, a branch of the Federal Reserve, is ostensibly an independent entity, but obviously is rather closely aligned with the government. Pimco and BlackRock are obviously independent entities, but collect fees for advising the government in various capacities. I’m not suggesting this is some government-sponsored action. I’m not sure if there even is a point there. But it sure is interesting.But the Fed’s involvement seems very odd to me. We’re talking about the central bank here.

Continue reading…

And you thought today would be all about earnings. Nope, it’s really all about the dollar (and am I nuts, or is the central bank in China coming to the rescue of the dollar, at the same time as the central bank in the U.S. is doing its best to cut it down to the size of a postage stamp. Strange days.)

What happened to our customers?

The nation’s banks are certainly in a better place than they were a year ago. Varied and myriad government backstops have erased the threat of imminent collapse and given them breathing space to recapitalize themselves. There was even a nifty little stock-market rally to help things out. But one little nagging problem remains: the demand side of the supply-demand equation is still lacking.

From today’s Upshot column:

Amid signs of increased second-quarter demand among companies including airlines, trucking and heavy machinery, there’s at least one place where demand is a no-show so far—banks.

The reasons are manifold. Some corporations remain reluctant to invest heavily in new business because they’re uncertain the spring uptick will continue. Others are sitting on a veritable mountain of money as profits have soared. Meanwhile, consumers remain fixated on paying down debt, rather than adding more.

Wells Fargo & Co.’s total consumer loans were down about 2.6%, or almost $12 billion from the year-ago quarter. Commercial loans were down 14%, or $48 billion. Finance chief Howard Atkins said the bank “began to see signs” of increased loan demand in the second quarter from businesses and “to a lesser extent” consumers. Chief Executive John Stumpf said business clients’ use of credit lines was “relatively unchanged” from the first quarter and still at “historic lows.”

Other large banks are seeing the same. “As we look on the loan demand side, it continues to remain weak as the consumers continue to delever,” Bank of America Corp. Chief Executive Brian Moynihan said on a conference call last week. “There’s no loan demand, because there’s no demand for the [client's] products,” Mr. Moynihan said, referring to a dearth of commercial lending.

Hey, wha’ happened?

US stock futures modestly lower premarket following yesterday’s big SEC settlement with Goldman Sachs, Google 2Q results, as well as results from GE and BofA this morning.

Stock markets currently higher in Europe, mixed in Asia overnight. Looks as if investors in Japan are more worried about the US economy than US investors — the Nikkei slumped nearly 3% to its lowest level in more than a month as the yen soared vs the dollar on fears over US growth prospects.

GS up 4.5% premarket; GOOG down 4% as results missed expectations. GE off 1.1% as revenue declined overall, falling in three of five business segments. But there was improvement at GE Capital.

June CPI due at 8:30am; Reuters/Univ of Michigan consumer sentiment out at 9:55am. S&P futures off 0.90; 10-yr slightly lower, yield at 2.98%.

- China better have right intentions regarding its pledge for a stronger yuan. “The probability of a disastrous trade war will skyrocket if Congress believes they have been the victim of a classic bait and switch,” Tim Duy writes.

- “Adjustment in China and America will be slow, but that’s not unexpected or entirely a bad thing,” Ryan Avent notes at The Economist’s Free Exchange blog. “And the best news of all is that America and China have managed to arrive at this point without a major diplomatic fall-out.”

- Obama administration’s housing market stabilization efforts are yielding mixed results. Calculated Risk has the details.

- Digital music is a tough business to profit from, but MediaMemo blogger Peter Kafka says it still makes perfect sense for Google (GOOG) to jump in. A music store would enhance Android as well as give GOOG an “owned and operated destination” for music traffic. “My suggestion: Start simple. Copy iTunes’ pay-per-song model.”

- The fact that the “normally bank-friendly” Fed is pressing big banks to move faster in curbing risky pay practices is a step in the right direction, Yves Smith writes at naked capitalism. “Given [the Fed's] track record, I would not be terribly optimistic, but then again, I am surprised it has gone even this far. It would be great if it surprised me again.”

- May existing home sales dropped 2.2% to a 5.66M annual rate, well below the 5% rise to a 6.06M rate that economists were expecting. “We see more evidence that the next leg down in housing has begun,” Barry Ritholtz writes at The Big Picture.

- Investor sentiment can be a funny thing. “You couldn’t find a bull two weeks and eight percent ago but voila, as soon as the 200-day was captured and S&P 1115 traded underfoot, the equity enthusiasm was palpable, as evidenced by the recent collapse in volatility,” Todd Harrison says at Minyanville. “That’s the fatal flaw of technical analysis, right? Financial assets are ‘better’ higher and ‘worse’ lower, which is why I use them as a risk context rather than a catalyst.”

- Business Insider blogger Henry Blodget goes a bit sensationalistic in a recent post entitled “The Odds Are Increasing That Microsoft’s Business Will Collapse.” But in reality, Microsoft (MSFT) faces a “simple and less flashy situation,” BoomTown blogger Kara Swisher says.

- Looking for the important aspects to today’s existing home sales report? “The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices,” Calculated Risk says.

- The IPO market never really made a comeback from the tech bubble a decade ago, and it’s telling that Facebook, Twitter and LinkedIn — some of the most successful tech companies right now — keep pushing off filing an IPO as long as possible, Eric Schoenfeld writes at TechCrunch.