Market Talk

- Several big name hedge-fund managers are placing bullish bets on Citi (C) and Bank of America (BAC). “Paulson, Soros, Falcone, Tepper, Ackman, Ainslie, Loeb — you name it, they own one or the other…or both,” Joshua Brown writes at The Reformed Broker. “And they own them in size.” But why the sudden interest?

- Goldman Sachs (GS) may be on the verge of resolving SEC’s fraud charge by agreeing to a settlement worth hundreds of millions of dollars, according to FT. But FusionIQ CEO Barry Ritholtz is still perplexed why GS chose to fight this charge in the first place. “Even if GS were to prevail in court, they have already lost. The reputational damage is already measured in billions of dollars, and will last years if not decades.”

- Furious decline in newspaper ad sales eased in 1Q, but struggling industry still isn’t showing signs of rebounding. “The less-awful sales in the first months of this year gave publishers the gift of a bit more time to fundamentally reposition their businesses,” Newsosaur blogger Alan Mutter says. “But there is nothing in the first-quarter numbers to suggest that the storm for newspapers has blown over.”

- S&P 500 has averaged a 0.12% gain on the Friday before Memorial Day since 1971, with positive returns coming 59% of the time, Bespoke Investment Group reports. But the performance hasn’t been so hot recently, with the index averaging a 0.28% decline throughout the last 10 years, firm notes. And the measure has dropped more than 1% on three instances in last decade.

- Warren Buffett’s testimony next week before FCIC is subpoena-driven, writes Fortune senior editor-at-large Carol Loomis, a pal of the Berkshire Hathaway (BRKA BRKB) chairman.

- FASB publishes proposal that would overhaul how companies value many assets and liabilities they hold. “Tremble US financial institutions, for FASB is about to fair value your assets,” FT’s Alphaville says.

- There are still calls for more (yes, more) government spending. “The long-term deficit needs attention, but right now it’s critical for government to spend,” says former labor secretary Robert Reich. “Otherwise we have no hope of getting free of the gravitational pull of this recession.”

- If enough tech giants go after a market, will it eventually catch on? Just a week after Google unveiled details of Google TV, Engadget reports Apple (AAPL) will take another crack at its three-year-old Apple TV product. But as MarketWatch’s John Dvorak pointed out in a column last week, it may be a hard slog, even for the biggest of behemoths.

- “The Great Recession is over, and the Great Transition is here,” James Picerno writes. In theory, distinguishing between the two is a piece of cake. In practice, reading the tea leaves is going to get complicated at times.”

- The Apple faithful struggle figuring out the best way to carry around the iPad. Aw, poor fanboys, such a conundrum – what are they gonna do??

- Good ol’ Thomas Brown is at it again. Yes, the same Thomas Brown who called the bottom in bank stocks in July 2008. Now he’s saying Nouriel Roubini and Meredith Whitney are too bearish on the banking sector.

- GDP’s 1Q revised down to 3.0% represents only a “minor disappointment” amid current economic recovery, Ryan Avent writes at The Economist’s Free Exchange blog. “America’s recovery remains young and fragile. Still, many developed nations would be happy to have a nine-month performance like the one the American economy has managed since returning to growth.”

- BofA and Citi incorrectly hid from investors billions of dollars of their debt, similar to what Lehman did to obscure its level of risk, WSJ reports, citing company documents.

-WSJ’s Matt Phillips wonders if Libor fears are overdone.

- FT’s Alphaville relays a century-long look at the US equity market, via Deutsche Bank. Blog wonders whether we’re currently mired in a cyclical bull market within a longer, structural bear market?”

- “I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences,” David Einhorn says in his NYT op-ed.

- Banks aren’t short of cash to spend on lobbying Washington to make sure serious financial reform never gets passed. But considering what’s at stake, the best hope for stronger reform is to make the upcoming House-Senate conference in June more transparent, writes Simon Johnson, former IMF chief economist.

- Palm’s mobile design guru, Matias Duarte — who led webOS development — is leaving the company and is headed to Google (GOOG), Digital Daily blogger John Paczkowski reports, noting Duarte’s departure is a “significant loss” for Palm and H-P.

- Blogosphere has been abuzz about rumors that Microsoft (MSFT) CEO Steve Ballmer would appear on stage at Apple’s Worldwide Developer Conference. But Microsoft quickly squashes those rumors. “Steve Ballmer not speaking at Apple Dev Conf. Nor appearing on Dancing with the Stars. Not riding in the Belmont. Just FYI,” Microsoft says via Twitter.

- Obama says he’s “angry and frustrated” over the spill in the gulf.

- BofA, Citi, JPMorgan and Goldman Sachs all racked up perfect trading quarters in 1Q, but the Kid Dynamite blogger is less than impressed with the ensuing analysis. “See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%.”

- “It’s no wonder that Goldman Sachs–perhaps the largest market maker in the world–consecutively avoids trading losses quarter after quarter,” FT’s Alphaville blog says. “That’s because when you’re making markets with no obligation to do so, you are in complete control. You dictate the terms. It’s very hard to lose.”

- EU’s nearly $1T bailout package stabilized Europe’s stock and bond markets this week, but hasn’t done much for the sliding euro.

- The online advertising business is improving from its dismal
performance a year ago, but how much of an improvement is tough to quantify.

- Paul Volcker’s candidness is undermining Obama. “It’s one thing for people in the private sector to express negative views about the future on the Eurozone, quite another for someone of Volcker’s stature who is playing a policy role for the Administration to undermine an initiative deemed so important that the President has thrown its weight behind it,” Yves Smith says.

- The number of people considered long-term unemployed sits at its highest level on record even as the economy has experienced four-straight months of net payroll growth. “Think about what that means: The new jobs that have been created so far seem to be going disproportionately to people out of work for only a short period,” Catherine Rampell writes.

- NBC canceling Law and Order could mean 8,000 people will join the unemployed ranks.

- Bespoke compiles a list of companies whose stocks have performed well on their earnings release days, but then declined the most since then. Topping the list, First Solar (FSLR) which rose 18% after posting earnings April 28, but since has dropped 20%.

- Well, that experiment didn’t last long. Google plans to stop selling its Nexus One on the Web.

- The summer of LeBron officially starts now. Mayor Bloomberg says he’ll give LeBron a “big sales pitch” to come to NY, but President Obama hopes the King goes to Chicago. LeBron, you can guest post here at Market Talk anytime you’d like if you become a Knickerbocker.

A picture of an empty storefront taken in March, of 2009. It's still empty.

Something crystallized in my mind the other day, and while I’m not sure of its significance, it seems telling to me.

I’ve noticed lately that the vast majority, I think all really, of the store fronts that I’ve noticed going back a year ago that were empty…are still empty. These include spaces in New Jersey and Manhattan. I just haven’t seen any new businesses opening up in the past year, and I wonder how many new businesses really are opening up.

There’s a big space at the corner of 42nd and 6th Avenue in Manhattan that has been sitting empty since at least last June (John said he thinks some of the empty storefronts he’s seen on 5th Avenue have been filled recently.) And that’s about as prime a piece of retail space as exists in this world, it’s a huge (that might be part of the problem) space, looking out onto both 6th Avenue and 42nd Street, right across from Bryant Park. But nobody seems to want it.

And the storefronts around my New Jersey home that have closed over the past year have all remained empty. I can’t think of one that’s found a new tenant.

This ties in with comments Bank of America’s CEO Brian Moynihan made during their conference call for first-quarter earnings. On the commercial side, Moynihan said, loan balances are down “fairly dramatically, and that is due to customer demand. There’s no other explanation. That’s because customers are not feeling the need to draw on our lines because they don’t see economic demand.”

He added that while they’re still not sure, things seem better than a quarter ago, and if the economy stabilizes here, they expect to see their draw-down rate improve.

Paul Vigna and Madeleine Lim analyze the potential fallout from SEC charges against Goldman Sachs (GS). “This was a big shot from Washington to the height of Wall Street,” Paul says.

Also, they discuss the lack of revenue growth in Bank of America (BAC) and GE earnings. And, to no surprise, there’s still uncertainty surrounding Greece. Check it out, it’s Tomorrow’s News Today.

We’ve got a News Hub double-feature for you. You saw the AM report earlier. Here’s the PM report, taking a look at BofA’s latest mortgage-mod plan, Saudi Arabia’s mass arrests of suspected terrorists, and the latest skinny on the euro (courtesy of yours truly.)

- Palm’s headed toward a fork in the road as there’s a growing belief that its future contains only two paths: acquisition or insolvency, Jon Stokes writes at ars technica.

- Bronte Capital blogger John Hempton says BofA engaged in some shady accounting engineering during the boom, similar to Repo 105. But BofA defends its accounting procedures. “Efforts to manage the size of our balance sheet are routine and appropriate, and we believe our actions are consistent with all applicable accounting and legal requirements,” BofA tells ProPublica. It all sounds strikingly similar to what Ernst & Young recently said about Lehman, DealBook notes.

- “With all eyes on financial institutions, sovereign defaults, state bankruptcies and pension shortfalls, I’ll humbly submit reason #11 to be wary of this scary bull – unforeseen systemic risk emanating from quant models gone awry,” Todd Harrison says. “This is the first time in history 10-year interest rate swap spreads turned negative…I would venture to guess it wasn’t ‘modeled’ that way by the quant geeks.”

- GE shares up 24% this year and 80% over last 12 months. That’s noteworthy, especially since GE underperformed the broader market during much of the 2000s, Bespoke notes. “Is GE finally ready to lose the ‘dead money’ label?”

- New home sales hit a record low last month and months of supply rose to 9.2 months. “Obviously this is another extremely weak report,” Calculated Risk says.

- Blogosphere loves Sprint Nextel’s (S) new 4G phone – Evo. Engadget says it’s a “breathtaking” device. “Evo 4G is the best Android phone out there. It may even be the best phone, period,” Gizmodo adds.

- “The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators,” Simon Johnson says.

- Will Apple’s (AAPL) iPad live up to the hype? Kara Swisher discusses on WSJ’s Digits show.

- Bank of America (BAC) says it will make principal forgiveness a priority for certain subprime mortgages.

- Starbucks (SBUX) to offer its first-ever cash dividend and announced it will boost its stock-buyback plans.

- Small caps have been outperforming large caps for more than 10 years. “When it ends is anyone’s guess, but it’s hard not to argue that large caps are at least due for their day in the sun,” Bespoke says.

- Bull market? Stock funds’ flows don’t show it. Investors have been pouring money into mutual funds, but mainly into bond funds, despite stock funds’ heady gains.

- Apple’s (AAPL) market cap surpasses $200 billion, giving the company “a seat in a very exclusive club,” Tom Petruno writes. Only Exxon Mobil (XOM), Microsoft (MSFT), Wal-Mart (WMT) and Berkshire Hathaway (BRKA BRKB) have market values exceeding $200 billion.

- There are still two unfilled positions on the seven-member Fed board, which will increase to three when vice chairman Don Kohn retires in June. “There was a time I might have pushed harder for all three positions to go to academic experts, but the financial market crash has highlighted the need for a broad range of expertise on the Board,” Mark Thoma says.

- Google’s (GOOG) YouTube Ads go mobile, marking “another sign Google is serious about wringing more money” out of the web video giant, Peter Kafka says.

- Bond buyers poured $7.8 billion into high-yield municipal bond funds in 2009, essentially ignoring “precarious financial conditions” of states and cities, Barry Ritholtz notes. “The bet is that the cities will be bailed out, and their grab for higher yield will be safely rewarded. This is moral hazard writ large. Bailouts encourage irresponsible behavior, as there are no negative consequences.”

- BofA eliminates overdraft fees. “Maybe it’s not true that banks have to take advantage of customers in order to make money,” James Kwak says. “Yes, I understand that other fees may go up, or interest on deposits may go down, but if all this is doing is shifting costs from hidden fees to well-understood fees, that’s good.”

- Government advising banks not to increase dividend payments or buy back stocks as uncertainty surrounds the financial industry is a misguided plea, Clusterstock’s Vincent Fernando writes.

- Stock market’s rising…on light volume. Economy’s growing…mainly because of fiscal stimulus. What does it all mean? “This recovery will be uneven, disjointed and chocked full of surprises — not a great outlook for corporate planners or investment managers, but a far better environment that we saw this time last year,” John Curran says.

- Some employees are over-sharing on social-media sites, causing embarrassment and possible financial harm to small companies.

- The smart phone market is “a waltz of elephants,” making it hard for standalone players, like Palm, to succeed, Henry Blodget says. “In order to have a chance, Palm’s products had to be so obviously superior to all available alternatives that people would hear about them and seek them out,” he says. “Alas, they aren’t.”

- For AIG, a $9 billion quarterly loss looks almost graceful. “”Depending on your perspective, the results were either a significant improvement compared with the same period a year ago or quite irksome indeed, given the $100m in bonuses paid to 200 AIG staff,” FT’s Alphaville says.

- Twitter’s ad platform may come sooner than you expect, MediaMemo blogger Peter Kafka reports.

- Paul Krugman discusses core inflation.

- Jeremy Grantham’s early calls prove to be right, but also costly.’

- Lawmakers question the GMAC rescue. Gee, I wonder why. Three bailouts later, GMAC’s still the only bank where the government now owns a majority stake.

- Former BofA CEO Ken Lewis left with about $83 million in pension and insurance benefits, stock and other compensation, WSJ reports, citing a securities filing.

- “Rather than demonize the CDS market and blame it for Greece’s current woes, let’s place the blame firmly where it belongs — with Greece itself, and its profligate ways.” Reuters blogger Felix Salmon says.

- Madoff whistleblower book: Harry Markopolos claims he uncovered State Street fraud, had thoughts about killing Madoff

- This may be the best show on television.

US stocks starting the week off on a strong note as encouraging manufacturing and housing reports are taking precedence over European debt woes.

Energy and materials are pacing today’s gains, with crude oil futures up 4%, while the dollar takes some blows as the euro gains.

Financials also posting solid gains, led by Bank of America’s (BAC) 4.3% gain after it reported “significant gains” in the number of modified mortgages it handles through the government’s Home Affordable Modification Program.

Manufacturing activity posted a sharp improvement this month as NY Fed’s Empire State business conditions index increased to 24.91 from 15.92 in January and better than the 16.0 expected. Housing activity also rebounded in February as the National Association of Home Builders said its housing market index climbed two points to 17 out of 100. Economists had expected a reading of 16.

The increase comes as the government dangles a tax credit of up to $8,000 for buyers, which could pull demand forward. “We expect volatility in the index through the selling season as the buyer credit impacts trends,” UBS writes.

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