Market Talk

- “Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to see the risk,” former IMF chief economist Simon Johnson says. “And this time, given that they already used almost all their fiscal bullets, it will be considerably more difficult for governments to respond effectively when they do wake up.”

- Between last week’s jobs report, auto sales data and declining oil and copper prices, deflationary pressures still weigh on the economy, James Hamilton writes at Econbrowser.

- AOL takes another step toward selling its ICQ instant messaging service, Kara Swisher reports.

- No one’s really talking about it, but renewed pickup in credit losses looms as concern, John Hussman cautions. “Credit spreads widened again last week, and we’re keeping a keen eye on those, as well as indications of delinquencies and foreclosures, which may become a renewed source of concern.”

- Lagging labor markets are “inconvenient, but common,” Jeff Frankel says. GDP went from negative in 1H09, to positive in 3Q and strongly positive in 4Q, suggesting the end of the recession may’ve occurred in the middle of last year.

- Advertisers are increasingly underwhelmed by TV advertising. So are viewers – Betty White aside, last night’s Super Bowl ads were a bunch of duds.

- IPad hasn’t even been released yet, but Apple’s (AAPL) supposedly considering price cuts if the device doesn’t perform as well as expected, John Paczkowski reports.

- Lloyd Blankfein’s $9M bonus is “a great move” by Goldman Sachs (GS), not only from PR perspective, but also from internal point of view, Reuters blogger Felix Salmon says.

- Former Merrill Lynch CEO John Thain returns to head embattled CIT Group, uniting two prominent causalities of the credit crisis.

- Man, what we would do to be on Bourbon Street right now.

Late surge extends stocks’ winning streak, despite a shaky session in which a number of blue-chip companies report earnings and Bernanke tells Congress the economy’s too weak for the Fed to remove its supports, but when the time comes, it has a plan. (Video recap here.)

DJIA gains 68 (0.8%) to 8916, its seventh consecutive daily gain. S&P 500 rises 3 to 954.58, a fresh year high. Nasdaq Comp rises 7 to 1916, its tenth consecutive gain.

More proof that the risk trade is back on: the Dow’s up 9.4% since last Friday, and crude’s up 8.7% since last Wednesday. Proof it’s coming off: financial and consumer discretionary stocks actually fell today, and healthcare and utilities drove equities gains. And, both the dollar and Treasurys rose as well.

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US stocks gain for a sixth straight session, pushing the S&P 500 to a fresh year high, after CIT Group gets a reprieve from its bondholders and Conference Board reading on leading indicators points to a recovery. (Video recap here.)

DJIA gains 104 (1.2%) to 8848, S&P 500 rises 11 (1.1%) to 951, a closing high for the year, Nasdaq Comp gains 23 (1.2%) to 1909. It’s the Nasdaq’s ninth straight rising session, a streak it last hit in 1998.

CIT Group gets a reprieve from bondholders, who strike a deal that’ll give the company about $3 billion to play with. That doesn’t solve all its problems – CIT’s business model has basically been smashed by the credit crisis – but it gives it time to sort things out.

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We're getting rescue financing - without the government's help!

We made the argument last week that the government made the right move not bailing out CIT Group (CIT). That decision looks even smarter now that the lender is reportedly close to getting a $3 billion rescue package from its bondholders.

The deal should keep CIT out of bankruptcy court, at least in the short-term, WSJ reports, and it’ll help the lender pay off $1 billion in debt due next month.

From The Journal:

The deal, which was reviewed by CIT’s board Sunday night, charges CIT high interest rates, and it doesn’t permanently fix the company’s long-term financing needs, say people involved in the transaction. But it buys time for the lender to restructure itself, and minimizes bondholders’ losses. Bondholders calculated they would lose more if CIT filed for bankruptcy and sold assets at fire-sale prices than if they offered the rescue.

The deal, which the Journal says is expected to be formally announced later today, is “spectacularly good news” and marks a “major turning point in the history of the financial crisis,” Reuters blogger Felix Salmon says. It’s good for small and medium-sized businesses, CIT’s shareholders, CEO Jeffrey Peek and CIT’s bondholders, he notes.

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CIT Group has a long road ahead

CIT Group’s (CIT) ominous financial situation just got a lot worse, now that the government has decided not to save the ailing lender.

CIT said “there is no appreciable likelihood” it’ll receive government aid in the near future, which has sent its shares down 75% to 41c in mid-afternoon trading. The lender is scrambling to line up at least $2B in rescue financing from existing debtholders, according to WSJ. Without the financing it’ll likely file for bankruptcy protection.

CIT is the first major financial company the government hasn’t propped up since the Lehman collapse. Several bloggers expressed optimism that the government showed restraint by not bailing out CIT, especially amid the recent bailout mania.

“CIT had friends, but not enough – and maybe this tells us something about the shifting political sands,” former IMF chief economist Simon Johnson writes at The Baseline Scenario.

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Game on!

US stocks see their biggest single-day surge in more than three months, on Intel’s bullish outlook as well a jump in financials after several credit-card issuers report moderating delinquencies. Video recap here.

DJIA jumps 257 (3.1%) to 8616, its biggest one-day percentage jump since April 9 and about 6% in three days. Is that excessive? We’ll let you decide that one. S&P 500 rises 27 (3%) to 933, Nasdaq Comp gains 63 (3.5%) to 1863.

Call us cynical, but the rally seems more about numbers than fundamentals. It’s all about the risk trade, and it’s on today: crude, euro, equities all rise. Treasury fall, although gold rises.

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Is CIT Group On Outside Looking In?

CIT Group’s (CIT) financial situation is looking more ominous by the day, unless of course Uncle Sam rides to the rescue.

The cost of insuring CIT’s debt has spiked, its short-dated bonds have plunged and two rating agencies cut the lender’s credit ratings on Monday. CIT shares plunged yesterday but have recovered a bit today on news that regulators are in advanced talks about providing some sort of aid to the lender, according to WSJ.  Shares are up 8% at $1.47 in mid-morning trading.

If the government bails out CIT, it will set an important precedent of what constitutes too big to fail, former IMF chief economist Simon Johnson writes at The Baseline Scenario. CIT only had about $80 billion in total assets at the end of 2008, which he notes was about 1/10th the size of Goldman Sachs (GS) and 1/25th the size of Citigroup (C). It also sits outside the top 20 publicly-traded financial services companies and wasn’t included in the government’s stress tests.

Even though CIT’s reportedly discussing a rescue package with regulators, Johnson says he doesn’t foresee a government rescue, especially considering a lack of strong connections between CIT’s CEO Jeffrey Peek and senior Treasury officials.

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US stocks rally sharply, after Meredith Whitney’s buy rating on Goldman sparks buying in the financials, which sparks the wider rally. Meanwhile, CIT Group is scrambling to avoid a run on the bank. Video recap here.

DJIA jumps 185 (2.3%) to 8332, its biggest single-day gain since June 1. All 30 of the index’s components gained. S&P 500 rises 22 (2.5%) to 901, Nasdaq Comp gains 37 (2.1%) to 1793. S&P dipped as low as 875.26 early; holding it was a another key spark to the rally.

Financials lead by a long shot, with the KBW Bank Index up 6.5%. BofA jumps 9.3%; JPMorgan rises 7.3%; Wells 8.4%; Goldman 5.3%. In fact, only one stock in the S&P 500′s financials sector lost ground: CIT.

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