Market Talk

Here’s a press release from JPMorgan so soaked in sanctimony, we feel damp just reading it. Here’s the headline: JPMorgan Chase Announces New Programs for Military and Veterans.

Bottomline, JPM made some foreclosure “mistakes” with military customers for which it “deeply apologizes” and pledges to make amends. How heroic.

It’s a great thing to be helping veterans and military families. They deserve it all the time, and PR stunts “initiatives” like this shouldn’t happen just because a big bank gets called out for bum foreclosures.

If you’re trying to sell a house, you probably already know how rough it is out there. If you’re not, well, trust us, it’s not good and it’s not going to get better next year, either.

Dow Jones Newswires Amy Hoak reports: (subscription required.)

Brace yourself for another rough year in housing. The number of foreclosures is expected by many to increase in 2011 as more troubled mortgages work their way through the pipeline.

Foreclosures may well peak next year, said Rick Sharga, a senior vice president for RealtyTrac, an online marketplace for foreclosure properties. The market is expected to tally about 1.2 million bank repossessions in 2010, up from 900,000 in 2009, he said.

“We expect we will top both of those numbers in 2011,” he said.

That’s partly due to issues the industry faced with foreclosure processing that began in the fall and delayed a portion of foreclosures from being completed this year, he said. In the so-called robo-signing controversy, some lenders halted foreclosures after learning procedures for signing off on foreclosure documents might not be in accordance with the law.

Continued high unemployment is also expected to exacerbate the foreclosure problem in the year ahead, as will upcoming interest-rate resets on adjustable-rate mortgages that will increase monthly payments for some homeowners, Sharga said.

Imagine what’ll happen if this current sell-off in the Treasury market picks up steam. The housing market is in the pits even with rates at historic lows. If they rise, it will just twist the knife a little deeper into the back of an industry that is still struggling to recover from its having its bubble burst.

Lots to discuss on this morning’s News Hub. I have a small markets segment where I mainly discuss GM’s $2 billion 3Q profit ahead of its IPO next week. Additionally, discussion surrounds the debate regarding a return to the gold standard. And there are several problems banks are having restarting the foreclosure process. Check it all out at The News Hub.

So, what do you think is driving today’s rally, the dollar or earnings? The dollar has completely reversed yesterday’s gains, and as you can see by looking at the euro, stocks, gold, oil and commodities like corn and cotton, yesterday’s losses have also been erased. Interesting, huh?

In today’s video, we take a look at two big stories, earnings and the foreclosure mess, and how the latter may affect a still limping housing market.

I have pass this along. You think the foreclosure thing is a hornet’s nest? It could be worse than that. Get this, this is from a Georgetown law professor interviewed by CNBC’s Diana Olick (and which I first saw this morning via Art Cashin.)

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

Oh, good grief. So now what you’re saying is, these home owners can argue that they’ve been making payments, maybe for years, to an entity that in actuality had no legal right to those payments, because it didn’t actually own the mortgage note (or can’t prove it.) So they’re going to sue? And everybody involved in the mortgage can sue everybody else for some measure of malfeasance?

This thing gets worse by the day. This isn’t a hornet’s nest, it’s a rat hole, and we are going to down it. Let’s hope it doesn’t lead down to perdition.

- Oracle (ORCL) CEO Larry Ellison wasted no time slamming H-P’s (HPQ) hiring last week of former SAP chief Leo Apotheker as new CEO. “I’m speechless,” he tells WSJ late Friday. “H-P had several good internal candidates…but instead they pick a guy who was recently fired because he did such a bad job of running SAP.” Harsh, to say the least, though not particularly out of character for Ellison, Digital Daily blogger John Paczkowski says.

- Goldman gets harsh on Microsoft (MSFT) and offers three strategies it should employ to help boost shares. Firm calls for huge dividend increase, a “coherent consumer strategy” and MSFT to become the global leader in cloud computing. “Oh, that’s all?” Paul Kedrosky quips. “Pulling this off would be like Microsoft learning Geller-ian magic tricks, the equivalent of being able to bend spoons with its brain.”

- Another economic downturn is “not only a possibility but a likelihood,” John Hussman says. “A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the US stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”

- Executive departures at Yahoo has put more scrutiny on CEO Carol Bartz, who she still has to convince Wall Street she has what it takes to turnaround the struggling Internet giant. But YHOO’s 3Q report, scheduled for Oct. 19, will provide clues into how she’s really doing, Kara Swisher notes. And as executive departures “garner a lot of attention,” Yahoo’s results are “the most important of all to watch,” she says.

- With the September jobs report due at the end of the week, Calculated Risk says keep an eye on the participation rate. Right now, it sits at a “very low” 64.7%. “A future decline would be considered bad employment news (even if the unemployment rate declined slightly),” blog says. “An increase in the participation rate, combined with a weak labor market, could lead to a jump in the unemployment rate. This is something to watch closely.”

- Another unsavory wrinkle in the US foreclosure epidemic as some big banks (BofA, JPMorgan, Ally’s GMAC) suspend foreclosure activity across close to half the nation amid reports of seriously flawed paperwork. Seems “the real estate/financing industry has brought the same machine-like technical prowess that they used to automate the process of underwriting mortgages to a similar automated foreclosure process,” Big Picture blogger Barry Ritholtz notes. “Is it any surprise that the results of this are similarly disastrous?”

- The bulls, like John Paulson, looked pretty smart in September.

- “But even if we agree that the Fed could depress long-term yields with these kinds of measures, it is a separate question as to whether it should,” James Hamilton says. “I remain of the opinion that while the Fed is understandably reluctant to embrace QE2, it may have little other choice.”

- Twitter promotes chief operating officer, Dick Costolo, to CEO amid company’s scramble to build its advertising business. He succeeds Evan Williams.

- New York Observer wants Dealbreaker, but Bess Levin wants her big pay day. Good for her, she deserves it. Now, Barry Ritholtz hopes to get in on the action.

There’s one word that perfectly describes what’s going on in the foreclosure arena, and it’s not exactly printable here. But when I saw the story that the Connecticut attorney general is seeking to halt all foreclosures in that state, on top of JP Morgan’s halt this week, on top of Ally’s earlier halt, one word came to mind. It starts with “cluster” and ends with something that rhymes with “luck.”

Today we got word that the attorney general in Connecticut, Richard Blumenthal, wants a 60-day freeze on foreclosures. “This freeze should stop a foreclosure steamroller based on defective documents and enable effective remedies,” Blumenthal said. “The actions of GMAC/Ally and JP Morgan are inexcusable, a possible fraud on the court undermining the integrity of the legal process and consumers’ ability to fight foreclosures.”

That’s on top of news yesterday (hat tip, naked capitalism) that the acting director of the Office of the Comptroller of the Currency, John Walsh, has contacted seven of the nation’s biggest lenders about their practices. From the Washington Post story: “The paperwork problems range from potentially forged documents to bank employees who never read borrowers’ files before signing off on an eviction.”

The flood of foreclosures has been so great, and the convoluted paper trail that came as a result of the securitization of mortgages has been so Byzantium, that the whole process of foreclosing on a home has become entirely unmanageable. Now, this is something of a mixed blessing for home-owners who’ve defaulted. On the one hand, they’ve probably getting more time to put their proverbial houses in order, if not their literally ones. On the other hand, some of them are being totally screwed, to put it politely.

This story has all the hallmarks of a festering gash. We have come to a very bad pass, Mouseketeers, when the courts, or the mortgage servicers themselves, can’t figure out who owns a home. Even worse is when the servicers just don’t care to find out.

- Soon it might not be so easy to walk away. “It seems some banks have realized that they have made it too easy for borrowers to wash their hands of a bad home purchase, and they are pushing back,” FusionIQ CEO Barry Ritholtz says. “Don’t be surprised if this becomes a national trend. The next leg down in housing is upon us, and banks do not want to take the full hit for the losses.”

- Housing starts and new building permits last month show the recovery’s next phase won’t be a walk in the park. “The post-snapback period in the economy is history, replaced by the harder work of keeping the rebound in positive territory,” James Picerno writes at The Capital Spectator. “The numbers in May remind that the task ahead isn’t going to be easy.”

- “I will simply say this: free market capitalism hasn’t been allowed to dictate the process of price discovery for a long time as policymakers have attempted to engineer the business cycle,” Minyanville’s Todd Harrison says. “As we’ve learned before and as we’ll again see, it’s never wise to mess with Mother Nature.

- Ongoing chatter of a bailout for Spain is causing euro-zone debt worries to fester again. But even as the latest rumors look suspect, their mere existence is a cause for concern, FT’s Alphaville says. “The fact that the rumor is out there shows how vulnerable Spain is on the market at the moment,” blog says. Escalating bailout rumors amid repeated denials prompts the old saying: where there’s smoke, there’s fire.

- TechCrunch founding editor Michael Arrington may be ready to sell his blogging empire. According to TechFlash, Arrington hinted at an event yesterday that he was burned out and possibly looking to sell. “It has been five years, and I can tell you, I am ready,” he said.

- Twitter says the month of June has been its “worst month” since last October, based on a site stability and service outage perspective, and this will likely be a “rocky few weeks” amid increased web traffic due to the World Cup.

- “We are setting ourselves up, without question, for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system,” Simon Johnson writes. “This can end only one way: badly.”

- S&P 500 broke above its 200-day moving average amid yesterday’s rally, Bespoke Investment Group notes, and the percentage of S&P 500 stocks trading above their 50-DMAs sits at 39%. “While not great, this reading indicates that the market has at least picked itself up out of the doldrums.”

- Citi’s halting certain foreclosures near the Gulf spill, WSJ reports. Citi announces a three-month suspension of foreclosure sales and notifications, effective from Thursday through Sept. 17. Citi expects about 1,000 borrowers to participate initially, but that number might increase.

- Rick Bookstaber sheds light on OTC derivatives and new financial legislation.

- Google (GOOG) dumped from China Unicom’s (CHU) Android devices. “An obvious and, I suppose, inevitable response to Google’s recent defiance of the Chinese government,” John Paczkowski says. “I imagine we’ll be hearing of a similar move by China Mobile in the near future.”

- “The mortgage mods and foreclosure abatement programs are really all about propping up insolvent banking institutions,” Barry Ritholtz writes. “These programs are another losing round of helping Wall Street at the expense of Main Street. It is the worst kind of trickle down economics that has been seen in decades.”

- Bernanke says record-low interest rates still needed to support the economy, but the central bank has to be ready to tighten credit when needed to prevent inflation. His comments helped propel stocks higher. Then ECB President Jean-Claude Trichet said IMF help for debt-strapped Greece would be bad, really bad, which helped push stocks way off the fresh highs they set earlier in the session.

- If you thought 2009 was bad for newspapers, 2010 may be even worse, Newsosaur blogger Alan Mutter says. “If the rate of decay continues to slow in 2010, the industry will shrink at a slower pace than it did last year. But it still will continue to shrink. And declining shrinkage should not be taken as a sign of health.”

- Venture-backed IPOs might be making a comeback. Four non-biotech venture-backed deals have occurred this year, and all have performed fairly well, Paul Kedrosky notes. “Admittedly, four data points aren’t yet much of a trend, but it’s worth pointing we are seeing the beginnings of a resurgence in the venture-backed IPO market in 2010.”

- It may be a lost decade for some buy-and-hold investors, but keep in mind “some investing rules never go out of style,” Tom Petruno writes. “Try to buy good businesses, try to get them when they’re relatively cheap, and don’t underestimate the power of dividend income over time. And the cardinal rule: Stay well-diversified.”

- Tepid revenue growth won’t placate market much longer. “If we don’t start seeing a pick-up in top-line growth this market is not going to be celebrating for long and the recent optimism in stocks will be proven wrong,” Pragmatic Capitalist says.

- Once again, another weak Treasury auction today. Hard to pinpoint exactly what’s causing it, “but something has changed this week in the US Treasury market and the cost of borrowing is going up as it is in Europe too,” Peter Boocvkar says.

- The Dow Jones Internet Index, which last got any press back when pets.com was still around, surpassed its pre-Lehman levels last summer, and is marching higher and now making a run at its highs from 2007, Bespoke notes.

- AAII’s sentiment survey shows percentage of respondents who expect the market to rise has dropped two weeks in a row, even as stocks keep setting fresh highs. “This is not typical,” Jason Goepfert writes.

- Two big anniversaries on the Street this week – tomorrow is one-year mark since Dow bottomed and Wednesday marks 10-year anniversary of Nasdaq Comp’s all-time closing high.

- Three vacancies currently exist at the Fed: two governors and a vice chairman. To find the proper candidates, FusionIQ CEO Barry Ritholtz offers his own “litmus test” for potential nominees.

- “This never was just a financial crisis,” Interfluidity blogger Steve Randy Waldman writes. “It was, and is, an economic and political crisis, and we are only a very short way down the path towards resolving it.”

- Some financial institutions are dangerously becoming “too big to save,” former IMF chief economist Simon Johnson says.

- “It may take longer to observe the full effect of continued mortgage delinquencies and foreclosures, but we are at about the point where the data would depart from the market’s ‘all clear’ expectations if credit pressures are likely to resume with force,” John Hussman says.

- James Hamilton considers a new financial conditions index that attempts to combine the information of 44 separate series for predicting real GDP growth.

- Government can and should create jobs, Mark Thoma says.

- Tim Geithner’s financial plan is working – and making him very unpopular. “We saved the economy, but we kind of lost the public,” Geithner tells The New Yorker. But MarketBeat wonders if Geithner’s stock is set to rise.

- Nasdaq Comp trading above pre-Lehman levels.

- Google’s testing a new TV programming search service with Dish Network, which runs on Android-powered TV set-top boxes and allows users to search content from Dish and the Web, WSJ reports.

- So much for all the drama surrounding ABC’s blackout on Cablevision. Academy Awards captures biggest audience for ABC in five years.