Market Talk

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

- It’s getting scary across the pond. “The question now is how far this will spread,” Paul Krugman writes. “I’m looking at the spread between Italian and German bonds. It’s getting a bit scary out there.”

- “The US Treasury market is in an interesting place where we have seen a flight to safety this week and a Fed that may keep rates low forever on one hand and an improving economy, rising commodity prices and a financial situation in the US that doesn’t look much different than Greece on the other,” Peter Boockvar says.

- Most troubling aspect of S&P’s downgrade of Greece isn’t that the country’s debt has been slashed to junk. “The real problem is that the losses on default are likely to be far steeper than is typical for sovereign borrowers,” Yves Smith writes at naked capitalism.

- Maybe there’s no need to overreact regarding European’s increasing debt woes, The Economist’s Free Exchange blog says. “The situation is salvageable, and for now the right outlook is one of concern rather than panic.”

- Do CDOs have social value? James Kwak, Arnold Kling and Frank Partnoy discuss at NYT’s Room for Debate blog.

- At yesterday’s Senate hearing, Goldman Sachs (GS) CEO Lloyd Blankfein “trod the fine line between not being apologetic and actually saying ‘it’s capitalism, stupid’ and the more junior executives interrogated did not say anything blatantly incriminating,” former IMF chief economist Simon Johnson observes.

- Peter Kafka live blogs H-P’s conference call in which the company explains why it’s buying Palm.

- “The Nexus One may not be a bestseller, but perhaps that’s beside the point,” PCWorld’s Jeff Bertolucci says. “The phone has served as an Android demo unit, one that shows handset and app developers what the Android platform is capable of. Indeed, more manufacturers are introducing Android devices — a development that will certainly boost Google’s mobile market share.”

- NYT’s Bits blog wonders whether Gizmodo has any chance of winning the iPhone battle.

- AOL’s turnaround still isn’t here, evidenced by 1Q revenue falling 23% and ad sales dropping 19%. Not a good sign, especially since both Google (GOOG) and Yahoo (YHOO) posted significant revenue growth. But, as Kafka points out, AOL CEO Tim Armstrong still has a grace period to rebuild the company before investors expect to see tangible results.

Never let it be said that we don’t work our tails off here at Market Talk to get you the news. We have in our hands an advanced, embargoed, exclusive copy of Goldman Sachs chieftain Lloyd Blankfein’s testimony to the Senate Permanent Subcommittee on Investigations, which he will deliver later today.

It took the work of secret couriers, an indigenous Vietnamese agent named Co Bao (“You weren’t expecting a woman, were you?”), one Groucho Marx disguise, and a punk staffer in the Senate who’s shorting the testimony, but here — finally — we got it:

“The issue here is not whether we broke a few rules, or took a few liberties with our in-the-dark counterparties; we did.

“But you can’t hold a whole bank responsible for the behavior of a few sick, perverted individuals. For if you do, then shouldn’t we blame the whole banking system? And if the whole banking system is guilty, then isn’t this an indictment of our financial institutions in general?

“I put it to you, Carl Levin! Isn’t this an indictment of our entire American society? Well, you can do what you want to us, but we’re not going to sit here and listen to you bad-mouth the United States of America! Gentlemen!”

Oh, wait, that’s Eric Stratton’s testimony. I guess we don’t have Lloyd’s after all.

Don't expect any of this from Blankfein anytime soon.

Goldman Sachs’ (GS) decision not to previously disclose the fact that the SEC was investigating it for fraud is raising some eyebrows, especially as the firm’s reputation takes hit after hit.

Various reports suggest the SEC issued a Wells Notice to Goldman back in July 2009, with the Journal even reporting Goldman knew as far back as August 2008 that regulators were sniffing around its controversial mortgage securities.

But Friday’s bombshell left industry watchers perplexed as to why Goldman failed to disclose anything in the first place, especially since previous disclosures would’ve lessened the blow from last week’s civil-fraud charges.

“As with a lot of things in SEC filings, it all boils down to an issue of materiality: was the existence of the Wells Notice material enough to Goldman that it required disclosure?” Michelle Leder ponders at Footnoted. “The rules on materiality are pretty vague and it’s now clear that Goldman’s attorneys came to the conclusion that the Wells Notice was not material, even if the market seems to disagree.”

Given Goldman’s size and the relatively small amount listed in the complaint, she says it’s reasonable to understand why Goldman wouldn’t consider the Wells Notice material.

Still, she notes GE, Bank of America (BAC), UBS, JPMorgan (JPM) and Berkshire Hathaway (BRKB), which are all over $50 billion in market cap, have all disclosed Wells Notices in the past.

“If disclosing a Wells Notice was material enough for these companies, why was it not material enough for Goldman?” Leder wonders.

Continue reading…

- The SEC fraud charges against Goldman Sachs (GS) aren’t likely to hurt the firm much financially, but clients will likely have more questions about conflicts of interests surrounding the firm;s dealings, Chad Brand writes.

- The big question now “is whether this is just the tip of the iceberg,” James Kostohryz writes at Minyanville. “Given the details of the transaction, it seems highly unlikely to me that this was the only transaction of this nature.” And lawyers “will be chomping at the bit and contacting investors that lost money in mortgage, CDS, etc., transactions to see if there were similar patterns that can be exploited in lawsuits.”

- In the fallout from SEC fraud charges, Goldman CEO Lloyd Blankfein needs to step down, Stephen Gandel notes at Time’s Curious Capitalist blog.

- Goldman Sachs “can go long markets and it can go short markets. But it can’t lie to its clients,” Felix Salmon says. “That’s well beyond the pale.”

- “The only sure way to ensure that no bank becomes too big to fail is to make sure no bank is too big,” Robert Reich says.

- Barry Ritholtz strongly disagrees with the “strategic default” thesis – which states people are defaulting on mortgages and instead using that money for consumer discretionary items.

- Economy’s in early stages of healing process. “If it continues, and the labor market shows sustainable growth, and inflation stays moderate, and the eventual increase in interest rates doesn’t derail the still-fragile state of consumer sentiment, the future looks encouraging,” James Picerno says. “There’s a lot of ‘ifs’ to step over.”

- “Curb your enthusiasm” about the economic rebound,” Economist’s Free Exchange blog says. “Yes, the economy is recovering, as everyone save the nihilists expected. However, the debate ought to be about the strength, not the fact, of the recovery.”

- Within weeks though we’ll be able to see the natural forces of supply and demand at work in the housing market” without major government incentives, says Miller Tabak’s Peter Boockvar. Economy’s definitely improving, but “the steroid juice of cheap money is again having its influence,” he says. “We can only hope that we can make the transition without it over the next few years better than we did last time.”

- Boomtown blogger Kara Swisher reports Yahoo’s (YHOO) M&A chief is hard at work trying to buy Foursquare, the hot mobile startup of the moment.

The White House is attempting to contain the damage surrounding President Obama’s curious remarks about bank bonuses. Whether it’s working is up for debate.

In case you missed it, Obama said he doesn’t “begrudge” the multi-million dollar bonuses JPMorgan (JPM) CEO Jamie Dimon and Goldman Sachs (GS) CEO Lloyd Blankfein received, noting it’s all part of the free-market system. He also compared these “savvy businessmen’s” exorbitant salaries to sports, saying some baseball players make more dough than both of those folks.

Now the White House is trying to mop up Obama’s mess. Huffington Post has the details:

The White House is moving swiftly to stem the fallout from a potentially damaging interview President Obama gave on Tuesday, in which, it was reported, he did not “begrudge” the multibillion-dollar bonuses of Wall Street executives.

Administration aides insisted, in email exchanges with the Huffington Post, that the quote was largely overplayed. The story, they say, made it appear as if the president didn’t mind massive compensation packages when he was simply stating that he didn’t fault anyone for his or her personal or professional success. Moreover, they added, the president has made similar remarks many times before without getting the critical reception he received on Wednesday morning.

“The president has said countless times, as he did in the interview, that he doesn’t ‘begrudge’ the success of Americans, but he also expressed ‘shock’ at the size of bonuses and made clear that there are a number of steps that need to be taken to change the culture of Wall Street,” spokesperson Jen Psaki told the Huffington Post. “[That is] a sentiment he has consistently expressed since long before he took office.”

The White House is clearly on damage control, trying to clean up a messy situation. But Princeton economist Paul Krugman, who heavily criticized Obama yesterday, still can’t get over the presiden’t “clueless” comments.

Continue reading…

President Obama strikes a curious chord, to say the least, in his latest comments concerning bonuses given to Goldman Sachs chief Lloyd Blankfein and JPMorgan CEO Jamie Dimon.

Obama says he doesn’t “begrudge” the multi-million dollar bonuses they received, noting some athletes make more dough than these two folks. From Bloomberg:

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

Umm, we’re not even sure where to begin on this one.  Free-market system? That went out the window when the government engaged in its bailout binge with the nation’s largest banks. As former IMF chief economist Simon Johnson points out: “Not only were their banks saved by government action in 2008-09 but the overly generous nature of this bailout means that the playing field is now massively tilted in favor of these banks.”

And wasn’t it only a few weeks ago that Obama was ripping “fat cat” bankers on Wall Street for their “obscene” bonuses? From fat cats to savvy businessmen, that’s quite the reversal.

Continue reading…

- “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.

- Stocks rebound nicely today after rough few weeks, validating research from UBS and JPMorgan, each saying they aren’t worried about the bull market’s sustainability, FT’s Alphaville blog says.

- Amazon gives in to rising e-book prices. But “bear in mind that publishers will actually make less money with the Apple pricing plan,” MediaMemo blogger Peter Kafka says.

- January was a tough month for risky assets as stocks, REITs and commodities all fell substantially while bonds generally held their own, James Picerno notes at The Capital Spectator. Doesn’t mean a new bear market is beginning, but it does show the days of “strong, sustained rallies in everything” are probably over. “The money game now appears destined for a more complicated era.”

- The once-robust charity sector hit with mergers, closings. “Hit by a drop in donations and government funding in the wake of a deep recession, nonprofits—from arts councils to food banks—are undergoing a painful restructuring, including mergers, acquisitions, collaborations, cutbacks and closings,” WSJ says.

- Insider buying picked up a bit last week. but the trend of low levels of buying and continued high selling remains intact, Pragmatic Capitalist says.

- Mark Cuban offers advice on a simple way to create jobs: reduce paperwork. Small businesses and entrepreneurs should spend less time and money on lawyers and accountants and “redirect that intellectual and financial capital to the core competencies of their business,” he says.

- DVD sales are collapsing, nearly as quickly as music sales did over the last decade,” Kafka says. Not good, especially since Hollywood studios are desperately looking for new revenue streams to replace the struggling DVD (hence their big push for a 3-D boom.)

- A $100 million bonus for Goldman Sachs (GS) CEO Lloyd Blankfein? Don’t count on it, Reuters blogger Felix Salmon notes. “It frankly boggles the imagination that he’s going to get anywhere near $100 million,” Salmon says. “Goldman knows that bonuses are a hot-button issue politically, and it’s going to keep them (relatively, by its standards) modest for 2009.”

- Toyota says it’s already begun shipping a fix to the gas pedal problem involved in the recall of millions of vehicles. Time’s John Curran highlights the “Toyota Stimulus.”

- Yahoo (YHOO) and AP reach new licensing agreement; web portal will continue hosting AP articles. “The agreement could help define a core issue facing news organizations: How to deal with the Internet portals that help distribute their material but that some publishers say unfairly profit from their work,” WSJ says.

We won't stand for this much longer.

The Financial Crisis Inquiry Commission hearings certainly have had their fair share of fireworks today. From comparing the financial crisis to hurricanes and Goldman Sachs (GS) CEO Lloyd Blankfein getting compared to a used care salesman, the hearing has been a perfect example of the public anger that’s currently directed at some of the nation’s biggest financial institutions.

Fox Business has a live feed of the hearing. But here’s a snip from NY Times detailing some of the highlights from the hearing:

Phil Angelides, a Democrat and a former California treasurer who is chairman of the commission, focused on Lloyd C. Blankfein, chief executive of Goldman Sachs. At one point, after Mr. Blankfein likened aspects of the financial crisis to an “hurricane” and similar “acts of God,” Mr. Angelides cut in to say, “These were acts of men and women.”

Critics have accused Goldman Sachs and other Wall Street firms of deliberately packaging troubled mortgages and passing the bonds off as sound investments, a point on which Mr. Angelides pressed Mr. Blankfein.

“I’m just going to be blunt with you,” Mr. Angelides said. “It sounds to me like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars.”

As the leaders of the biggest banks and the bipartisan commission butted heads, the obvious takeaway is the gap between Wall Street and Main Street continues to widen without an end in sight.

Continue reading…