Market Talk

Doesn't look too dangerous to me.

See the news late Friday that your U.S. government seized three credit unions? You could be forgiven if you missed it; most people did, as it came late Friday, after the market closed, when all anybody was talking about was the stock rally.

But it happened. The government came in late Friday, seized three “wholesale” credit unions, and came up with a $30-$35 billion plan to keep them afloat. If they were household names, if people’d heard of them, it may have been splashed all over the news. But they aren’t household names. The news caused barely a ripple. But it should.

Why in God’s name, two years after the collapse of Lehman Brothers, is the government still bailing out private institutions? Not just private institutions, but credit unions; these aren’t outfits generally given to excessive risk-taking. These aren’t investment banks. They’re credit unions. From the Journal’s write-up:

Bad bets on mortgage-backed securities have now killed five of the nation’s 27 wholesale credit unions since March 2009. The federal government, which now controls about 70% of the total assets at such credit unions, said the surviving institutions will be reined in so that they take fewer risks with their investments.

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- The surging US dollar is “eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy,” the Pragmatic Capitalist says. “As asset prices decline and bond yields collapse this is a clear sign that inflation is not the near-term concern, but rather that the debt based deflationary trends continue to dominate global economic trends.”

- University of Oregon economics professor Mark Thoma isn’t on board with Yale professor Robert Shiller’s argument in a NYT op-ed that fears of double-dip recession could become a self-fulfilling prophecy. Bigger economic shocks would seem “the more likely trigger” of double-dip, Thoma says. “Even more likely is an outbreak of extreme hawkishness causing us to pull back too fast on fiscal stimulus, and to raise interest rates too fast.”

- Turns out Palm’s sale to Hewlett-Packard (HPQ) last month wasn’t exactly a last-minute deal. Digital Daily blogger John Paczkowski points to a PALM SEC filing, which reveals the buyout process began in February and the company was in contact with 16 potential acquirers.

- HAMP April data shows program slowing down.

- The “shock and awe” effects of Europe’s big bailout package are already starting to fade, and the concern is that long-term viability is being sacrificed for short-term gains, Pimco CEO Mohamed El-Erian writes at FT’s Alphaville blog. So far, the package is just giving investors an escape hatch, without addressing the real issue: solvency.

- GM isn’t putting on the hard sell for an IPO.

- Reuters blogger Felix Salmon looks at how government bailouts affect moral hazard and the role they play in market volatility. “A lot of investors have made a lot of money from the moral-hazard trade over the past 15 years or so. When that trade comes to an end, expect the losses to be just as big, if not bigger.”

- Ryan Avent shows how the role the declining euro plays in the global economy.

- Though it’s still early for conclusive evidence, it appears Apple’s (AAPL) Mac sales haven’t been cannibalized by the iPad, Digital Daily blogger John Paczkowski says, citing research from Piper Jaffray.

- Jason Zweig looks at the debate over holding brokers to a higher standard.

We don’t know who’s going to win this weekend’s Preakness Stakes, but in honor of that storied race, we’ve imagined a different race, taking place right now. Call it the Weakness Stakes.

AND THEY’RE OFF!

It’s Eurobail followed by Risk Trade and French Pride. Eurobail, Risk Trade, French Pride. Then it’s Grecian Burn, Average Joe and Helicopter Ben. Teutonic Beast, Vampire Squid, Fear Trade and Moral Hazard bringing up the rear.

Eurobail, Risk Trade and French Pride. Eurobail and Risk Trade running almost neck and neck. Eurobail in fact looks like he’s pulling Risk Trade by the nose.

Grecian Burn’s quickly falling back, he’s going to have a hard time keeping up with this pace.

Helicopter Ben’s moving up on the inside, Ben trying to keep his movements hidden, not wanting to commit too early, but we’re sure he’s going to do something unexpected.

Fear Trade still bringing up the rear, but he doesn’t seem to mind. Looks like he’s happy to let the field wear itself out. Eurobail, French Pride, Risk Trade.

Around the far turn it’s Risk Trade, Eurobail and Helicopter Ben. Vampire Squid keeping pace on the outside, waiting to make his move. It’s like he knows something. Moral Hazard moving steadily through the field with a vengeance.

And here comes Average Joe! Average Joe’s giving it everything he’s got! He’s moving up on the outside looking in. Past Helicopter Ben. Passing Risk Trade. Looking to catch up to French Pride. He’s almost there, neck and neck, he’s got the leader in sight!

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