Market Talk

It’s no secret that banks are parked over a mother lode of bad loans, mainly residential and commercial mortgages, and they prefer to not publicly acknowledge (by marking to market) what those loans are really worth. That tactic has helped banks recuperate and appear healthy, but it’s a stance that’s also costing at least of few jobs, in a roundabout way.

We’re a little late to this story, but our new-found fascination with state WARN notices led us to find one from a California company called Kondaur Capital, which said about a month ago that it plans to lay off 161 workers by April 18. A little searching brought up an article last month by the accomplished Paul Muolo at National Mortgage News.

Seems Kondaur buys nonperforming loans, and finds itself needing to layoff workers because there aren’t enough bad loans available to buy.

Come again? Aren’t banks still sitting on mountains of toxic debt? Can’t find enough to buy? Continue reading…

The market got a fresh jolt this afternoon, when it was reported that the NY Fed is one of the entities suing Bank of America over mortgage secutiries in an attempt to get BofA to buy back soured mortgages. The inclusion of the names seemed to really grab people’s attention; after all, the story had been reported this morning in the Journal, but sans names was buried in the public consciousness under China’s surprise rate hike and high-profile earnings.

So, why is the Fed forcing an issue like this? Whether BofA should be forced to absorb those loans isn’t the issue I’m getting at. This move runs counter to everything the Fed’s done to prop up the banks since the crisis started. It just seems, well, odd.

The consortium includes the NY Fed, BlackRock and Pimco, according to Bloomberg. Those are big, big names. Those are names that carry a lot of water in the markets. The NY Fed, a branch of the Federal Reserve, is ostensibly an independent entity, but obviously is rather closely aligned with the government. Pimco and BlackRock are obviously independent entities, but collect fees for advising the government in various capacities. I’m not suggesting this is some government-sponsored action. I’m not sure if there even is a point there. But it sure is interesting.But the Fed’s involvement seems very odd to me. We’re talking about the central bank here.

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-It only took two weeks and a 6% pullback in the stock market, but more newsletter writers are looking for a correction than at any other time since 1984, Bespoke reports, citing data from Investors Intelligence.

- A Kauffman Foundation survey of economic bloggers found what many already expected: we share a bleak economic view. “While [bloggers] individually express themselves virtually every day, we think their collective voice needs to be heard,” says Tim Kane, senior fellow at Kauffman and author of the study.

- Time Inc says 4Q subscription revenue down 6% from year ago and ad sales dropped 12%. Not great, but better than 3Q, when the declines were worse in each category. “Requisite caveat here: These numbers…are being compared to really terrible numbers from the previous year,” Peter Kafka says. “So the fact that Time Inc can’t show actual growth tells you that this is still an industry with really big problems.”

- Strategic defaults on mortgages gaining steam. “The longer the real estate bust continues, the more deeply underwater borrowers will think hard about the costs of upholding their side of a deal,” Yves Smith notes.

- A dandy revenue comeback? Not quite. Year-over-year revenue growth “leaves much to be desired,” Pragmatic Capitalist says, as revenue ex financials is up just 3%. “Not exactly a barn burner in top-line growth,” blog says. “And this is in comparison to the very weak 4Q08 when the economy was nearly lifeless.”

- AOL’s 4Q ad and subscription revenue fell. “Again, recall that these numbers are against miserable comps from a year ago, when advertisers and publishers just sat in the dark with towels over their heads, crying,” Kafka notes. CEO Tim Armstrong certainly has his work cut out for him.

- ADP says only 22,000 private-sector jobs were lost in January, the smallest decline since February 2008. “The less-bad theme continues,” says Miller Tabak equity strategist Peter Boockvar.

- The “Volcker Rule” is looking more “toothless” by the day.

- US Transportation Secretary Ray LaHood says he wants to talk directly with Toyota’s CEO about vehicle-safety concerns and the company’s handling of those issues.

- AIG”s ignoring its critics and still moving forward with plans to accelerate bonuses to employees of its financial products division.

Feel like you're being taken for a ride?

I am not a beat reporter, and I have pity on the beat reporter who has to hand their editor a line like this:

“GMAC has been conducting a strategic review of its business and evaluating options to address the challenges in its mortgage operation.” The spokeswoman said GMAC wants to prepare itself to repay the U.S. government.

That is the explanation GMAC, the finance arm of General Motors and one of the poster children for the credit crisis, gave for borrowing another $3.5 billion from the U.S. government, as reported by Dan Fitzpatrick and Deborah Solomon in the Journal. The outfit, already in 12 large to the US government (and we do mean large,) came back to the gate for another $3.5 bil, which apparently is just part of their “strategic review.”

Now, a beat reporter can’t report GMAC’s words, and then comment in the story that the words are the most ridiculous they’ve ever heard. It doesn’t work like that. The beat reporter has to report who, what, when, where and why. It’ s left up to people like, well, like me to provide the analysis, the interpretation, the color, if you will. So, here goes.

I call Shenanigans!

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US stocks looking slightly stronger ahead of trading on the last week of the last year of the first decade of the 21st century. Stocks are up a bit, as the first reports coming in on holiday sales indicate the season was better than last year’s weak one. Mastercard’s SpendingPulse says retail sales were up 3.6% from last year, WSJ reports.

This week’s pretty lean on the news front; manufacturing reports from Dallas and Chicago Fed today. Goldman Sachs and Redbook retail reports tomorrow, as well as Case-Shiller report for October. S&P futures up 1.50, DJ futures up 9. Ten-year down, yield up to 3.8%. Dollar weaker.

Treasury Department taking some heat for its after-hours, Christmas Eve announcement that it would cover an unlimited amount of Fannie and Freddie’s losses. That kind of timing is a classic stunt second-rate companies pull when they’re trying to bury something. The Treasury Department of the United States should be better than that.

Forget for a second that the government tried to slip this one under the radar. That’s not the real issue here. This is the real issue: what does it say that $200 billion, the original amount of credit extended to Fannie and Freddie, isn’t enough to cover the losses on their mortgage portfolios? Is that a good sign, or a bad one? And the government isn’t adding another $50 billion to the pile; it’s pledging to cover an unlimited amount of losses.

“Unlimited access to bailout funds through 2012 was ‘necessary for preserving the continued strength and stability of the mortgage market,’ the Treasury said,” according to the Journal. If you ask me, the fact that they made this move illustrates quite clearly that there is no strength in the mortgage market, and very little stability.

And, you know, we’ve still got this situation where people aren’t paying much attention to the so-called geopolitical risks. But what if that terrorist on the Northwest flight had actually managed to blow up the plane? Thank God he didn’t, but the mood across the country would be very different if he had.

US stocks close basically flat, after an early burst flickers out, and while it was a pretty quiet news day, at least as far as big headlines go, there’s a lot of  cross-currents out there you need to keep in mind.

DJIA adds 3 to 9509 after rising as much as 82 in the morning; S&P 500 eases 1 to 1026, Nasdaq Comp slips 3 to 2018. Volume is surprisingly strong, with composite volume on the NYSE hitting 6.3B shares (above the daily average this year and especially curious given it’s the last week of August,), and picked up steam early in the afternoon, right as stocks started to tank.

Financials strong early, but finish down; there’s a lot of chatter floating around about banks’ strength, and how many will ultimately fail. But energy stocks rise as crude inches closer to $75/barrel. Of course, that’s not good for consumers, which may explain why consumer stocks fell.

The first of the government’s high profile stimulus programs, the so-called cash-for-clunkers program, expires tonight. But there’s a handful of others that are set to expire over the next four or five months, and we’ll start finding out just how strong the economy is as they go away. Madeleine and I discuss it here.

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As in, curb your enthusiasm.

US stocks drop as investors are suddenly more open to the notion that this second-half recovery thing may not be so hot (or come at all,) after the World Bank releases a report predicting a sharp global economic contraction; the same message it delivered back a week and a half ago, which at the time didn’t elicit nearly the reaction it got today.

So it’s not exactly a fresh piece of news that apparently had investors so vexed. Rather, it’s another instance where the market hears only what it wants to hear.

DJIA slides 201 (2.4%) to 8339, its biggest one-day slide percentagewise since April 20. The Dow’s down two straight sessions and five of the last six. It’s the index’s lowest close since May 27.

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