Market Talk

Treasury Department will begin unloading its $142 billion stash of mortgage-backed securities in an “orderly wind down” beginning this month, which raises an interesting question: Will these sales shed any light on the valuations of MBS that commercial banks are still sitting on?

Banks have not been eager sellers of their inventory of troubled MBS and other non-performing real-estate loans, as bids for the stuff have generally been well below what the banks are willing to accept. And as long as FASB isn’t forcing banks to mark these securities to market, then there’s no strong incentive to sell.

But the Treasury has incentive to sell, noting in its Q&A on the wind-down that its “mission does not typically include managing a large mortgage portfolio.” At least Treasury’s willing to admit it now. The Fed hasn’t yet reached that conclusion.

As of now, Treasury plans to sell $10 billion in MBS per month until it’s all gone, but could suspend sales “if market conditions become less favorable.” Any suspensions or slow pace of sales should offer some gauge on whether bidders continue to low ball, or if Treasury — like banks — is still asking too high a price for the debt.

Treasury says it’ll post its portfolio holdings at the end of each month,  including any sales that were completed, broken down by coupon and agency here.

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…

- Nokia’s (NOK) adding its own twist to the Apple/Gizmodo iPhone 4 controversy earlier this year. Nokia’s getting Russian police involved in asking Eldar Murtazin, editor-in-chief of Moscow-based mobile-review.com, to return the prototype N8, a device he gave an unfavorable review earlier this year.

- “Investors have this week been buying up names that have been hit the hardest in recent months, which is usually the case when we see bounces like this,” Bespoke says.

- Banks and regulators must take “appropriate action” to strengthen banks’ resilience to shocks and safeguard the health of Europe’s financial system, ECB President Jean-Claude Trichet says.

- Whatever happened to all those toxic assets on banks’ balance sheets that garnered so much attention a while back?

- Jobless claims dropping 21,000 to 454,000 represents a “tactical victory for the bulls,” James Picerno writes at The Capital Spectator. “But until and if the trend rolls on it’s only marginally encouraging. The strategic outlook, in other words, is still up for grabs.”

- Silicon Alley Insider says the real reason Google (GOOG) is worried about Facebook is that people buying things are more inclined to trust their friends than strangers or search ads. SAI says that’s the key message in a presentation prepared by Google researcher Paul Adams for company execs who are plotting the company’s next social network initiative, rumored to be called “Google Me.”

- Individual investors are turning more bearish, which contrarians could actually view as a bullish indicator. Only 25% of AAII’s respondents are bullish on stocks, compared to 42% who say they are bears. “I always prefer actual buy and sell driven data — prices, volume, asset allocation, etc. — versus mere surveys,” Big Picture blogger Barry Ritholtz says. “They can be useful, but have huge limitations. Us humans are notorious for saying what we hope, rather than what actually is.”

- Double-dip has dominated the market chatter in recent days. While pundits keep saying the economy won’t fall back into a recession, Reuters’ David Gaffen isn’t so sure. “It may not happen — but when a lot of people are trying to convince you that something’s not going to happen, it can make you believe that it’s more likely than not.”

- The commercial real estate market hasn’t collapsed because of a strategy known as “extend and pretend,” essentially banks giving troubled borrowers time to make good on their bets until the economy recovers. “Sometimes, it actually works. But, usually it doesn’t — especially when practiced on an industry-wide scale,” Henry Blodget writes at Business Insider.

- The LeBron James surreality show is about to begin. He’s “leaning” toward Miami, but we still have faith he’s coming to the Big Apple. Let the “LeBronference” begin.

- Rober Shiller’s op-ed in yesterday’s NY Times highlights some dicey prospects facing the the housing recovery. Calculated Risk weighs in: “Momentum only goes so far. And I think it is likely that prices will fall further in many bubble areas later this year as more distressed properties hit the market.”

- Now that Greece appears to have been saved, former IMF chief economist Simon Johnson wonders if Portugal is next. “We are still lurching from crisis to crisis in Europe.”

- As the stock market grinds higher, there are two distinct groups of market observers developing: “vacillating bulls and dogmatic bears,” according to Josh Brown at The Reformed Broker.

- Dow Jones Industrial Average taking its time treading higher. “As is typically the case, the market’s declines were a lot swifter than the subsequent advances,” Bespoke says. Dow closes up 8 at 11006.

- “The strongest sectors of late have been the consumer-related ones,” Howard Simons notes at Minyanville, and every dollar “out of the consumer’s pocket for higher energy costs is a dollar unavailable to support the great national pastime of spending money like there’s no tomorrow.”

- “When you don’t require the reported value of assets to have a clear and tangible link to the value that the assets would have in liquidation, bad things happen,” John Hussman says. “Yet this is what regulatory and accounting rules are allowing for the banking system at present.”

- Declaring bailout costs may look less expensive than initially feared may be a bit premature, FusionIQ CEO Barry Ritholtz says.

- “The only systemic risk the VC business is creating for the financial system is attempting to put the current out of business,” writes Fred Wilson, principal of Union Square Ventures. “To suggest that small venture funds of $30mm could possibly be creating systemic risk to the global financial system is ludicrous.”

- Google’s buying spree continues, this time acquiring Plink, a four-month-old UK outfit that specializes in “visual search” and has 50,000 users, Jay Yarow reports at Silicon Alley Insider.

- Twitter’s doing some deals of its own, purchasing Tweetie – an app that runs on the iPhone and iPod Touch. “Given the rumblings that have been coming from Twitter in recent days, this is likely to be followed by more deals down the line,” Peter Kafka says.