Market Talk

- Jobless claims rising 2,000 is a relatively minor change. “The bigger problem is the trend,” James Picerno says at The Capital Spectator, noting claims have jumped 13% since bottoming in mid-July. “For months, it was treading water. That was bad enough. But now it’s rising, raising fears that it could go higher still.”

- Deflation is “overblown fear” and is unlikely for three reasons, writes blogger and MIT professor Simon Johnson.

- Appears the stock market has finally awoken to poor recent economic news. And Fed saying it won’t shrink its balance sheet isn’t generating much confidence. “The Fed seems to be exhibiting a pretty bad case of ‘if all you have is a hammer, every problem looks like a nail’ syndrome, particularly when it has (or perhaps more accurately, had) other tools at its disposal,” Yves Smith says.

- Reuters blogger Felix Salmon wonders if the “twitchy, volatile” stock market is still a worthwhile long-term investment, especially if long-term volatility continues increasing.

- Yesterday’s steep selloff and today’s drop show the “sharp risk-on/risk-off swings in markets are to be expected given the reality of today’s macro context,” PIMCO CEO Mohamed El-Erian writes.

- Treasury Secretary Tim Geithner recently said surging imports “reflect healthy and growing American demand.” So much for that optimism, especially in the wake of yesterday’s trade deficit report. “Combined trends in exports and imports are simply not supportive of economic growth,” Tim Duy writes at Economist’s View. “And, given the current state of the global financial architecture, where the US is expected to be the repository of global savings, it is difficult to see how the external sector contributes positively to the recovery.”

- Microsoft (MSFT), which lately has been knocked for lacking a strong consumer strategy, is launching a studio to develop games for mobile phones. The idea, it appears, is to promote use of the Windows Phone operating system.

- The latest on the rumor mill regarding a Verizon Wireless iPhone comes from Daring Fireball blogger John Gruber, who says Apple (AAPL) is taking part in advanced testing of a CDMA version of iPhone, the type compatible with VZ’s wireless network. “The drumbeat of reports pointing to an impending Verzion iPhone launch is getting louder,” MediaMemo blogger Peter Kafka says. “Which doesn’t mean that it’s true. Just that there’s a lot of drumming going on.”

- With so much information online, it’s easy to read something one day and forget where you’ve seen it the next. But there may be a solution. On Thursday, TechCrunch reviewed Sentimnt, a search engine that tackles the question, “Where did I read that?”

- Jetblue (JBLU) finally ends the silent treatment regarding its flight-attendant-turned-wing-nut Steven Slater. “It wouldn’t be fair for us to point out absurdities in other corners of the industry without acknowledging when it’s about us,” JetBlue says on its blog. “While we can’t discuss the details of what is an ongoing investigation, plenty of others have already formed opinions on the matter. Like, the entire Internet.”

I’d have had more respect for this editorial if it had been called “Welcome to the Recovery, Don’t Mind the Smell,” but perhaps that’s a bit too lowbrow for somebody as elevated as the Treasury Secretary. Or maybe the stench just doesn’t waft that high.

From the NY Times:

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.

Most of the column is a hodgepodge of data points that purportedly spell recovery. I don’t have the time to rip through them point by point, but I will say this: it’s amazing to me that the only people convinced by the “strength” of this recovery seem to live in the vicinity of Pennsylvania Avenue and Wall Street, and even on those two thoroughfare’s you can find doubters (if not outright agitators.)

I’ll also note that nowhere does he tout wage gains. Because he can’t. I’ve been trying to put together a post on this topic, but haven’t had a chance what with our daily Upshot columns (which end Friday, by the by.) But to my thinking this is the one most important, critical measure among the universe of data points that get spewed out on a regular basis. Take a look at today’s report on income and spending. Hey, look at that; wages went nowhere. How quaint.

Until we see some long-term, inflation-adjusted sustainable wage gains, this economy will not grow in a sustatinable fashion, and we will be vulnerable to booms and busts and related shocks.

Okay, so “Clash of the Titans” stunk, but that’s the least of the Greeks’ problems. The Greeks are in a very tight spot, between a rock and a hard place, between Scylla and Charybdis, even as everybody keeps making statements that sound an awful lot like whistling past the graveyard.

It’s amazing that Greece was this big problem in the morning, with the nation’s 10-year bond yields surging to a record 7.58%, but was forgotten in the afternoon, after ECB’s Trichet said default was not “an issue.” It was a classic nondenial denial kind of comment, because he didn’t say, it’s not an issue because we the nations of Europe will save Greece, and he didn’t say, it’s not an issue because the Greeks can clearly fund themselves through the open market. Frankly, we’re not exactly sure what his point was, but it was enough to mollify the masses, again, for a time.

Tim Geithner figures while he’s in the neighborhood, why not visit the Chinese, the 10-year Treasury auction goes off well (surprise, surprise) and Monsanto’s earnings certainly don’t augur well for earnings season.

It’s now downright painful to watch the government helplessly flail away at the US foreclosure mess.

Tortuous, really. Like standing there watching Sisyphus struggle to push that big rock up the hill, time and time again, only to have it roll right back down. Feels like a punch in the gut.

And so it goes with the administration’s latest scheme, now to get mortgage servicers to reduce principle.

The move comes on the heels of the latest mortgage metrics report for the fourth quarter from the Office of the Comptroller of the Currency and Office of Thrift Supervision. The report says more than half of modified loans fell more than 60 days past due by 9 months after modification, and it’s closer to 60% of mods re-defaulting after 12 months.

Somehow, we’re not feeling too confident that this latest attempt is the magic elixir.

As the OCC report says, servicers expect new foreclosures to increase in upcoming quarters “as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted.”

Exhausted, like Sisyphus, pushing that rock.

Continue reading…

- Treasury’s Geithner and rest of Obama administration seem intent on praising financial bailouts for preventing the banking system from collapsing. But the government interventions weren’t ideal and involved some costly tradeoffs that need addressing, Economist’s Free Exchange blog says. “Geithner has put out the fire, but that’s not the end of the job.”

- Now that health-care reform has passed, it’s time for the reform ball to keep rolling and the White House to put an emphasis on reforming Wall Street and the banking sector, Barry Ritholtz notes.

- Stocks sidestep health care reform, showing the stock market may be ambivalent toward health-care reform, after all. “If Obamacare is such a disaster for the economy, where’s the market reaction,” Paul Krugman says.

- China officials foreseeing “a record trade deficit” for March would undercut the US’s argument that the renminbi is undervalued, Yves Smith writes at naked capitalism. “If true, this may bear out the contention that domestic inflation is running at a high level. The effect, of repricing goods upwards in renminbi terms, would have the effect of making prices less competitive globally.”

- “Remember the scene in Goodfellas when Joe Pesci says, ‘One dog goes one way, the other dog goes the other way, and this guy’s sayin’, ‘Whadda want from me?’” Todd Harrison writes at Minyanville. “That’s what’s emerging in Europe; Germany is pointing to an IMF-package to aid Greece and France prefers a broader European solution.”

- There are about five times as many people looking for jobs as there are openings, but that problem won’t last forever, at least according to a new study from Northestern University. Study argues there will be more jobs than people to fill them by 2018, WSJ’s Real Time Economics blog notes.

- Maybe Citi (C) CEO Vikram Pandit deserves some credit. That’s the message Chairman Richard Parsons has for all the cynics out there.

- “Mr. Bernanke needs to face some unpleasant realities,” former IMF chief economist Simon Johnson says. “The cherished independence of the Fed is now called into question – and losing this could end up being a huge consequence of the irresponsible behavior and effective blackmail exercised by megabanks – who still say, implicitly, ‘bail us all out, personally and generously, or the world economy will suffer.’”

- What’s in store now that the House’s historic health care legislation has finally passed? “Today’s vote confirms our hope that we can have both strength and competence in Washington. It is an audacious hope, but we have no choice,” Robert Reich says.

- Cinderellas, buzzer beaters and busted brackets – what a weekend at the Big Dance.

SEC and NY Fed just can’t catch a break lately. Former Merrill Lynch officials reportedly warned both agencies that Lehman was engaging in some saucy balance sheet manipulation as far back as March 2008, months before Lehman’s collapse. From the FT:

Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less ­liquid than Lehman.

The warnings take on a special significance after last week’s report by Anton Valukas, the Lehman bankruptcy court examiner, who found that Lehman had used questionable financing tools to flatter its balance sheet before its September 2008 collapse.

The findings raise questions over what federal regulators knew about Lehman’s accounting and when they knew it. In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.

The latest revelation shouldn’t come as a shock to anyone. But it also further compromises both agencies, because previously they could have argued they didn’t know how bad Lehman’s problems really were until it was too late. But now, knowing that rival firms were warning them months before the collapse, they’ll have a hard time making that one stick.

“So which theory is it: stunning bureaucratic incompetence, wishful thinking and denial or a cover up? Or a combination of the above?” Yves Smith ponders at naked capitalism. “No matter which theory or theories you subscribe to, the continuing revelations of how the SEC and perhaps more important, the New York Fed conducted themselves in the months before Lehman’s collapse paint an increasingly damning picture.”

Smith, who has been very critical of Geithner in the past, says this is further evidence that he shouldn’t remain Treasury secretary for much longer.

“This Financial Times story provides yet more confirmation that Geithner is not fit to serve as a regulator and should resign as Treasury Secretary,” Smith says. “But it may take Congress forcing a release of the Lehman-related e-mails and other correspondence by the New York Fed to bring about that outcome.”

- AOL paid some hefty sums to its former employees – $28.4 million to be exact – to its four top executives it replaced last year. “Want to make money? Become a former AOL executive,” MediaMemo blogger Peter Kafka says.

- Housing starts tumbled 5.9% in February. “This level of starts is both good news and bad news,” Calculated Risk says. “The good news is the excess housing inventory is being absorbed – a necessary step for housing (and the economy to recovery. The bad news is economic growth will probably be sluggish – and unemployment elevated – until residential investment picks up.”

- Bearish stance from Albert Edwards, Societe Generale strategist, isn’t losing steam. He questions recovery’s sustainability in large part because “credit is disappearing at this debilitating dehydrating rate.”

- Google’s (GOOG) Nexus One sales only 135,000 after 74 days at market, according to analytics firm Flurry. “A piddling amount,” Digital Daily blogger John Paczkowski says, especially since Apple’s (AAPL) iPhone and Motorola’s (MOT) Droid sold 1M and 1.05M, respectively, after their first 74 days on the market.

- A downgraded US credit rating wouldn’t be pretty. Good thing Tim Geithner says there’s no way that will happen.

- “Don’t kid yourself: the hype currently surrounding short sales and the HAFA program will prove to be short-lived, and REO expertise will be prove to be the key to recovery, as it has been in prior cycles,” Paul Jackson writes at Housing Wire.

- What does corporate America think about financial reform? “It’s actually really hard to say,” Justin Fox says.

- Columbia Journalism Review argues blogs have been doing a better job covering the examiner’s report on Lehman’s collapse when compared to mainstream media’s coverage.

- The worry about the Fed ending its MBS purchase program is it will cause long-term interest rates to rise, which will hinder recovery. But if that happens, the Fed’s capable of restarting the program “very quickly if needed,” Mark Thoma writes.

- NJ Gov Chris Christie proposes steep spending cuts that will hit “the poor, elderly, schoolchildren, college students and inner-city residents hardest, while largely sparing the wealthy and businesses,” NYT says.

- “The disease that left [Lehman] vulnerable was a mad embracing of risk, the excess use of leverage, an extensive exposure to mortgage and real estate, and the enormous usage of derivatives — concurrent with a lack of intelligent risk management,” Barry Ritholtz writes. Citi and JPM merely made matters worse when Lehman’s “immune system was compromised.”

- Tapping Janet Yellen as Fed vice chairman is a good choice. “She’s open-minded, a good counterweight to the inflation hawks who think that any day now we’ll be partying like it’s 1979,” Paul Krugman says. “She’ll provide exactly the kind of intellectual flexibility the Fed needs.”

- Interesting to note the examiner’s scathing report on who should be held accountable for Lehman’s collapse doesn’t mention short sellers, Jeff Matthews points out on his blog. Instead blame falls on “a lot of really bad management by people desperate to keep a sinking ship afloat any way they could, including ‘accounting maneuvers.’”

- Is it surprising that allegations surrounding Tim Geithner and the NY Fed surfaced in the examiner’s report on Lehman’s collapse? Yves Smith weighs in.

- “All in all, the entire system failed,” Barry Ritholtz bluntly states. “The situation is utterly disgusting, and if the investing public pulls its money out of the completely corrupt public markets for a generation or more, it would not surprise me.”

- They can’t be too happy at Ernst & Young today. “Enron brought down Arthur Andersen,” Felix Salmon says. “Will Lehman do the same for Ernst & Young?”

- Takeover talks swarm the rumor mill this week. “I don’t know if this would be considered a sign of a healthy market or an ailing one, but we can’t ignore the presence of so many takeover rumors, specifically those concerning high profile retailers,” Joshua Brown writes at The Reformed Broker.

- Fallout from Lehman raises some troubling questions. There’s a “seminal” question, blogger Karl Denninger says at the Market Ticker, “that is, whether the asset class at the core of the original problem, the banking system, now has clean balance sheets and it can be reasonably assumed that what is reported in terms of assets, liabilities and earnings is in fact real.”

- US-subsidized mortgage modifications rise 6% from a month earlier to one million, Treasury says.

- Economy’s in the midst of a “sham recovery,” former labor secretary Robert Reich writes. Big companies, Wall Street and high-income Americans are doing better, but Main Street, small businesses as well as middle and low-income Americans face a much gloomier outlook.

Bloggers Local 109 discusses the recent press coverage of Treasury Secretary Tim Geithner

Tim Geithner’s taken a beating in the blogosphere in recent months, as many expected him to be one of the Obama administration’s first fall guys.

But a funny thing’s happened recently – press coverage of the Treasury secretary has actually turned somewhat positive. The New Yorker recently published a piece praising Geithner, noting taxpayers may actually profit from his financial rescue package. At the very least, it could cost less than the savings-and-loan implosion of the early 1990s. The Atlantic also just wrote a favorable story, noting Geithner’s plan one year later has been cheaper and worked better than most initially imagined.

But all the positive coverage has prompted the critics to come out swinging for the fences even harder.

“I’ve seldom seen so much rubbish written by people who ought to know better in a single day,” Yves Smith writes in a 3,100 word blog post ripping what she calls the Obama administration’s “propaganda campaign,” which she says has reached a new level.

Smith isn’t the only one who’s peeved. She cites former IMF chief economist Simon Johnson, who in a similar tear-down notes there are good reasons why the government should never guarantee financial institutions. “You can’t run any form of reasonable market system when some big players hold ‘get out of bankruptcy free’ cards,” he says.

Smith’s demolition is too good of a read to sum up in a few quotes, so we’ll leave you with a tease of her masterpiece. Be sure to check the rest of her post, here:

The campaign to defend Geithner and Emanuel, both architects of the administration’s finance friendly policies has gone beyond what most people would see as spin into such an aggressive effort to manipulate popular perceptions that it is not a stretch to call it propaganda.

This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Administration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Administration’s “product positioning” and observable reality become increasingly evident.