Stocks and Mutual Funds

Failing to sell off the troubled unit back to the founders, Ebay intends to sell Skype in an IPO worth as much as $2.5 billion. Ebay would take a loss on the offering, having invested over $3 billion to date.

The full story is here.

The Federal Reserve released the minutes of its March 17-18 meeting, revealing that the decisions to enter into swap agreements with foreign central banks and the decision to purchase longer-term Treasuries were both unanimous.

Both decisions have the potential to be highly inflationary, according to some observers, but the Fed seems to be more concerned with the nagging threat of deflation:

Participants saw little chance of a pickup in inflation over the near term, as rising unemployment and falling capacity utilization were holding down wages and prices and inflation expectations appeared subdued. Several expressed concern that inflation was likely to persist below desired levels, with a few pointing to the risk of deflation. Even without a continuation of outright price declines, falling expectations of inflation would raise the real rate of interest and thus increase the burden of debt and further restrain the economy.

Such purchases would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability. One member preferred to focus additional purchases on longer-term Treasury securities, whereas another member preferred to focus on agency MBS. However, both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain. 

Members agreed that the monetary base was likely to grow significantly as a consequence of additional asset purchases; one, in particular, stressed that sustained increases in the monetary base were important to ensure that policy was consistently expansionary. Members expressed a range of views as to the preferred size of the increase in purchases. 

The Congressional Oversight Panel created by the TARP legislation issued a report on Tuesday outlining the current crisis and possible ways ahead. The report concludes that the only ways out of the crisis are: liquidation, selling off the assets of the banks; receivership, taking control of said institutions; or “subsidization,” simply keeping the bankrupt companies afloat by giving them cash.

Of course, we’re only talking about five or ten companies here. The fact is, however, they are huge companies with massive liabilities: Citigroup, JP Morgan Chase, Wells Fargo, Bank of America, and perhaps a few other financial institutions.

While not coming out and saying it — these companies are insolvent — the implications are clear. The report also concludes that taxpayers overpaid for assets by about 50% when the initial crisis took place and the equity swaps were made by Paulson’s Treasury.

The Wall Street Journal reports that the Treasury will announce that life insurance companies will be eligible for Troubled Asset Relief Program (TARP) funds. The article mentions Hartford Financial Services Group Inc., Genworth Financial Inc. and Lincoln National Corp., and Prudential Inc. as applicants, while there is no comment on whether MetLife has applied for funding.

Turns out, those low-risk investments they sell called annuities aren’t so low-risk after all, and they are at risk of being worthless if either the corporate bond market or the stock market falls further. Enter Uncle Sam, when private industry gets it wrong again.

George Soros is calling for a recovery in 2010, we don’t know when it’s going to happen. One thing’s for sure: this market is more like gambling than investing, and even if recovery is on the horizon, stocks appear expensive.