Market Talk

- SEC narrowing its investigation into Lehman on its questionable accounting practices makes sense. “Lehman has long looked to be the poster child of likely accounting fraud,” Yves Smith writes at naked capitalism. But she notes that while Lehman looks like a “textbook case of excessively creative accounting…I would not hold my breath about obtaining criminal indictments.”

- Reflecting push for ever-shorter trading horizons, CBOE has asked regulators permission to list options expiring daily. Contracts’ lifetimes would be between one and four days. Move follows growing interest trading options that expire weekly. “I guess the question isn’t why, but why not?” asks Adam Warner at Daily Options Report.

- “Growth is slowing when it should be surging,” at this point, former labor secretary Robert Reich complains on his blog. “We may or may not fall into another hole, but a so-called ‘double dip’ isn’t really the worry,” he says. “The worry is we’re not getting out of the giant hole we fell into.”

- Adobe (ADBE) wastes little time celebrating Apple’s (AAPL) move to loosen the reins over its software developer rules.

- Nokia (NOK) replacing its CEO is a long time coming, but Digital Daily blogger John Paczkowski questions timing of the move. It comes ahead of Nokia World and the company’s major product launch. That means new CEO Stephen Elop isn’t starting off with a clean slate, “but a full one overflowing with a new software platform and a new smartphone portfolio.”

- Reuters blogger Felix Salmon is concerned that the average American remains pretty pessimistic about the US economy, and these viewpoints could manifest as self-fulfilling prophecies. “It would be nice to see the bulls out there come up with some good explanation of how their forecasts are consistent with these survey results,” Salmon says. “Because on the strength of these answers, the double dip is coming.”

- But contrary to Salmon’s belief, Business Insider’s Vincent Fernando says when everyone’s sour on the economy, it’s actually in better shape than many think. “When most people are reported as being extremely negative, your contrarian alarms should be going off as an investor.”

- Our colleague Kristina Peterson hits a home run in today’s C1 story on the Briargate traders who trade at the market’s open and close and chill out for the rest of the day. What a life.

- St. Louis Fed President James Bullard says the central bank has moved closer to providing additional support to the economy, although he added he doesn’t expect that action to become necessary.

- With tomorrow marking the ninth anniversary of 9-11, take a few minutes to read Todd Harrison’s reflection of the horrific day. A well-written and extremely moving piece.

Gone, but not forgotten (nor the debt forgiven.)

On Sunday, I’ll be at the “New Meadowlands Stadium” in New Jersey for the Giants’ debut in their new home. I’ll be there early for the tailgate. I’ll be in the stands, yelling my head off and overpaying for beer. I’ll be there, ahem, late for the tailgate. It’s pretty much an all-day affair.

I’ll also be one of the thousands walking through the parking lot that covers the space where the old stadium once stood. The original stadium. Giants Stadium. That stadium is gone, torn down this spring. But its debt lives on.

If you want to understand why state and local finances across the country are such a wreck, why the capital of Pennsylvania, for instance, actually just flat-out defaulted on a debt payment, look no further than the series of  stupid, emotional deals local governments made for sports stadiums.

As the Times reports today, New Jersey still owes about $110 million on the stadium, even though it was just torn down. It goes without saying that a vanished building is no longer a revenue-generating asset, so taxpayers in the Garden State are going to end up paying the tab for a private enterprise’s (the Giants and Jets) whimsical idea to tear down the old one and build a new one that would generate even more revenue — for the teams that built it.

Harrisburg’s problem was an incinerator deal. In Jefferson County, Ala., it was a sewer system. In Seattle, Indianapolis, Philadelphia, residents are paying for stadiums that no longer exist.

How could so many different governing councils make so many bad decisions? The specific reasons may vary, but the ultimate conclusion must be clear: bad management. And don’t think it gets any better at the national level. It doesn’t. But these bad managers have managed to achieve one concrete goal: maintaining power.

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- Hewlett-Packard’s (HPQ) suit against former CEO Mark Hurd looks “very much like it was filed in a fit of passion after hearing that Hurd had signed on with Oracle,” Reuters blogger Felix Salmon says. “There’s no tactical or strategic rationale for this: it’s just petulance, really.”

- “Hurd’s knowledge of H-P’s server and data storage-systems business will undoubtedly come in handy at Oracle, which has been aggressively moving into that very space ever since its acquisition of Sun,” Digital Daily blogger John Paczkowski says. “In that sense, Hurd’s hiring is a real coup for Oracle. Who better to put the screws to a rival than a former CEO with a bone to pick?”

- There are currently 161 potential IPOs on file that are hoping to raise $56B. Staggering numbers but, as Josh Brown points out at The Reformed Broker, not necessarily as great as they appear. “Between LBO retreads and the previously bankrupt, it remains difficult to get excited about the initial public offering dealflow, robust as the pipeline seems to be in dollar terms on the surface.”

- Former OMB Director Peter Orszag makes his debut as a columnist for the New York Times by advocating an extension of the Bush-era tax cuts for two years for the middle class, and even for the upper class if that’s what’s needed to get a bill through Congress. “Higher taxes now would crimp consumer spending, further depressing the already inadequate demand.”

- The labor force had little to celebrate this Labor Day, Robert Reich says. Organized labor is down, and non-organzed labor is facing joblessness and underemployment. “Face it: The national economy isn’t escaping the gravitational pull of the Great Recession.”

- If the market has been overly bearish lately, paving the way for relief rallies and such, it’s not really showing. John Hussman notes the VIX, which remains in relatively placid territory. “It’s difficult to look at the evidence and conclude that investors are excessively bearish, much less terrified here.”

- FCIC hearings revealed how reliant Lehman was on daily, short-term funding to cover longer-term costs. “It was a recipe for disaster, a trailer park in search of a tornado,” Barry Ritholtz writes at The Big Picture.

- “The truth is that the trouble in housing is not, for the most part, a demand-side issue,” Ryan Avent writes. “The problem is the millions of homeowners stuck in houses they can’t afford to sell. These households represent a significant shadow supply of foreclosures-in-waiting. I agree that it would be silly for the administration to try to support housing prices by offering more goodies to potential homebuyers. But it doesn’t follow that letting prices go their own way will magically get housing markets moving again.”

- “Newspaper advertising revenues are on track this year to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005,” Alan Mutter notes.

- What’s up with Google’s logo today?

- Considering the “uncomfortably uncertain” mood heading into this morning’s jobs data, the report wasn’t that bad. “The overall picture is of a labor market that continues to chug along in the right direction, albeit far too slowly,” Ryan Avent notes. “The pace of employment recovery implies several long, hard years ahead for American workers. But given the mood on markets and around dinner tables lately, one has to appreciate the continuation of the upward trend.”

- Stocks popped Friday on the jobs data, but Capital Gains and Games blogger Andrew Samwick says the report merely represents “more of the same” for the labor market. “There is nothing in here that merits joy,” he writes. “Expect the spinmeisters to focus on the rise in private sector employment (up 763,000 since the low in December 2009) and the upward revisions (to smaller job losses) from the two prior months.”

- The positive vibe (at least for stocks) generated from nonfarm payrolls data can’t be sitting well with former labor secretary Robert Reich. “The Great Jobs Depression continues to worsen,” Reich writes on his blog. “The last time we saw anything on this scale was in the 1930s…The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.”

- August jobs report offers a “small sigh of relief,” but the big takeaway is the labor market remains essentially flat, Reuters blogger Felix Salmon says. “Flat, then, is the new up — which only goes to demonstrate just how worried the markets are about a double-dip recession,” he writes. “We’re not remotely in full-bore recovery mode yet.”

- August auto sales, released earlier this week, were portrayed as worst sales in 27 years. But that’s not best way to interpret the data, James Hamilton writes at Econbrowser. “The story for autos remains pretty much what it has been for some time — we’ve bounced off the bottom, but remain stuck at a point far below what would normally be expected. Double dip? Not here, not yet. Disappointingly sluggish growth? Very much so.”

- “The outlook for subpar growth and weak job creation — although superior to a new recession — is a real and present danger, and today’s employment report doesn’t offer much reason to dismiss the danger,” James Picerno writes at The Capital Spectator. “If the economy continues to struggle, eventually the risk of a recession will become more than a low-probability prediction.”

- Mark Thoma uses the central valley in California as a metaphor for economic recovery. “It’s narrow east to west, but very long north to south,” he notes at Economist’s View. “We went down into the valley as we went into the recession, and the question for me has always been whether we are heading east to west so that we will climb out of the valley relatively quickly, or north to south as we trudge along at the bottom of the valley for considerable time…The fact that we’ve had essentially no growth for a year now, and no hint of change any time soon, makes the north to south fear very real.”

- Barnes & Noble’s (BKS) battle with activist investor Ron Burkle is symbolic of a “big fish swallowing a small fish only to be itself swallowed by an even bigger one,” Josh Brown writes at The Reformed Broker. “Founder Len Riggio built the largest bookseller on earth by putting thousands of mom & pops under his sword across the country,” Brown notes. “Now he himself is facing his own possible destruction from the twin threats of shareholder activist Ron Burkle and the disintermediation of the digital age.”

- With Dell pulling out of the 3Par (PAR) bidding war, Robert Cyran wonders if Dell shareholders are on Xanax. Dell investors “displayed neither much concern about overpayment nor relief about the deal being dropped,” he says. “After a decade of scandals, missed opportunities and dismal performance, they may have stopped caring.”

- Just your typical brawl at the US Open.

Bernanke launching "unconventional measures."

Sounds as if former Fed vice chairman and Princeton professor Alan Blinder has changed his tune a bit. Hat tip to Gluskin Sheff’s David Rosenberg for pointing out this Blinder quote in a NY Times story late last week:

The Fed has run out of the strong tools, and is turning to the weak ones…When you’re fighting in a foxhole and you’ve used up the machine guns and hand grenades, then you pull out the swords and start throwing rocks.

The Times went on to quote Blinder as saying the economy seemed “substantially worse” than it did three months ago.

Interesting, Alan. Three months ago, eh? That’s around the time the good professor penned an op-ed for the WSJ (so rich we had to clip it out and save it in the bottom file drawer), titled “Government to the Economic Rescue.”

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- Cisco (CSCO) reportedly makes an offer to acquire Skype before it completes its IPO, Michael Arrington reports at TechCrunch. He cites one of his “more reliable sources,” but hasn’t been able to confirm rumor. “If true this would be one very big acquisition,” Arrington says, as Skype’s hoping for $5B valuation. “Presumably Cisco would have to bid in that range to make it interesting.” Additionally, he notes Google (GOOG) was considering a bid, but antitrust concerns nixed that plan.

- Intel’s (INTC) deal to buy Infineon’s wireless business for about $1.4B “gives Intel a strong foothold in the market for smartphone chips, netting it a customer list that includes the likes of Research In Motion (RIMM), Samsung, Nokia (NOK) and Apple (AAPL),” Digital Daily blogger John Paczkowski says. “The irony, of course, is that Intel was in something close to this position four years ago, but gave it up by selling off its mobile chip business to Marvell.”

- The answer to a true housing recovery is simple — lower prices, the Pragmatic Capitalism blog says. “It should be plain as day at this juncture that the government cannot fix the housing market with their incessant fidgeting,” blog notes. “The market needs to correct further before reaching a sustainable bottom.”

- Analyst community has turned more bearish than usual, Bloomberg reports. But “as we have noted so many times previously, following the Wall Street crowd of analysts is rarely the way to make money,” Barry Ritholtz writes at The Big Picture. “Ultimately, excess pessimism amongst the analyst crowd may be a bullish contrary signal,” he says. “It should make dedicated bears nervous.”

- Fed Chairman Bernanke has repeatedly overestimated the strength of the recovery, so what’s to say he wasn’t being overly optimistic in last week’s speech, Mark Thoma ponders. “The Fed should drop its relatively rosy forecast for the recovery and take more account of the downside risks.”

- Former labor secretary Robert Reich argues Fed can’t save economy by making money cheaper than it already is. “The sad reality is cheaper money won’t work,” he says on his blog, as individuals still face huge debt loads and small businesses aren’t borrowing because they’re afraid to expand in this uncertain environment. “That leaves large corporations,” Reich adds. “They’ll be happy to borrow more at even lower rates than now…But this big-business borrowing won’t create new jobs.”

- “The bottom line for housing is that the bottom will be long — perhaps very long — and bumpy,” John Curran writes at Time’s Curious Capitalist blog. “What’s more, we haven’t yet seen the legions of Baby Boomers who are planning to unload their McMansions in favor of some cute bungalow by the beach. They, of course, are just waiting for the market to improve.”

- Obama administration says it’s too early to say whether homebuyer tax credit will be revived, but Calculated Risk blogger Bill McBride says that’s a discussion that shouldn’t even be taking place. “The problem in housing is there is too much supply,” he says. “Incentivizing people to buy existing homes just shuffles households around — it does NOT reduce the overall supply unless the buyer is moving out of their parent’s basement.”

- Minyanville’s Todd Harrison still sees S&P 500 headed back down to 860 at some point, but it won’t happen in a straight line. “I still believe we have years to go to flush the system and set a stable foundation for future growth,” he says. “I’m just open-minded that a rally (such as we saw Friday) could litter the landscape with false hope and empty promises before the cumulative comeuppance comes home to roost.”

- WSJ’s Ben Levisohn reports on the diminishing value of the P/E ratio.

- Bernanke essentially admitted the economy looks nothing like the growth he was expecting six months ago. “But he argued that 2011 will be better, because…well, it was hard to see exactly why,” Paul Krugman writes at Conscience of a Liberal. “He offered no major drivers of growth…So: I guess this speech marked a small step toward QE2 and all that. But mainly the message was that just around the corner, there’s a rainbow in the sky.”

- Big surprise from Bernanke’s speech? He said “deflation” on six separate occasions, Stephen Gandel notes at Time’s Curious Capitalist blog. “Clearly, Bernanke believes the chances of prices falling is a credible threat to the economy,” he says, although noting the Fed chairman didn’t propose any new strategies to fight deflation. “So again, Bernanke is making the case that deflation is not a problem he is worried about.”

- Intel (INTC) cutting its 3Q revenue outlook gets overshadowed by Bernanke’s speech, but don’t discount this major development, warns the Pragmatic Capitalism blogger. “We could be at a crucial turning point where the economy is slowing substantially and analysts estimates appear high,” blog says. “If Intel is any early indication…we are likely to see more warnings and a lot of analyst cuts in the coming months,” which will put pressure on markets.

- Turns out Wall Street analysts predicted Intel’s slashed outlook long before the company finally came clean. In recent weeks, Barron’s Tech Trader Daily blogger Eric Savitz notes JMP Securities, Roth Capital, Bernstein Research, BMO Capital, Barclays and Baird have all slashed estimates on Intel. Savitz ponders: “If they all could see this coming, what took Intel so long to admit there was a problem with its previous guidance?”

- Reuters blogger Felix Salmon calls sluggish 2Q GDP the “best kind of bad news,” as imports surged 32% last quarter, overshadowing 9.1% gain in exports. Relatively healthy exports and strong imports are signs that there’s still plenty of demand.

- GDP downward revision to 1.6% in 2Q, from 2.4%, is bad, but better than economists were expecting. “The revisions can be chalked up to the anticipated factors,” Ryan Avent writes at The Economist’s Free Exchange blog. “Private inventory investment and exports were lower than expected, while imports, which count as a negative to GDP, came in higher. The main bright spot in the report is a slight upward revision to personal consumption expenditures.”

- The bidding bonanza between Dell and Hewlett-Packard (HPQ) over 3Par (PAR) has many market observers wondering what’s the big deal with this previously obscure company. It’s bringing back memories of the “crazed acquisitive days of the dot-com boom,” FT’s Alphaville notes. “Who needs rationality when desperation and blind optimism conspire so well?”

- And as the bidding war between Dell and H-P stays red hot, “the rapid-fire pace could continue,” Brian Caulfield writes on a Forbes blog. “Both HP and Dell need 3Par. Dell needs to expand its presence in the corporate data centers, where it has a strong lineup of server offerings. H-P, meanwhile, already has a storage business, and is eager to grow it.”

- Corporate America couldn’t care less what Bernanke said today, Miller Tabak’s Peter Boockvar says. “They know that interest rates are already at historic lows and the average business person, whether for a big company or small knows that the cost of money at this point is not a factor in the decision of whether to expand/hire or not,” he says. “From the perspective of the consumer, they are only interested in paying down debt and saving and if anything, more ‘easing’ by the Fed just makes saving that much more difficult.”

- It’s US Open season, baby! WSJ profiles one of my favorites — New York’s own James Blake. He’s been so frustrating to watch throughout the years, but here’s to hoping the low-ranked wildcard can turn some heads at this year’s tournament.

Just need a some more unconventional measures to get airborne again.

Not at all surprising that the stock market is rallying after Ben Bernanke outlines actions the Fed can take, so-called “unconventional measures,” in an attempt to prop up a laboring economy. The measures would basically just offer another boost to asset prices.

And dismiss right now the notion that the Fed’s waiting for the outlook “to deteriorate significantly” before it resorts to its “unconventional measures.” We’ve just seen GDP growth drop from 5% to 1.6% in six months — that’s some significant deterioration, in our book, and the central bank has proven to be consistently behind in its assessments of the economy. Prepare forthwith for unconventionality.

Unconventional measures…”to provide further stimulus,” Ben says. Sounds imposing, but it’s not. Not imposing and not really that unconventional. The measures are as follows: buy more Treasurys or other assets, further expand the bank’s balance sheet; jawbone, telling the market the Fed will leave rates at zero for longer than the market currently thinks; or cut interest rates on excess reserves.

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How 'bout another $100 on Cisco, pal?

Interesting post by Jeff Cooper at Minyanville today, which gets to some notions we’ve held as close observers of US stock markets, particularly during the past 18 months. Needless to say, the rationale behind many a rally has been suspect, at best, and whipsaw moves have become part of the daily grind.

From Cooper: 

Getting whipped, and getting whipped around when you’re a highly competitive individual, gives rise to “unusual uncertainty.” This seems true whether you’re an individual or a company. Both end up playing more not to lose than to win. And this is a road to perdition marked by death by a thousand cuts.

While the markets are an emotional beast, if anything, when any wisp of logic is shredded by seemingly random acts of pernicious trendlessness, the exit sign looms large in neon.

Trading ranges are the hallmark of throwing in the towel. Whipsaws without any apparent underlying raison d’être define times of unusual uncertainly where the machines dominate with strategies of trying to squeeze dimes out of nickels.

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- “In this recovery there is less job creation, less household formation, and less demand for housing units than a normal recovery. This is sort of a circular trap for both GDP growth and employment,” Calculated Risk says. “This is one of the reasons I expect the unemployment rate to tick up over the next several months.

- FusionIQ CEO Barry Ritholtz makes the argument that US bonds are resembling tech stocks during the dot-com bubble. “What made the dot-com situation so pernicious was that anyone who was judged on relative performance (i.e., mutual fund managers), were all but forced into these names in order to keep up,” Ritholtz says at The Big Picture. “Very few people — Buffett and Grantham come to mind — managed to both avoid both chasing these names and losing their client base.”

- There’s no denying the strong quarterly profit reports coming from S&P 500 companies in 2Q. But the notion that strong profits actually represent good news is “murky at best,” Derek Thompson writes at the Atlantic. “High unemployment is, strangely, both dampening revenue and enhancing profits.”

- Mortgage Bankers Association reports refinance activity surged 17% amid historically low interest rates. But Miller Tabak’s Peter Boockvar notes purchasing fell 3.4% and remains just 3.5% off lowest level since 1997. “This economic response to low rates is indicative of our whole economy that has the Fed now pushing on a string,” Boockvar says. “In times of deleveraging, lower rates only encourage refi’s, not new economic activity whether the purchase of a home or the expansion of a business.”

- Boston Fed argues economists aren’t to blame for missing the housing bubble, which absolutely baffles naked capitalism blogger Yves Smith. “It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the runup to the financial crisis,” Smith says.

- UPS recently said in a 10-Q that the impact of the health-care reform legislation “was not material” to its financial results, which shocks Footnoted blogger Michelle Leder, especially since many companies have said they’ll take big charges related to legislation, including AT&T’s (T) $1B charge.

- Since Fed’s announcement last week to reinvest proceeds from expiring MBS, the dollar’s risen while crude oil and S&P 500 have tumbled. “A cynic, however, might look at the lackluster reaction and think that the US central bank is losing some of its market-firepower in terms of unconventional monetary policy,” FT’s Alphaville says. “And an even bigger cynic might think that the market is simply holding out — or pushing — for a bigger bout of unconventional policy. Either way though, something’s out of sync here — the market or the Fed.”

- Tech blog Download Squad says Google (GOOG) and hardware maker HTC (2498.TW) are teaming up to build a tablet device that runs GOOG’s Chrome operating system. The blog says the tablet will be offered in conjunction with Verizon (VZ) and launched on Nov. 26, or Black Friday, the busiest shopping day of the year in the US.

- Is the Web really dead? The blogosphere debates.

- Looking to succeed at the dating game? Maybe its time to get off match.com and other dating sites and hit the athletic fields. WSJ explains.