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.

So which one of you beauties will be first to "restructure"?

“As the summer draws to a close, it is becoming increasingly clear that neither the European sovereign debt crisis nor the banking sector crisis has been resolved,” Morgan Stanley economist Joachim Fels writes.

So far, it seems the euro and the single currency’s frequent escort, US stocks, haven’t received that memo yet. They show no signs of the turbulence ignited by the last flare-up in May. But that probably won’t last.

“The sovereign and banking crises continue to mutually reinforce each other because governments need to backstop banks, while banks own large amounts of peripheral government bonds,” Fels writes. “So, not much has changed since we last described (in June) this vicious circle, called for a circuit-breaker, and concluded that the obstacles to a real solution of the banking and sovereign crisis were formidable,” he says.

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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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So China Real Time has written what we will consider the definitive account of the Zhou rumors, which it calls “one of the more outlandish bits of balderdash to emerge in recent memory from the swamp of China speculation.”

Jason Dean takes this one apart, while acknowledging that the Chinese have a thing for conspiracy theories. In the end, it’s hard to say how the rumor got started, or why it got as far as it did. But what’s most interesting, he points out, was the general reaction: people ignored it.

“It’s hard to say which part of this tale seems most far-fetched. That China had somehow managed to lose $430 billion — equal to more than half of its known holdings of Treasurys and nearly a fifth of its total of $2.45 trillion in foreign exchange reserves — without anyone noticing? That it had done so with investments in Treasurys at a time when Treasury prices are close to historic highs?”

Apparently, some iterations of the rumor even had the Fed’s vice chairman, Donald Kohn, threatening the Chinese about punishing Zhou. “It wasn’t too much of a stretch to wonder whether the rumor’s next iteration might have Zhou and the Yeti spotted riding Nessie bareback into the sunset.”

How to explain the rumors? One suggestion was that they were a sign of division in China’s leadership. Possibly. Or they might have been an attempt to goose the markets, or a simple hoax, or just another bit of tittle-tattle run amok in a land that adores conspiracy theories.

By Tuesday the rumor finally seemed to be subsiding. PBOC deputy governor Hu Xiaolian dismissed the speculation when it came up in an interview with The Wall Street Journal, noting that Zhou had been chairing a PBOC meeting during the period when was purportedly on the lam.

Stratfor, meanwhile, issued a new report Tuesday. It was titled “China: Zhou Defection Rumors Refuted,” and said: “The governor of the People’s Bank of China has not defected to the United States, sources report.”

By the way, here’s a page on the People’s Bank website that has a picture of Zhou meeting with Japan’s Financial Services Minister Shozaburo Jimi.

There a rumor floating around that Zhou Xiaochuan, governor of the People’s Bank of China, is missing, just vanished, apparently after the PBC took a $430 billion loss on US Treasurys.

If I lost $430 billion on the safest investment on the planet, I’d probably want to disappear, too.

John Batchelor tipped me off this afternoon. The rumor started when Stratfor, the private research firm, published a note saying that Chinese websites were reporting this. Some were speculating he had defected to the U.S., which would be quite the row, if you know what I mean. Stratfor also acknowledged it couldn’t firm the rumor.

The Washington Post’s Jeff Stein quashed the rumor. “Two knowledgeable government officials, speaking on condition of anonymity, said they had no evidence of Zhou’s defection and that he was not in U.S. custody,” he wrote.

Okay, so he didn’t defect. Where is he? How hard should it be to locate the head of the central bank? You think Ben Bernanke could go to the Jersey shore without everybody knowing it? Where is this guy?

Barron’s Tiernan Ray had a good post on the topic as well. This’ll probably blow over by morning, but right now it sure is interesting.

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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Second-quarter mortgage delinquency data from the Mortgage Bankers Association out this morning, and best that can be said about this lot is that maybe it’s leveling off. Maybe.

Delinquencies look a little better than during 1Q, but are still notably higher than a year ago. MBA chief economist Jay Brinkmann says the numbers show “a mixture of somewhat good news and somewhat bad news.” Good news is that foreclosure starts were down, and number of homes in some stage of foreclosure fell for the first time since 2006. Loans 90 days late or more, the largest share of delinquent loans, also fell.

Bad news is the rate of short-term delinquencies went up, and that “may ultimately drive the foreclosure measures back up,” Brinkmann said. So much for the good news. 

It’s not hard to see why foreclosure starts have declined, as the government has pulled out all the stops (HAMP program, pressure on banks to modify loans) to stem the tide. Also, banks are overwhelmed with late-payers, and sheer volume alone is an impediment to finally getting around to initiating foreclosure action.

But persistently high unemployment, and redefaults on mods may end up overwhelming all that. “Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story,” Brinkmann notes, and until the job story gets better, housing will remain weak.

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Oh, Friday is going to be so interesting.

I have been trying, unsuccessfully, for years to get myself invited to the Fed’s annual confab in Jackson Hole, Wyoming. The reason I’ve been so unsuccessful, I suppose, is because my efforts never go beyond complaining loudly in the newsroom that I should be invited.

Jackson Hole is one of the most distinctive, gorgeous American landscapes out there. I’d go just to see the Grand Tetons again. But the annual conference (Aug. 26-28 this year,) and it’s oh so exclusive guest list (no grubby reporters, not even some Fed officials,) is something more than the usual see-and-be-seen affair.

Yes, Chairman Bernanke did a sort of “Mission Accomplished” last year that’s sort of blowing up in his face this year, but the confab really is a gathering where some Important People, the kind of people PR types would call “thought leaders,” say some actual important things.

James Hamilton delivered a warning in September 2007 that the housing market was setting itself up for a classic bank run, not that anybody at the time really listened, and in fact, he was already too late, as we’d later learn. But if you’d have been paying attention, that would have been a rather prescient time to exit the stock market.

Already this year, Bernanke’s address is generating buzz. It’s set for Friday, the same day the first revision to second-quarter GDP comes out, and that combination could produce some interesting fireworks. “We would advise investors to pay particularly close attention to the Bernanke speech since we have been getting mixed messages from the vocal members of the committee that we do not believe represent the majority view of the Fed,” the team at BofA-Merrill wrote today.

UBS’ Art Cashin noted there are at least two other presentations that are highly anticipated, and both apparently go against the grain. Raghuram Rajan (as per Bloomberg,) former head of the BIS’ monetary and economic deparment, will tell the Fed it should consider raising rates, with the current near zero rates risking asset bubbles and propping up inneficient companies.

The other is a paper from the Cleveland Fed that suggests the double-dip meme going around is less likely than recent reports indicate.

Now, will Helicopter Ben himself give in to the gloom, or will he try for another victory lap? Whatever tack he takes, it will all be in light of the 2Q GDP numbers, which Street consensus expects will be revised down to 1.4%, according to a Dow Jones survey. Plenty of people think it could be revised even lower. If Bernanke’s trying to sound an optimistic note, and the GDP numbers stink, it won’t look good. But if he’s downbeat, and the GDP numbers stink, he risks exacerbating the growing gloom.

Not that people are waiting for the Fed chairman to tell them what to think anymore. Seems like most people have already taken the pulse of the economy, and found only a faint, irregular heartbeat.