Market Talk

- Despite China’s placating yuan flexibility, tensions with the U.S. over the currency may still flare up, Yves Smith writes at naked capitalism. “The real determinant will be economic performance. If the growth falters and unemployment rises, which we deem likely, then the pressure on the president and Congress to Do Something will also rise. And the next window for certifying China as a currency manipulator is mid-October, temptingly close to mid-term elections.”

- As the relief thing goes these days, relief that the end of the ECB’s big financing program won’t cause havoc may be short-lived. “Now that we know we’re looking at a two-tiered existence for eurozone banks – those that can fund themselves in the interbank market and those that still have to rely on the ECB – we can guess that a rapid rise in rates could be difficult for some to take. In which case, we could still see rates like Eonia and Libor rise on fears of bank counterparty risk. It’s a tough job, this weaning-off-liquidity thing.”

- Google (GOOG) says it’s “going the extra mile” to treat employees fairly by paying for additional taxes that gay employees must pay when their partners receive domestic partner health benefits. In a blog post on Thursday, the company says it will start “grossing-up” imputed taxes on health insurance benefits for all same-sex domestic partners in the US, retroactive to Jan. 1. The progressive moves could have a ripple effect among Silicon Valley companies competing for the same talent.

- Oh, sure, blame the media. “The combined efforts of the bearish blogging network, the televised media (“What are the chances of a double dip, Mr. X?”), and the technical community (If we close a couple of points below 1040, the next stop is 20% lower), have scared the daylights out of the average investor,” writes Jeff Miller, CEO of NewArc Investments, at A Dash of Insight. “My guess is that Friday’s employment report will make matters even worse.”

- June was another difficult month for risky assets, with REITs and US stocks suffering the worst of the declines, each dropping more than 5%, while bonds performed fairly well. “But don’t let June mask the broader trend,” James Picerno notes at The Capital Spectator. “Stepping back and considering the first half of 2010, there are more losses, and deeper ones among the major asset classes.”

- “All we can say with any degree of confidence is that we see growth slowing, and await more data prior to making a recession call,” Barry Ritholtz says at The Big Picture.

- “Euroland is right to place deficit reduction at the top of its priority list,” former Dallas Fed President Bob McTeer says. “We should place it close to the top. We should be careful, however.”

- Michael Shedlock doesn’t offer a rosy interpretation to today’s jobless claims, pending home sales and manufacturing reports. “This data should be enough for anyone of sound mind to question the recovery.”

- WSJ’s Matt Phillips notes Doug Kass calls another bottom. Nevermind the fact that he missed the top, the hedge fund manager is still confident in his call.

- Only my Mets could pull off something as ridiculous as this. Thanks to a deferred buyout, the Mets still owe Bobby Bonilla 25 annual payments of $1.19 million. Yes, that Bobby Bonilla. No one ever said it was easy being a Mets fan.

It's worse than you think, Mr. President.

Listen, unless Congress is prepared to make the Census a continuous thing (rather than a once every 10 years thing,) we’re still stuck in a bit of a spot here in the land of Coca-Cola, no matter the President says the economy’s “getting better by the day.”

I don’t know how else to say: this was a very bad, damaging jobs report. We are almost a year away from the point most people consider the end of the recession, last July, and if you buy the Bureau of Labor Statistics data, the private sector created 41,000 jobs in May. Sure, the unemployment rate fell, but that has more to do with people dropping out of the labor force rather than finding jobs, which also incidentally is not a good sign (and of course, those people once up a time were counted as part of the labor force rather than conveniently excluded these days.)

My colleague and co-host on the Markets Hub, Madeleine Lim, opined earlier this week that we are starting to see what the economy looks like without all that government stimulus.

The economy added 430,000 jobs in May. The Census Bureau added 411,000. The private sector added 41,000 (the public sector actually lost 20,000 jobs as states are being forced into a Grecian-style austerity mode.) With 15 million people out of work, and nearly half of them out of work for more than six months, you have to have some seriously rose-tinted glasses to interpret that as a sign of strength.

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No matter what happens today, May was a bad month for stocks (it was a bad month for everything, really, unless maybe for New York Knicks fans, and even that’s a pretty big maybe.) But despite yesterday’s big rally, the underlying themes and issues haven’t changed, which means it may not exactly be a summer of love we’re in store for.) Mike Reid and I discuss in today’s Markets Hub.

Boy, a trillion dollars doesn’t stretch like it used to.

On Thursday, Deutsche Bank’s CEO, Josef Ackermann, said publicly what nobody in Europe wants to hear, that Greece — even after its bailout — may not be able to pay off its debts. A second German banker, Ulrich Kater, chief economist of Germany’s Dekabank, has now seconded Ackermann’s fears. It’s one thing when Cassandras and contrarians say the things nobody wants to hear. But when the adults in the room start saying these things, that’s a bad sign.

Ackermann caught some grief for his candor. Germany’s economic minister, Rainer Bruederle, called the comments “strange, surprising and annoying.” But what’s so strange about them? The ECB’s chief economist, Juergen Stark, said all the $1 trillion bailout bought is time. And Jean-Claude Trichet himself said Europe’s economy is at its worst point since World War II, if not World War I.

Nobody’s going out on much of a limb here, by the way. Greece is past the point of no return. They can’t grow their way out of their debts, they can’t debase their currency, and in order to get public spending under control, they’re going to put in such draconian cuts and taxes that it’s going to send the country into a multi-year tailspin that can only be properly described as a depression (little “d,” the old fashioned kind that used to crop up regularly until the word became fraught with such terror nobody wanted to use it anymore.)

No, Greece is going to go through all that, Europe (and the U.S. for that matter, don’t forget that,) is going to go through the expense, the great expense, of a bailout, and Greece isn’t going to be able to pay off its debt anyhow. They’ll call it something diplomatic, a restructuring or something, but bluntly it’s a default. Which isn’t the worst thing in the world. Greece has been around in one form or another for 3,500 years, probably more, there are cultures there that predate history. They were around yesterday, and they’ll be around tomorrow. But it’s going to a long, slow, painful rehabilitation.

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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.

Apologies for the light posting today. Just busy today. Did Fox Business in the early morning, writing a column for the paper in the late morning, and editing Market Talk for the wire in the afternoon, so just can’t catch up. I’d like to see a robot do all that, but it hasn’t left me any time for blogging.

Anyhow, here’s today’s video, which, given that ECB’s Trichet went and upset the apple cart, may sound a bit stale. But I’m still pretty convinced the bulls are going to hold on until they hit 11000 and 1200 on the Dow and S&P 500, no matter what happens today.

Tonight on a very special episode of Tomorrow’s News Today, Madeleine, Eduardo and Paul tackle rumors of a bailout for the Greeks, and what the ramifications of profligacy are for the Grecians as well as other nations.

It’s not exactly an EU summit, but it may be the next best thing.

Some day, they’re going to have to give Madeleine and I more than three minutes to get through the news. But until that day, here’s Tomorrow’s News Today, everything you need to know in three minutes.

Today tackle the Bernanke hearings, ISM services report, jobless claims and the ECB latest nonmove on interest rates.

Today on Tomorrow’s News Today, we discuss the ECB’s opinion on stimulus programs, as well as stocks and bonds and technical levels, and that stupendous $12 trillion deficit.

Well, it sure seemed rosy this morning. Jobless claims down, retail sales up. But over in Europe, central bankers are a bit more circumspect.

And while stocks haven’t traveled very far since their burst out of the gate, they’re still setting themselves up to make a run at Dow 1000o one of these days soon. But that’s a story for another day, right now let’s just talk about tomorrow’s news, today.