Market Talk

Of all the missing-the-forest-for-the-trees, rose-colored glasses stories I’ve read, hell, probably even written, this story in the NY Times Friday about the Big Three auto makers is one of the worst offenders I’ve seen in a long time.

Start with the headline, “Detroit Goes From Gloom to Economic Bright Spot.” When I first saw that, I thought, the city of Detroit? They have got to be kidding. The city of Detroit is the most depressed American city I’ve ever been in, and I live outside Newark, N.J. I haven’t been to the Motor City since the 2007 auto show, but last time I was there it shocked me how abandoned downtown was. I am not kidding, I’ve seen Third World cities more vibrant than Detroit.

But, no, they weren’t talking about the city of Detroit. They were talking about the car companies: GM, Ford and Chrysler.

After a dismal period of huge losses and deep cuts that culminated in the Obama administration’s bailout of General Motors and Chrysler, the gloom over the American auto industry is starting to lift.

You know what? I’d be feeling pretty un-gloomy too, if the government gave me $50 billion and shepherded me through bankruptcy court. Covered my mortgage, paid my grocery bills, let me lay off the kids, then bring them back at half wages (that’s John’s joke, by the way.) I mean, come on, let’s get real here. Don’t sell me some fairy tale about the Phoenix-like rise of the scrappy American auto industry. It’s just not happening, Jack.

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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.

"Personality test? I got your personality test right here."

The statistic is often thrown around these days: there are five unemployed people for every one job opening in America (it recently was six, so apparently we’re making some kind of progress.) That naturally gives employers the advantage, as they can sift among applicants from a wide pool and pick the best. Conversely, it puts employees at a disadvantage, because the competition is that much fiercer.

Just how far the pendulum has swung was made clear by this article in the Times. It’s written by Carl Deihl, the CEO of Bar Method, a company that peddles exercise DVDs, and he recounts the difficulties he faced finding somebody for an entry level job in the company. He notes upfront that applicants were told the job involved a lot of Xeroxing and routine filing, but that he considered it a stepping stone to bigger things.

If you’ve ever applied for a job, you’ve heard that spiel before, right?

He laments that most of the written applications he saw seemed to be copied from how-to-get-hired books. Fair enough. He then explains the steps he went through to find the perfect candidate, that imaginative, energetic, intelligent person who could help his company grow. “I asked each to examine our Web site as well as those of our competitors, and to chat with me about what our brand stands for and how we distinguish ourselves from our rivals,” he says. Okay, even if you’re just making copies, it helps to understand the company.

At other times, in other economies, this guy’d be happy just to find somebody who could work the Xerox machine and show up on time. I remember one kid who applied for an entry-level editing job at the Newswires, back at the height of the Internet boom. He showed up for the interview in sandals and a Hawaiian shirt, and insisted on listening to his iPod as he took the editing test. I kid you not. And we hired him. Deihl has no idea has good he has it.

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Let's cheer up the bears, shall we?

Apparently pessimism, much like confidence, can be a self-fulfilling kind of thing, as the pessimists are being pessimistic only because there’s a general tone of pessimism in the air. At least, that’s what I got out of Floyd Norris’ blog post last night, in which he takes a blogger (ahem!) from Dow Jones to task, as well as the 800 some-odd people who ripped him online for his column last week, for being pessimistic.

It seems to me such pessimism merely reinforces the central point of the column: There is a general air of pessimism around.

Couldn’t have anything to do with the 15M unemployed Americans, almost half of whom have been out of work for more than six months, and about a quarter of whom have now been out of work for a year. Nope. Or the fact for the rest of us who are employed, real wage growth is stagnant. Average hourly earnings fell 0.2% in March, average weekly earning rose 0.1% (on an increase in hours) the BLS reported today. Nah, that couldn’t be it. Record foreclosures? Record bankruptcies? Nope. Nope.

Any of this ringing a bell? A pessimistic bell, maybe? You really want to claim it’s just the nattering nabobs of negativity?

East Shore Partners’ strategist Joan McCullough pretty well summed it up yesterday in her daily comments. “Okay, so no good-paying jobs, tight credit, sub-par wages, record foreclosures, delinquencies and bankruptcies. And now add on top of all that good stuff, a y/y 39% increase in the cost of a gallon of gasoline. Yet retail sales are said to be moving along nicely.”

Holy cow, we forgot about gas! Add that to the pessimistic pile.

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The consumer's back!

I was preparing to write something about financial reform, but this Times article today really hit a raw nerve. What’s up with the Times lately? Friday they had that “clouds have parted” story on the jobs report, and today they have this thing, saying consumers are “coming out of hiding” and getting back in a position to spend the economy to health again. They’re really pushing this recovery thing hard lately.

Methinks the Grey Lady doth protest too much.

Now, listen, I know everybody on the right thinks the Times is the DNC’s mouthpiece and everybody on the left think the Journal is the RNC’s mouthpiece. There certainly is an alignment of views there, but nobody’s telling us what to write, and I’m fairly certain that’s the case at the Times as well. But you have to wonder what’s gotten into the folks down on 41st Street.

After months of penny-pinching amid the recession, new figures — showing an improving job market, rising factory output and increased retail sales — suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again.

First off, I find it hard to believe that the average consumer is blowing his paycheck because he’s encouraged by rising factory output. And the jobs report was Friday, so don’t tell me there’s been a measurable change in consumer spending in four days. But we’re supposed to swallow all that; look, they’re even buying cars again!

You know, it’s not like car sales went to zero. However, even given the “rebound” in cars sales, the auto industry is not pumping out vehicles at anything like the salad-days levels – and they’re going to have to sell an awful lot of cars just to meet their pension obligations, by the way.

The article goes to some length to describe how much retail sales have picked up, and forecasts another big increase tomorrow when retailers post their March sales numbers, noting they’re expected to rise 10% from a year ago. A year ago. March 2009. Think about it, because we’ll come back to this point.

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At what point do “jobless” recoveries stop getting counted as recoveries?

We’ve been harping on the fact that unemployed people keep filing for extended benefits in record numbers. The key provision here is the emergency unemployment compensation, which the Labor Department reports along with its weekly initial jobless claims (the emergency benefits are reported at a two-week lag, and aren’t seasonally adjusted, either.) What it illustrates is that a distressing number of the people who have lost their jobs in this recession can’t find new ones.

This army of long-term unemployed is a big drag on economic growth, and finding jobs for all these people is everybody’s biggest priority. The biggest problem, though, is that the economy at least right now is not built to provide new jobs for everybody, and providing government benefits is taxing an already strained system.

In each recovery from the past several recessions, it has taken longer and longer to get back to pre-recession employment levels. It’s less and less an incidence and more and more a trend. From the Times:

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

Labor experts say the economy needs 100,000 new jobs a month just to absorb entrants to the labor force. With more than 15 million people officially jobless, even a vigorous recovery is likely to leave an enormous number out of work for years.

A more honest time?

It’s amazing to me, and so clearly illustrates the problem, that an “unscripted” meeting between President Obama and a group of vacationing Republicans is getting such notice. From the Times:

BALTIMORE — President Obama denied he was a Bolshevik, the Republicans denied they were obstructionists and both sides denied they were to blame for the toxic atmosphere clouding the nation’s political leadership.

At a moment when the country is as polarized as ever, Mr. Obama traveled to a House Republican retreat on Friday to try to break through the partisan logjam that has helped stall his legislative agenda. What ensued was a lively, robust debate between a president and the opposition party that rarely happens in the scripted world of American politics.

The packaging of politicians has been getting progressively worse for 50 years, from the moment John Kennedy showed up looking better on TV than Richard Nixon to that outrageously overproduced moment on the USS Abraham Lincoln when President Bush declared “mission accomplished.” That President Obama and members of the opposition party sparred in an unscripted exchange the other day, the kind of water cooler debate that takes place every day at less elevated levels, is almost unheard of in this day of handlers, spin doctors, flaks and ad-men masquerading as “strategists.”

It would be nice if we could have a class of politicians that weren’t sold to us the same way we’re sold soda. We might even get a more honest group of representatives, one who aren’t so easily manipulated by moneyed interests. A guy can hope.

Movies, as you know, are fiction. Film is an actually illusion, a series of thousands of still images played at such a speed as to make them “move,” to make it seem as if what you are seeing is real. But it isn’t. The same production job has been done in Washington, and too often, what you are seeing isn’t real, either.

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- Econbrowser blogger James Hamilton details how the Fed earned that $46B profit last year.

- NY Times (NYT) finally looks ready to put its site behind some sort of pay wall. Felix Salmon remains optimistic if it’s implemented correctly, Jeff Jarvis is against it and Barry Graubart is skeptical, although he admits that NYT can’t be blamed for trying.

- Big banks need to be broken up, Rick Boockstaber, senior policy adviser at the SEC, writes on his blog.

- Has the Fed really been buying stock futures since the March rally began? TrimTabs’ Charles Biderman believes the theory is possible, but Barron’s Mike Santoli calls him out. Barry Ritholtz adds his two cents at The Big Picture.

- The Tonight Show drama keeps escalating, but Mark Cuban actually praises NBCU CEO Jeff Zucker for making the bold move to shift Leno to prime time, even though it backfired.

- Insider transactions continue to remain lopsided. “As the recession on Main Street continues, the negative trends in insider buying get even worse,” the Pragmatic Capitalist says.

- GDP may sparkle, but demand still looks dull. “With the huge overhang of existing home inventory and record rental vacancies, and the ongoing repair of household balance sheets, I expect underlying demand to remain weak in 2010,” Bill McrBride writes at Calculated Risk.

- VCs starting to compete directly with M&A market. “Entrepreneurs are waiting longer to take their companies public and that’s a very good thing for everyone,” VC Fred Wilson says. “With the emergence of this new layer of late stage/primary+secondary capital, we can all wait a bit longer. And not sell out. And that’s a very good thing.”

- John Hussman looks at inflation expectations over the next decade. “From a longer-term perspective, however, I believe that inflation will be a major event in the latter part of the coming decade, with the consumer price index roughly doubling over the next ten years,” he says.

- MetLife’s in final negotiations to purchase one of AIG’s biggest international life-insurance units – Alico – for between $14 billion and $15 billion.

Apple (AAPL) shares getting a nice boost today after word circulates that it will hold a press conference next week to, presumably, introduce its much-hyped tablet device.

Apple, living up to its reputation, was light on details with its event invitation, only saying “Come see our latest creation.” The event’s scheduled for Jan. 27 in San Francisco.

Apple shares were recently up 4% at $214.02, and are closing in on their 52-week high, which certainly raises the question: How much more tablet-driven run for AAPL shares is left?

Certainly there’s “more room to go,” Kaufman Bros. analyst Shaw Wu says. “I don’t think tablet sales are all baked in yet.” How much higher is a matter of opinion. Wu has a $253 price target on Apple.

But now that the invitations have been sent and it seems almost likely that some sort of tablet will be unveiled at the end of January, MediaMemo blogger Peter Kafka embarks on the next round of speculation: who will jump on Apple’s tablet train?

He compiles a list of media companies that could potentially partner with Apple for its latest device. He believes New York Times (NYT) is “a good bet,” but doesn’t expect much from the big music labels.

Word also comes from WSJ that News Corp.’s (NWS NWSA) HarperCollins is already negotiating with Apple to bring some titles to the tablet. “Presumably other publishers – all of whom are eager for viable Kingle competitors – want in, too,” Kafka says.

As for video, Kafka says Disney (DIS) and its affiliates would be obvious partners.

“In part because (Apple CEO Steve) Jobs is both the company’s largest individual shareholder and a board member,” Kafka says. “But also because Disney CEO Bob Iger has made a point of trying out new digital distribution strategies.”

You're doing a heck of a job, Geity.

Treasury Secretary Tim Geithner has his supporters, of course. First off, there’s the President. I’m sure, too, that his wife is very supportive of his efforts to restore fix the nation’s economy. Then, there’s, well, there’s…New York Times columnist David Brooks.

Brooks, generally a conservative voice in the paper, came out in support of what’s Geithner’s accomplished so far:

The evidence of the past eight months suggests that Geithner was mostly right and his critics were mostly wrong. The financial sector is in much better shape than it was then. TARP money is being repaid, and the debate now is what to do with the billions that were never needed. It now seems clear that nationalization would have been an unnecessary mistake — potentially expensive and dangerously disruptive.

Accept for a moment that most of that is true, the banks aren’t dangerously listing anymore, that the crisis is over and we’re on the road to recovery. What, exactly, did the Treasury Secretary contribute to that?

I’m serious. Somebody please tell me. Offhand, I can think of the “stress tests” and the PPIP, the Public-Private Investment Program. The first was no more than a thorough white-washing, and the second was just an awful idea that has yet to gain any appreciable traction.

So, somebody, anybody, please point out something specific the Treasury Secretary has done to make things better. Because I certainly couldn’t find anything in Brooks’s hyperbolic column.

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