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.

Fed tries to put its best foot forward in the latest Beige Book report, noting “continued growth in national economic activity,” while still acknowledging “widespread signs of a deceleration” compared to preceding periods. It’s a forty-three page report, so in an attempt to cut to the chase and distill the key message, we took an admittedly unscientific but hopefully insightful shortcut.

We counted how many times the report mentioned the word “weak” or other derivation (weakness, weaker, weakening, etc), and compared it to other recent BB reports.

In this latest report, the bank used “weak” or other derivative 65 times. That compares to 53 times in the July report and 45 in June. Obviously an uptick in “weakness,” but down from 84 mentions in March, and 94 in July of last year. On the precipice of recession in November 2007, the Beige Book mentioned weak etc 61 times.

Conversely, the Fed mentioned the word “improve” or some other derivation 54 times in today’s report. That’s down from 68 in July and way down from 107 mentions in June.

It’s no deep-dive into the nitty gritty, folks, but seems suggestive of the economy’s direction, at least.

Also interesting to note, the Fed increased its use of the adverb “quite” for added emphasis to some of its observations, as follows:

Demand for commercial real estate remained quite weak but showed signs of stabilization in
some areas.

Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials.

Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans.

A recent flurry of refinancing activity spurred increased demand for residential mortgages in the New York, Cleveland, Chicago, and Kansas City Districts, but new-purchase mortgage originations remained quite sluggish in general.

With builders holding off on new construction, inventories have gotten quite low,
though prices still seem to be drifting lower.

Think we’ve seen quite enough.

Gluskin Sheff’s David Rosenberg rips apart the Obama administration’s latest “emerging program to jolt the economic recovery from its stall,” as the NY Times characterizes it (don’t you dare call it stimulus.) I can’t recall seeing Rosenberg this overly political before; usually he keeps to purely economic themes. It’s safe to say he isn’t a fan of the latest ideas.

I’d argue that the Bush tax cuts didn’t have nearly as much to do with the Aughts rally as the Fed’s low interest rates did, and the booming business in unregulated derivatives, but that’s a quibble.

My great problem with the Obama administration is that the President didn’t go full-bore at the economy the day he got into office. Sure, he pushed the $800 billion stimulus program. But while the price tag was massive, the effort itself was lazy. About the easiest thing in the world for a government to do is to throw money at a problem. I’d rather have seen some creative solutions. Something, anything. Instead, we got a rush job with the stimulus program, and then the White House moved on to more “important” matters, like healthcare.

Anyhow, the latest raft of proposals, which add up to a second stimulus program no matter how they are characterized, are likely to have the same temporary, sugar-rush effect of the first program, if they have any effect at all. As Rosenberg points out, the biggest problem for corporations isn’t exactly a lack of cash.

Aren’t businesses sitting on a record cash hoard right now? In other words, “money” is not an impediment towards business investment growth, say, as much as the regulatory policy backdrop.

This is again one in a long list of quick fixes aimed at boosting domestic spending and is likely to have muted impact, in our view. Even if it does have an impact, it will merely bring forward spending that would have occurred in any event and merely distort the quarterly flow of GDP data much like ‘cash for clunkers’ and the housing tax credits did for the household sector.

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I've been here a year, Jack; when do you think the jobs are coming?

Here’s your takeaway from the jobs report: The jobs market isn’t getting any worse. It isn’t getting any better either.

Nothing much changed in August for the nation’s work force, and nothing much has changed in the past year either. The Bureau of Labor Statistics reported 54,000 people lost their jobs in August, with 114,000 temporary Census Bureau workers coming to the end of that gig, while the private sector added 67,000 jobs.

Now, the stock market is reacting because the numbers were the proverbial “better than expected.” Consensus was for an overall slide of 110,000, with private sector adding 28,000 jobs. That’s all the market cares about, and seeing as it’s in rally mode anyway, it’s set to extend that rally.

This is such a middling report, it can probably be spun any way you’d want to spin it, so it’s best to try and look at the biggest picture possible. I’ll frame it this way: we’re eight months into 2010, and the economy has added a net total of 723,000 jobs. Job growth rose the first five months of the year, and has fallen the past three months. That averages out to 90,000 jobs a month, which is not even enough to keep up with population growth, forget starting to whittle down that 15 million-strong sea of unemployed people out there.

So this report is nothing to get all hot and bothered over, even though the stock market undoubtedly will.

There were some positives, let’s not kid ourselves. The revisions to July and June narrowed the losses in those months, which is a good thing. The number of people out of work for more than six months slipped to 42% from 45%; still a distressingly high number, but still a slight improvement.

However, the official unemployment rate edged up to 9.6%, and the broadest measure of unemployment, the U-6, rose to 16.7%. A year ago this time, the official rate was at 9.7% and the U-6 was at 16.8%, and haven’t changed dramatically during the entire time, so we’ve gone essentially nowhere in a year. If you believe the recession ended in July 2009, as so many do, then you’re talking about a year that was supposed to be a year of recovery for the economy. The jobs market didn’t get that memo.

“It will take many years before ‘full employment’ is re-attained,” Steven Wood of Insight Economics wrote. In August, there were 14.7M people unemployed (according to this table; in the actual release, BLS says it’s 14.9M); in August of 2009, there were 14.8M people unemployed.

- Soaring currency trading volume won’t have a happy ending. “It is a Fool’s Goldrush and will end horribly for most,” Josh Brown writes at The Reformed Broker. “The good news is, you can take the cautionary tales of the stock game, the mortgage game and the real estate game and figure out how you want to be positioned when the inevitable boom-bust-hatred cycle shifts into high gear.”

- Former Lehman CEO Dick Fuld was given a “surprisingly sympathetic ear” from the FCIC at yesterday’s hearing. “This is a deeply disturbing development,” Barry Ritholtz says at The Big Picture. “It leads to the unfortunate suspicion that the FCIC does not have the slightest clue as to the causes of the housing collapse, recession and market crash…I now fear the FCIC report is going to be an ideological farce.”

- It’s becoming obvious there is “no magic bullet” to immediately speed up the recovery, Harvard economist Kenneth Rogoff writes. “It took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” he says. “Americans will have to be patient for many years as the financial sector regains its health and the economy climbs slowly out of its hole.”

- Investor demand for US Treasuries has waned over the last few sessions after some better-than-expected economic reports. But the “big test” comes tomorrow morning with the August nonfarm payroll report. “A smaller loss of jobs could stoke more optimism about the economy and raise more questions about how much lower interest rates can or should go in the near term,” LA Times’ Tom Petruno says. “But a bigger loss could re-energize bond bulls.”

- Yesterday was a 90% upside day, “the 13th such so-called panic-buying day since the April 26 high,” Jeff Cooper notes at Minyanville. Meanwhile, there’s been 14 panic-selling days during the same period, he says. “This kind of volatility is a market in disarray. It’s not a sign of a healthy market,” he says. “Risk runs high when frenzy runs deep.”

- Slate’s James Ledbetter wonders why people consistently underestimate Netflix (NFLX). “There is one company that has been more consistently underestimated than any other, whose innovations, growth, and, indeed, survival have been dismissed and denied for nearly all its corporate life. That’s Netflix,” he says. But “while its critics were flailing away, the company has continued to grow steadily and spread its influence well beyond the red envelope.”

- AOL renewing and expanding its search agreement with Google (GOOG) was a “surprisingly quick and even stealthy move,” Kara Swisher reports at All Things D.

- “Summertime, and the living is easy…for many, too easy. This July was the worst on record for youth employment: Less than half of all 16- to 24-year-olds had a job,” WSJ’s Heard on the Street says. “Meanwhile, at the other end of the spectrum, more than 40% of over-55s have work or are looking for it, the highest share since JFK was in office.”

- Housing prices still need to drop by 10% in order for the market to correct itself, Barry Ritholtz tells Tech Ticker.

- For all the runners out there, WSJ’s Nick Wingfield reviews three running apps.

This market needs its head examined.

What I’m about to relate is actually beyond anecdotal, because it’s an anecdote the source of which and the majority of the details of which I can’t even remember. But today’s stock market, the rally, the reaction to a literal cavalcade of bad news, reminded me of this quote I’d heard a few years ago.

“Why isn’t the Dow down 1000 points?” That was the reaction of one analyst back in 2008, before Lehman, before AIG, before the panic set in and everybody threw in the towel. It was a day like this, where the news was uniformly bad, but the market was holding up surprisingly well. It made no sense whatsoever. Now, I read that in a market comment from one of the folks I follow regularly, but I can’t remember offhand which one it was; either Art Cashin, or Joan McCullough, maybe it was even Barry Ritholtz. I can’t remember. But I remember the line.

It came back to me today, because this is one of the flat-out just silliest stock sessions I’ve seen in a couple of years. The news is uniformly bad: GDP was revised down sharply. Intel cut its revenue outlook. Boeing delayed the Dreamliner, again. Consumer confidence fell. The ECRI’s weekly leading index remains deep in contraction territory. Ben Bernanke said the Fed’s prepared to go “all in,” but he doesn’t think the Fed will need to go all in. In other words, he said nothing he hasn’t said before.

The market rallied off all that, in one of the screwiest rallies I’ve seen since before the recession started. When you see trading like this, the market rallying sharply on, forget for no good reason, rallying against very good bad reasons, it’s a sign that the “market,” the collective group of traders, speculators, investors, brokers, has lost its collective mind. When you see trading like this, it’s a bad sign, and it makes me think that September, which is historically the market’s worst month, is going to especially bad this time around.

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Heavy video day. In this News Hub Extra, we break down Bernanke’s speech with Societe General chief US economist Stephen Gallagher.

The only thing I can say for sure about today is this: it’s no dog day of summer, kids.

You get the feeling the economy's missing something.

Don’t be fooled by the stock-market reaction, that revision to 2Q GDP reported today was awful. Commerce Department now says gross domestic product in the second quarter rose at a 1.6% annual rate, down from the 2.4% it originally report. For the vast majority of Americans, an economy that is growing at a 1.6% rate is barely distinguishable from a recession, no matter what spin anybody puts on it.

What do these numbers say to you? 5%. 3.7%. 1.6%. That’s GDP for the past three quarters. See a trend there? Those numbers have been steadily falling as the government’s varied and myriad stimulus programs have been running out. The problem is, nothing has come along “organically,” as the wonks like to say, to replace the stimulus. The plan all along was, the feds would spend freely, the Fed would lend gratuitously, and the economic would restart, at which point the stimulus and liquidity programs could be withdrawn.

It hasn’t worked that way, and this morning’s report clinches that, and raises the specter of the “double-dip” (if you believe the first dip ever ended, that is.)

“Certainly the GDP report is better than expected,” Miller Tabak’s Dan Greenhaus wrote this morning. “However, taking a step back reminds us that 1.6% growth is, simply put, atrocious. It is not enough to meaningfully affect the unemployment rate and we repeat our belief that GDP will not settle into a 1-2% ’steady state’ for six or eight quarters.

“If that happens, and it looks like for now it might as we currently believe 3Q GDP will grow at most 2% with not much more expected for 4Q, a move one way or the other will have to occur. For now and absent meaningful monetary or fiscal stimulus, we are inclined to believe that move will be to the downside.”

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It's just an extended pause. But we'll have to operate immediately.

Wall Street loves to come up with euphemisms for “crappy.” Remember Goldilocks? Back before the housing implosion, before the credit crisis, back when everybody really knew things were coming unglued but nobody wanted to admit it, the big theme was Goldilocks — not too hot, not too cold. The Street convinced itself that Ben Bernanke could glide the economy into a “soft landing.”

People actually believed that.

So today, as the economy teeters on the edge, talk of deflation and the Hindenburg is in the air, as even the bulls are having to concede that the right-hand side of the V in their V-shaped recovery has collapsed, the Street’s coming up with another batch of euphemisms, as our colleague Kristina Peterson writes in today’s Journal.

For a time the market was worried about the possibility of a “double dip” recession. But those worries were kept in check by advocates of a simple “soft patch” in the economy.

Now, even optimistic investors seem to be settling in for what they are calling an “extended pause” in the recovery. They worry than an economy on hold could keep the market trapped in its trading range or drag it down further, adding more losses to the benchmark indexes’ year-to-date declines.

Extended pause. You know, a coma’s an extended pause, when you think about it.

Lastly, one of the posters on Kristina’s article online linked (gratitously as it turns out, since it’s a link to his own article, but still, sort of interesting) to a blog post about how generational shifts are largely behind the shift in the economy.