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.

Stocks running strong this month, not looking back.

US stocks rise Friday and close the week with minimal gains as investors cautiously grew more confident about the economy’s recovery prospects.

DJIA finishes up 48, or 0.5%, to 10463 and closes the week up 0.1%. The blue-chip index has risen seven of the last eight sessions and is up 4.5% in
September.

Perhaps more important, the Dow finally closes above its 200-day moving average. Newswires columnist Tomi Kilgore, who commented earlier this week on the index’s struggle to get past this level, offers his latest take:

The fifth time was the charm for the DJIA, which closed above the 200-day moving average (10450) for the first time since Aug. 10. The persistence bulls showed was impressive. DJIA had tested the 200-day in intraday trading the previous four sessions, but had failed to close above it, so it wouldn’t have been a surprise to see a pullback. DJIA closed up 48 at 10463. The next resistance area is the early-August congestion range of 10600-10720. Support is at 10315-10335, which includes a few intraday lows from the past week and the 50-day moving average.

Furthermore, the S&P 500 rises 5, or 0.5%, to 1110. The index finishes the week up 0.5% and has gained 5.7% this month. Nasdaq Composite adds 6, or 0.3%, to 2242.

Once again volume was light; just over 3.1B shares traded in NYSE composite volume. Obama calls recovery “painfully slow,” and PG&E loses nearly $1.2B in market cap after California pipeline fire.

The holiday-shortened week didn’t offer much economic news. But the calendar picks up next week as new reports on the factory and retail growth highlight the week’s action.

Don't you dare doubt the market.

For investors, this month has been anything but a typical September.

This month kicked off with the usual banter that September is historically the worst month for market. But ten days later the market hasn’t followed any of September’s historic patterns. Stocks keep drifting higher and, as a result, the bulls are starting to show fresh signs of life.

The S&P 500’s 5.2% rise in the first six trading days of the month is the best six-day start to September since 1939, Bespoke reports. Bullish sentiment among individual investors has soared throughout the last two weeks and most recently reached its highest level since April, according to AAII’s sentiment survey.

“Talk about a schizophrenic market,” Pragmatic Capitalism says. “Just two weeks ago the sky was falling…Now, just a few economic reports and a brief rally later, small investors are convinced that there are no risks coming down the pike.”

But the rallying stock market and soaring investor sentiment begs the question: What exactly has changed in the last few weeks?

Sure, we’ve had a run of not-exactly-horrible economic data over that time frame. But the better-than-expected ISM manufacturing report and jobs data, which garnered the most attention last week, weren’t exactly excellent reports. Lets not kid ourselves, data improving from awful to less awful shouldn’t be a reason to believe the economy’s back and the recovery’s ready to roar.

Couple of other things to consider as this rally keeps puttering along: this recent run-up has all been on low volume, which tends to skew results and lack conviction in either direction. As Pragmatic Capitalism notes, the last time bullish sentiment was this high was mid-April, just days before the 1Q market peak.

We’ll end with UBS’ Art Cashin’s wise conclusion to his morning note: “Thin markets are very tricky. Stay very nimble.”

US stocks modestly rise, but show little conviction, after Fed’s beige book report, Obama’s speech and consumer credit data.

DJIA gains 46, or 0.5%, to 10387, and has risen five times in last six days. But Newswires columnist Tomi Kilgore finds some reason for caution:

The DJIA might look strong, since it has held onto most of its gains throughout the day, but the inability to get through resistance after a third attempt should put bulls on edge. The DJIA’s intraday high is 10427, following highs of 10447 and 10451 the past two sessions. Meanwhile, the 200-day moving average has been coming in right around 10450. The DJIA was recently up 40 at 10381. If the DJIA can’t get above the 200-day tomorrow, a test of the 50-day moving average, which comes in around 10286, should follow shortly. Meanwhile, a close above the 200-day would target the Aug. 9 high of 10720.

Meanwhile, S&P 500 gains 7, or 0.6%, to 1099, yet still can’t shake the psychologically-significant 1100 level. Nasdaq Comp jumps 20, or 0.9%, to 2229. Volume was weak again.

Encouraging developments from European banks helped shed yesterday’s pessimism. But Fed says economy hit soft patch in July and through August and Obama introduces new policies to kick start economy. Consumer credit in July also dropped for sixth-straight month.

Stocks stage a modest rally as S&P 500 hovers around 11o0 yet again before closing at 1099. But the longer the index keeps lingering around that level, the more restless strategists are becoming.

The index crossed under 1100 in May and has essentially traded sideways since then and hasn’t shown any signs of breaking out of the trading range its been stuck in for months. And with 2010 about 3/4 over, a bunch of strategists have cut their year-end S&P 500 price targets.

Bespoke Investment Group cites Bloomberg’s weekly survey which shows strategists’ average target has dropped to 1205, about 20 points lower than the beginning of year. And five of 12 strategists surveyed have also lowered targets after boosting them earlier in 2010.

JPMorgan’s Thomas Lee and BofA’s David Bianco continue believing S&P 500 will end the year at 1300 by year’s end, while Deutche Bank’s Blinky Chadha is even more bullish, holding a 1375 target, which would represent a 25% jump from current levels.

S&P 500 at 1205 by year’s end would mark 10% gains from where it currently stands. Even that would be quite the run-up over the last quarter of the year, but maybe it’s not so far-fetched.

Continue reading…

- 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?

John Hussman once again hit the nail on the head in his weekly commentary, telling investors to stay cautious after last week’s run-up.

It is premature to interpret last week’s somewhat benign data as an ‘all clear’ signal for the economy.

He couldn’t have predicted it better, especially as the Dow dropped 107 points, or 1%, to 10341, snapping a four-day winning streak. The decline, which comes on the heels of last week’s 2.9% gain, occurs amid fresh concerns across the pond.

A WSJ analysis questioned Europe’s recent stress tests of the major banks, saying the tests understated some lenders’ holdings of potentially risky government debt. And a bigger-than-expected drop in German manufacturing orders in July also didn’t help matters.

“The end of the US summer holiday period is upon us, and with it, a return to reality,” Yves Smith writes at naked capitalism. “The markets are again concerned re Eurobanks, as the fears registered in EU periphery country bond spreads are now registering with investors in other markets.”

Whether that means the market is poised for another leg down is way premature. For the most part, market observers were convinced that today’s decline was just a pause after last week’s big gains following better-than-expected jobs and manufacturing data.

And, as WSJ’s Matt Phillips points out, today’s anemic trading volume shows the “summer slumber” is still in effect, even if Labor Day has come and gone. Low-volume moves in either direction often don’t signal much conviction.

“I think the market was due for some kind of consolidation and any excuse would’ve worked,” said Bruce Bittles, chief investment strategist at Robert W. Baird. “Today’s decline is more a result of the market going too far too quickly last week.”

- 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.

Maybe this wasn't such a good idea after all.

One year after the government’s cash-for-clunkers mission juiced auto sales for a hot second, pundits still remain critical of the program.

A Boston Globe op-ed earlier this week by Jeff Jacoby calls cash for clunkers a “classic government folly.” He notes the used car market is still feeling the consequences from last year’s program. Used-car prices are way up, in part because supply is down and demand is high as a weak economy leads people to opt for a used car rather than splurge on a new one. That may be great for car salesmen, it’s not so hot for anybody looking to buy a car.

From Jacoby:

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly…

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

The main critique of the program was that it failed to create additional demand. Instead, it pulled demand forward — so people who were thinking of buying a car in late 2009/early 2010, likely made the purchase a few months earlier knowing they could take advantage of the clunker program.

The idea sounded great at the time, but one year later, it’s unintended consequences are screaming loud and clear. And that makes it even harder to imagine that Obama last year pronounced clunkers “successful beyond anybody’s imagination.’’

Go figure.

- 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.