Market Talk

US stocks close basically flat, after an early burst flickers out, and while it was a pretty quiet news day, at least as far as big headlines go, there’s a lot of  cross-currents out there you need to keep in mind.

DJIA adds 3 to 9509 after rising as much as 82 in the morning; S&P 500 eases 1 to 1026, Nasdaq Comp slips 3 to 2018. Volume is surprisingly strong, with composite volume on the NYSE hitting 6.3B shares (above the daily average this year and especially curious given it’s the last week of August,), and picked up steam early in the afternoon, right as stocks started to tank.

Financials strong early, but finish down; there’s a lot of chatter floating around about banks’ strength, and how many will ultimately fail. But energy stocks rise as crude inches closer to $75/barrel. Of course, that’s not good for consumers, which may explain why consumer stocks fell.

The first of the government’s high profile stimulus programs, the so-called cash-for-clunkers program, expires tonight. But there’s a handful of others that are set to expire over the next four or five months, and we’ll start finding out just how strong the economy is as they go away. Madeleine and I discuss it here.

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Get this man 10 cc of cash for clunkers, and another pillow.

What surprises us about all this recovery talk is that in their excitement at the thought of a recovery, people lose sight of the state of the patient.

If the US economy were a patient in a hospital, he’d be lying prostrate in a bed hooked up to half a dozen machines and monitors that were keeping him alive. Still.

Oh, sure, America gets up for a walk every day down the hospital hall to stretch its legs, aided by a nurse, carrying that IV drip hanging off the portable stand. But for the most part, the patient remains in bed, a battery of stimulants and supports keeping him alive.

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You can take the house, just don’t take my American Express card.

Indirectly, maybe that’s what consumers are saying, as mortgage delinquencies continue to rise, while trends in late payments on credit cards have improved recently. Barclays Capital today cites improvement in delinquencies as a key reason to upgrade American Express (AXP), Capital One (COF) and Discover (DFS).

In fact, the firm says a decline in average delinquencies in July for the largest credit card issuers is “a clear sign to us that the rapid deterioration in credit that started in Sept ’08 is now behind us and that recent strength has been more than seasonal.” Continue reading…

It seemed fairly obvious to us since we first heard about it, that the so-called cash-for-clunkers plan was merely a temporary salve that would also have the effect of drawing future sales into the present. The $3B blown on the program may not sound like a lot when compared to everything else Uncle Sam is spending money on these days, but it’s still a lot for a topical agent.

And it’s that stealing sales from the futures part that may be the most long-lasting effect.

“Early settlers in America faced many hazards,” UBS’ Art Cashin writes in his daily commentary. “Weather could destroy a crop before it could be harvested. Facing possible starvation, they took many desperate efforts in order to survive.

“But they all tried to observe one classic caveat – not to eat the seed corn. Seed corn was corn that had been set aside for next year’s planting. To eat the seed corn was to get temporary relief now but guarantee disaster next year.”

And then he gets to it.

“From the day they were announced, we have feared that ‘cash for clunkers’ and the $8,000 housing tax credit might be cannibalizing or, at least, borrowing sales from next year. In essence, they are allowing us to ‘eat the seed corn.’ Some relief now but boding a fallback next year. Welcome to the ‘W’ we’ve been talking about for months.”

Cash for clunkers runs out today, at least among the dealers still participating, and the home-buyer credit is fast expiring; buyers must close by Nov. 30 to get the credit, and given how long it takes to close on a home, that means deals have to be in the works, oh, about now.

So we will soon find out whether or not GM, Chrysler and the NAR have eaten their seed corn.

US stocks staged an impressive rebound last week, with the Dow Industrials rising more than 4% following last Monday’s selloff. Even among the bullish, stocks look remarkably overbought.

But it’ll clearly take more than some shaky trading in Shanghai derail this upside momentum. Strength in Asia overnight appeared to be reaction to US rally Friday, so stock futures here point to a more sedate open.

Lots of economic data to chew on this week, including readings on home prices, new home sales, consumer confidence and spending as well as a second look at 2Q GDP.

S&P futures up 3.00; DJ futures up 30. Ten-year up slightly, yield at 3.55%.