Market Talk

A special look at today’s Beige Book. I’m still not sure why I shouldn’t be cynical about this things are getting better, but routine, but Madeleine makes a pretty persuasive case.

Madeleine and I break down GM’s second thoughts about selling Opel, Barrick Gold’s costly hedges, and the downside of fiscal stimulus, from the land Down Under.

US stocks rise in a shaky session, after the latest Fed Beige Book talks tentatively about recovery, while noting that the jobs market and retail sales – two keys to a recovery – remain weak overall.

DJIA rises 50 (0.5%) to 9547, S&P 500 adds 8 (0.8%) to 1033, Nasdaq Comp gains 23 (1.1%) to 2060. It’s the indexes fourth consecutive rising session. Crude futures crest over $72/barrel, but can’t hold the level.

Yes, the Fed put its usual sunny tone on the report (it is, after all, the Beige Book, not the Black Book), but it’s impossible to miss the potholes: employment remains weak and nobody seems to be in a rush to add bodies, retail sales were only flat, even after the boost from cash for clunkers.

GM’s board meets to rethink the quite-nearly-a-done-deal sale of Opel. Seems now that they’re not at death’s door, the idea of a fire sale of Opel to a rival – which would probably doom any hopes they have in the European market – doesn’t seem like such a hot idea any more.

Turns out gold’s move to $1,000 was largely from Barrick Gold (ABX) buying gold on the open market to close its hedges, which means the metal’s third foray into the $1,000 range likely won’t last, again. Sorry, gold bugs.

President Obama addressed Congress tonight in an attempt to take back the momentum on healthcare reform. Yes, he is a smart guy, a gifted orator and a sharp politician. But he’s going to have a hard time getting this bronco back in the corral.

This morning’s job openings and labor turnover survey, or JOLTS, is aptly named. The data show job openings in July were little changed at 2.39 million, down 39% from a year ago.

“By itself, this data is worrisome enough; however, when one compares this data to the total number of unemployed persons in the country, worrisome may be too light a term,” Miller Tabak’s Dan Greenhaus writes.

“As it stood at the of July, there were six preople looking for a job for every one open in the country.” While the report is lagging, “it does serve to provide yet another snapshot of the difficulties facing the labor market.”

Still, a silver lining exists. NYT’s Floyd Norris points out hiring by private companies picked up. The hiring rate rose to 3.5% of total jobs, from 3.3%, he notes.

Nevertheless, the cold hard truth remains that companies are still getting rid of more workers than they’re bringing in. But it’s definitely a good sign that the number of hires may be on the rise.

“Is this proof of the recovery? Of course not,” Norris says. “The hiring rate remains lower than it ever was during the 2001 recession and its aftermath. But the increase is a favorable sign.”

(Paul Vigna contributed to this report.)

Did you really say "TARP profit? Are you sure about that?

We’ve been critical of the supposed TARP profits everyone’s been talking about over the last few weeks. And now there’s more evidence to back up our skepticism.

Treasury Department likely won’t recover all of taxpayers’ investments in GM and Chrysler, according to the Congressional Oversight Panel. The Treasury has given nearly $80 billion in aid to the entire auto sector. Some loans have already been repaid, but it’s doubtful all loans to GM and Chrysler will be paid back in full.

Look, the Treasury may have made money off the eight biggest banks that repaid their TARP obligations. But it’s irresponsible to call the government’s bailout plans profitable at this point in the game without considering all the parties involved. Losses from from AIG, Fannie Mae (FNM), Freddie Mac (FRE) and the auto makers, not to mention other costs such as stimulus plans and lost tax revenue, were largely ignored when pundits were talking about TARP profitability.

So why have several financial firms been able to repay TARP, but the auto makers can’t? Part of the reason is GM and Chrysler were losing market share before the crisis ensued, whereas financial firms were doing well, Time’s Curious Capitalist blogger Justin Fox says. 

“The banks simply aren’t in the same competitive bind GM and Chrysler are,” he says.

Continue reading…

“Oh, what a tangled web we weave, when first we practice to deceive.”  -Sir Walter Scott

We lately came across an article in the FT (from last week) reporting that the Congressional Budget Office will start accounting for the quasi-private mortgage giants Fannie Mae and Freddie Mac as government operations, due to the “degree of management and financial control the government now exercises.” The CBO expects to begin accounting for the two outfits as federal operations this year, which will, incidentally, increase the federal budget deficit by $291B.

What so very ironic about that, to us at least, is that Fannie Mae originally was a federal operation, as chartered back in the Great Depression. But it was privatized in 1968 by President Johnson so as to get its costs off the federal balance sheet (the other costly item, the Vietnam War, apparently couldn’t be shifted as easily.) And now, 41 years later, Fannie Mae’s going to come back onto the books, with all its costs put back in the federal ledger for all to see.

Is that government efficiency at its best, or what?

Make ours a short-stack, please.

Premarket US stock futures suggest markets are headed for a wishy-washy open, with mixed action in Asia overnight as well as mixed trading in Europe. Economic data calendar is empty, though the Fed releases its latest Beige Book survey at 2:00pm.

Big drop in July consumer credit, out late yesterday, and sizable revision to June’s number are an eye-grabber and reveal plenty about where consumers’ heads are these days. Another glimpse at the “new normal”? Probably. Forget tighter lending standards – consumers certainly don’t appear to be banging down banks’ doors to get new loans these days.

S&P futures 1.10, DJ futures flat. Ten-year a shade lower, yield at 3.47%. Crude’s up, edging toward $72/barrel. Gold’s slipped back under $1,000/ounce.

Chicago Fed Pres Charles Evans says the Fed will be more “aggressive” in tightening the monetary spigots “relative to 2004″ in a speech at the Council of Foreign Relations titled the “Great Inflation Debate.” In the prepared remarks, Evans said deflation has been avoided, although it was still too early to start removing the monetary props.

“I think neither a harmful deflationary episode nor a repetition of the Great Inflation (from 1965 to 1982) is very likely,” Evans said.

Is Goldilocks making a comeback?