Market Talk

US stocks rise on the first day of a new month, amid some fresh money, and improving sentiment that a big, fat Greek bailout is in the works.

DJIA rises 79 (0.8%) to 10404, S&P 500 gains 11 (1%) to 1116, Nasdaq Comp jumps 35 (1.6%) to 2274. But it’s a bit of a head scratcher if you follow the dollar. The greenback rose against the euro and the pound, the latter got pummeled amid all kinds of anxiety over in England. Dollar gains have usually put pressure on stocks, but not today.

There are questions, too, about Greece. Investors were relieved just to hear that something is in the works. But it’s a long road from plan to implementation to success to a thriving European economy and happy, not-striking workers (the Greeks are planning another 24-hour strike for this week, incidentally.)

We don’t get that the data drove the market, or the M&A deals, for that matter. We’d put it on the new money/sentiment stuff. According to S&P’s Howard Silverblatt, from the end of 1999 to today, the S&P 500 is up 28% on the first day of the month — and down 24% overall.

Now, AIG seals deal to sell its Asian life-insurance unit to UK’s Prudential for $35B, and Germany’s Merck agrees to acquire Millipore. But foreign companies coming in and buying parts of American companies, even ones as universally reviled as AIG, doesn’t seem to be the stuff stock rallies are made of.

Continue reading…

- An increase in temp hiring is usually an early sign of recovery, but that trend hasn’t lived up to expectations, so far, in this purported recovery, Financial Armageddon blogger Michael Panzner says.

- EU appears to have a financing package in the works for Greece, but the “main goal seems to be to buy time — hoping for better global outcomes — rather than dealing with the issues at any more fundamental level,” Peter Boone and Simon Johnson write.

- Even as Google (GOOG) continues to grow and faces further antitrust scrutiny, it in no way deserves an Italian court conviction of three executives for privacy violations, Kara Swisher notes. Lesson: don’t get into any legal tangles in Italy.

- Asset allocation looking trickier ahead. “This isn’t a shock, but more of it is probably coming, meaning that a new set of challenges await for managing asset allocation relative to the trend for much of the past 12 months,” James Picerno says.

- “The Republican base is fired up. The Dem base is packing up,” says Robert Reich, former labor secretary in the Clinton administration.

- Apple’s (AAPL) iPad availability may be limited for its expected launch later this month as production delays could lead to tighter inventories, Digital Daily blogger John Paczkowski says.

- Credit default swaps are more toxic than most realize, Yves Smith writes at naked capitalism. “The more we can to contain this product the better, but I am afraid it will take another meltdown to teach us the lesson we should have learned from the last one.”

- “Is it any wonder that Republicans have suggested the bailout of Fannie and its sibling Freddie Mac ‘will almost certainly be the most expensive of the financial crisis’”? FT’s Alphaville says. “And given that the other contenders to that dubious crown include AIG and the US car makers, that’s saying something.”

- AOL continues its radical remake, selling Buy.at – an affiliate marketing company it bought two years ago – to Digital Window. “Another marker in [CEO] Tim Armstrong’s campaign to undo just about every part of the old regime at AOL,” Peter Kafka writes.

- Corporate insiders are sending fairly positive signals about the market, NYT says.

- The best journalism in 2009.

Consumer spending grew at a 0.5% rate in January, faster than economists were expecting, but weak personal income data put a damper on the data as the savings rate dropped to its lowest level since 2008.

Savings rate drops to 3.3%, well off the high of 5.4% reached in last year’s second quarter, although it’s still above the 1.2% trough set during the boom. Whether the savings rate has peaked for this cycle is up for debate. Calculated Risk says an 8% savings rate could be reached sometime in the next few years.

But, as Kelly Evans pointed out in her Ahead of the Tape column this morning, some economists believe the stock market rebound has given consumers some optimism about the economic recovery and reason to increase spending, which could prevent the savings rate from going much higher.

Ultimately, all the talk about the American consumer undertaking a permanent shift to frugality may have been a bit premature.

Time will tell, but if history is a guide and the recovery continues, don’t discount the American consumer, Stephen Gandel writes at Time’s Curious Capitalist blog.

I think anyone who has lived in America for some time knows that we love to spend. So without some kind of government intervention — more incentives to save, some real financial reform that cuts back aggressive lending practices — it is unlikely that we will dramatically shift to a nation of savers. And this unfortunately is a bad thing. And that could be the best argument for some government action either in the form of more stimulus and job creation spending. Americas can only stop spending for so long. Savings seems to be a virtue again. But if incomes continue to stagnate or drop, Americans will again get used to spending more than they make. And if that happens, we can wave good-bye to another one of those Great Recession opportunities. Oh well.

Bloggers debate Yahoo's best approach.

Last week we wrote about Yahoo’s (YHOO) broader integration with Facebook and Twitter and its plans to use third-party sites to bolster its social media presence.

The move drew praise from some, as Yahoo’s choice to partner with successful social networks seems to be a better alternative than the path Google (GOOG) has taken with Buzz, its new social network. Buzz was supposed to eliminate the stigma surrounding Google pertaining to its failure to make headway in social media, but considering all the negative feedback the new service is currently facing, maybe outsourcing isn’t such a bad idea.

“That’s why what the Silicon Valley icon is doing might be the best solution for it at this point — if you can’t innovate, aggregate,” All Things D’s Kara Swisher says.

But the safe approach doesn’t jibe with everybody. In a blog post over the weekend, TechCrunch’s Michael Arrington argues Yahoo may be getting more efficient under CEO Carol Bartz, but the company needs a lot more than efficiency to succeed in the future.

“The Internet is still in its wild west days, and the ‘ready, fire, aim’ game plan of Facebook and the other young guys is eating [Yahoo's] lunch,” he says.

Continue reading…

Yves Smith over at naked capitalism points out one more failure of the financial-reform movement: the failure to address in any capacity the uses of credit default swaps. “Credit default swaps played a much more central role in the financial crisis than is widely understood, and they continue to get a free pass in financial reform proposals that they do not deserve,” she writes today.

Unlike real derivatives, CDS are subject to massive price moves (”jump to default’) when a reference entity (the entity on which the CDS is written) defaults or goes into bankruptcy. That large price movement, means that the margin already posted will be insufficient, and there is no guarantee that the counterparty will be able to pony up the amount now due. But perhaps more important, the idea that CDS have legitimate uses is questionable.

If there’s been three words uttered on this subject in Congress, I’ve missed them. Just think about the whole range of subjects that need to be address regarding the financial markets, and then think about this consumer protection agency, which is what Congress is offering as its solution. And they can’t even agree on that.

Why don’t they just outsource the work to Consumer Reports, and let Congress get on to things they can handle, like kissing babies or counting campaign contributions. This crew isn’t really cut out for anything more complicated.

Senate banking-committee members draft new bank rules.

As details of the Senate banking committee’s financial reform bill keep dripping out, it’s becoming clear that the central focus — and supposedly the source the holdup — is the creation of a consumer financial protection agency.

But all that means, as I said this morning on Fox Business, is that the things that really matter aren’t even on the Senate’s radar, and if that’s what this bill’s centerpiece really is, then this isn’t a financial reform bill at all.

Where’s the part about regulating derivatives? Where’ the part about splitting investment houses and prop desks from government-supported, deposit-taking commercial banks? Where’s the part about capital ratios? What about the ratings agencies? At this point, we must hope those elements are in the bill, but it seems, well, a bit fishy that nothing so far has been disclosed about their existence.

I keep hearing Denzel Washington in “Malcolm X” (and of course, I’m Malcolm said it first): you been had, you been took, you been hoodwinked, bamboozled.

Two years into the worst financial meltdown in our lifetimes, the best the Senate can come up with is an agency that’s going to scan mortgage offers to make sure they’re not overcharging borrowers. It’s like the meltdown of ’08 never happened. The bankers must be sitting back somewhere just laughing that they’re getting everything they wanted, Gary Hager, president of Integrated Wealth Management, with whom I was on Fox this morning, said. And he’s right, because what the banks want out of this bill is nothing.

Continue reading…

Investors will hit the ground running this week on the economic data front, with three important readings out this morning — January personal income and spending set for 8:30 a.m., followed by construction spending and February ISM manufacturing at 10:00 a.m. Full menu of gauges on the economy during the next few days, capped off Friday by February nonfarm payrolls and January consumer credit.

US dollar index has risen sharply in the past hour or so, which in turn cools off an earlier stronger tone in commodities and premarket stock futures. USD index up 0.7% at 81.04. S&P futures up 1.90, DJ futures up 23. DJ futures were up more than 50 earlier this morning. Ten-year lower, yield at 3.62%.

And, of course, the old geopolitical stuff will be in sharp focus this week. The damage from the Chile quake is still being tallied up as search efforts are ongoing. While the copper markets saw an initial spike, as Chile is a big-time copper producer, it seems the copper mines were mainly spared, so the panic spike in the market has subsided.

Greece is still a wild card. Greek PM over the weekend talked about the country’s survival being at stake. Reports have a bailout of sorts being crafted that would see Germans and French take a leading role in buying up about $40B worth of new Greek debt. Still, details are sketchy and given how prickly everybody over there seems to be getting, there’s a lot yet to overcome before this baby’s put to bed.

If the bailout falls apart and the Greeks can’t save themselves, maybe they can just do a little rebranding exercise. Take advantage of the popularity of “300″ and rename the country Sparta. Or just go back to the city-states thing. Sounds like a plan, huh?