Market Talk

We’ve got a News Hub double-feature for you. You saw the AM report earlier. Here’s the PM report, taking a look at BofA’s latest mortgage-mod plan, Saudi Arabia’s mass arrests of suspected terrorists, and the latest skinny on the euro (courtesy of yours truly.)

About nine months ago, I suggested that US stock markets weren’t pricing in any geopolitical risks, with investors laser-focused only on domestic matters. At that time, the Dow Industrials were up about 30% from their March 2009 low.

Well, some 2,300 points later on the DJIA and up another 27%, the geopolitical hazards haven’t abated, and if anything have only mounted further.

Todd Harrison hits on it today in a MarketWatch piece:

Social mood is tenuous at best and deteriorating at worst. As the great divide continues to evolve — red states vs. blue states, Main Street vs. Wall Street, haves vs. have nots — societal acrimony has evolved into social unrest in some parts of the world, and economic hardship is pointing an unfortunate needle towards geopolitical conflict.

Take heed, citizens. Take heed.

- Palm’s headed toward a fork in the road as there’s a growing belief that its future contains only two paths: acquisition or insolvency, Jon Stokes writes at ars technica.

- Bronte Capital blogger John Hempton says BofA engaged in some shady accounting engineering during the boom, similar to Repo 105. But BofA defends its accounting procedures. “Efforts to manage the size of our balance sheet are routine and appropriate, and we believe our actions are consistent with all applicable accounting and legal requirements,” BofA tells ProPublica. It all sounds strikingly similar to what Ernst & Young recently said about Lehman, DealBook notes.

- “With all eyes on financial institutions, sovereign defaults, state bankruptcies and pension shortfalls, I’ll humbly submit reason #11 to be wary of this scary bull – unforeseen systemic risk emanating from quant models gone awry,” Todd Harrison says. “This is the first time in history 10-year interest rate swap spreads turned negative…I would venture to guess it wasn’t ‘modeled’ that way by the quant geeks.”

- GE shares up 24% this year and 80% over last 12 months. That’s noteworthy, especially since GE underperformed the broader market during much of the 2000s, Bespoke notes. “Is GE finally ready to lose the ‘dead money’ label?”

- New home sales hit a record low last month and months of supply rose to 9.2 months. “Obviously this is another extremely weak report,” Calculated Risk says.

- Blogosphere loves Sprint Nextel’s (S) new 4G phone – Evo. Engadget says it’s a “breathtaking” device. “Evo 4G is the best Android phone out there. It may even be the best phone, period,” Gizmodo adds.

- “The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators,” Simon Johnson says.

- Will Apple’s (AAPL) iPad live up to the hype? Kara Swisher discusses on WSJ’s Digits show.

- Bank of America (BAC) says it will make principal forgiveness a priority for certain subprime mortgages.

- Starbucks (SBUX) to offer its first-ever cash dividend and announced it will boost its stock-buyback plans.

New home sales sink to a fresh record low, and we don’t buy this snowbound-buyer argument. The housing market is not strong, and the timing’s bad, as it’s about to be unhinged and sent off to fend for itself.

Elsewhere, durable goods rose. But, Portugal reminds everybody Greece isn’t the only country in Europe with problems.

US stocks reverse field today, dropping along with a variety of other risky assets as the dollar surges amid a global scramble for safe havens.

DJIA falls 53 to 10836, a day after jumping 103, S&P 500 falls 6 to 1168, Nasdaq Comp loses 16 to 2399. Gold, crude both fall, with the latter sliding under $80/barrel.

Meanwhile, and conversely, the dollar surges as euro tumbles after Portugal gets downgraded, reminding everybody than Greece isn’t the only trouble European nation. Euro falls to a 10-month low against the greenback, and some sharp-eyed observers expect to see it continue dropping.

But the flight to safety doesn’t permeate to Treasurys, where a weak 5-year Treasurys auction adds to sovereign debt jitters, and government bonds sell off.

Domestically, new home sales in February fell to a record low, which is especially bad after yesterday’s bad existing home sales report. The housing market, it seems, hasn’t exactly gotten the memo that it’s time for it to sail under its own power. Durable goods rose though, offering some hope for the recovery crowd.

But a quick look in that direction also reveals some causes for concern. For one thing, orders and shipments for computers were weak. Then there was an interview with Xerox’s chairman, who said the company isn’t seeing a “significant change” in business spending. Just two more little signs that this expected surge in capital spending that’s going to be the rocket fuel the economy needs may not turn up.

Stocks have slowly marched higher in recent weeks, posting gains in 10 of the last 11 sessions prior to today and up 5.5% this month alone. But the run-up has stumbled a bit today, with disappointing guidance from General Mills (GIS) and an unexpected drop in new-home sales contributing to the decline. A disappointing five-year cash Treasury note auction also weighed on stocks.

DJIA fell 53 at 10836; S&P 50o dropped 6 to 1168.

Perhaps investors will take this as just another buying opportunity, but the market’s flashing some warning signs that may manifest sooner rather than later. An important indicator of conviction behind a market rally is the number of S&P 500 stocks making new 52-week highs, according to Bespoke.

When S&P 500 made new highs last week, 24% of stocks in the index hit fresh highs. But as S&P 500 once again rallied yesterday to its highest close since September 2008, only 16% of stocks in the index reached fresh levels.

“Ideally, bulls will want to see this list expand as the market trades higher,” firm says. “While one day doesn’t make a trend, if we continue to trade higher without support from the list of new highs, bears will be quick to growl.”

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Wow Tommy, that Dreamliner really is special!

Bullish sentiment toward Boeing (BA) has ramped up this month, and the stock has benefited well, up about 15% in March so far. BA’s been graced with at least four analyst upgrades this month, two of them this week. Recent announcement of production increases was a key factor for both Oppenheimer and Macquarie in boosting their ratings this week.

A couple things have caught our eye, though, which might make Boeing look like less of a sure-thing.

The first item was Air Berlin’s cut last week in its order of 787s — to 15 from 25, and reduced its option to buy 10 more to only 5. The airline also agreed to delay delivery of nine 737s until 2015. They were originally scheduled for delivery this year and next year. Air Berlin cited market conditions, and the CFO said the reduced orders mean a “significant reduction in financial obligations.”

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Despite the market’s volatility in recent years, some investment advisers remain big advocates of passive investing. Norm Mindel, a Chicago-based adviser, talks about how he deals with crazy days in the market. Our Dow Jones colleague Donna Yesalavich reports.

I mentioned the other day, Monday I think it was, that one aspect of the healthcare reform bill is that it actually codifies the insurance industry’s business model within the law. Holman Jenkins takes up the point in today’s  Journal, and notes that the “reform” somehow manages to leave in all the problems with healthcare:

Once everyone is required by government mandate to buy insurance, the industry’s survival is no longer threatened: It can just pass its skyrocketing costs along to customers. Once customers can no longer refuse to buy the industry’s product, the problem of costs won’t be fixed, but it no longer is the insurance industry’s problem.

There, in that one sentence, we give you the failure of ObamaCare, the failure of the congressional health-care debate, the failure of health-care politics in this country.

This the most insidious and least understood part of the healthcare reform bill: in the name of “universal healthcare,” it actually further institutionalizes the insurance business model, institutionalizes a failed model, one that includes a $250 billion annual tax benefit for employer-provided insurance that masks the true costs of healthcare.
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Can't call it a recovery until you get me back to work, brotha.

A mixed bag of economic data is weighing on stocks this afternoon.

Durable good orders provided some cheery news, rising in February for a third consecutive month. But skeptics dive deeper into the details and find reasons to worry.

Karl Denninger at Market Ticker says he’s concerned about three-month trends in shipments and new orders in two areas: computers and communications equipment, which are essential tools for adding white-collar jobs.

He notes inventory building is occurring and good for GDP, but if new orders don’t draw down that inventory, “it will quickly turn into a significant earnings drain in forward quarters,” he says.

“If the trends I am seeing in the durables report continue…broad-based macro deterioration should be evident to even the most-hardened pump monkey by June or thereabouts,” Denninger says. “The road ahead may be materially rougher than you have been expecting.”

Of course the three-month winning streak for durable good orders is garnering all the headlines this morning, which creates some optimism about the industrial part of the economy.

But it’s still unclear “how soon the recuperating process will spill over into the labor market,” James Picerno writes at The Capital Spectator.

“Either the recovery in manufacturing helps nurture an expansion in job creation, or the weak labor market puts a lid on the incipient mending in the industrial sector,” he says. “Today’s news on durable goods, along with other positive signs, indicate there’s reason to stay optimistic in spite of the rough period of late in the labor market.”

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