Market Talk

- The surging US dollar is “eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy,” the Pragmatic Capitalist says. “As asset prices decline and bond yields collapse this is a clear sign that inflation is not the near-term concern, but rather that the debt based deflationary trends continue to dominate global economic trends.”

- University of Oregon economics professor Mark Thoma isn’t on board with Yale professor Robert Shiller’s argument in a NYT op-ed that fears of double-dip recession could become a self-fulfilling prophecy. Bigger economic shocks would seem “the more likely trigger” of double-dip, Thoma says. “Even more likely is an outbreak of extreme hawkishness causing us to pull back too fast on fiscal stimulus, and to raise interest rates too fast.”

- Turns out Palm’s sale to Hewlett-Packard (HPQ) last month wasn’t exactly a last-minute deal. Digital Daily blogger John Paczkowski points to a PALM SEC filing, which reveals the buyout process began in February and the company was in contact with 16 potential acquirers.

- HAMP April data shows program slowing down.

- The “shock and awe” effects of Europe’s big bailout package are already starting to fade, and the concern is that long-term viability is being sacrificed for short-term gains, Pimco CEO Mohamed El-Erian writes at FT’s Alphaville blog. So far, the package is just giving investors an escape hatch, without addressing the real issue: solvency.

- GM isn’t putting on the hard sell for an IPO.

- Reuters blogger Felix Salmon looks at how government bailouts affect moral hazard and the role they play in market volatility. “A lot of investors have made a lot of money from the moral-hazard trade over the past 15 years or so. When that trade comes to an end, expect the losses to be just as big, if not bigger.”

- Ryan Avent shows how the role the declining euro plays in the global economy.

- Though it’s still early for conclusive evidence, it appears Apple’s (AAPL) Mac sales haven’t been cannibalized by the iPad, Digital Daily blogger John Paczkowski says, citing research from Piper Jaffray.

- Jason Zweig looks at the debate over holding brokers to a higher standard.

US stocks finish higher after selling off most of the session, as stocks are tied tightly today to the euro, which strengthened late in the day. Stocks seemed on verge of bad selloff, as the euro was falling, as far as $1.2233. Butt traders held it together until euro’s mini-rally (back near $1.24,) which took enough pressure off for the major indexes to post gains.

DJIA rises 6 to 10626 after falling as much as 184 earlier; the index’s spread was 225 points today. S&P 500 adds 1 to 1137, Nasdaq Comp gains 7 to 2354. But the risks remain to the downside. The Dow is down 3.5% this month, although it remains up 1.9% on the year.

“Deeper downside tests of 1100-1050 for the S&P 500 are expected,” BofA/Merrill technician Mary Ann Bartels says. “In our view, 1100 is set up for continued tests, but more significant support that must hold remains 1044.50,” she says. “A test of 1044.50 would be in line with a 15% correction off the 1220 high.” Below that, “the next range of support is 1000-950. Resistances remain 1180-1185 and 1200-1230.”

There are some cautionary signs on the consumer-spending/recovery front. For one thing, crude continues its slide, falling below $70/barrel at one point today, and finishing just over it at $70.08. Now, that’s great for consumers, right? But along with the slide in copper, it’s a warning sign about the commodities boom.

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Worries about the euro have been reverberating through the market as US stocks have been sharply lower for much of the session. In the last hour, stocks came barreling back, with the Dow inching closer to positive territory, only to fall back, highlighting how volatile the markets have truly become throughout the last few weeks.

The Dow was recently off 71, but fell as much as 184 in earlier trading. Prior to today’s session, the index has had 11 triple-digit moves in the past 14 sessions, as wild swings are fast becoming the norm. The S&P 500 was recently down 3 at 1132.

The increasingly volatile nature of the market is bringing back memories of the height of the financial crisis when markets spiraled out of control. But Bespoke Investment Group delves deeper into the details and finds that while volatility has increased in recent weeks, the market looks downright tranquil compared to the crazy daily moves in late 2008 and early 2009.

S&P 500 has been averaging a daily move of 1.32% over the last month, which firm notes is the highest level of volatility since mid-2009.

“But it was a routine level in 2008 and less than a third of the peak readings seen in late 2008,” Bespoke says, as the index was averaging daily moves of 3.5% to 4.5% a year and a half ago.

“On the market Richter Scale, we’re now at about a 3.5 if Q4 2008 was a 10.”

Bespoke’s “Richter Scale” may not forecast crazy volatility ahead, but the stock market’s fear gauge — the closely watched CBOE’s volatility index (VIX) — is up 5.1% at 32.83 and remains perched above the psychologically important level of 30.

The VIX skyrocketed more than a year and a half ago, but settled down in recent months, only to see a recent sharp spike. It closed above 30 on Friday for only the third time since October.

The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig Von Mises, Human Action, 1949, Chapter XX

The only question now that the inevitable bust has come, is how long we’re going to drag it out. From the looks of things, as long as possible.

It’s getting ugly out there.

U.S. stocks are falling through support levels, and that’s driving wider losses. S&P 500 now down 18 at 1118, after falling through the 1122-1125 range, an area of support noted by UBS’ Art Cashin.

Fresh weakness in euro and pound appear to spark latest slide. Euro’s fallen through the $1.23 level again, this morning it struck a four-year low at $1.2233, and the pound is below $1.44. Crude is also getting nailed, slipping below the $70/barrel mark. Of course, that’s good news for consumers.

Stocks held up relatively well through the morning until about 11 a.m., coincidentally or not when markets in Europe – which had a relatively strong session, fading toward the end – closed for the day.

The selloff here looks like a correction of the bull market, DJN’s Cox wrote on Friday, which could take Dow below 10000 and S&P below 1000. Before you flip out and call your broker, that would still be only about an 11% selloff for the Dow, which given the year-long, massive run-up would be really a pretty mild correction.

DJIA down 163, Nasdaq Comp down 40.

Majestic, right? Very nice, take and picture and let's keep going. Lots to see here.

I feel like I’ve just spent three weeks jetsetting through Europe on one of those tours, trying to see every historical site, city and field on the continent, and now I’m worn out. I’m sitting here, trying to come up with something to write, and — total blank. Like sensory overload. I think I’m getting Europed-out.

The stock market may be, too. U.S. stocks are bouncing around but not really going anywhere (editor’s note: that’s changed, keep reading); maybe investors are in that same overwhelmed state I am. Earnings season is over. There isn’t any job or GDP report coming out, no big first-tier stuff. Europe isn’t melting down, although the eurobail’s ultimate success is still a hotly contested issue.

Lowe’s earnings were fine and well, but the outlook was cautious. Lowe’s, as well as Home Depot, which also reports this week, has benefited immensely from all the public money and effort that’s been spent on behalf of the housing market. But that’s all winding down, and soon we’re going to see just how strong that market really is. So there’s good reason to be cautious.

Like the song says, Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you.

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US stock market’s looking a bit directionless this morning. US stock futures shaded slightly lower premarket, but are looking at an essentially flat open. Stocks in Europe are higher, despite ongoing weakness in the euro and UK pound and after markets sold off in Asia overnight.

US economic data calendar is a little thin this week, highlights include regional manufacturing surveys from NY and Philly, housing starts and PPI & CPI. NY Fed’s Empire State survey came in worse than expected, with the general business conditions index, the main gauge, slide to 19 from 31.8. That still shows expansion, but far less than the 30 the Street expected.

Some notable quarterly earnings reports on tap throughout the week, mostly retailers including Lowe’s (out this morning) Abercrombie & Fitch, Home Depot and Wal-Mart. H-P and Dell also report. US dollar index strong, but below overnight highs, recently at 86.57. S&P futures down 1.20, DJ futures down 17. Ten-year yield down slightly at 3.44%.