Market Talk

- Gold dropped to a three-month low yesterday. “For gold, the battle now is between short-term traders, who see the metal’s rally as played out for the moment, and the true believers, who see gold as the only refuge from the risk of further government-engineered debasement of paper currencies,” Tom Petruno says.

- Harvard economics professor Martin Feldstein describes how difficult it truly is to forecast economic growth. “While it would be rash to forecast a double dip as the most likely outcome for the economy during the rest of this year, many of us are raising the odds that we attribute to such a downturn.”

- Nonfinancial companies in S&P 500 have a record $837B in cash, according to S&P, which is 26% higher than year-earlier figures. “The odd thing about this gigantic cash pile is that these companies are barely being paid any interest by keeping this money in cash,” Eddy Elfenbein writes at Crossing Wall Street. “It shows you just how scared they are.”

- Princeton economist and NY Times columnist Paul Krugman is baffled at the Obama administration’s waffling on whether to appoint Elizabeth Warren to head the new Consumer Financial Protection Bureau.

- Unemployment remains stubbornly high and GDP growth is slowing, but that doesn’t necessarily mean investors should avoid stocks. Peridot Capital’s Chad Brand compiles S&P 500 returns from 1958 through 2009 and concludes: “Investors choosing to own stocks only in years with negative GDP growth would have earned nearly four times as much than investors choosing to invest only when GDP was growing at 5% or better.”

- “If BP emerges from this debacle fatter and happier than anyone imagined a few months ago, whatever happened to the idea of corporate accountability?” former labor secretary Robert Reich ponders. “Does this mean any giant corporation can wreak havoc and then get back to business as usual?”

- Selling Phibro may be one of Citigroup’s best moves. “It isn’t often these days that Citigroup comes out ahead of the Wall Street pack,” WSJ’s Deal Journal says. “But at least for now, the Phibro deal is proving to be a plum.”

- “The administration would have been in a much better position today had it made a concerted effort months and months ago, even an unsuccessful one, to give the economy the help it clearly needed,” Mark Thoma writes.

- Durable goods orders slid for a second straight month, which comes as no surprise to Michael Shedlock, an investment advisor for Sitka Pacific Capital. “I cannot help but laugh at economists who refuse to see the economy is slowing dramatically, and somehow think manufacturing is going to lead the way to recovery,” he says. “That was an across the board stunningly bad report.”

- A new paper from two economists says without the Wall Street bailout, bank stress tests, emergency lending and asset purchases by the Fed and Obama’s fiscal stimulus program, GDP would be about 6.5% lower this year.

I suppose “uninspired” is my code word (you know, like Ben Bernanke’s got his “unusually uncertain”) for what happened in the market today. Let’s recap:

US stocks drop during what’s a generally uninspiring session; earnings reports were uninspiring, the durables report was uninspiring, the beige book was uninspiring. After two plus weeks of rally mode, it’s understandable that the market has an off day.

DJIA loses 40 (0.4%) to 10498, S&P 500 falls 8 (0.7%) to 1106, Nasdaq Comp drops 24 (1%) to 2265. NYSE volume of 4B shares traded is low (although not so low for these slow summer months.) Those three indexes are all perched around their 200-day moving averages, which are proving to be some resistance. In Treasurys, the 10-year yield is perched right at 3%, and the euro is stuck at $1.30. A lot of perching, ahead of tomorrow’s weekly jobsless claims and Friday’s GDP report (first reading on 2Q.)

Lots of earnings, but the numbers are more circumspect than yesterday. Fed’s beige book offers relatively glum assessment of the economy, reinforcing what just about everybody but the most raging of the bulls knows: the economy is slowing down.

So what is “uninspired” code for? Well, just like the Fed chairman’s unusual uncertainty, it’s code for “lousy,” of course. Stocks have been such a streaky one-way deal this year, run them up, run them down, and so essentially range-bound, that you wonder if the latest rally is now over and we’re going back into sell mode.

They ain't built a jail yet that can hold me, I tell ya.

Major stock indexes are on pace for their biggest monthly gains in a year, but pessimism continues to swirl around the stock market.

Bearish sentiment among investment advisors dropped ever-so-slightly from a week earlier, according to Investors Intelligence. But with 34.9% of respondents indicating they’re bearish, it’s still a pretty high reading. In fact, it’s up from levels seen at the end of June, when the S&P 500 was more than 7% lower from current levels.

“It’s hard to believe, but in what is shaping up to be the best month for the S&P 500 in over a year, investment advisors have turned more bearish,” Bespoke Investment Group says.

Well, maybe the bears are on to something, especially since the much-discussed second-half economic slowdown appears to be arriving now. Recent economic weakness, including this morning’s weak durable goods report, provides further evidence that the second-half slowdown appears to be here, Calculated Risk notes.

And there are several reasons to believe the economy will continue slowing: Less stimulus spending, end of the inventory correction, a higher personal saving rate, another leg down in housing and cutbacks at state and local level, blog says.

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Been eyeing the tight correlation between euro/US dollar and US stocks (specifically the Dow Industrials) for a couple months now, and lately they seem like one of those couples that can’t live without each other.

The euro goes up, the DJIA giddily chases behind. Euro slips, stocks dutifully follow. That’s been the setup since about mid-April, with equities tanking through May as the euro swooned amid sovereign debt agita, and tagging after the single-currency’s bold rebound as those concerns eased.

If you can, check out an intraday overlay chart of EUR/USD and DJIA, and you’ll see on most occasions these two partners dance together like Rogers and Astaire. At times it’s not so clear which one is leading the other, but euro strength ahead of the US market open has often been the type of positive table-setter bulls need to spark a rally or sustain some follow-through. And when confidence in stocks has wavered, you can almost see the DJIA leaning on EUR strength for support.

Maybe there’s a fundamental connection, perhaps a sense that the euro’s gains reflect faith in Europe’s economy, and European growth will help sustain the torrid pace of US corporate profit growth. Maybe.

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Have I got a rally for you.

Bulls love to chastise guys like Gluskin Sheff’s David Rosenberg and Hussman Funds’ John Hussman for missing the 2009 rally, as if they missed out on the chance of a lifetime. Of course, most of those catcalls come from people who got creamed in the sell-off in 2008. It’s no secret that if you’d stayed invested in the stock market from 2007 to today, you’re sitting on a loss (and we all know your mattress has given you about as good a return as stocks over the past 10 years.)

Rosenberg touches on this his daily missive.

I was asked yesterday in an interview how I respond to criticism for missing the surge in the equity market. Well, for one thing, those that were long in 2009 got their clients killed in 2008 and it’s still not even a wash. Second, I was recommending credit and commodities last year, not cash, and these strategies played out well. There are always ways to make money without having to go whole hog into the stock market.

He’s right; it’s not even a wash. It doesn’t take some kind of expert to figure that one out. The stock market, despite the constant crowing from the sell-side crowd, has been a loser for its investors (of course, caveat here, I’m quite sure there are somewhere some individual success stories.)

Through all the zigs and zags, this market has done diddly squat now for over eight months. You were better off clipping coupons, even at these low bond yield levels. And as for that 80% rally from March/09 to April/10, we wonder aloud how many are going to remember it once we retest the lows – the market rallied 50% in the opening months of 1930, as an example. Do you ever hear anyone today talking about the great rally of 1930? Does anyone today ever have much to say about 1930, or if they do, is it a fond memory? Well, the market rallied 50% at one point that year. There’s not much left to say on this one.

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The rally’s going nowhere fast today, as the market fuel – earnings report – were pretty uninspired this morning. Add that weak durables report, and well, there’s your stalled rally. We break it down for you on the Markets Hub.

In 1492, Columbus sailed the ocean blue (trying to get rich.)

The one major question to which I’ve yet to see a good reply, is really quite straightforward: what’s going to drive economic growth in the U.S.?  What’s it going to be? Green energy? Space exploration? Interactive Cabbage-Patch Kids?

We’re at a crossroads here. Consumers aren’t spending. Businesses aren’t spending. The government, despite the fervent wishes of some of our representatives at the federal level, isn’t going to be spending much more, and at the state level they’re in full-on Greece austerity mode.

We won’t get past this recession, or soft patch, or malaise, or dip, or whatever you want to call it, until something comes along that spurs businesses and people to start spending money, their own money. Looking back over U.S. history, there has always been some fundamental thing driving us. Even before there was a United States, even before there were 13 British colonies. (Now before we go any further, let’s get one thing clear: this isn’t some college thesis, I’m just trying to make a general point; if I skip an epoch or two, don’t crucify me over it.)

I just don’t see that fundamental thing right now, although I don’t doubt (or at least, I hope) one will come along. People talk about emerging markets, but unless we’re going to restructure our economy, and become a manufacturing-based economy rather than a consumption-based one, I don’t see where emerging markets do much for the U.S. Are we really going to start selling cheap toasters to China?

Green energy has a chance, I suppose, but we’ve been pushing alternative energies for 30 years. Hasn’t gotten very far. What else? Space exploration seems far to expensive, and the returns far too skimpy, to lend a practical hand (although being old enough to remember the tail end of the Apollo program, I’m a big fan in theory.)  Honestly, if you’ve an idea, send it along. Whoever figures this one out first is going to get rich.

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It's beautiful, and if I had some money I'd buy it.

It’s a story we’re written about before, and we’ll probably write about again: corporate profits look good, and the corporate sector seems to be back on its feet, but so far at least it’s not helping the average American, who remains mired under stagnant wages, a weak jobs market, massive debt and a grim assessment of his future.

From today’s Upshot:

Second-quarter earnings, up 21% from a year ago so far this season, are heading to a three-quarter string of spectacular gains. But double-digit increases from companies including AT&T Inc., Coca-Cola Co., and Lockheed Martin Corp., are in sharp contrast to consumer worries.

The profit recovery isn’t something that consumers, coping with stagnant wages, a weak jobs market and flat to declining housing values, feel. And it shows in their mood and in recent retail spending declines.

“Without consumers on board, the economic recovery is looking dangerously vulnerable,” Capital Economics’ Paul Dales wrote Tuesday, after the latest dour reading on consumer confidence. July confidence slipped to 50.4, below the 51.9 from July 2008, indicating consumers are as worried about the economy and its prospects as they were as the recession took root. One consequence: consumers are saving more again. Personal savings rate in May increased to 4%, its highest level since September.

We’ve said this before, and it’s starting to get noticed in other quarters as well: the money that the federal government threw at the economy provided a brief sugar high, but not a lasting spark, and now that it’s fading, nothing is coming on the scene to take its place.

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Stocks jumped in Tokyo and Shanghai overnight and currently mixed to lower in Europe, setting up a mostly neutral premarket stance for US stocks. The euro hasn’t made much more headway north of $1.30, and currently sits a hair above that level.

June durable goods orders due at 8:30 a.m., expectations look for a 1.1% gain. Fed’s Beige Book comes out at 2:00 p.m. ET. Boeing 2Q results out recently, looks like the company came in a bit above expectations, and maintained its outlook. President Obama visits New Jersey to chat with small business owners, certain to get an earful. No shrinking violets in the Garden State.

S&P futures up 0.10, DJ futures down 5. Ten-year note a little higher, yield at 3.03%.