Market Talk

US stocks finish a volatile week noiselessly, with major indexes barely moving in a languid session, although it was marked by more of the kind of “uncertain” news and data points that are marking this summer. Stocks were demure today, but the week sure wasn’t, and the Fed’s acknowledgment that the economy is weaker than it expected seems to have clinched the change in sentiment about the economy and recovery.

DJIA slips 17 (0.2%) to 10303, down 3.3% on the week and busting up a three-week winning streak. S&P 500 eases 4 (0.4%) to 1079, Nasdaq Comp loses 17 (0.8%) to 2173. Once again, the major indexes are back in the red on the year. NYSE volume was a very light 3.2 billion shares traded, and we’d bet most of that crossed in the morning. By the afternoon, the market looked as disinterested as Lindsey Lohan at her own trial.

On the year, the Dow is down 1.2%, the S&P 500 is down 3.2% and the Nasdaq Comp is down 4.2%. I don’t have the data in front of me, but I know Treasurys are up on the year somewhere in the realm of 5%.

Crude lost 6.6% this week, the yield on the 10-year Treasury note fell to 2.69%. Euro fell to $1.2752, as the dollar gained 4.2% this week. It’s up 12% on the euro this year.

As UBS’ Art Cashin noted, the week represented a “downside reversal week,” which means the pressure for now at least is going to be to the downside. “That’s a negative.”

Reports this morning on retail sales, consumer prices and wages all just contributed to this feeling that there’s very little demand among consumers. Add in that auto sales looked good – on the back of incentives.

JC Penney posted a 2Q profit today, but the company provided a second-half forecast that was below Street views, and cited the same thing everybody else has: uncertainty. You know, the more uncertainty there is, the more certain you can be that things aren’t nearly as good as the boosters and cheerleaders would have you believe.

In this vein, I noticed that Macy’s reported earnings this week, and they looked good, and got people excited. I’ll tell you, I used to shop only occasionally at Macy’s because it was all overpriced – until about a year and a half ago. I’ve been buying my clothes there since then, and you know why? Because everything has been marked off at least 25%, and its easy to find things marked off 40%. How much of that can be considered some kind of sale when that sale price has been in effect for a year and a half?

I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.

- Kansas City Fed President Thomas Hoenig, arguing the Fed needs to raise interest rates.

One of the comments on the Arends’ piece linked to this Bloomberg column penned by Laurence Kotlikoff, in which the author says flatly the U.S. is bankrupt and doesn’t even know it (which reminded me of that great line in “Swingers.”) What he’s talking about isn’t necessarily news, at least not to you, our faithful readers, but the blunt word, bankrupt, really puts it into focus.

From the column:

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Read the whole thing, if you’re interesting in having an existentially disturbing weekend spent mowing the lawn while you blankly stare up at the trees, listen to the birds chirping and wonder how in Thomas Paine’s name this nation has come to this pass. Then consider which wing-nut party you’re going to vote for in November and if Sarah Palin really could run for President in 2012.

Just be sure to have a stash of beer on hand. We’d suggest the King of Beers, or course. (Owned by a company out of Belguim…and when and how did that happen? Oh, dear, things really are bad.)

Brett Arends over at the Journal has this nice little 10-bagger: ten reasons to be on guard against a crash. Here’s a taste:

Way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?

2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.

3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that’s reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.

It goes downhill from there. Deflation is already here. People still owe too much money. The jobs picture is worse than they’re telling you. Housing remains a disaster.

And you think we’re pessimistic?

That big “August Surprise” people were talking about turns out to be this: the economy is worse off than you thought it was.

Okay, here’s a little pinprick of light in an otherwise dark sky: wages are rising. It’s because we’re working longer hours, and because deflation looms over the economy like a goblin, but, hey, a gain’s a gain these days.

At least, that’s what the Department of Labor is saying. “Real” wages, as in earnings adjusted for inflation, in July were up 0.2% from June, as an increase in the workweek offset a decline in hourly wages. Average weekly earnings are up 2% from the recent low hit in October 2009.

On the year, hourly earnings are up 0.4% and weekly earnings are up 1.6%, a function of the fact that we’re all working longer hours.

The picture’s a little dimmer for the “production and nonsupervisory” workers. Average weekly earnings were flat, and average hourly earnings were down. So unless there are more managers than workers these days, seems like the vast majority of us went nowhere. Although, for the year, the gains are a little better than the overall numbers.

I don’t want to look a gift horse in the mouth here, but, well, something tells me all this is more about the deflationary environment, as you can see again in today’s consumer prices report,  that any actual sustainable wages gains. We know wages were down in 2009, and employees have been losing ground for a decade, if not more.

Of course, don’t forget too that Uncle Sam has contributing a bigger piece of people wages than ever before.

It sure doesn’t seem like people feel richer. We got a report on retail sales today, and while it was higher overall, excluding autos, gas stations and building materials, the so-called core sales, were actually down.

Apart from autos and gas, Miller Tabak’s Dan Greenhaus wrote, “there is very little ‘good’ in today’s report.” Sales were down at clothing stores, sporting-goods stores, department stores and food stores,  as well as for electronics and building materials, “which are outright collapsing.”

So it sure doesn’t seem like people feel richer. If anybody out there does, please let us know. We’d love to hear from you. Of course, if you feel like you’re doing more work for the same pay, well, we’d like to hear from you too.

US stock futures down slightly premarket, following some weakness in European markets and in the euro. The single currency floating
around its overnight lows now, dancing above and below the $1.28 level.

A bit of decent news on the economic front this morning. Consumer prices rose for the first time in four months on the back of higher energy prices. But underlying inflation remains tame. CPI rose 0.3% in July from a month earlier, in line with economists expectations. And core consumer prices, which strip out changes in energy and food prices, rose by just 0.1%.

U.S. retail sales also rose for the first time in three months, increasing 0.4% in July from a month earlier. The gain, which was in line with expectations, was fueled by cars and gas. A positive number is definitely a bright spot, especially considering the past few months of declines, but there were only four increases among the 12 retail categories, representing some cause for concern.

Not exactly robust numbers, but definitely better readings than the slew of poor economic numbers we’ve seen over the last few weeks.

Additionally, Reuters/Univ of Michigan’s first look at August consumer sentiment due at 9:55am ET; and May business inventories at 10:00am.

Oil’s stabilized just below $76/barrel, gold a little lower. S&P futures down 2.70; 10-yr note higher, yield at 2.71%.