Market Talk

- With earnings season only a few weeks away, Josh Brown notes a pattern that’s developed in last six quarters. “A run up in stocks at the beginning of earnings season’s opening month followed by the almost inevitable denouement as hearts are broken and focus is diverted elsewhere,” he says. “The Ghosts of Earnings Past are haunting the nascent rally even as you read this.”

- Now that the recession is technically over, Yves Smith wonders if this is what a recovery really feels like. “The ugly fact is that serious financial crises take a very long time to resolve and result in a permanent fall in the standard of living,” she writes. “The best we can hope for, absent aggressive government action, is an economy that bumps along at a low level of what is technically growth, but is very far from what most businessmen and consumers would consider healthy.”

- Larry Summers’ decision to step down as one of Obama’s top economic advisers is a long-time coming, FusionIQ CEO Barry Ritholtz says. “Summers was a defender of the status quo…The change people voted for never appeared, and the Summers-led economic team gave us two more years of Bush bailout policies. For that humongous error, his departure is a welcome change.”

- Mark Thoma questions why the Fed’s taking a “wait and see” approach on whether more QE or other stimulative measures are needed for the economy. “The Fed should have learned that it needs to act preemptively from its mistake in dealing with the housing bubble,” Thoma says. “Cleaning up after the fact, which is what ‘wait and see’ amounts to, is inferior to preventing problems before they appear.”

- Google’s M&A department has thrown lots of money at many different ideas, but it’s hard to argue with some of its successful wagers throughout the years, including Android and YouTube, Digital Daily blogger John Paczkowski says. “Of course that’s just two acquisitions out of the 80 or so that Google’s made since 2001,” he notes. “But obviously the threat of a clunker investment or two isn’t going to temper Google’s aggressive acquisition strategy.”

- Bullish sentiment among advisors hit 41.4%, according to the Investors Intelligence weekly sentiment survey, which marks its highest level since early August. But, as Bespoke points out, bullish sentiment has hit that level a few times in recent months, with stocks not experiencing much success in the aftermath. “Will the third time be the charm or are we in for more of the same?”

- Keep an eye on the “quiet expansion” of Treasury Secretary Tim Geithner’s duties, especially in the aftermath of Larry Summers’ resignation, Yves Smith notes at naked capitalism. “The speculation has long been that he would not stay much beyond the mid-terms, but that looks like a far less sure bet than it did a few months ago.”

- Housing prices continue falling in wake of government’s home-buyer tax credit, dropping to lowest level in nearly six years, according to FHFA home price index. “With the two-year tax credit experience in the rearview mirror, officials probably need to be thinking about going back to the policy drawing board,” Ryan Avent writes.

- The recession’s officially over, but Tyler Cowen says it’s premature to believe the economy’s bottoming-out process is over. “It looks like a recovery only because things were, for a while, so extremely bad. I don’t yet think of us as being in a true recovery mode at all.”

- Runners are abandoning races with quirky distances in favor of the standard marathon or half marathon.

US stocks slide modestly, as a number of other asset classes rise in response to the likelihood of the Fed unleashing another big round of bond-buying and liquidity flooding, and the implications for the dollar that come with it.

DJIA slips 22 to 10739, S&P 500 loses 6 (0.5%) to 1134, Nasdaq Comp drops 15 (0.6%) to 2335. But again, the real action’s outside the equities pits. Dollar drops against, well, everything. Gold nears $1,300/ounce, two-year yield hits a record low. The dollar-debasement trade, as noted elsewhere, is alive and well.

If the Fed’s primary fear is deflation, what’s that say about the real state of the economy? Nothing good, Mouseketeers, nothing good at all. Take a look at General Mills’ earnings today. The company, which makes products we all know, saw sales creep higher, and is getting squeezed between rising commodity costs and its inability to pass those costs along.

New York Times issued a warning about its revenue.

Adobe got killed on its outlook.

The FHFA said home prices are down 3.3% from a year ago. Mind you, before the housing crash, it was accepted as a fact of life that prices never fell. Now a drop like that elicits a shrug.

Keep an eye out tomorrow for the number of people falling off the emergency unemployment claims rolls, when the Labor Department reports jobless claims. It’s far from clear how many of them are finding jobs and how many are falling into oblivion, and how many of the ones finding jobs are finding good ones, ones that pay living wages. After all, these days it’s debatable whether even $250,000 constitutes wealthy (at least, it is if you live on the coasts.)

Now, what’s that tell you?

All anyone could talk about a month ago was the looming stock-market pullback in September. Turns out the exact opposite has come to fruition.

Analysts kept preaching how September was typically the market’s worst month of the year. But amid the gloom and doom, stocks have had the inverse reaction and raced higher this month, with the S&P 500 up about 8%, its best September performance since 1939.

But there are still six sessions remaining this month, so for all those bears still waiting for the September swoon, there’s some hope.

September’s strong performance to this point doesn’t necessarily mean it will close the month on an even higher note. Bespoke Investment Group posts the S&P 500′s 10 best September performances through Sept. 22, but notes that the index during those specific months has averaged a 1.2% decline for the remainder of September. The S&P 500 has posted positive returns for the rest of the month in only three out of the nine previous instances (not including 2010.)

Based on that data, the quick run-up this month may hit a speed bump, which is what happened today. Stocks closed slightly lower, with the Dow snapping its five-day winning streak, as the Fed’s deepening worries over deflation prompted a flight to safety. Gold hit another fresh high, while the dollar fell.

Whether this flight to safety marks the beginning of a new trend remains to be seen. But the fact that the Fed is still considering quantitative-easing measures doesn’t exactly bode well for the overall health of the economy.

That’s a big worry that shouldn’t sit well with equity investors.

Pricey corn -- Ben Bernanke's new best friend.

Gold and Treasurys rally after FOMC yesterday signaled that they’re more concerned about deflation. “Maybe they haven’t checked the prices of commodities recently,” Terry Woo says at Minyanville.

He notes corn’s up 42% since June 1, while cotton’s up 27% and copper’s gained almost 13%, just a few examples of sharp commodities inflation lately. “So if you think this isn’t going to feed into your daily purchases at the local grocery store, then I have some oceanfront property to sell you in Arizona,” Woo quips.

“The currency debasement trade is still on and very strong and inflation beneficiaries will continue to outperform,” he says.

“Gold mining plays will shine as well as stocks with dollar-denominated liabilities and revenues coming from other countries with more stable currencies. If gold’s not your thing, look to McDonald’s (MCD), YUM Brands (YUM), and Walmart (WMT) as some potential plays.”

(Photo courtesy of Wiki Commons.)

Markets are still reacting to the Fed’s latest hints about quantitative easing as the central bank’s statement prompts a weaker US dollar while Treasurys rise and gold, once again, hits another fresh high. Dow Jones Newswires editors Anna Raff, Eduardo Kaplan and Steve Wisnefski discuss on the Markets Hub.

Charles Munger explains the virtues of personal responsibility to students recently at the University of Michigan.

If he were better known, Charlie Munger’s comment in Michigan last week could be the kind that sparks riots and possibly even revolutions, because it is absolutely at a “let them eat cake” level of smug arrogance.

If, say Lloyd Blankfein said it. But outside of the financial world, most people have never heard of Munger, so he’ll probably slide, sans the verbal assaults from the blogosphere, which are coming heavy.

What’d he say? Munger, vice-chairman of Berkshire Hathaway and right-hand man of Warren Buffett, did this appearance at the University of Michigan last week, a long, two-hour sitdown with Becky Quick in front of a live audience, which got to ask questions. It was in response to a question about government help/hand-outs/bailouts for individuals that got Munger’s goat. Bailing out people will just make them lazy. It will actually wreck society. “Suck it in and cope, buddy,” he said.

Suck it in and cope, buddy.

Now, poor old Marie had at least two mitigating circumstances Munger doesn’t have. For one thing, there’s scant evidence that she ever actually said “let them eat cake.” For another, even if she did, what got lost in translation, purportedly, is that the cake she was referring to was something even better than bread, so she was really showing profound sympathy for the plight of her starving subjects. Purportedly, at least.

Continue reading…

Most prominent feature in US premarket is the hammering taken by the US dollar. ICE USD index recently down 0.8% at 79.79, lowest levels in six months.

This is no flight from safety into risk, folks (gold and Treasurys are soaring), just the harsh reaffirmation that the Fed’s course of action remains one that isn’t conducive to a strong dollar.

FOMC yesterday exposed it’s concerns about deflation all too clearly, though it’s debateable how effective “additional accommodation” will be in warding it off, or even in supporting the recovery.

No notable data on the calendar today. Euro jumps past to $1.34 on USD weakness, up to $1.3422 now, though European stocks are down. S&P futures down 0.80, DJ futures down 4. Ten-year strong, yield back down to 2.54%.