Market Talk

US stocks close down, but finish well off their session lows, as bank shares suffered amid concerns about a broad insider-trading probe.

DJIA, which dropped as much as 149 points, finished off 25 (0.2%) at 11179, its first decline in three days. S&P 500 falls 2 (0.2%) to 1198. Financials lead the drop, but tech and consumer discretionary finished in positive territory, muting the index’s overall losses. Nasdaq Comp gains 14 (0.6%) at 2532, its fourth-straight gain.

WSJ reports FBI raided three hedge funds amid its insider-trading investigation, which added to jitters surrounding financial sector. Ireland agrees to bailout package, but worries intensify about rest of euro-zone’s mounting debt.

Something else to consider — David Rosenberg offers his latest gloom-and-doom warning. Dow Jones’s Min Zeng reports:

US economic growth will be “extremely disappointing” in 2011, with risks of deflation. Rosenberg, chief economist at Gluskin Sheff, argues the US has passed the peaks of the economic cycle and fiscal stimulus and noted there are fresh headwinds ahead. He says safe-haven Treasury bonds provide better value than US stocks, and especially favors 30-year Treasurys. He highlights the spending cuts from state and municipal governments, the second-largest contributor to US gross domestic product after consumer spending. Rosenberg expects the 30-year bond’s yield to fall to 2.5% to 2.75% by the end of 2011.

Meanwhile, Dow Jones reporter Kristina Peterson explains why stocks ended mixed, with bank stocks dragging down the Dow, while the Nasdaq moved higher. Check her News Hub segment here:

Capital Economics out today with a thorough, frank and reasoned report on the US economic outlook, taking a look at a host of areas like consumption, investment, external demand, labor market, prices and monetary & fiscal policy. The upshot? Recovery is “likely to remain muted for years to come.”

Let that sink in for a minute. For years to come. Doesn’t seem as if investors have really wrapped their heads around that concept, but the firm builds a pretty compelling case, in straight-forward terms. For example, this simple point:

The fundamental obstacle preventing a return to stronger economic growth is the damage done to the balance sheets of households and financial institutions by the housing bust and
the related financial crisis.

Household deleveraging is “still in its infancy,” the firm says, noting that since the start of 2008, household debt has fallen $470 billion, but half that decline has come because of defaults, not from folks paying off their debt. “Overall, the downward pressures on real incomes and the structural problems caused by high debt and lower asset prices mean that households will not be able to spend freely for at least the next two years.” Continue reading…

Listen, I’m not saying anything’s going to happen on Dec. 7. So far as I’m concerned, that’s Pearl Harbor Day. But there’s this French ex-soccer player who’s apparently trying to spark a bank run on the 7th. Eric Cantona is imploring his countrymen to withdraw their money from the banks on Dec. 7, a Tuesday in case you’re wondering, in an attempt to spark a, well, some kind of revolution.

Now, I bring this up for several reasons. One, I just find it interesting. Two, it is one more example of how fed up people are; this isn’t some random crackpot. He may be a crackpot, but he’s at least a famous one; he’s generally regarded as one of France’s best soccer players. It’d be like, I don’t know, Dan Marino or somebody saying it here. Third, depending upon how widespread it gets (there’s an American version somebody’s pushing,) it’ll be an interesting mark of the public’s discontent.

There are practical barriers. Okay, you go to the bank on Dec. 7 and pull your money. What do you do with it now? Assuming, of course, you even get it. What makes a bank run so damaging for a bank is that the bank doesn’t have all of your money on hand, ready and waiting for you. What the bank has is an electronic account with some numbers on it representing your deposits. That isn’t really Cantona’ concern; he just wants to bring down the banks. Once you get it, what are you going to do with it? Find another bank? Stuff it under your mattress?

(By the way, just so you don’t panic, if say this thing goes viral and goes wild, if you’re here in the U.S. your deposits are covered by Uncle Sam. Of course, if the entire banking sector collapses, we’ll have bigger problems.)

It seems hard to believe a single guy can almost casually spark a global revolution like this, but in this day and age, with the speed at which ideas get communicated across the globe, it’s not impossible to believe. We’re just giving you a heads-up.

You know, back in the day, bailouts had staying power. The AIG bailout, the banking sector bailout(s), the Greek bailout, these were all greeted by the market with fanfare that last more than, say, two hours. Not so with the Irish bailout announced over the weekend. Forget for a second that almost no details were revealed, and that the Irish could still balk if the terms are too stringent. Actually, that’s a very good reason to hold off the celebration, although that isn’t how the market thinks. No, the market has already put Ireland behind it, and is thinking about the next domino, which in this case is Portugal.

The Portuguese are putting on the brave face. “The country does not need any help,” Portugal’s PM, Jose Socrates, said today. Does that sound at all familiar? Does that sound like the exact same things you heard out of Ireland and Greece? Socrates might as well have just queued up behind the Irish. You make a statement like that, the marketplace is going to force you to back it up. We wish the Portuguese luck. But we wouldn’t bet on them.

Reminds me of that Van Morrison song. “There’s no need for argument, there’s no argument at all.”

The line of the night on the John Batchelor Show on Saturday came from David Cay Johnston, author of the book “Free Lunch.” We were talking about the tax code, and Johnston was saying there’s $1 trillion lost every year on tax breaks to private corporations, like the ones for the oil industry.

(There was a lot of good stuff Saturday night, by the way. Keep an eye out for the podcast, which should be posted in a few days.)

When people talk about reforming the tax code, they’re going to have to cut through that $1 trillion, and the people who get that money aren’t going to surrender it quietly. They’re going to fight. In the case of the oil industry and other big lobbies, they are fighting.

That’s why they make all those “campaign contributions.” When I pointed out to Johnston that the oil industry gives freely to both parties, he said: “There’s only one party in Washington: the party of the greenback.”

Man, if that ain’t the truth. How easy would it be, in terms of pure mechanics, to scrap the tax code and start over with a far, far less cumbersome, loophole ridden and flatter tax code? Why doesn’t some eager politician propose it?

Because they’re donors would stop taking their calls, and that is what represents a real crisis in Washington.

So rather than proposing a real change that would bring real money into the government’s very really barren coffers, we get token proposals to scrap the mortgage-interest deduction, a proposal everybody knows will go absolutely nowhere proposed on its own like that, but makes the reformers appear to be bona fide. But it’s just the same old game.

Continue reading…

Ireland finally acquiesces to an EU/IMF bailout, though expectations for the event were priced into stocks during last Thursday’s rally. Consequently, we’re seeing the euro give back some overnight gains, equity markets flat to slightly lower in Europe and US stock futures a shade lower.

It’s a holiday-shortened week, with a bunch of closely watched economic indicators jammed into tomorrow and Wednesday, including another look at 3Q GDP, October existing home sales, new home sales, personal income & spending and durable goods orders.

H-P reports results after the close.

S&P futures down 4.40, DJ futures down 33. Ten-year note higher, yield at 2.84%. Euro at 1.3647, down a shade.