Market Talk

It’s early in the week, but US stocks so far have been mainly fixated on the theatrics in Europe and their sovereign debt problems. Very fluid situation there, and that’s been reflected in some swooping climbs and sharp drops for the euro and US stocks today.

Meanwhile, Alcoa’s 4Q results late yesterday almost seem like an afterthought already, with the stock falling about 1% even as the bottom line beat analysts’ expectations, and outlook seems upbeat. The results were just fine, and most of the reports from the other 499 S&P 500 companies will likely be fine, too.

But we’d argue that “just fine” is well-priced into stocks today, and that’s the message in AA’s decline. More on that in a minute.

One report today that wasn’t fine was Supervalu’s fiscal 3Q, and the stock got punished, down almost 12%. Big bottom-line miss, with the company citing weaker-than-expected sales and margins, and while noting consumers remain under a lot of pressure.

Now, Supervalu has its own problems, a company acknowledged by management to be “in transition,” but their comments on the grocery retail space and state of the consumer are an interesting window into the economy overall. Continue reading…

David Stockman, former budget director in the Reagan administration, has been banging this drum for a while if I recall correctly, the one about the inevitable crisis the U.S. is setting itself up for if it doesn’t change its ways. Still, he makes some very good points in an interview with Raw Story, at the same time saying we need to shrink the military, and lamenting that even with a purportedly leftist government the subject isn’t even being discussed.

The problem, the reason everybody in Washington talks about the debt but nobody’s willing to take a stand, is because they don’t have to. For one thing, the Fed is making the cost of borrowing absolutely negligible. For all intents and purposes, Washington these days has a blank check. The other thing is, the government is trading on the name and standing of the United States. The thought of the U.S. defaulting is almost unthinkable (it used to be absolutely unthinkable, but the Panic of 2008 and aftermath we’d imagine put some shadow of a doubt out there.)

So the federal government can issue as much debt as it wants. Any day of reckoning is still more than an election cycle or two away, and that’s as far out as our current breed politicians can think. Besides, if the feta really hit the fan, they could always just sell a national park or two.

The whole Stockman piece is worth reading. Here’s a taste:

“So the addicts in Washington are now unfortunately terrified to stop all this borrowing whether it’s for guns or butter for fear of the economy will collapse…That’s why we’re just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe.”

Continue reading…

Japan comes out says it will buy European debt. The market sighs in relief. Stocks rise.

Um, why?

Why would anybody consider it a good thing that Japan, one of if not the industrialized world’s most indebted countries, is the latest sovereign to jump into the European debt market? First China, now Japan. Is this not a sign, another in a long, long string of signs, that Europe’s problems are beyond its control? It’s comical at this point to hear yet another government official, in this case Portugal’s prime minister Jose Socrates, avow as that their country doesn’t need “help.”

It’s not that Japan is buying European debt. We’re fairly certain this isn’t the first time they have. But the fact that not only are they buying bonds for the bailout fund, but that they’re making such a big deal about it (and buying such a big chunk of it.) Sure, they’re trying to help keep the yen down. But they’re also looking at a major market that’s on the edge of something very dark.

This is a bad thing. It should actually terrify people that the Japanese have stepped in. We all know the U.S., though the auspices of the Fed and its open swap lines, has been up to its elbows in helping to prop up Europe. Last week, the Chinese made a big public show of getting involved. Now the Japanese are. What’s driving the world’s three largest economies to take very public stances in support of Europe?

Fear.

Continue reading…

Last night I was flipping around the stations, and came across “Defending Your Life,” the 1991 comedy from Albert Brooks. Okay, so if you don’t know the set-up, it’s this: Brooks’ character, an LA ad man, gets run over by bus and ends up in heaven, at least a waiting station on the way to heaven, where he has to, you got it, defend his life.

In one courtroom scene, the prosecutor is showing selected scenes from his life. In one, he’s practicing for a job offer with his wife, where she plays the boss and tells her, in no uncertain terms, he won’t take the job for less than $65,000. The next day, in the office, the boss quickly offers him $49,000, and he quickly accepts.

When the prosecutor asks him why he caved so quickly, he says that $49,000 “was fine, we lived fine on that money.”

We lived fine, on $49,000. Here’s the clip, starting watching at the 5:30 mark (the whole movie’s good, too, if you never saw it.)

Remember what I wrote yesterday? The “serious deterioration in wages and the value of the dollar over the past generation.” I understand we’re talking about a movie here, but Brooks is a smart writer, and he didn’t just pick $49,000 out the air. That was a good salary…20 years ago, and we’re talking about only 20 years ago. How about 30 years ago? 40?

Continue reading…

Premarket complexion for US stocks has flipped vs yesterday’s early picture, with the euro hopping higher, European stocks rallying as the ever-transient sovereign-debt concerns relax after flexing Monday.

Improvement in Europe comes after Japan said it would buy a stake in one of Europe’s bailout funds to bolster confidence. ECB also said to be stepping in to buy government bonds, helping to boost the euro. Here in the US, Alcoa shares slightly lower premarket despite what looks like solid 4Q results. November wholesale trade inventories due at 10:00 a.m. ET.

Commodities bouncing as US dollar gives back some ground. S&P futures up 6.00, DJIA futures up 49. Ten-year note flat, yield at 3.30%.