Market Talk

Or, at least, Google was weighing on the market. Stocks certainly have taken off since our report at 10:30 in the a.m. Guess the markets put those disappointing earnings reports behind them, and are buying the Fed’s argument that there isn’t any inflation, at least any that’s going to last.

Good luck with that one.

Big show today. We covered Bank of America’s earnings, the SEC’s likely settlement with the banks over the issue of mortgage-backed securities, and the potential Groupon IPO.

General Motors is the single greatest company that has ever existed. Every American should go out today and buy a GM car, buy two, and buy GM stock, and a GM baseball cap, and GM teddy bears, and…whoa, settle down, fella. Excuse me, there, got a little caught up in the hype.

GM, the company that once was the very definition of industrial America, and then became one among the many very definitions of corporate America’s failure, is back in the public market today, courtesy of a very big, very well-hyped IPO.

Shares are up in the 7-8% range this morning in its initial trading, but the real trick will be to see where the stock is at the closing bell. And the closing bell after that, and the closing bell after that, and the closing bell after that. But for now, this GM thing is being celebrated as a true success story.

But let’s not kid ourselves. GM still has a lot of hurdles. This isn’t some Google, some hot tech IPO for a company with a seemingly limitless future in front of it. This is a failed car company that is trying to get back into a highly competitive business, both here and overseas. We already know the very probable limits of what GM can achieve in an industry where the major competitors are Ford and Chrysler (I know, it’s Chrysler, still,) as well as Toyota, Nissan and Honda. Still, that’s not the main focus today.

“This was the single best decision of the bailout era,” Barry Ritholtz writes about GM over at The Big Picture. “It seemed to be the only decision that was not made in a panic. It adhered to the rules of capitalism — when your company is insolvent, it goes into reorganization or dissolution. The brutal, Darwinian rules of the market and of bankruptcy applied — not the influence of lobbyists, or special favors from Senators.”

Continue reading…

GM stock is on track to return to public trading Thursday, and the hype is ramping up, which reminds us of another highly anticipated and sought-after IPO: Blackstone Group.

Remember that one? Everybody wanted a piece of Blackstone when it first offered shares to the public in late June 2007, just a few months before US stock markets hit an all-time peak. “Shares are so oversubscribed that some Wall Street analysts fear that irrational exuberance will send investors tripping over themselves to get the first publicly traded piece of the private-equity boom,” the Washington Post wrote on the day of BX’s IPO. Some headlines wondered: “Is Blackstone the Next Google?” Continue reading…

Lots to discuss on this morning’s News Hub. I have a small markets segment where I mainly discuss GM’s $2 billion 3Q profit ahead of its IPO next week. Additionally, discussion surrounds the debate regarding a return to the gold standard. And there are several problems banks are having restarting the foreclosure process. Check it all out at The News Hub.

- Hewlett-Packard’s (HPQ) suit against former CEO Mark Hurd looks “very much like it was filed in a fit of passion after hearing that Hurd had signed on with Oracle,” Reuters blogger Felix Salmon says. “There’s no tactical or strategic rationale for this: it’s just petulance, really.”

- “Hurd’s knowledge of H-P’s server and data storage-systems business will undoubtedly come in handy at Oracle, which has been aggressively moving into that very space ever since its acquisition of Sun,” Digital Daily blogger John Paczkowski says. “In that sense, Hurd’s hiring is a real coup for Oracle. Who better to put the screws to a rival than a former CEO with a bone to pick?”

- There are currently 161 potential IPOs on file that are hoping to raise $56B. Staggering numbers but, as Josh Brown points out at The Reformed Broker, not necessarily as great as they appear. “Between LBO retreads and the previously bankrupt, it remains difficult to get excited about the initial public offering dealflow, robust as the pipeline seems to be in dollar terms on the surface.”

- Former OMB Director Peter Orszag makes his debut as a columnist for the New York Times by advocating an extension of the Bush-era tax cuts for two years for the middle class, and even for the upper class if that’s what’s needed to get a bill through Congress. “Higher taxes now would crimp consumer spending, further depressing the already inadequate demand.”

- The labor force had little to celebrate this Labor Day, Robert Reich says. Organized labor is down, and non-organzed labor is facing joblessness and underemployment. “Face it: The national economy isn’t escaping the gravitational pull of the Great Recession.”

- If the market has been overly bearish lately, paving the way for relief rallies and such, it’s not really showing. John Hussman notes the VIX, which remains in relatively placid territory. “It’s difficult to look at the evidence and conclude that investors are excessively bearish, much less terrified here.”

- FCIC hearings revealed how reliant Lehman was on daily, short-term funding to cover longer-term costs. “It was a recipe for disaster, a trailer park in search of a tornado,” Barry Ritholtz writes at The Big Picture.

- “The truth is that the trouble in housing is not, for the most part, a demand-side issue,” Ryan Avent writes. “The problem is the millions of homeowners stuck in houses they can’t afford to sell. These households represent a significant shadow supply of foreclosures-in-waiting. I agree that it would be silly for the administration to try to support housing prices by offering more goodies to potential homebuyers. But it doesn’t follow that letting prices go their own way will magically get housing markets moving again.”

- “Newspaper advertising revenues are on track this year to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005,” Alan Mutter notes.

- What’s up with Google’s logo today?

- The multi-year deal pay-cable movie channel Epix and Netflix (NFLX) agreed to is “a major move for Netflix, and undoubtedly a nice cash infusion for Epix, which has struggled to get carriage deals from traditional cable operators,” MediaMemo blogger Peter Kafka says. “This deal may make Netflix more competitive with cable, but it’s not designed to threaten Hollywood’s DVD business.”

- Demand Media filing a $125M IPO at a reported $1.5B valuation shows making it in the online content business is a “long march to the big time,” Kara Swisher writes. “Hence, the IPO, which will give it both cash and stock to use to grow itself, either organically or via acquisition, all while keeping the costs of content creation lower and lower via innovative technology.”

- Small business optimism sharply declines for second straight month. “Businesses and households are losing confidence and are adjusting their spending and investing plans accordingly,” Ryan Avent says. “A chill has settled on expectations around the country. It will take credible policy steps to change the tune.”

- Former Hewlett-Packard (HPQ) CEO Mark Hurd’s severance package, which could be worth as much as $30M, is “appalling,” writes Nell Minow, shareholder activist and editor of The Corporate Library blog. “While most CEO contracts exempt poor performance as a reason for ‘termination for cause,’ there is no reason to permit a departure following an ethics violation to be characterized as a resignation — when the result is a $50 million payout that would otherwise stay in the corporate bank account.”

- Now that Mark Hurd is no longer H-Ps’ CEO, a “dirty little secret” has been revealed about H-P’s business model. “H-P is a sprawling, ungainly conglomerate of tech companies that have only tangential connections to each other and that generate the most tepid of synergies,” writes Kevin Kelleher at AOL’s Daily Finance blog.

- This won’t get the attention of the Hurd departure, but TechCrunch reports the man who designed the Palm Pre has left H-P for greener pastures. Peter Skillman’s exit is the latest in a string of departures from the recently acquired smartphone maker.

- Productivity unexpectedly posted its first quarterly drop in 18 months as output growth slowed and labor costs rose. “If you were looking for one more reason to wonder about the already shaky prospects for a recovery in the labor market, today’s report on second-quarter worker productivity is just the ticket,” James Picerno writes at The Capital Spectator.

- Don’t get too anxious about Google (GOOG) and Verizon’s (VZ) joint proposal: the net neutrality situation still hasn’t changed much, Stacey Higginbotham says at GigaOm. “The good news is nothing about this compromise has any teeth without the FCC deciding to make it part of its official rules on network neutrality.”

- Rail traffic rose 4.1% last month compared to July 2009, but was still 15% lower than in July 2008, Calculated Risk reports, citing data from the Association of American Railroads. “Rail traffic collapsed in November 2008, and now, a year into the recovery, traffic has only recovered part way,” Calculated Risk adds.

- Former Sen. Ted Stevens, along with eight others, die in a plane crash in Alaska.

- Microsoft (MSFT) insists one of its top priorities is to bring a Windows-based tablet to market sooner than later. Sounds straightforward. The problem is, [Microsoft] doesn’t always manage to do things really right,” Digital Daily blogger John Paczkowski says. “Certainly, it didn’t manage it with Windows Vista. Or Windows Mobile. Or Zune. Or, more recently, Kin. Who’s to say this time will be any different?”

- Tough to get true read on what’s happening in the stock market these days. “The cross-currents lately are absolutely cartoonish — back-to-back-to-back triple digit rallies while each morning we are treated to fresh evidence of ‘Slouching Housing, Hidden Consumer,’” Joshua Brown writes at The Reformed Broker.

- Hank Paulson says government policies promoting homeownership should be blamed as a major cause of the financial crisis, but FusionIQ CEO Barry Ritholtz disagrees, saying the former Treasury secretary ignores facts and is rewriting history. “His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy. If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing.”

- Facebook isn’t planning to go public until 2012, Bloomberg reports. “That certainly sounds plausible,” MediaMemo blogger Peter Kafka says, especially considering Facebook likely doesn’t need to raise cash for operations. And if Facebook doesn’t IPO anytime soon, expect social games giant Zynga to face less pressure to go public too.

- “There is good news and bad news,” Ryan Avent writes at Economist’s Free Exchange blog, regarding 2Q GDP report. “Underlying growth looks quite weak, and in quarters to come the contribution from both government and inventory shifts will fall, or turn negative. All indicators suggest that second half growth will be no faster than first half growth.”

- GDP growth rate of only 2.4% isn’t nearly enough for the economy to properly recovery. “This shows clearly that Congress and the Fed should have taken a more aggressive posture already, not doing so was a mistake, and it’s a clear signal that the economy still needs more help,” Mark Thoma writes at MoneyWatch.

- But NYT’s Floyd Norris still thinks the recovery will pick up steam in near future. He notes this was third-straight quarter in which private sector investment rose at an annual rate of more than 25%. “The last time that figure rose as rapidly was in 1984, in the midst of a very strong recovery,” Norris says. “To be sure, private investment is coming off a very depressed level. But it is worth recalling that 1984′s recovery was also widely doubted.”

- As the Fed grapples with methods to support flagging economic growth, Monument Securities economist Stephen Lewis says (via Alphaville) that central bankers “seem close to recognizing” that their actions don’t determine the economy’s performance. “They can no longer demonstrate, or credibly claim, the omnipotence attributed to them by credulous markets in the era of the Greenspan cult.”

- Slate Group, the Washington Post’s (WPO) online unit, is shutting The Big Money, a business site it launched in September 2008, Kafka reports. “The problem, in a nutshell, is that the site is not pointed toward profitability on a fast enough timetable,” Slate said.

- “The global corporate-bond boom is gathering steam as companies rush to take advantage of some of the lowest borrowing costs in history,” WSJ says.

- China better have right intentions regarding its pledge for a stronger yuan. “The probability of a disastrous trade war will skyrocket if Congress believes they have been the victim of a classic bait and switch,” Tim Duy writes.

- “Adjustment in China and America will be slow, but that’s not unexpected or entirely a bad thing,” Ryan Avent notes at The Economist’s Free Exchange blog. “And the best news of all is that America and China have managed to arrive at this point without a major diplomatic fall-out.”

- Obama administration’s housing market stabilization efforts are yielding mixed results. Calculated Risk has the details.

- Digital music is a tough business to profit from, but MediaMemo blogger Peter Kafka says it still makes perfect sense for Google (GOOG) to jump in. A music store would enhance Android as well as give GOOG an “owned and operated destination” for music traffic. “My suggestion: Start simple. Copy iTunes’ pay-per-song model.”

- The fact that the “normally bank-friendly” Fed is pressing big banks to move faster in curbing risky pay practices is a step in the right direction, Yves Smith writes at naked capitalism. “Given [the Fed's] track record, I would not be terribly optimistic, but then again, I am surprised it has gone even this far. It would be great if it surprised me again.”

- May existing home sales dropped 2.2% to a 5.66M annual rate, well below the 5% rise to a 6.06M rate that economists were expecting. “We see more evidence that the next leg down in housing has begun,” Barry Ritholtz writes at The Big Picture.

- Investor sentiment can be a funny thing. “You couldn’t find a bull two weeks and eight percent ago but voila, as soon as the 200-day was captured and S&P 1115 traded underfoot, the equity enthusiasm was palpable, as evidenced by the recent collapse in volatility,” Todd Harrison says at Minyanville. “That’s the fatal flaw of technical analysis, right? Financial assets are ‘better’ higher and ‘worse’ lower, which is why I use them as a risk context rather than a catalyst.”

- Business Insider blogger Henry Blodget goes a bit sensationalistic in a recent post entitled “The Odds Are Increasing That Microsoft’s Business Will Collapse.” But in reality, Microsoft (MSFT) faces a “simple and less flashy situation,” BoomTown blogger Kara Swisher says.

- Looking for the important aspects to today’s existing home sales report? “The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices,” Calculated Risk says.

- The IPO market never really made a comeback from the tech bubble a decade ago, and it’s telling that Facebook, Twitter and LinkedIn — some of the most successful tech companies right now — keep pushing off filing an IPO as long as possible, Eric Schoenfeld writes at TechCrunch.

- Yves Smith at naked capitalism doesn’t see much substance in China’s pledge to make its currency exchange rate more flexible. “While this does represent an announcement of an intent to liberalize, it lacks any particulars as to timing and mechanisms.”

- China pledging to make its exchange rate more flexible is, at this point, just an announcement “which may or may not be followed through,” Barry Ritholtz writes at The Big Picture. “As such, we should treat it as a precursor, and not the significant shift the market seems to be making of the announcement.”

- UC San Diego economics professor James Hamilton still sees deflationary forces swirling through the economy even as inflation is the bigger longer-term risk. “America needs leaders willing to talk honestly about our long-run fiscal challenges and what needs to be done to address them,” he says. “I can dream, can’t I?”

- The IPO market has become a “sad tale,” says Fred Wilson. “The cost is just too high and the benefits are just too low for most companies these days.”

- The biggest headwind to US growth isn’t the state of Europe, it’s a lack of credit here. it’s a lack of credit here. “Two years ago, when the government rushed to bail out Wall Street, the justification was always the same. We have to do it. If we don’t, the banks will stop lending. And then the world will end,” Henry Blodget writes at Business Insider. “So we bailed out Wall Street. And the world didn’t end. But the banks still aren’t lending (And you can’t blame them, really.)”

- Apple’s (AAPL) iPad will hurt Kindle sales for Amazon (AMZN), but it won’t be a Kindle-killer, MediaMemo blogger Peter Kafka says. Keep in mind AMZN still offers a wider range of e-books than AAPL and sells them for much less. “My guess is that even after Apple eats into Kindle’s share, Amazon is going to find plenty of people who just want an e-reader.”

- China’s announced currency move probably won’t amount to much in the short term, Michael Schuman writes at Time’s Curious Capitalist blog. “This is a baby step on a long road to a truly market-determined yuan exchange rate,” he says. “Until China allows a free-floating currency, controversy over its value will persist, and the yuan will play a limited role in the global economy.”

- The stock market has reached an important inflection point, as “valuations remain uncomfortably rich and market action is tenuous,” writes John Hussman. “When an overvalued market loses support from market internals, it frequently produces discontinuous outcomes ranging from brief ‘air pockets’ to ‘panics’ to ‘crashes,’” Hussman says.

- Former IMF chief economist Simon Johnson remains less than impressed with financial regulatory reform, labeling it “dead on arrival.”

- China isn’t the first country that has pledged to make its currency exchange rate more flexible. “Exiting up does not doom the economy to a Japanese-style lost decade,” VoxEU says.

- Google (GOOG) dumped from China Unicom’s (CHU) Android devices. “An obvious and, I suppose, inevitable response to Google’s recent defiance of the Chinese government,” John Paczkowski says. “I imagine we’ll be hearing of a similar move by China Mobile in the near future.”

- “The mortgage mods and foreclosure abatement programs are really all about propping up insolvent banking institutions,” Barry Ritholtz writes. “These programs are another losing round of helping Wall Street at the expense of Main Street. It is the worst kind of trickle down economics that has been seen in decades.”

- Bernanke says record-low interest rates still needed to support the economy, but the central bank has to be ready to tighten credit when needed to prevent inflation. His comments helped propel stocks higher. Then ECB President Jean-Claude Trichet said IMF help for debt-strapped Greece would be bad, really bad, which helped push stocks way off the fresh highs they set earlier in the session.

- If you thought 2009 was bad for newspapers, 2010 may be even worse, Newsosaur blogger Alan Mutter says. “If the rate of decay continues to slow in 2010, the industry will shrink at a slower pace than it did last year. But it still will continue to shrink. And declining shrinkage should not be taken as a sign of health.”

- Venture-backed IPOs might be making a comeback. Four non-biotech venture-backed deals have occurred this year, and all have performed fairly well, Paul Kedrosky notes. “Admittedly, four data points aren’t yet much of a trend, but it’s worth pointing we are seeing the beginnings of a resurgence in the venture-backed IPO market in 2010.”

- It may be a lost decade for some buy-and-hold investors, but keep in mind “some investing rules never go out of style,” Tom Petruno writes. “Try to buy good businesses, try to get them when they’re relatively cheap, and don’t underestimate the power of dividend income over time. And the cardinal rule: Stay well-diversified.”

- Tepid revenue growth won’t placate market much longer. “If we don’t start seeing a pick-up in top-line growth this market is not going to be celebrating for long and the recent optimism in stocks will be proven wrong,” Pragmatic Capitalist says.

- Once again, another weak Treasury auction today. Hard to pinpoint exactly what’s causing it, “but something has changed this week in the US Treasury market and the cost of borrowing is going up as it is in Europe too,” Peter Boocvkar says.

- The Dow Jones Internet Index, which last got any press back when pets.com was still around, surpassed its pre-Lehman levels last summer, and is marching higher and now making a run at its highs from 2007, Bespoke notes.

- AAII’s sentiment survey shows percentage of respondents who expect the market to rise has dropped two weeks in a row, even as stocks keep setting fresh highs. “This is not typical,” Jason Goepfert writes.