Market Talk

The stock market has recovered all its losses suffered after the Japan earthquake/tsunami/nuclear crisis, shrugging off at least the economic consequences of the event. That’s a posture that seems entirely premature, and the New York Times had a story Saturday that illustrates why it’s too soon to make conclusions about the disaster’s impact on the global economy.

The NYT headline reads “Global Supply Lines at Risk as Shipping Lines Shun Japan,” and the gist is that some shipping companies are reluctant to call on ports in Tokyo Bay because of concerns about radiation spewing from the damaged Fukushima Daiichi nuclear plant.

Cargo carriers have a lot at stake. As the story notes, they’re obviously concerned about the safety of their crews, but they also don’t want to risk contaminating cargo or their ships. One industry source explained that a vessel may need to be scrapped “if quarantined even temporarily for radioactivity, because they would face extra coast guard checks for years at subsequent destinations.”

Sounds extreme, but those extra inspections would make it hard for a ship to stay on schedule, and who wants to ship cargo on a vessel that’s always delayed?

So it’s no small matter, this reticence to sail into Tokyo and Yokohama. As the Times story says, those ports “are normally Japan’s two busiest, representing as much as 40 percent of the nation’s foreign container cargo.” Continue reading…

Basically a two-stock show for the Dow Industrials today, with a couple perennials — Boeing and Caterpillar — supplying 75% of the average’s nearly 51-point gain. The outsized effect from BA and CAT drove the DJIA to a 0.4% rise while the S&P 500 was only up 0.1%.

Got to hand it to those Boeing investors — they’re a very forgiving bunch, no doubt about it. BA shares tore 3.4% higher, climbing $2.40 to $72.47 after the company said it now expects to deliver its first 787 Dreamliner in the third quarter, which is more than three years late. Three years late, citizens. Cause for celebration. And even that plan is no guarantee.

It’s the seventh official delay, and pushes back delivery that had been expected next month, before an electrical fire during a November test flight scuttled those notions.

But here’s the good news, investors — the stock is well back above its levels just prior to the fire, so it’s as if it never happened. And that fresh, six-month delay in deliveries? Eh, all priced in. “We’re just happy it wasn’t longer,” relieved investors are said to be thinking. Continue reading…

- If everyone’s so concerned about federal deficits, why the record low yields on US Treasurys, wonders FusionIQ CEO Barry Ritholtz. “Part of the answer is the lack of alternatives. Where else are you going to park yield-seeking money? Euro denominated issues? UK debt? Japanese bonds, emerging markets?” he ponders. “Amongst the motley crew of sovereign debt issuers, the US Treasury is the least ugly girl at the dance.”

- “I have and continue to believe this is a trader’s market in which valuations matter little,” Pragmatic Capitalism says. Ultimately, the macro trends are so fierce that the tides will sink or lift all boats.”

- Apple (AAPL) may be poised to update its iMac and Mac Pro computers sooner rather than later. The MacRumors blog tracks in-store pre-order availability and has taken note of depleted stock at several retail stores, suggesting updated models could be in the offing. MacRumors also points out the iMac was last updated in October, while the Mac Pro was last refreshed in March 2009.

- General tone from European analysts digesting the stress tests is “remarkably sanguine,” NYT’s DealBook says. The tests represent “a substantial step forward,” Goldman Sachs says, although notes if Tier 1 capital ratio was lifted to 7% from 6%, it would’ve tripled the number of failed banks from seven to 24.

- Oracle (ORCL) last week vehemently denied it has a five-year, $70B acquisition budget, which President Charles Phillips originally claimed in a Fortune Magazine article. But, as Digital Daily blogger John Paczkowski points out, it’s obvious Oracle doesn’t want competitors to know its strategic plans. “Hard to believe that a company as aggressively acquisitive as Oracle doesn’t have an M&A budget,” Paczkowski says. “But evidently that’s the party line here and by the sound of things Phillips clearly overstepped it.”

- Google (GOOG) introduces Google Apps for Government, a new edition of its package of Internet-based applications specifically designed to meet the policy and security needs of the public sector.

- When digesting the new home sales report, keep in mind the data point is notoriously noisy, Ritholtz says. June’s 24% monthly increase comes on the heels of May’s 33% drop. “Ignore the swings, look at the moving average to smooth out the volatility.”

- June new home sales surged 24% from a month earlier to 330,000. But don’t get too giddy, especially since the sales level represents the second lowest on record since 1963. “Bottom line, while the figure was better than expected, new home sales make up less than 10% of the overall industry with existing homes making up the balance,” Miller Tabak’s Peter Boockvar says. “It’s good to see a pick up in new home sales but an overall market that still has way to much inventory does not need too many new homes built.”

- IAC/InterActiveCorp (IACI) chief Barry Diller tells CNNMoney that his firm has jumped on the Facebook advertising bandwagon, another indication the social network is gaining traction on Madison Avenue. “My company, which spends a huge amount on advertising, we spend every nickel we can on Facebook,” Diller says. “They’re effective. The targeting of the audience is precise enough. The message and the audience are quite aligned.”

- Robert Dudley has quite the to-do list facing him at BP.

Yeah, a lot of these are empty again.

Beginning in early March, the headlines got successively more buoyant.

“Rail Carload Freight Reaches Highest Level in More Than a Year,” sang the Association of American Railroads’ March 4th weekly traffic report. “Rail Freight Traffic Continues to Gain Momentum,” boasted the April 22 issue, and a week later the header simply replaced “Momentum” with “Strength.”

Well, the party may be over for railroad freight traffic.

Last week the association reported a steep drop in carloadings, and in the latest report today, the headline now acknowledges rail traffic “continues to reflect sluggish economy.” Uh-oh.

The increase in rail freight traffic was fitting in nicely with a sense that the economy was continuing to recover. Unfortunately, it looks like the rebound on the rails hit a wall in late April, when US railroads originated more than 298,000 carloads, up about 15% from the same week last year, but still down nearly 11% since 2008.

Continue reading…

We said almost four months ago that this “unintended acceleration” issue with Toyota automobiles didn’t smell right, and our suspicions about who was to blame (Toyota cars, or the US driver) appear to be validated now.

From WSJ:

The U.S. Department of Transportation has analyzed dozens of data recorders from Toyota Motor Corp. vehicles involved in accidents blamed on sudden acceleration and found that at the time of the crashes, throttles were wide open and the brakes were not engaged, people familiar with the findings said.

The results suggest that some drivers who said their Toyota and Lexus vehicles surged out of control were mistakenly flooring the accelerator when they intended to jam on the brakes.

And recently, Daniel Smith, the National Highway Transportation Safety Administration’s associate administrator for enforcement said the following to a panel of the National Academy of Sciences (also from WSJ):

“In spite of our investigations, we have not actually been able yet to find a defect” in electronic throttle-control systems.

“We’re bound and determined that if it exists we’re going to find it,” he added. “But as yet, we haven’t found it.”

As for the investigation (which amazingly still includes the resources of NASA), it continues and we’ll surely be treated some time down the road to a lengthy report, paid for by wasted tax dollars to reach a conclusion that was always obvious.

And Toyota, they’re taking the high road, with president Akio Toyoda saying the company won’t fault customers for its problems, as part of its PR response.

Admirable of them, since the terms “witch hunt” and “railroaded” come to mind. Wouldn’t blame Toyota for taking a cue from former labor secretary Ray Donovan, and asking Transportation’s Ray LaHood, “Which office do we go to to get our reputation back?”

Yessir, volume's up a lot...on some stuff.

CSX’s 2Q earnings were solid, helped by strong volume growth in hauls of metals and automotive-related freight. Automotive volume up 63%, while metals up 44%. That’s the good news.

In all other merchandise areas — chemicals, phosphates & fertilizers, emerging markets, agriculture products, forest products and food & consumer, volume growth vs last year’s 2Q was 10% or less.

In terms of what they indicate about economic growth, agriculture, forest products and food & consumer are disappointing, with volume growth of 1%, 2% and flat vs last year’s depressed levels.

“Increased shipments of ethanol were mostly offset by weaker demand for feed ingredients, soybeans and other processed products,” CSX commented on ag products. On forest products, the railroad noted volume growth related to building products increasing from “depressed levels of 2009,” due to home-buyer tax incentives “that ended during the quarter.” Also, paper products “continued to see long-term, gradual volume declines,” likely due to folks reading more news online instead of in newspapers, CSX suggested.

Continue reading…

- Despite China’s placating yuan flexibility, tensions with the U.S. over the currency may still flare up, Yves Smith writes at naked capitalism. “The real determinant will be economic performance. If the growth falters and unemployment rises, which we deem likely, then the pressure on the president and Congress to Do Something will also rise. And the next window for certifying China as a currency manipulator is mid-October, temptingly close to mid-term elections.”

- As the relief thing goes these days, relief that the end of the ECB’s big financing program won’t cause havoc may be short-lived. “Now that we know we’re looking at a two-tiered existence for eurozone banks – those that can fund themselves in the interbank market and those that still have to rely on the ECB – we can guess that a rapid rise in rates could be difficult for some to take. In which case, we could still see rates like Eonia and Libor rise on fears of bank counterparty risk. It’s a tough job, this weaning-off-liquidity thing.”

- Google (GOOG) says it’s “going the extra mile” to treat employees fairly by paying for additional taxes that gay employees must pay when their partners receive domestic partner health benefits. In a blog post on Thursday, the company says it will start “grossing-up” imputed taxes on health insurance benefits for all same-sex domestic partners in the US, retroactive to Jan. 1. The progressive moves could have a ripple effect among Silicon Valley companies competing for the same talent.

- Oh, sure, blame the media. “The combined efforts of the bearish blogging network, the televised media (“What are the chances of a double dip, Mr. X?”), and the technical community (If we close a couple of points below 1040, the next stop is 20% lower), have scared the daylights out of the average investor,” writes Jeff Miller, CEO of NewArc Investments, at A Dash of Insight. “My guess is that Friday’s employment report will make matters even worse.”

- June was another difficult month for risky assets, with REITs and US stocks suffering the worst of the declines, each dropping more than 5%, while bonds performed fairly well. “But don’t let June mask the broader trend,” James Picerno notes at The Capital Spectator. “Stepping back and considering the first half of 2010, there are more losses, and deeper ones among the major asset classes.”

- “All we can say with any degree of confidence is that we see growth slowing, and await more data prior to making a recession call,” Barry Ritholtz says at The Big Picture.

- “Euroland is right to place deficit reduction at the top of its priority list,” former Dallas Fed President Bob McTeer says. “We should place it close to the top. We should be careful, however.”

- Michael Shedlock doesn’t offer a rosy interpretation to today’s jobless claims, pending home sales and manufacturing reports. “This data should be enough for anyone of sound mind to question the recovery.”

- WSJ’s Matt Phillips notes Doug Kass calls another bottom. Nevermind the fact that he missed the top, the hedge fund manager is still confident in his call.

- Only my Mets could pull off something as ridiculous as this. Thanks to a deferred buyout, the Mets still owe Bobby Bonilla 25 annual payments of $1.19 million. Yes, that Bobby Bonilla. No one ever said it was easy being a Mets fan.

We’re struck today by what looks like another “disconnect” in the stock market, manifested in Boeing (BA) shares, which rallied nearly 4% and contributed almost 21 upside points to the DJIA. BA’s gain alone easily kept the DJIA from closing in negative terrain.

But BA reported 1Q profit fell 15% (but not as much as feared), and the company trimmed full-year EPS view, reflecting special charge for loss of health-care related tax benefits. Backlog also fell slightly and revenue was down almost 8%.

But that’s not the disconnect.

Investors buying BA shares today didn’t pay much mind to the action in the airline sector (y’know, Boeing’s customers), where stocks got hammered as carriers like American (AMR) and AirTran (AAI) continue to post losses; AMR’s was wider vs year ago while AAI’s narrowed.

AMR CEO Gerard Arpey said while the carrier made progress on revenue, “we were simply unable to overcome the challenge of the global economic environment coupled with once-again escalating fuel prices.”

Sounds a bit gloomy; AMR shares fell 9.2% to close at $7.77.

Continue reading…

- It shouldn’t come as a surprise that AIG’s reportedly considering suing Goldman Sachs (GS) and other Wall Street banks over soured mortgage assets, Yves Smith says. “Other shoes are starting to drop on the Goldman CDO front.”

- “The real scandal isn’t the Street’s unlawful acts (i.e., SEC vs. Goldman Sachs) but legal acts that have reaped the Street a bonanza and nearly sunk the rest of us,” former labor secretary Robert Reich writes.

- “The thing which struck me most about Goldman’s earnings call this morning was how guarded they were,” Felix Salmon says. “For a company which has happily been talking to the press and leaking the letters it sent to the SEC, no one on the call seemed to want to talk candidly.”

- Banks posting “favorable” earnings on lower loan-loss provisions isn’t necessarily cause for celebration, John Hussman writes. “Keep in mind that Enron and Worldcom were able to report outstanding earnings for a while by adjusting the manner by which revenues and expenses were accrued. I suspect that the US banking system has become a similar breeding ground for innovative accounting.”

- “For years, sophisticated investors and big financial institutions, all run by very well-paid individuals, invested huge sums of money on the basis of a few pearls of folk wisdom (‘housing prices never fall’) and the words of some highly conflicted players, like the ratings agencies,” James Surowiecki notes. “This was a recipe for disaster, and disaster was what we got.”

- “There are simply no social benefits to having banks with over $100 billion in total assets,” former IMF chief economist Simon Johnson asserts.

- Dept. of Transportation reports miles driven in February fell 2.9% from a year earlier. “If vehicle miles continues to decline on a year-over-year basis, it might suggest high gasoline prices are starting to impact the economy,” Calculated Risk says.

- “The key factor for a sustained recovery will be a continued improvement in job creation rates at existing firms and stabilization in the rate of new business formation,” Ellyn Terry writes on the Atlanta Fed’s macroblog.

- Citigroup shares once again toeing the $5 line.

- Lawmakers took aim at Lehman and federal regulators for the investment bank’s collapse, accusing the firm of manipulation and its watchdogs of negligence.

That's right, pal. Loaded with freight.

Here’s a hopeful sign for the US economy: Railroad freight traffic has been gaining steam, at least compared to depressed 2009 levels, Dow Jones reporter Bob Sechler relates.

 The Association of American Railroads says US rail volume climbed 10.7% last week for sixth consecutive weekly increase, compared to a year ago. Still, rail volume is up only 2.2% through first 13 weeks of the year, according to the trade group, and remains  off 14.7% from the same period in 2008. The trends indicate railroads still have plenty of track to cover for full recovery.

We’ve had our eye on the rails since last summer as a gauge for signs of an upturn in the economy, and AAR’s weekly data is looking like the real deal. Not blowing the doors off the joint, mind you, as comparisons to 2008 are still weak (traffic down almost 12% vs same week in ’08), but still showing legitimate gains vs year ago.

AAR noted 17 of 19 carload commodity groups showed gains from a year ago, with largest increases coming from products associated with metals: metallic ores up 104.2%; metals up 84.1%; scrap up 39.8%; and coke up 30.3%.

Also notable: primary forest products up 34.8%;  and lumber up 21.6%. The only decliners were pulp, paper & allied products, down 5.1%, and food & kindred products, off 0.8%.

Finally, a sign that inventories may really be building instead of just being drawn down more slowly.