Market Talk

Here’s a link to the latest quarterly musings of Jeremy Grantham, always informative, thought-provoking and entertaining. Titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever,” here’s a nice little taste:

Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions. I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justified either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.

University of Maryland economics professor Peter Morici takes both parties to task over the issue of budget reform, saying neither side is facing up to the reality of the situation and the challenges. His last line is actually the most telling (we journos would say he buried the lede): “Americans really need adults to govern but few can be found on either side of Pennsylvania Avenue.”

Ain’t that the truth?

The Budget Follies: Demagoguery and Sophistry Reign

Federal finances are in shambles, and Americans should be amused if not disgusted by the explanations and solutions both political parties offer.

The President’s budget plan issued in February projects a $1.6 trillion deficit for 2011 and a cumulative shortfall of $11 trillion through 2021.

Things may get worse, as additional revenue and cost savings from health care reforms don’t materialize and the 4 percent growth assumed by the President’s budget for the next four years proves Pollyanna.

Time and again, House Democratic Leader Nancy Pelosi and President Barack Obama have demagogued the problem, blaming two wars and tax cuts instigated by President Bush and the Great Recession.

To set the record straight, in 2007, the year before the financial crisis, with wars in Afghanistan and Iraq at full tilt and Bush tax cuts in place, the federal deficit was only $161 billion. In 2011, with the economy in its second year of recovery and TARP money returning to the Treasury, the deficit is ten times larger and greater than $1.4 trillion notched in 2009, the pit of the recession.

Continue reading…

Dateline Washington: “Treasury Secretary Timothy Geithner on Tuesday told policy makers and entrepreneurs that U.S. small businesses need greater access to capital in order to spur innovation,” Newswires’ reporter Jeff Sparshott reports today.

“The financial crisis caused a great deal of damage to the capacity of innovators to access capital, and we can’t promote innovation and investment in the United States unless we help innovative companies get the funding they need to succeed,” the secretary continued.

Makes for a nice sound bite, but it seems Geithner hasn’t kept his finger on the pulse of small business. They aren’t clamoring for capital. In fact, here’s what they said about credit markets in the latest monthly survey by the National Federation of Independent Businesses:

Overall, 92 percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied, and 51 percent said they did not want a loan.

NFIB said a net 11% reported loans “harder to get” compared to their last attempt — asked of regular borrowers only — up from 10% in January. The organization also says 28% of owners said weak sales continues to be their top problem, and “the historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to ‘pay back’.”

Seems pretty simple, but it’s really more business that small businesses need, not more capital, right now. And demand spurs innovation (remember necessity is the mother of invention?), not capital. Sounds like Geithner, and the White House, doesn’t get that.

We hit on this topic recently, but it begs revisiting (again and again) as the sheer growth in the number of Americans on food stamps continues to shock and awe.

USDA recently released December numbers for its so-called Supplemental Nutrition Assistance Program (SNAP) which show 486,503 persons added to the food-stamp rolls in December, bringing the total receiving help to more than 44 million. That’s up almost 7% just since June, and 13% compared to a year earlier. Households receiving food stamps swelled to 20.67 million, an increase of more than 263,000 in one month, and a nearly 16% increase in a year.

Compare back to a couple years ago and today’s rates of increase become even more astonishing. In 2007, average monthly participation was 26.31 million persons, so the December total represents a nearly 68% increase over the ’07 average. During the same period, the number of households receiving assistance soared 75%. That’s a startling increase, any way you look at it. Continue reading…

It’s no secret that banks are parked over a mother lode of bad loans, mainly residential and commercial mortgages, and they prefer to not publicly acknowledge (by marking to market) what those loans are really worth. That tactic has helped banks recuperate and appear healthy, but it’s a stance that’s also costing at least of few jobs, in a roundabout way.

We’re a little late to this story, but our new-found fascination with state WARN notices led us to find one from a California company called Kondaur Capital, which said about a month ago that it plans to lay off 161 workers by April 18. A little searching brought up an article last month by the accomplished Paul Muolo at National Mortgage News.

Seems Kondaur buys nonperforming loans, and finds itself needing to layoff workers because there aren’t enough bad loans available to buy.

Come again? Aren’t banks still sitting on mountains of toxic debt? Can’t find enough to buy? Continue reading…

“Only don’t tell me you’re innocent. Because it insults my intelligence — and makes me very angry…”
-Michael Corleone, The Godfather

Listening to Ben Bernanke repeatedly deny that the Fed’s QE2 program has played any role in jamming up commodities prices stirs the same emotions Michael felt when his brother-in-law Carlo denied fingering Sonny for Barzini’s people.

Bernanke continues to insist that rising commodity prices are due to supply and demand dynamics, and denies any culpability of the Fed’s easy money monetary policy. Senators at today’s testimony on the Hill let that assertion go unchallenged. Would’ve been nice if someone asked Bernanke to reconcile ISM’s February manufacturing survey today, listing roughly 30 commodities up in price, none down, but only three commodities — capacitors, cocoa powder and electric components — in short supply.

It’s a simple enough question: Dr. Bernanke, there’s a laundry list of commodities up in price, and many of their run-ups began in late August, coincident with early mentions of potential QE2. Less than a handful of commodities were reported by manufacturers as being in short supply. So how can supply and demand dynamics alone explain the sharp run-up in commodities during the past six months, when there appear to be few, if any, supply constraints?

For an organization like the Fed where credibility is crucial, it’s amazing that its officials continue to stand by such a flimsy rationale for high commodity prices. Continue reading…

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

We hear consumer confidence hit a three-year high in February, at 70.4, according to the Conference Board. Guess this level looks a lot better coming up out of the basement than it did the last time it was visited in February 2008.

“”There is no evidence that the recent collapse in consumer confidence is going to turn around any time soon,” said Brian Bethune, senior economist at Global Insight, as quoted by the AP back then. Stories note at the time it was the worst confidence reading since the start of the Iraq War in 2003, and excluding that one, worst since 1993. So this level hasn’t been associated with “happy days” in the past.

Look, it’s better than heading lower, but it’s a bit of a stretch to suggest it’s a sign consumers are gearing up to unleash some wave of pent-up spending. Conference Board tries to put the best spin on it, but the overall damp mood can only be spruced up so much. The outfit says “consumers’ appraisal of present-day conditions improved moderately in February.” What’s “moderately” mean? Continue reading…

Once again it looks as if the Dow Industrials’ winning streak (now at eight straight sessions) may be in jeopardy, but it would be foolish to underestimate the bulls’ ability to turn things around, especially late in the session.

“These days, opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone during the past several months:

In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to minuscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specific name selling, not overall market calls).

The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a difference between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.

Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.

Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.

The 64 trillion question: When? Continue reading…

Helicopter Ben vs. Don Texote. Sounds like a damn monster movie.

Today’s news highlight, the Movie of the Week, if you will, is the testimony of Fed Chairman Ben Bernanke, who’s speaking in front of the House Budget Committee. These little hearings with sitting Fed chairmen are always entertaining, if for no other reason than you get to watch a lot of dim-bulb politicians trying to score political points because they know the cameras are on. But there are some issues that are, ah, inflating, shall we say, that might make this one more interesting than usual.

Now, the Fed chairman himself is going to stick to the script as much as possible. Here’s a little preview we put out on the Wire this morning, written by Stephen Bernard:

1332 GMT [Dow Jones] Fed chairman Ben Bernanke is not likely to stray from his long-held position that the economy is still weak enough for the Fed to continue its $600 billion bond-buying program, Brown Brothers Harriman wrote in a research note. “We expect Bernanke’s remarks to resemble the speech he gave last week, highlighting that despite gradual improvement in the economy, the Fed remains uncomfortable with low inflation and high unemployment,” the note said. The euro is at $1.3653 in morning trading in New York ahead of the speech, from $1.3625 late Tuesday, according to EBS via CQG.

But today’s could especially interesting. For one thing, the committee’s composition has changed since the midterm elections, so you could see some new dim-bulb politicians looking to score new political points. Second, well, did you see the front page of the Wall Street Journal? “Inflation Worries Spread,” top of page one.

Remember last week I was fantasizing about what one question you would ask the Fed chairman if you could? Well, I’ve got another one, a better one. It’s this, and I have to admit I didn’t come up with it. Randall Forsyth at Barron’s and Joan McCullough at East Shore Partners both made the same point:

How can the Fed take credit for boosting stock prices, but not be responsible for rising commodities prices?

You’d probably have continue with a whole slew of slyly phrased follow-up questions to get a real answer, you know, like Lt. Kaffee in “A Few Good Men.” Can’t you just see it? Whatdya you want? I want the truth!

If we could ever get Ron Paul to play the part of Lt. Kaffee, and Bernanke to play Col. Jessep, we could really have something.

Continue reading…