Market Talk

There isn’t much that can derail the stock market these days. Jobs report stunk? It’s an outlier. Bond yields rising? It’s a sign of a recovery. Sovereign defaults in Europe? The ECB’ll mop it up. It’s been a good year to be a stock investor, and it’ll probably be a good year for the stock market next year, too.

That’s the general consensus. The Street’s bullish. The crew over at CNBC is in good spirits. Democrats and Republicans are spending like they have a blank check (they do.) Ben Bernanke’s “100% confident” he can control inflation, should it ever appear. Everything’s just peachy again, unless maybe you’re one of the 15 million unemployed Americans.

Or you’re Societe Generale’s Albert Edwards:

I’ve been doing this job long enough to recognise when the markets are entering a new phase of madness that leaves me scratching my head with bemusement. The notion that we are in a sustainable economic recovery is as ludicrous as it was in 2005-2007. But investors are back on the dance floor, waltzing their way towards the next, inevitable implosion – yet another they will no doubt claim in retrospect was totally unpredictable!

No doubt, the music is playing again, and people are dancing. That retail sales report came out this week, and everybody jumped all over it. But how many stopped to ask why? Why are people spending more money now, when unemployment is still “around” 10%, when wages aren’t growing, when companies still aren’t hiring. Why would people forget everything that happened in the past three years and start blowing money again? The answer, of course, is that they aren’t, as John explained yesterday. But subtleties like that aren’t part of the conversation right now.

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The bears are in charge, but will it last?

I penned a feature for the wire yesterday taking a look at how some bullish strategists and analysts are viewing the stock market’s first official correction since the bull market began in March 2009.

“This is more about panic than it is about real fundamental issues,” said Jim Paulsen, chief investment strategist at Wells Capital Management. “At the end of the day, the big elephant in the room is we’re in a global economic recovery. At worst, this event could potentially slow that recovery, but I doubt it aborts it.”

There have been smaller pullbacks throughout the 15-month rally, including mini-corrections last summer and in early 2010. But the “flash crash” earlier this month combined with increasing fears that Greece’s credit crisis could spread across Europe and hinder global growth have created a heightened sense of uncertainty.

“This is what bull markets do,” said Mr. Paulsen. “They refresh themselves, gut check the optimism a bit. This is a refreshing pause in an ongoing cyclical recovery.”

Paulsen’s comments illustrate how many bulls are viewing the economy. They see the economic rebound holding strong amid a long-term earnings recovery, improving credit and a stronger consumer. Those factors override worries about the cratering euro and sovereign debt woes potentially forcing the global economy to double-dip back into recession.

Stocks have had such an incredible run-up over the last 15 months that some sort of pullback was inevitable. What the bulls seem to be brushing aside is the current level of panic and fear, which hasn’t been seen since the depths of the financial crisis. Justified or not, worries keep growing as the situation across the pond doesn’t seem like it’s going to have a happy ending anytime soon.

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- AOL paid some hefty sums to its former employees – $28.4 million to be exact – to its four top executives it replaced last year. “Want to make money? Become a former AOL executive,” MediaMemo blogger Peter Kafka says.

- Housing starts tumbled 5.9% in February. “This level of starts is both good news and bad news,” Calculated Risk says. “The good news is the excess housing inventory is being absorbed – a necessary step for housing (and the economy to recovery. The bad news is economic growth will probably be sluggish – and unemployment elevated – until residential investment picks up.”

- Bearish stance from Albert Edwards, Societe Generale strategist, isn’t losing steam. He questions recovery’s sustainability in large part because “credit is disappearing at this debilitating dehydrating rate.”

- Google’s (GOOG) Nexus One sales only 135,000 after 74 days at market, according to analytics firm Flurry. “A piddling amount,” Digital Daily blogger John Paczkowski says, especially since Apple’s (AAPL) iPhone and Motorola’s (MOT) Droid sold 1M and 1.05M, respectively, after their first 74 days on the market.

- A downgraded US credit rating wouldn’t be pretty. Good thing Tim Geithner says there’s no way that will happen.

- “Don’t kid yourself: the hype currently surrounding short sales and the HAFA program will prove to be short-lived, and REO expertise will be prove to be the key to recovery, as it has been in prior cycles,” Paul Jackson writes at Housing Wire.

- What does corporate America think about financial reform? “It’s actually really hard to say,” Justin Fox says.

- Columbia Journalism Review argues blogs have been doing a better job covering the examiner’s report on Lehman’s collapse when compared to mainstream media’s coverage.

- The worry about the Fed ending its MBS purchase program is it will cause long-term interest rates to rise, which will hinder recovery. But if that happens, the Fed’s capable of restarting the program “very quickly if needed,” Mark Thoma writes.

- NJ Gov Chris Christie proposes steep spending cuts that will hit “the poor, elderly, schoolchildren, college students and inner-city residents hardest, while largely sparing the wealthy and businesses,” NYT says.

Is this guy getting tired?

Financial and commodity markets ended November with a bang and wasted no time getting off to a good start in December.

Asset classes rose across the board in November, and barring a wave of selling this month, 2009 will be one of the best calandar years on record, James Picerno points out at The Capital Spectator.

“The Federal Reserve has engineered the party and so far everyone’s enjoying themselves,” he says, referring to near-zero interest rates.

But there’s a good chance 2010 won’t look nearly as good as this year, as the economic recovery faces many challenges.

“The Phoenix rising from the ashes is destined for the hard work and complications of navigating the new landscape of subpar growth, debt, higher interest rates and inflation and the general hassles that accompany rebuilding what’s been lost over the past two years,” Picerno cautions.

The Dow’s currently up 122 at 10467, has risen more than 60% off the early-March lows and is up almost 20% year-to-date. But as we previously detailed, stocks are set to fall for the decade, and some remain pessimistic that another “lost decade” could be on the horizon.

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What happens once summer's over?

It’s only fitting stocks kicked off September with a steep selloff. But with stocks flip-flopping between positive and negative territory today, threatening to extend their losing streak to four consecutive sessions, is the summer rally finally over?

September’s historically been the worst-performing month of the year for stocks as summer typically features light trading volume, with money managers coming back to work after Labor Day and adjusting their portfolios before the third quarter ends.

A 50% rally off the March lows on a slew of better-than-expected earnings reports and economic data may make investors even more inclined to take profits now, especially as the sustainability of this rally and an overall economy recovery continue to be questioned.

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