Market Talk

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…

- Considering the “uncomfortably uncertain” mood heading into this morning’s jobs data, the report wasn’t that bad. “The overall picture is of a labor market that continues to chug along in the right direction, albeit far too slowly,” Ryan Avent notes. “The pace of employment recovery implies several long, hard years ahead for American workers. But given the mood on markets and around dinner tables lately, one has to appreciate the continuation of the upward trend.”

- Stocks popped Friday on the jobs data, but Capital Gains and Games blogger Andrew Samwick says the report merely represents “more of the same” for the labor market. “There is nothing in here that merits joy,” he writes. “Expect the spinmeisters to focus on the rise in private sector employment (up 763,000 since the low in December 2009) and the upward revisions (to smaller job losses) from the two prior months.”

- The positive vibe (at least for stocks) generated from nonfarm payrolls data can’t be sitting well with former labor secretary Robert Reich. “The Great Jobs Depression continues to worsen,” Reich writes on his blog. “The last time we saw anything on this scale was in the 1930s…The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.”

- August jobs report offers a “small sigh of relief,” but the big takeaway is the labor market remains essentially flat, Reuters blogger Felix Salmon says. “Flat, then, is the new up — which only goes to demonstrate just how worried the markets are about a double-dip recession,” he writes. “We’re not remotely in full-bore recovery mode yet.”

- August auto sales, released earlier this week, were portrayed as worst sales in 27 years. But that’s not best way to interpret the data, James Hamilton writes at Econbrowser. “The story for autos remains pretty much what it has been for some time — we’ve bounced off the bottom, but remain stuck at a point far below what would normally be expected. Double dip? Not here, not yet. Disappointingly sluggish growth? Very much so.”

- “The outlook for subpar growth and weak job creation — although superior to a new recession — is a real and present danger, and today’s employment report doesn’t offer much reason to dismiss the danger,” James Picerno writes at The Capital Spectator. “If the economy continues to struggle, eventually the risk of a recession will become more than a low-probability prediction.”

- Mark Thoma uses the central valley in California as a metaphor for economic recovery. “It’s narrow east to west, but very long north to south,” he notes at Economist’s View. “We went down into the valley as we went into the recession, and the question for me has always been whether we are heading east to west so that we will climb out of the valley relatively quickly, or north to south as we trudge along at the bottom of the valley for considerable time…The fact that we’ve had essentially no growth for a year now, and no hint of change any time soon, makes the north to south fear very real.”

- Barnes & Noble’s (BKS) battle with activist investor Ron Burkle is symbolic of a “big fish swallowing a small fish only to be itself swallowed by an even bigger one,” Josh Brown writes at The Reformed Broker. “Founder Len Riggio built the largest bookseller on earth by putting thousands of mom & pops under his sword across the country,” Brown notes. “Now he himself is facing his own possible destruction from the twin threats of shareholder activist Ron Burkle and the disintermediation of the digital age.”

- With Dell pulling out of the 3Par (PAR) bidding war, Robert Cyran wonders if Dell shareholders are on Xanax. Dell investors “displayed neither much concern about overpayment nor relief about the deal being dropped,” he says. “After a decade of scandals, missed opportunities and dismal performance, they may have stopped caring.”

- Just your typical brawl at the US Open.

Maybe this wasn't such a good idea after all.

One year after the government’s cash-for-clunkers mission juiced auto sales for a hot second, pundits still remain critical of the program.

A Boston Globe op-ed earlier this week by Jeff Jacoby calls cash for clunkers a “classic government folly.” He notes the used car market is still feeling the consequences from last year’s program. Used-car prices are way up, in part because supply is down and demand is high as a weak economy leads people to opt for a used car rather than splurge on a new one. That may be great for car salesmen, it’s not so hot for anybody looking to buy a car.

From Jacoby:

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly…

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

The main critique of the program was that it failed to create additional demand. Instead, it pulled demand forward — so people who were thinking of buying a car in late 2009/early 2010, likely made the purchase a few months earlier knowing they could take advantage of the clunker program.

The idea sounded great at the time, but one year later, it’s unintended consequences are screaming loud and clear. And that makes it even harder to imagine that Obama last year pronounced clunkers “successful beyond anybody’s imagination.’’

Go figure.

I'm sure I'll have no problem moving this sucker now.

Now we’ll get to the Journal story I wanted to point out to you. We made the point this week that what you are starting to see in the economy, in the stock market, is the fading of government and central bank stimulus. I do believe that’s at least partially responsible for the stock selloff.

More concretely, you’re starting to see it in the housing market, where the sugar-high from the home-buyer tax credit is wearing off. It may leave, to mix metaphors, a nasty hangover. From the Journal’s James Hagerty and Nick Timiraos:

The withdrawal of federal tax credits for home buyers led to a steeper-than-expected plunge in May home sales in much of the U.S., as the housing market struggles to wean itself from government support.

Economists and real estate analysts expected home sales to slow after the tax credit, of as much as $8,000, expired at the end of April. But early data from real estate brokers indicate that the sales decline has been far more substantial than expected, with some markets showing declines of 25% to 30%.

Now, really, ask yourself, why should anybody be surprised by this? Since the tax credit was first hatched, roughly half the home sales have been by first-time buyers (the credit originally was offered to only first-timers, the extension also extended it to other buyers.) Consequently, all the action in the market was for homes priced under $500,000, the ones first-timers could afford (I have that anecdotally from talking to real estate agents, but I believe I could find figures to back it up.)

So is a 25-30% slide in sales post-credit really a surprise? It shouldn’t be. So many buyers were “pulled forward,” as they say, that a big drop-off should be expected right about now. If the NAR didn’t expect a pullback at least this big, they’re just fools.

The trick will be to see how sales shape up after that initial drop-off. If memory serves, the cash-for-clunkers program took auto sales from somewhere under the 10M-range — the seasonally adjusted annual rate (SAAR) — to something like 14M, only to see a drop after the program ended, and ground out currently at about 11.4M.

That is a slight enough gain that you could argue it is probably the level sales would have come up to from the 2009 lows with or without the clunkers deal. It also is a level that puts auto sales back where they were in 1983, despite a significant population growth.

Like John wrote yesterday, all of these little stimulus gimmicks are band-aids. Uncle George, and then Uncle Barry, thought they could throw money at the problem and it would go away. But it’s not that simple. It’s not nearly that simple.

Doesn't look like much of a "V"

Just reading the headlines could leave one thinking the US auto industry is booming and roaring its way on the recovery path. Check out these auto sales data from last month, courtesy of WSJ:

GM reported a 17% year-over-year rise in monthly sales, which included a 32% surge for the company’s four remaining brands: Chevrolet, Buick, GMC, Cadillac. The car maker held on to its market share despite shedding four of its eight brands last year.

Meantime, Ford Motor Co. posted a 22% increase in May U.S. light-vehicle sales as it benefited from high demand for its crossovers and trucks, as well as strong sales to fleets such as rental companies…

Toyota Motor Corp., which has been contending with fallout from safety recalls, posted a 6.7% rise for May, selling 162,813 cars and trucks, though sales for Toyota-brand passenger cars fell 1.9%.

Chrysler Group LLC, meanwhile, reported its May sales jumped 33% to 104,819 vehicles, surpassing the 100,000 mark for the first time in 14 months. Results were boosted by the Jeep Wrangler, it said. It was the car maker’s second consecutive year-over-year increase in monthly sales.

Korea’s Hyundai Motor Co. continued its strong showing in the U.S., as its May sales rose 33% to 49,045.

At Nissan Motor Corp., U.S. sales rose 24% to 83,764 as consumers snapped up the Japanese company’s Versa compact and Armada full-sized sport-utility vehicle, said Al Castignetti, vice president of sales for North America.

But enthusiasm needs to be muted a bit, cautions Michael Shedlock, an investment adviser for SitkaPacific Capital. “Before everyone brings out the high-fives celebrating a miraculous recovery, let’s put this rebound in perspective,” he says on his blog.

GM estimates total US sales reached 11.4 million in May on an annualized basis, up from 11.2 million in the previous month. But Shedlock publishes a chart of light vehicle auto and truck sales dating back to 1975, which shows how diminished the estimated 11.4M annualized sales rate truly is. Sales spiked last year during the cash-for-clunkers craze, but have since come way off those levels after the program ran out.

“The industry had impressive gains percentage-wise, but sales are at early 1980′s levels,” he says. “This is hardly a V-Shaped recovery.”

(Chart courtesy of Michael Shedlock)

Things are hopping...now.

Enjoy the economic growth we’re seeing now, because the second half of 2010 may not be so kind.

At least that’s what Calculated Risk blogger Bill McBride predicts, offering four reasons for his thinking: declining stimulus spending, inventory correction running its course, lack of income growth and troubles in China and Europe.

“Maybe some commodities like oil will be cheaper and give a boost to the US economy…maybe the saving rate will fall further and consumption will continue to grow faster than income…maybe residential investment will pick up sooner than I expect…maybe,” McBride says. “But this suggests a second half slowdown to me.”

UC San Diego economics professor James Hamilton hits on a similar theme in a blog post today, saying there’s a prevailing theme in much of the recent economic data. “The US economy has returned to positive, but still disappointing, growth,” he writes.

Auto sales have “bounced off the bottom but are still less than halfway back up to where we were,” he says, and Chicago Fed’s national activity index edged up in March but can’t break into positive territory. “All of which confirms the impression from earlier data — US growth has resumed, but we still have a long way to go,” Hamilton says.

Continue reading…

- Greece’s historic bailout proves what many have believed for some time: Greece’s problems quickly turned into a “death spiral,” Paul Krugman says. “The EU has now, in effect, given up on trying to restore market confidence; instead, it’s going to break the death spiral by main force, providing Greece with all or almost all the financing it needs directly, at an interest rate much lower than the market was demanding.”

- The Greek bailout isn’t a bond cure-all as some investors expect government bond yields to keep increasing for many debt-laden countries, WSJ reports.

- Most asset classes saw minimal gains in April. But REITs were the lone exception, posting a 7.1% monthly return and have now gained 18% in 2010. At The Capital Spectator, James Picerno discusses whether they are they ripe for some profit-taking.

- Both consumption and spending rose in March, but spending growth outpaced income growth, forcing the savings rate down again to its lowest level in a year and a half. But “this isn’t the worst thing in the world,” Ryan Avent writes at The Economist’s Free Exchange blog. Not at least in the short-term.

- Newspaper ad sales are still falling, but the declines have significantly abated throughout first three months of 2010, Newsosaur blogger Alan Mutter reports.

- As the tiff between Apple (AAPL) and Adobe (ADBE) heats up, Microsoft (MSFT) weighs in, detailing its side of the debate.

- IPad 3G’s launch weekend was a success, though not as successful as original Wi-Fi-only release last month. Overall, Apple says iPad sales have already topped 1 million.

- US auto sales increased 20% in April compared to depressed levels a year ago as Chrysler, Ford and Toyota all reported sales up at least 25%.

- MarketWatch’s Mark Hulbert offers advice on how to gain exposure to financials without betting on Goldman Sachs (GS).

-Details of the Times Square bomb plot continue to unfold.

Bulls kick off the week flexing their muscles.

US stocks wipe away much of Friday’s losses as everything seems to fall the bulls’ way.

Rising consumer spending and increasing auto sales as well as manufacturing activity hitting its highest level since July 2004 boosts sentiment. The market, which loves M&A, got a big, headline making deal with United and Continental. And what finally seems like a resolution to Greece’s debt woes contributed to the run-up.

Consumer discretionaries among the market’s biggest gainers as the consumer is slowly returning to pre-recession habits. Consumers increased their spending and cut their savings in March, not a good sign for the long-term economy but a positive development for these stocks in the short-term.

DJIA closes up 143, or 1.3%, to 11152, marking its biggest gain since Feb. 16 and fourth largest gain of the year. The index recaptured roughly 90% of Friday’s 159-point drop. Still, this marked the fourth triple-digit move out of the last six sessions, and that kind of volatility doesn’t exactly speak to overriding confidence.

Dow components Caterpillar and Boeing each rise 2.7% and contribute to about 20% of the index’s overall gain. The floats of those two stocks are among the smallest of the 30 in the average, so when the momentum gets cooking, as it did today, it’s easier to see a more pronounced increase (or decrease) in the dollar-value change in those stock prices.

S&P rises 16 to 1202, crossing back above the key 1200 level. Nasdaq Comp jumps 38 to 2499.

(John Shipman and Paul Vigna contributed to this post.)

Newswires’ Madeleine Lim and Kathleen Madigan discuss the upswing in global manufacturing and stronger US car sales. It’s Tomorrow’s News Today:

- Auto sales are “crawling forward,” but still remain weak, James Hamilton says. “On a seasonally adjusted basis, we’re not making any progress from December…Whatever the explanation, auto sales so far this year remain 40% below the average seen for January and February over 2005 to 2008.”

- Small, mid-cap stocks leading the rally. As confidence about the global economy wavers a bit, some investors and traders are actually turning their attention to companies heavily dependent on the US economy, Tom Petruno writes.

- S&P 500 and US Dollar index are about as negatively correlated as they’ve ever been, Michael Panzner notes. But the equity-dollar relationship typically isn’t sustainable when it hits historical extremes, meaning investors may need to look beyond the currency markets for hints about the stock market’s next move.

- “Amazon’s MP3 store hasn’t done much to weaken Apple’s grip on the digital music business,” MediaMemo blogger Peter Kafka reports. “But that doesn’t mean Apple isn’t paying attention.”

- Since there are no assurances that new regulations will prevent a future financial crisis from occurring, regulators should take the next best step and break up the nation’s biggest banks, James Kwak says. “Politically, breaking up TBTF banks is something that should on paper be able to attract a bipartisan majority.”

- A consumer finance protection agency is a great idea, but it’s a shame that a simple mandate in the original plan — compare all mortgages to plain vanilla 30-year fixed contracts — was rejected, FusionIQ CEO Barry Ritholtz says.

- Millions of homeowners haven’t benefited from lowest mortgage rates in nearly a half-century because they can’t or won’t refinance, WSJ reports.

- Auto veteran Bob Lutz plans to retire from GM after four decades in the business and a career that included executive positions with each of the big three Detroit automakers.

- “It seems like governments are doing a lot of poking, probing and investigating of large investors in the markets recently. Especially when it comes to bets being made that have major implications for governments, i.e., positions taken on currencies and government debt,” WSJ’s MarketBeat says.

- NY Gov. David Paterson finds himself in the middle of yet another scandal.