Market Talk

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…

It’s getting harder and harder to find bears lately, with major stock averages forging two-year highs. And even one consistent, well-known bear — Gluskin Sheff’s David Rosenberg — is a shade less bearish.

Rosenberg in his daily morning “musings” today carries just a hint of submission, though he’s quick to say he’s not changing his views –  he remains a secular bond bull, sees GDP growth only around 2% next year and “core inflation will remain in a declining trend.”

But while he sees some European countries needing to undergo debt restructuring, which would raise risk premia in general, “this will likely take more time to play out than I had thought before,” Rosenberg writes. For now, “expect upward revisions to Q4 and by extension Q1 2011 GDP and hence earnings; therefore, over the near-term, it may not be a bad idea, tactically, to lighten up on the bearishness,” Rosenberg says.

It’s not a big change, just “think of it as a company lifting the bottom of its revenue forecasts,” he adds. Continue reading…

Bulls once again are able to fend off a mortal gash by bears, erasing much of a sharp morning decline, but still limp away from this engagement.

Nasdaq, in particular, shows some damage as a few tech bellwethers — Google, eBay, Amazon — get hit with some earnest selling. Tech, health-care and financial stocks slide most; only telecom ekes out a small gain.

Euro-zone issues continue to be a drag, euro slides below $1.30, USD index rises 0.4%.

First negative month for the DJIA since August. DJIA down 46.47 to 11006.02, and Nasdaq Comp sheds 26.99 to 2498.23. S&P 500 ends 7.21 lower at 1180.55.

- Oracle (ORCL) CEO Larry Ellison wasted no time slamming H-P’s (HPQ) hiring last week of former SAP chief Leo Apotheker as new CEO. “I’m speechless,” he tells WSJ late Friday. “H-P had several good internal candidates…but instead they pick a guy who was recently fired because he did such a bad job of running SAP.” Harsh, to say the least, though not particularly out of character for Ellison, Digital Daily blogger John Paczkowski says.

- Goldman gets harsh on Microsoft (MSFT) and offers three strategies it should employ to help boost shares. Firm calls for huge dividend increase, a “coherent consumer strategy” and MSFT to become the global leader in cloud computing. “Oh, that’s all?” Paul Kedrosky quips. “Pulling this off would be like Microsoft learning Geller-ian magic tricks, the equivalent of being able to bend spoons with its brain.”

- Another economic downturn is “not only a possibility but a likelihood,” John Hussman says. “A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the US stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”

- Executive departures at Yahoo has put more scrutiny on CEO Carol Bartz, who she still has to convince Wall Street she has what it takes to turnaround the struggling Internet giant. But YHOO’s 3Q report, scheduled for Oct. 19, will provide clues into how she’s really doing, Kara Swisher notes. And as executive departures “garner a lot of attention,” Yahoo’s results are “the most important of all to watch,” she says.

- With the September jobs report due at the end of the week, Calculated Risk says keep an eye on the participation rate. Right now, it sits at a “very low” 64.7%. “A future decline would be considered bad employment news (even if the unemployment rate declined slightly),” blog says. “An increase in the participation rate, combined with a weak labor market, could lead to a jump in the unemployment rate. This is something to watch closely.”

- Another unsavory wrinkle in the US foreclosure epidemic as some big banks (BofA, JPMorgan, Ally’s GMAC) suspend foreclosure activity across close to half the nation amid reports of seriously flawed paperwork. Seems “the real estate/financing industry has brought the same machine-like technical prowess that they used to automate the process of underwriting mortgages to a similar automated foreclosure process,” Big Picture blogger Barry Ritholtz notes. “Is it any surprise that the results of this are similarly disastrous?”

- The bulls, like John Paulson, looked pretty smart in September.

- “But even if we agree that the Fed could depress long-term yields with these kinds of measures, it is a separate question as to whether it should,” James Hamilton says. “I remain of the opinion that while the Fed is understandably reluctant to embrace QE2, it may have little other choice.”

- Twitter promotes chief operating officer, Dick Costolo, to CEO amid company’s scramble to build its advertising business. He succeeds Evan Williams.

- New York Observer wants Dealbreaker, but Bess Levin wants her big pay day. Good for her, she deserves it. Now, Barry Ritholtz hopes to get in on the action.

Trust me, there's never been a better time to buy stocks.

Listen, it shouldn’t surprise any of you to know that we’re skeptics here at Market Talk. We get paid to be skeptics.  The folks at CNBC get paid to cheerlead (and paid pretty well, apparently, wow. Maybe we should get more bullish.)

Anyhow, for much of this year, we’ve been dogged by this feeling that 2010 is playing out very much like 2007. Back then, the signs of the implosion to come where evident, but few were paying attention. The strains were building, the gears cracking under the pressure, but few were paying attention. We didn’t have the blog back then, but we got a lot of grief from our subscribers on the Newswire about the things we were writing and the points we were making.

Ahem.

So, anyhow, something in David Rosenberg’s column today struck a note with us, because it hearkens back to that 2007 feeling. Now, look, obviously I don’t know what’s going to happen. If I did, I’d be running a hedge fund up in Connecticut. But something doesn’t feel right.

It’s hard to look at what’s going on on Main Street, where unemployment’s painfully high, where homes are in far too many cases a millstone around their owners’ necks, where storefronts are emptied out and left empty, and what’s going on on Wall Street, where stocks keep rising, where analysts gleefully talk about peak earnings (albeit, the trading volume’s are so low, some banks that make their money via stocks are letting people go), and not see a huge disconnect.

Wall Street is getting its animal spirits back. Main Street is still having its spirit torn asunder. Somebody’s got to be wrong.

Continue reading…

- 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?

US stocks see-sawing between small gains and losses as a strong batch of earnings reports combine with weak consumer-confidence to bring the market to a standstill.

S&P 500 sitting right at its 200-day moving average as both bulls and bears haven’t been able to make a move with any conviction. Dow up 9 to 10534, S&P 500 off 2 to 1113 and Nasdaq Comp down 9 to 2287.

DuPont (DD) pulling DJIA higher, up 3.7% to $40.42, after its 2Q profit almost tripled and it boosted its full-year earnings view. But consumer discretionary is the S&P 500′s worst-performing sector after a report on consumer confidence raised concerns about 2H consumer spending trends.

Percentage of S&P 500 stocks trading above their 50-day moving averages is up to 72%, especially as the stock market has rallied significantly over the last few trading sessions. That’s quite the rise, considering the percentage dropped down to single digits just a few months back, Bespoke Investment Group points out.

“Peak readings during short-term rallies are usually around 85%-90%, so there is still a little bit of room to run before this indicator gets overbought,” firm says.

That’s a good sign on the technical front, but when analyzing the fundamentals behind the recent run-up, Gluskin Sheff’s David Rosenberg says don’t look at fundamentals for a driving force behind the rally.

“Now Bernanke may not be the world’s best forecaster; I don’t know who is,” Rosenberg writes. “But he has the deepest rolodex, more than any CEO. And when he deliberately says ‘unusually uncertain’ to describe the economic outlook, I find it irrational to ascribe anything fundamental to this rally.”

(Paul Vigna contributed to this post.)

- If Google (GOOG) can grow revenue, why can’t Yahoo (YHOO)? That’s the question Eric Savitz poses at Barron’s Tech Trader Daily blog. “[Yahoo CEO Carol] Bartz inspires confidence, she’s big on taking decisive action, but for all her efforts, the company still isn’t growing,” he says. “At some point, Yahoo is going to need a more clearly defined growth strategy — and it will have to execute on it.” Yahoo shares drop 8.5%.

- Google issues a 20-page response to FTC’s staff discussion draft about the future of journalism in the digital age. Main takeaway: Don’t blame Google for the newspaper industry’s troubles. “The large profit margins newspapers enjoyed in the past were built on an artificial scarcity: Limited choice for advertisers as well as readers,” Google says. (Hat tip, Jeff Jarvis.)

- Any worries that the iPad would hurt Mac sales were put to bed in Apple’s (AAPL) 3Q results. Apple set a quarterly record by selling 3.47M Macs in 3Q, a 33% increase from a year ago. “If the iPad is having any effect on Mac sales, it’s an additive one,” Digital Daily blogger John Paczkowski says. “Like the iPod once did, the new slate from Apple seems to be having a halo effect on Mac sales thanks to the publicity and Apple Store floor traffic it has generated.”

- Just how impressive were Apple’s quarterly results? Look no further than the 3.27M iPads sold during 3Q, TechCrunch says. Put into context, that’s only 200,000 fewer units than all the Macs sold. And 3Q was the best Mac sales quarter ever. “In other words, in just about any other quarter, the iPad would have outsold the Mac,” TechCrunch says, while expecting the iPad to blow past Mac sales next quarter.

- Bulls once again get rejected trying to rally S&P 500 significantly above its 50-day moving average. Bespoke Investment Group reports this is the fourth separate time since the “flash crash” in early May that the index has turned back at its 50-day moving average. “Bulls had been hoping that strong earnings would be the catalyst to take the S&P 500 to the other side of its 50-day, but so far the bears (and Bernanke) are having none of it.”

- Yesterday’s trading showed “the high-frequency-trading nerds were in full swing, but to the upside this time,” Doug Kass writes. “I have written that few complain when the algorithms take the market up (like yesterday). But I would prefer to be intellectually honest, even when the programs take the market up, and I will not stop writing about this subject until the SEC acts responsibly and curbs certain high-frequency-trading strategies.”

- The housing market is stumbling, once again. “In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans,” WSJ says.

- “Returning to a sensible, fundamentals-based housing market is painful, but ultimately, it’s something we’re going to have to do, one way or another,” Barbara Kiviat writes at Time’s Curious Capitalist blog.

- A stumbling housing market offers clear evidence that the housing tax credit was a “clear and unequivocal failure,” Bill McBride writes at Calculated Risk. “Not only did most of the benefit go to people who were going to buy anyway, but the credit didn’t reduce the overall supply,” he says. Ultimately, the tax credit merely pulled demand forward. “This is a textbook example of bad policy.”

- “At just 12 times prospective earnings and with prodigious cash flow enabling it simultaneously to keep up its pace of small acquisitions while still repurchasing shares, the market may soon realize that its diagnosis of J&J was overly dire,” Lex says.

- Are Goldman shares worth a flier at current levels? James Stewart weighs in.

- “The key to a sustainable recovery and robust economic growth is to get companies to start investing in America,” a recent Washington Post op-ed says. But Big Picture blogger Barry Ritholtz disagrees with that premise. “Since we know that personal consumption expenditures comprise 70% of GDP, I’m not sure why ‘getting companies to start investing’ would be considered the key,” Ritholtz writes. “The demand problem we have on our hands is what is keeping companies’ spigots closed.”

- S&P 500′s 5% gain last week comes on the heels of a 5% drop the week before, highlighting “one more example of how sentiment in this market turns on a dime,” Bespoke Investment Group says. “Sentiment heading into the current earnings season is certainly a lot less positive than it was last quarter.”

- Google (GOOG) launches App Inventor for Android, a do-it-yourself tool that makes it easy for anyone – programmers and non-programmers — to create mobile applications for Android-powered smartphones. App Inventor should make Android more accessible — and useful — to more developers, a key constituency as Google vies with Apple (AAPL) for dominance in the emerging smartphone market.

- Deflation chatter seems to be ramping up of late, especially as worries over a double-dip gain steam. “If you have loads of cash and no debt, falling prices sound wonderful,” Tom Petruno writes at LA Times’ Money & Co blog. “But the danger is that a broad deflation could cause many people to stop spending and hoard cash, figuring that they could get whatever they wanted for less if they just waited.”

- Amid all the banter between bulls and bears, it seems like both parties have actually been right in 2010, Joshua Brown notes at The Reformed Broker. Bulls are right because stocks are still in the same bull market since March 2009, he says. But bears are also correct because everything’s down year-to-date except gold, silver, treasurys and the yen. Calls for more stimulus make sense, but concerns about deficit-spending are also justified. “Only the future can serve as judge.”

- Flight to safety and quality is the biggest reason foreigners, mutual funds, banks and households keep increasing their Treasury holdings. “But, unless financial conditions deteriorate further, I wonder why there would be a similar increase in demand for Treasury debt over the next two years,” James Hamilton writes at Econbrowser. “What I’m having more trouble seeing is who is going to buy the additional $8 trillion in net new debt that would be issued over the next decade under the CBO’s alternative fiscal scenario.”

- “There’s an old adage that tapes that are oversold are bought on bad (but not horrid) news while tapes that are overbought are sold on good (but not great) news,” Minyanville’s Todd Harrison says. “Through that lens, last week’s rally made the upcoming earnings entirely more difficult to game.”

- Google (GOOG) has secretly invested $100M-$200M in social gaming behemoth Zynga, TechCrunch reports, which will be the cornerstone of a new Google games service that will launch later this year. TechCrunch points out Google has posted a job opening for a product manager who will be responsible for developing Google’s games commerce product strategy. Both companies declined comment.

- “As we evaluate financial reform and political change, we should keep in mind that it is not 2008 that we must struggle to prevent,” Steve Randy Waldman writes at Interfluidity. “It’s 2006 that was the worst of times, the piranha were feeding while we splashed and giggled in our water wings.”

- “Many individual investors were tiptoeing back into stocks in the spring,” WSJ says. “Now, they’re running for cover again.”

- Nokia’s (NOK) adding its own twist to the Apple/Gizmodo iPhone 4 controversy earlier this year. Nokia’s getting Russian police involved in asking Eldar Murtazin, editor-in-chief of Moscow-based mobile-review.com, to return the prototype N8, a device he gave an unfavorable review earlier this year.

- “Investors have this week been buying up names that have been hit the hardest in recent months, which is usually the case when we see bounces like this,” Bespoke says.

- Banks and regulators must take “appropriate action” to strengthen banks’ resilience to shocks and safeguard the health of Europe’s financial system, ECB President Jean-Claude Trichet says.

- Whatever happened to all those toxic assets on banks’ balance sheets that garnered so much attention a while back?

- Jobless claims dropping 21,000 to 454,000 represents a “tactical victory for the bulls,” James Picerno writes at The Capital Spectator. “But until and if the trend rolls on it’s only marginally encouraging. The strategic outlook, in other words, is still up for grabs.”

- Silicon Alley Insider says the real reason Google (GOOG) is worried about Facebook is that people buying things are more inclined to trust their friends than strangers or search ads. SAI says that’s the key message in a presentation prepared by Google researcher Paul Adams for company execs who are plotting the company’s next social network initiative, rumored to be called “Google Me.”

- Individual investors are turning more bearish, which contrarians could actually view as a bullish indicator. Only 25% of AAII’s respondents are bullish on stocks, compared to 42% who say they are bears. “I always prefer actual buy and sell driven data — prices, volume, asset allocation, etc. — versus mere surveys,” Big Picture blogger Barry Ritholtz says. “They can be useful, but have huge limitations. Us humans are notorious for saying what we hope, rather than what actually is.”

- Double-dip has dominated the market chatter in recent days. While pundits keep saying the economy won’t fall back into a recession, Reuters’ David Gaffen isn’t so sure. “It may not happen — but when a lot of people are trying to convince you that something’s not going to happen, it can make you believe that it’s more likely than not.”

- The commercial real estate market hasn’t collapsed because of a strategy known as “extend and pretend,” essentially banks giving troubled borrowers time to make good on their bets until the economy recovers. “Sometimes, it actually works. But, usually it doesn’t — especially when practiced on an industry-wide scale,” Henry Blodget writes at Business Insider.

- The LeBron James surreality show is about to begin. He’s “leaning” toward Miami, but we still have faith he’s coming to the Big Apple. Let the “LeBronference” begin.