Market Talk

A dose of cautionary comments on three things that seem to only go up lately: the euro, stocks and corporate earnings.

First on the euro, which surged through $1.43 today its highest level vs USD since January 2010, and looks as if it’s left any and all concerns about sovereign debt in the dust.

Nomura says in a report that it’s too early for the euro to shed that risk. “The uncertainties about the economic outlook, debt dynamics, and the political framework around managing sovereign insolvency are simply too great,” firm says.

It estimates “a debt restructuring isolated to Greece/Ireland/Portugal would trigger direct and indirect losses around $240bn for core Eurozone banks, while bank losses would rise to $480bn in a restructuring including Spain.” German banks have the largest exposure to the periphery, Nomura says, with estimated losses of $185B in a restructuring scenario involving Spain.

Implied risk premium on the euro “has compressed significantly since January,” firm says, as the single currency “decoupled from sovereign risk.” That process “has probably run too far at this point: a persistent risk premium is still needed.”

On to stocks and some thoughts from BofA Merrill small-cap strategist Steve DeSanctis. He points out that weaker economic news, higher energy prices and disaster in Japan tripped up stocks in early March, but a “liquidity driven rebound” has put the Russell 2000 within 1% of its all-time high.

“Volatility came tumbling down despite the fact that none of the earlier concerns…have been resolved,” he writes, and small caps “are now very close to the full year’s return we have been expecting.” DeSanctis says he’s been “taken back by the strength of the overall equity market and in small caps in particular given the economic backdrop and where absolute and relative valuations stand,” and thinks 1Q earnings estimates are too high. Continue reading…

Action in a couple retail stocks today could be offering some worthwhile insight into how this 4Q earnings period plays out.

Consider Williams-Sonoma and Whole Foods. WSM raised its 4Q earnings outlook this morning, citing strong holiday sales. Shares, however, are down 4%, and Newswires’ Caitlin Nish reports one analyst noting WSM didn’t raise estimates “as much as investors had almost become accustomed to,” or in other words, high expectations weren’t met.

Indeed, WSM sees 4Q EPS at 96c-98c vs prior 88c-93c view, but the Street was already at low end of the new view. And analysts also see some slowdown in sales trends vs prior the prior quarter. So, we have a stock selling off — even after the company says it’ll post at least in-line, if not upside 4Q results — because expectations ran too high. Continue reading…

It’s early in the week, but US stocks so far have been mainly fixated on the theatrics in Europe and their sovereign debt problems. Very fluid situation there, and that’s been reflected in some swooping climbs and sharp drops for the euro and US stocks today.

Meanwhile, Alcoa’s 4Q results late yesterday almost seem like an afterthought already, with the stock falling about 1% even as the bottom line beat analysts’ expectations, and outlook seems upbeat. The results were just fine, and most of the reports from the other 499 S&P 500 companies will likely be fine, too.

But we’d argue that “just fine” is well-priced into stocks today, and that’s the message in AA’s decline. More on that in a minute.

One report today that wasn’t fine was Supervalu’s fiscal 3Q, and the stock got punished, down almost 12%. Big bottom-line miss, with the company citing weaker-than-expected sales and margins, and while noting consumers remain under a lot of pressure.

Now, Supervalu has its own problems, a company acknowledged by management to be “in transition,” but their comments on the grocery retail space and state of the consumer are an interesting window into the economy overall. Continue reading…

Reports from handful of big names — including Intel, JPMorgan, Google and GE — increase the visibility of 3Q earnings season this week.

Similar to the previous three quarters, stocks have rallied into the earnings reporting period. During the prior periods, the major equity averages have then relinquished fairly quickly the gains gathered in anticipation of strong earnings. Concerns about weakness in the economy slowly overcame any optimism garnered by stronger corporate earnings.

With markets now in full-blown conviction that QE2 is a November fait accompli, it may be harder for bears to get their swipes in as the earnings calendar rolls. Reaction to this week’s big-name results should be revealing.

Continue reading…

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

- With earnings season only a few weeks away, Josh Brown notes a pattern that’s developed in last six quarters. “A run up in stocks at the beginning of earnings season’s opening month followed by the almost inevitable denouement as hearts are broken and focus is diverted elsewhere,” he says. “The Ghosts of Earnings Past are haunting the nascent rally even as you read this.”

- Now that the recession is technically over, Yves Smith wonders if this is what a recovery really feels like. “The ugly fact is that serious financial crises take a very long time to resolve and result in a permanent fall in the standard of living,” she writes. “The best we can hope for, absent aggressive government action, is an economy that bumps along at a low level of what is technically growth, but is very far from what most businessmen and consumers would consider healthy.”

- Larry Summers’ decision to step down as one of Obama’s top economic advisers is a long-time coming, FusionIQ CEO Barry Ritholtz says. “Summers was a defender of the status quo…The change people voted for never appeared, and the Summers-led economic team gave us two more years of Bush bailout policies. For that humongous error, his departure is a welcome change.”

- Mark Thoma questions why the Fed’s taking a “wait and see” approach on whether more QE or other stimulative measures are needed for the economy. “The Fed should have learned that it needs to act preemptively from its mistake in dealing with the housing bubble,” Thoma says. “Cleaning up after the fact, which is what ‘wait and see’ amounts to, is inferior to preventing problems before they appear.”

- Google’s M&A department has thrown lots of money at many different ideas, but it’s hard to argue with some of its successful wagers throughout the years, including Android and YouTube, Digital Daily blogger John Paczkowski says. “Of course that’s just two acquisitions out of the 80 or so that Google’s made since 2001,” he notes. “But obviously the threat of a clunker investment or two isn’t going to temper Google’s aggressive acquisition strategy.”

- Bullish sentiment among advisors hit 41.4%, according to the Investors Intelligence weekly sentiment survey, which marks its highest level since early August. But, as Bespoke points out, bullish sentiment has hit that level a few times in recent months, with stocks not experiencing much success in the aftermath. “Will the third time be the charm or are we in for more of the same?”

- Keep an eye on the “quiet expansion” of Treasury Secretary Tim Geithner’s duties, especially in the aftermath of Larry Summers’ resignation, Yves Smith notes at naked capitalism. “The speculation has long been that he would not stay much beyond the mid-terms, but that looks like a far less sure bet than it did a few months ago.”

- Housing prices continue falling in wake of government’s home-buyer tax credit, dropping to lowest level in nearly six years, according to FHFA home price index. “With the two-year tax credit experience in the rearview mirror, officials probably need to be thinking about going back to the policy drawing board,” Ryan Avent writes.

- The recession’s officially over, but Tyler Cowen says it’s premature to believe the economy’s bottoming-out process is over. “It looks like a recovery only because things were, for a while, so extremely bad. I don’t yet think of us as being in a true recovery mode at all.”

- Runners are abandoning races with quirky distances in favor of the standard marathon or half marathon.

- Obama unveiling the “Volcker Rule” last week was encouraging, but there are still reasons to be skeptical, Simon Johnson says. “There are very real indications that the conversation is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side),” he says.

- A tablet may not be Apple’s (AAPL) only major announcement at Wednesday’s event. Reports are circulating that Apple could announce the end of its AT&T (T) iPhone exclusivity deal later this week.

- Speaking of Apple, the buzz surrounding Wednesday’s event and expected unveiling of the tablet is reaching epic proportions. WSJ’s Digits blog looks at some of the bizarre tablet rumors. NYT’s David Carr is amazed at how Apple can drum up so much buzz without saying anything. And David Pogue says “The only thing we know for sure about the Apple tablet is that we don’t know anything for sure.”

- Are stocks ignoring earnings? Or has the market already priced in a strong earnings season? Bespoke weighs in.

- Disappointing existing home sales data this morning, but new home sales is what really matters for the economy, Calculated Risk says.

- Journalists, economists, bloggers and others weigh in on the troubles facing Ben Bernanke’s confirmation as Fed chairman. WSJ’s Real Time Economics has the details.

- Insider buying falls to a new low for week ending Jan. 20, while insider selling remains high. Not surprising corporate insiders are expressing little faith in their own shares. “As of now, signs of a sustained rebound in earnings and revenues remain mixed,” the Pragmatic Capitalist blog says.

- Sun Micro (JAVA) CEO Jonathan Schwartz is set to resign, leaving JAVA in hands of new owner Oracle (ORCL), Digital Daily blogger John Paczkowski reports, citing sources close to Sun.

- Tishman gives up Stuyvesant Project to its creditors in the collapse of one of the most high-profile deals of the real-estate boom, WSJ reports.

- StockTwits acquires the financial news aggregator Abnormal Returns, which is great all-around for the econoblogosphere and one-man blogs in particular, Felix Salmon says.

No need to be irrational: financial Armageddon's been avoided!

Not much in ways of economic data driving stocks in today’s session, but the fireworks are set to begin after the bell with Alcoa (AA) kicking off earnings season.

Green shootists seem to have piped down ever since the worse-than-expected jobs report last Thursday. Accelerating job losses and a rising unemployment rate slapped investors with a harsh dose of reality: the economy’s still declining.

To be blunt, earnings will be lousy, the economy’s still in bad shape, the stock market has violated some critical support levels and investors are flocking to government bonds, Barron’s Bob O’Brien notes.

“Spooky stuff, huh? Spooky, because it sounds familiar,” he says. “In fact, it sounds a lot like last autumn. Or the first two months of 2009.”

Continue reading…