Market Talk

We know its early, but here’s our odds-on favorite to win the “screwy logic of the year” award: Deutsche Bank economist Joe LaVorgna.

Joe cuts his expected year-end forecast for the unemployment rate to 7.8% from 8.8%, citing “the rare 0.8 (percentage point) decline in the unemployment rate over the past two months, the largest back to back drop since 1958-59,” he writes. In fact, LaVorgna tells us the rate also declined 0.8 of a percentage point in 1950-51 and 1954-55, and in all three instances, the rate was lower in 12 months by 1.3% on average.

“In light of this new information, we are lowering our yearend unemployment rate forecast to 7.8%, down from our previous 8.8%,” he says.

Whoa, cowboy. In light of what? First off, the jobs picture in the 1950s vs the jobs picture today — no comparison; overall economy in 1950′s vs today — little to no comparison.

Now, we’re not economists like Mr. LaVorgna, fortunately, but we’d venture to say the dynamics of the US economy and its ability to create long-lasting jobs — particularly in manufacturing — were much better back in the 1950s than today. There simply wasn’t the competition posed by cheaper labor overseas, and that’s a key reason the jobless rate won’t drop as sharply as he thinks. Continue reading…

- “In this recovery there is less job creation, less household formation, and less demand for housing units than a normal recovery. This is sort of a circular trap for both GDP growth and employment,” Calculated Risk says. “This is one of the reasons I expect the unemployment rate to tick up over the next several months.

- FusionIQ CEO Barry Ritholtz makes the argument that US bonds are resembling tech stocks during the dot-com bubble. “What made the dot-com situation so pernicious was that anyone who was judged on relative performance (i.e., mutual fund managers), were all but forced into these names in order to keep up,” Ritholtz says at The Big Picture. “Very few people — Buffett and Grantham come to mind — managed to both avoid both chasing these names and losing their client base.”

- There’s no denying the strong quarterly profit reports coming from S&P 500 companies in 2Q. But the notion that strong profits actually represent good news is “murky at best,” Derek Thompson writes at the Atlantic. “High unemployment is, strangely, both dampening revenue and enhancing profits.”

- Mortgage Bankers Association reports refinance activity surged 17% amid historically low interest rates. But Miller Tabak’s Peter Boockvar notes purchasing fell 3.4% and remains just 3.5% off lowest level since 1997. “This economic response to low rates is indicative of our whole economy that has the Fed now pushing on a string,” Boockvar says. “In times of deleveraging, lower rates only encourage refi’s, not new economic activity whether the purchase of a home or the expansion of a business.”

- Boston Fed argues economists aren’t to blame for missing the housing bubble, which absolutely baffles naked capitalism blogger Yves Smith. “It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the runup to the financial crisis,” Smith says.

- UPS recently said in a 10-Q that the impact of the health-care reform legislation “was not material” to its financial results, which shocks Footnoted blogger Michelle Leder, especially since many companies have said they’ll take big charges related to legislation, including AT&T’s (T) $1B charge.

- Since Fed’s announcement last week to reinvest proceeds from expiring MBS, the dollar’s risen while crude oil and S&P 500 have tumbled. “A cynic, however, might look at the lackluster reaction and think that the US central bank is losing some of its market-firepower in terms of unconventional monetary policy,” FT’s Alphaville says. “And an even bigger cynic might think that the market is simply holding out — or pushing — for a bigger bout of unconventional policy. Either way though, something’s out of sync here — the market or the Fed.”

- Tech blog Download Squad says Google (GOOG) and hardware maker HTC (2498.TW) are teaming up to build a tablet device that runs GOOG’s Chrome operating system. The blog says the tablet will be offered in conjunction with Verizon (VZ) and launched on Nov. 26, or Black Friday, the busiest shopping day of the year in the US.

- Is the Web really dead? The blogosphere debates.

- Looking to succeed at the dating game? Maybe its time to get off match.com and other dating sites and hit the athletic fields. WSJ explains.

Falling prices aren't the same as sale prices.

Remember that scene in the first “Die Hard” (and the best one (well, the only really good one, I mean, the others are passable, except for that fourth one, but really, the first is a top-rate action movie, the others are just rehashed leftovers,) where John McClane throws the dead terrorist out of the window and the body plops down on the hood of the police cruiser that’s passing by, and McClane leans out the window, already a dirty, bloody mess with a machine gun in his hands, and screams “Welcome to the party, pal!”

That was the first thing that came into my head when I saw this Phil Izzo story (and that probably says something about me, but let’s leave that for some other blog) hit the Tape.

It appears that Wall Street economists, by a two-to-one margin, now believe that deflation is a bigger threat than inflation. So, for all the jawboning the Fed’s been doing about inflation, a con game they are likely to maintain this afternoon, Wall Street’s not buying it anymore.

A Wall Street Journal survey found that by a two-to-one margin Wall Street economists see deflation as a bigger threat to the U.S. economy over the next three years than inflation.

“Deflation is dangerously close,” said David Resler of Nomura Securities, one of 53 economists surveyed by the Wall Street Journal. Among economists who answered the question, nearly two-thirds said that deflation poses the bigger risk to the economy over the next three years; the remainder said inflation is the bigger threat. That compares to an April survey, when the economists were split 50/50 over whether inflation or disinflation posed the bigger risk over the next year.

I honestly don’t have much new to say about this; well, anything actually. We’ve been banging the drum on this topic for a long time. It’s just sort of, well, satisfying to see Wall Street coming over to our way of thinking. Even if the thoughts themselves are frankly depressing and even frightening. But you’ve got to face up to reality before you can start dealing with the situation.

This picture still isn't getting any better.

The fact that jobless claims dropped by a higher-than-expected amount is prompting cheers that today’s data is an encouraging sign for the jobs market.

Fine – it is encouraging. But it’s still hard to be outright optimistic about the labor market when it continues to lose rather than add jobs on a regular basis, University of Oregon economics professor Mark Thoma says. Claims also remain significantly above the 400,000 level needed for the economy to start adding jobs.

“As long as claims remain above 400,000, we are still losing jobs overall and labor markets continue to deteriorate,” he says. “And even when claims do fall below 400,000 that won’t be the end of the labor market’s troubles. It will take quite awhile to for labor markets to reabsorb all the workers that want jobs.”

Jobless claims have been pretty volatile throughout the first two months of the year. Prior to today’s report, they had risen four out of the last five weeks. So today’s decline is a step in the right direction, but it’s still too early to tell whether the decline is sustainable.

Continue reading…

- Chill out, Geithner bashers. Lots of chatter surrounding the Treasury Secretary’s future, but Reuters blogger James Pethokoukis says the “Geithner must go crowd” needs to be patient.

- Taxing big banks is important because it shows that the Obama administration recognizes reckless risk-taking in the financial sector is “dangerous and undesirable,” Simon Johnson says. But a bank tax is no substitute for transparent regulation.

- Still, elements of the bank tax seem to make sense. “Just because a policy is popular doesn’t necessarily make it a bad idea. And this one makes a lot of sense,” Felix Salmon says.

- Probably not a coincidence that some of the most innovative companies have their founders actively involved in strategic decisions, VC Fred Wilson notes. “The founder factor is a huge intangible force in companies and is most often for the best.”

- Citi (C) CEO Vikram Pandit’s absence at Financial Crisis Inquiry Commission hearings certainly didn’t go unnoticed.

- What are the odds that Congress approves Obama’s bank tax? Views vary widely.

- One year later, time to start grading Yahoo (YHOO) CEO Carol Bartz’s performance. She backed up her tough talk, earning herself an A- in Kara Swisher’s book.

- Fannie Mae (FNM) and Freddie Mac (FRE) bailout costs are pretty astounding.

- Strong 30-year sale buoys Treasuries.

- Maybe Google’s (GOOG) China threat isn’t necessarily about a moral stance, because it comes four years too late, TechCrunch says.

- Economists react to today’s disappointing retail sales data.