Market Talk

- Jobless claims rising 2,000 is a relatively minor change. “The bigger problem is the trend,” James Picerno says at The Capital Spectator, noting claims have jumped 13% since bottoming in mid-July. “For months, it was treading water. That was bad enough. But now it’s rising, raising fears that it could go higher still.”

- Deflation is “overblown fear” and is unlikely for three reasons, writes blogger and MIT professor Simon Johnson.

- Appears the stock market has finally awoken to poor recent economic news. And Fed saying it won’t shrink its balance sheet isn’t generating much confidence. “The Fed seems to be exhibiting a pretty bad case of ‘if all you have is a hammer, every problem looks like a nail’ syndrome, particularly when it has (or perhaps more accurately, had) other tools at its disposal,” Yves Smith says.

- Reuters blogger Felix Salmon wonders if the “twitchy, volatile” stock market is still a worthwhile long-term investment, especially if long-term volatility continues increasing.

- Yesterday’s steep selloff and today’s drop show the “sharp risk-on/risk-off swings in markets are to be expected given the reality of today’s macro context,” PIMCO CEO Mohamed El-Erian writes.

- Treasury Secretary Tim Geithner recently said surging imports “reflect healthy and growing American demand.” So much for that optimism, especially in the wake of yesterday’s trade deficit report. “Combined trends in exports and imports are simply not supportive of economic growth,” Tim Duy writes at Economist’s View. “And, given the current state of the global financial architecture, where the US is expected to be the repository of global savings, it is difficult to see how the external sector contributes positively to the recovery.”

- Microsoft (MSFT), which lately has been knocked for lacking a strong consumer strategy, is launching a studio to develop games for mobile phones. The idea, it appears, is to promote use of the Windows Phone operating system.

- The latest on the rumor mill regarding a Verizon Wireless iPhone comes from Daring Fireball blogger John Gruber, who says Apple (AAPL) is taking part in advanced testing of a CDMA version of iPhone, the type compatible with VZ’s wireless network. “The drumbeat of reports pointing to an impending Verzion iPhone launch is getting louder,” MediaMemo blogger Peter Kafka says. “Which doesn’t mean that it’s true. Just that there’s a lot of drumming going on.”

- With so much information online, it’s easy to read something one day and forget where you’ve seen it the next. But there may be a solution. On Thursday, TechCrunch reviewed Sentimnt, a search engine that tackles the question, “Where did I read that?”

- Jetblue (JBLU) finally ends the silent treatment regarding its flight-attendant-turned-wing-nut Steven Slater. “It wouldn’t be fair for us to point out absurdities in other corners of the industry without acknowledging when it’s about us,” JetBlue says on its blog. “While we can’t discuss the details of what is an ongoing investigation, plenty of others have already formed opinions on the matter. Like, the entire Internet.”

Inventory's getting pretty low at the Rainbow Shop.

You thought the Fed statement was a bummer?

Get a gander at today’s report on the June trade deficit. The deficit blew out to $49.9 billion, a 21-month high, as imports rose 3.1% and exports fell 1.3%. The Street pegged the deficit at $42.3 billion. Bulls will point and say, hey, look, imports are up, that means demand is up.

Uh, sure, guys, have fun with that one.

The real takeaway here is that this was the June report, still in the second quarter, and as such, it will have an effect on the revised GDP numbers that come out at the end of August. Depending upon whom who read, that could mean a badly revised number, or a drastically badly revised number.

“The BEA estimated a fairly large drag from net exports and indeed, the deficit reported in today’s report is even larger than they estimated,” Miller Tabak’s Dan Greenhaus wrote, “suggesting that 2Q GDP is indeed likely to be revised down closer to 1% or 1.5%.”

Ugly, right? Wait, it gets better.

“The deterioration in the trade balance in June was much sharper than had been assumed by the BEA in the advance Q2 GDP report,” Peter Newland at Barclays wrote. “As such, Q2 GDP growth is now tracking just 0.3% q/q (saar), relative to our previous tracking estimate of 1.6% and the initially reported 2.4%.” This ain’t Roubini’s crew saying this, by the way; Barclays is a relatively bullish camp on the Street.

Zero point three percent, can you imagine that? GDP in the second quarter coming in ultimately at just 1%, or 0.3%? And everybody expects the second half is going to be worse than the first half, so where’s that leading the third quarter to?

Can you say, ah, double-dip?

Addendum: Josh Brown over at the Reformed Broker nails it: “It was simply so awful that almost no one in the mainstream was ready for it.  The implications of this number will work their way into GDP calculations and recalculations and the end result will not be pretty.”

- VIX volatility index can be a great contrarian indicator — problem is, it’s a backward-looking gauge, Tom Petruno says.

- Crude oil’s getting sneaky high and no one seems to care. “One explanation is that oil prices haven’t climbed as fast as they did in early 2008, with the slope of the ascent being a primary source of worries,” Paul Kedrosky writes.

- “The key to long term economic health, though, will be a greater contribution from exports and less on borrowing and spending all over again,” Peter Boockvar notes.

- He’s chairman and CEO of the world’s largest health-care conglomerate, Johnson & Johnson (JNJ), but yesterday Bill Weldon took on a new role: blogger.

- Twitter users will not abandon the microblogging service just because it will start running search-based advertising, Forrester analyst Josh Bernoff says.

- Rumor du heure for Palm: Let Intel buy them, Jason Perlow writes.

- Google (GOOG) reportedly developing a new tablet device compatible with Android would be great for Adobe (ADBE), but not so good for Apple (AAPL).

- Tech blogger Om Malik gets his hands on Microsoft’s (MSFT) new Kin smartphones, but doesn’t exactly offer a stellar review.

- “If the US economy was about to reach “escape velocity” as Larry Summers says, small business optimism would not be in the gutter and sinking,” Mish says.

- “We live in an age of unprecedented bailouts,” Simon Johnson writes. “The Greek package of support from the eurozone this weekend marks a high tide for the principle that complete, unconditional, and fundamentally dangerous protection must be extended to creditors whenever something “big” gets into trouble.”

With the average American still trying to whittle down and cut up their credit cards, corporate America is placing a lot of hope in the idea that it can export its way out of this morass. The evidence so far is mixed as to the success of that, and that’s what John and I focused on in today’s “Upshot” column in the Journal:

So far, fourth-quarter earnings season is offering some indications to support that hope, though similar to the ups and downs in the housing recovery, the evidence on exports remains uneven. Yes, the rebound is progressing, but the export engine is sputtering and isn’t firing on all cylinders just yet.

The most recent U.S. data showed exports rose 0.9% to $138.2 billion in November, and are up $16.5 billion since last April. Leading the way in November were food, grains and beverages exports, most notably soybeans, which increased $979 million, compared with October.

Of course, agriculture represents a far smaller chunk of the American economy than manufacturing. Strength in agriculture exports won’t have any direct impact on the government’s monthly non-farm payrolls report, due out Feb. 5. Exports are going to need support from manufacturing.

Keep up this pace and maybe the US will soon be a net exporter again.

Ah, maybe not. But the February US trade deficit did tumble to the lowest level in nine years “as collapsing demand from consumers and companies reverberated around the globe,” Mike “Mish” Shedlock of Sitka Pacific writes on his blog.

He notes demand for foreign cars fell to lowest level since October 1996, and trade gap with Japan was smallest since 1984.

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