Market Talk

- More than 80% of companies that reported earnings have topped analysts’ estimates. But don’t get too giddy. “After all, ‘better than expected’ could simply reflect the low level of the underlying estimates and the strength of the actual data,” Pragmatic Capitalism says.

- Is fresh, massive stimulus via QE2 really necessary? The Reformed Broker blogger Josh Brown isn’t so sure. He notes companies continue to report decent earnings. And more disturbing is the fact that “outside of home prices, inflation is becoming more and more of a reality…The propping up of the dead and the dying via federal spending and zero percent rates is not warranted with markets and prices rebounding elsewhere.”

- On the other hand, the risks of not engaging in QE2 are too great, James Picerno writes at The Capital Spectator. “Calling on the Fed to stand pat risks repeating the mistakes of monetary history,” he says. “We have to deal with the pressing threats as they arrive, and worrying about runaway inflation today is
premature, and perhaps more than a little dangerous. The day for fighting that battle will come. But not now.”

- Credit Suisse notes much of the earnings season move for equities might be over, despite the fact that there’s plenty of reports still to come. “Our Portfolio Strategy team finds the bulk of the impact of earnings on market performance seems to occur in the first two weeks of earnings season, which ends today,” firm says, according to MarketBeat.

- As the reviews pour in regarding Windows Phone 7 devices, so far so good for Microsoft (MSFT). NYT’s Bits blog posts a roundup of reviews. The new lineup of phones are getting “overwhelmingly positive reactions,” blog says. “It’s still unclear if this will translate into sales or make it possible to attract customers away from existing platforms.”

- Hulu’s considering slashing price of Hulu Plus — its subscription service still in beta mode — to $4.95 per month from $9.95, MediaMemo blogger Peter Kafka reports, citing sources.

- Latest iPad rival hits the market. H-P releases its $800 touchscreen tablet computer.

- FCC weighs in on the Cablevision/News Corp dispute over Fox.

- Deal Journal’s Shira Ovide looks at the best and worst deal Apple ever made.

- WSJ profiles the state of Jay-Z’s empire, the rap monger who’s worth an estimated $450 million.

- Is the economy ready to walk without the Fed’s MBS crutch? It’s possible, but keep in mind the Fed’s made it clear it’ll resume the purchase program if trouble ensues, John Curran says. “I doubt that a declining stock market alone would be trouble enough to trigger a restart of the program but a sinking economy certainly would.”

- The most important thing FCC’s National Broadband Plan should accomplish is increasing amount of wireless spectrum available for broadband Internet, writes Fred Wilson. “The fact is that wires, fiber, and cable aren’t going to get us where we need to go.”

- It seems homeowners are increasingly opting for strategic
defaults. At least that’s the sense from recent NY Times and LA Times stories, Calculated Risk says. “I’m not sure if walking away is becoming more common or if there is a bubble in walking away articles.”

- Palm’s situation is turning from bad to worse, as its 4Q may not be any better than its ugly 3Q, John Paczkowski notes.

- Number of single-family homes under construction has fallen off a cliff since the housing bubble burst. About 1 million were under construction in February 2006; today there are just 300,000. “The precipitous decline ended last summer, and housing construction has been essentially flat for several months,” Donald Marron says. “Perhaps housing construction has finally found bottom?”

- Our DJ colleague Brendan Conway wonders whether the party’s over for financial stocks.

- Sen. Dodd’s financial regulation bill is “tougher and better than I had expected,” Edmund Andrews writes on the Capital Gains and Games blog. “The big banks and Wall Street firms are already howling in protest. Front groups like the US Chamber of Commerce, which claim to be looking out for mom-and-pop businesses, are throwing everything they have at it.”

- PPI falls 0.6% in February, marking biggest drop in seven months and curbing inflation expectations, for now. Gasoline costs declined sharply.

- Fed’s faced its fair share of scrutiny for underestimating the financial crisis, but simply calling for change doesn’t mean much. “Let’s be practical. What other institution did a better job?” James Hamilton ponders. “Where in Washington today do you see an agency with the intellectual resources to get this right? Simply squawking that we need a change is not constructive leadership; it’s political finger-pointing.”

- Starbucks (SBUX) appears to be testing blueberry waffles in some markets, Starbucks Gossip blog reports, with Denver, Oregon and an area north of Seattle trying out the toasted items. Waffles could help increase those morning sales, too, especially at a price noted by several blog commenters: $2.50 per waffle.

One of the signs of a resurgent corporate America, one that will start hiring at least some of those 11 million or so unemployed Americans who currently living it up on unemployment compensation, will be a surge in capital expenditures. Companies will start spending money to expand their operations, and will need to hire people to operate those operations. Recent data suggest that ramp up may be a very long, very low-grade one.

According to the Fed’s latest Flow of Funds report, US nonfarm, nonfinancial firms raised a net $380 billion in 2009. “One might expect this to reflect an increased appetite to invest. But firms have primarily been borrowing more from the bond market to compensate for borrowing less from other sources,” Capital Economics’ John Higgins writes in a research note.

Companies were less likely to tap the equities markets, meaning the total raised in 2009 was down $327.5 billion, a record low, as Higgins points out.

Admittedly, this “financing gap” was less negative in the final quarter of 2009 than in the prior three quarters. Nonetheless, even if the financing gap turns positive this year, we doubt it will become very large. Firms are likely to remain reluctant to invest heavily given the weakness of final demand and a still low rate of capacity utilization. And to the extent that they do choose to ramp up their capital expenditure, they will probably prefer to finance it with their cash flow.

As we saw this morning, capacity utilization remains well below its long-term average. Real demand remains in the doldrums. The economy is going to need a spark, a new Cabbage-Patch Kid, a new Internet, a new something, to get the whole job-creation machine going again.

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