Market Talk

US stocks fall for a second straight session, amid a sell-off of stocks overseas and riskier assets like gold and oil.

The moves for the two big indexes, the Dow and the S&P 500, were minor, but for other indexes, they were more severe. DJIA eases just 2 to 11823, after falling as much as 80 points during the day, and S&P 500 loses 2 to 1280. But the Nasdaq Comp drops 21 (0.8%) to 2704, and the Russell 2000 loses another 1.1%, after falling 2.6% yesterday. The Dow Transports drop another 1%, on top of yesterday’s 1.8% slide.

So the relative strength of the blue chips is masking a deeper sell-off that can be seen elsewhere.

Crude futures fall more than 2%, to below $90/barrel. Gold fell, and even Treasurys got shellacked.

As for the new flow today, jobless claims dropped, and home sales rose, but the numbers aren’t enough to break a growing perception that a correction is on its way. Throw in fears that China’s economy may be hot despite efforts to cool it off, and well, you’ve got your correction cocktail.

Google just reported earnings, and it had a surprise for the market: not the number, which once again blew Street estimates out of the water, but the news that co-founded Larry Page is taking over as CEO from Eric Schmidt, who’s been in that seat since 2001. The news is of course presented and painted amicably enough, but we can’t but think the whole thing is rooted in something a little less friendly.

The continued fears about Europe took the euro down, and consequently stocks as well, but a spate of somewhat better-than-expected data helped to stanch the losses. Although, right now at least, stocks are still down and looking to end November in the red, breaking a three-month winning streak.

- The 10-year yield has fallen 40 bps during the past month, James Hamilton notes at Econbrowser. “If you wanted to attribute all of this to expectations of QE2, and if you were assuming that $400 billion in long-term bond purchases could lower the rate about 13 basis points, you might think the market has already discounted some $1.2 trillion in additional large-scale asset purchases,” he says. “All of which raises the interesting possibility that if the Fed were to announce in November another trillion in purchases, nothing would happen, because the market has already discounted it.”

- “The fact that an IMF meeting ended with the participants unable to feign a narrowing of differences on the currency front is further evidence that positions are hardening,” Yves Smith writes at naked capitalism.

- Bank stocks no longer driving this rally. “That old adage of ‘as financials go, so goes the market’ — I don’t think that’s tru this time,” said John Lynch, chief equity strategist at Wells Fargo Funds management Group.

- Next-gen 4G mobile phone systems promise faster speeds and better audio. Various US carriers have already promised to roll the new technology out within the next couple of years, but Apple (AAPL) will wait until the technology is more mature before adding it to the iPhone, according to TechCrunch. Instead, the blog speculates that AAPL will release phones next year that are compatible with many more carrier networks using different technologies.

- The Reformed Broker blogger Josh Brown channels his inner Alanis Morrisette as he discusses Dow 11000. “When I consider the state of the market rally, I can only think to myself, ‘Isn’t it ironic, don’t ya think?’”

- Piper Jaffray’s Gene Munster tells Silicon Alley Insider that tablets built with Google’s (GOOG) Android software will provide some “very stiff competition” to Apple’s (AAPL) iPad. While Apple will probably ship about 20M-25M iPads next year, Munster says “ultimately we think that Apple won’t have the majority of the (tablet) market share. It’ll probably be with Android-based tablets.”

- “The biggest problem with TARP is that the other portions of the response were so poorly crafted,” the Economist’s Free Exchange blog says. “And the legacy of that underperformance — a weak American recovery alongside continued wealth on Wall Street — is what continues to give political TARP-bashing its potency.”

- Southwest (LUV) announces it’s ending its eight-year tenure as the “official airline” of the NBA after the two sides couldn’t agree on an extension. Farewell then to Slam Dunk One, a specially painted plane that marked the partnership which is now destined for a new color scheme. “With our tough financial climate and limited resources, we had to make the tough decision to say goodbye to one of our dear friends and partners, and both sides agree — we’ll miss each other!” gushes Southwest’s blog.

- Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false,” he says. “The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives.”

- Jets-Vikings: the hyperbole bowl, WSJ’s Jason Gay writes.

- 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.”

- Deal-making has been coming back, with another spate of deals and potential deals announced yesterday, but with one notable difference, John Curran writes at Time’s Curious Capitalist blog. “The big difference is, this merger-fest probably won’t result in higher stock prices.”

- “The Fed may need to do something to shock markets into believing that it is serious about reversing the decline in (inflation) expectations,” Ryan Avent notes at The Economist’s Free Exchange blog. “Without a firm commitment to an eye-popping number, markets may simply believe that the Fed will pull the plug on the purchases before the job is done — a belief that will undermine the impact of the purchases.”

- “What’s the bear case on QE2?” ponders Minyanville’s Todd Harrison. “Think Rocky Balboa at the end of the first movie; there ain’t gonna be no rematch, and there ain’t gonna be no QE3,” Harrison notes. “That’s the risk for policymakers. It’s the next to last bullet (and you know where the last one is pointed).”

- Hewlett-Packard (HPQ) maintains “emulating Apple is not part of our strategy,” but it wouldn’t hurt H-P to focus on excellence in user experience, Digital Daily blogger John Paczkowski says. “Because if it nails that and then ‘doubles down’ on webOS as promised, we could see some very interesting things coming out of H-P in the months ahead.”

- Apple shares dropped as much as 5.6% Tuesday before closing down 1.5%. Rumors swirled in the morning that Apple COO Tim Cook could become the new Hewlett-Packard chief. But that rumor was quickly dismissed.

- CNet’s Software Interrupted blog points out that Google (GOOG) has acquired 23 companies so far this year, compared with none for Microsoft (MSFT). That means MSFT, already fighting what many consider a losing battle in search, is also losing out in top start-up technologies like mobile and social networking, as well as foregoing some of the best talent available.

- To the delight of nerds across the country, it turns out that Apple’s (AAPL) new Apple TV can be hacked just like an iPhone, iPad and iPod Touch, a popular group of hackers announced last night on their blog. The group, known as the “Dev-Team,” have for the past few years been finding ways to run unauthorized software on AAPL’s popular mobile devices.

- The churn among Yahoo’s (YHOO) executive ranks continues, as Jimmy Pitaro, VP of Media, is expected to leave the company soon, reports All Things D blogger Kara Swisher. “Adding Pitaro to the pile will only increase pressure on [CEO Carol] Bartz…to show investors that Yahoo has a clear plan amidst the executive turmoil.”

- AOL goes on a spending spree, scooping up TechCrunch, one of the most influential blogs in Silicon Valley, as well as Web video-syndication company 5min Media.

- Two wins later, Jason Gay says its time for NY Jets QB Mark Sanchez to give up his blanky.

Dow Jones’ Roger Cheng reports:

BlackBerry maker Research In Motion (RIMM) might be a bit late to the game, but it finally unveils its highly-anticipated tablet computer and operating system in an effort to attract more consumers.

WSJ has the details, including this great paragraph describing where RIM currently stands among consumers:

The announcements come as RIM revamps its iconic BlackBerry smartphones—originally made for businesses to handle email—for a market driven increasingly by consumers looking for fast handsets and cool software. Users and developers complain BlackBerry’s operating system is slow, clunky and lacks fun apps; the handsets are facing tough competition from Apple’s iPhone as well a handsets that run on Google Inc.’s Android operating system, particularly in the critical U.S.

On paper, Research in Motion’s Playbook tablet has a lot going for it, including a dual-core processor, full Flash, two high-definition cameras, and USB ports.

But in the end, it’s still all about the applications. RIMM faces the same dilemma Palm did with its new smartphones: an unproven product that may not attract app developers like Apple (AAPL) or Android.

RIMM is spending the latter half of its presentation focusing on “Super Apps” and making life easier for developers. IDC’s Al Hilwa notes that it will still take some time to build up the number of apps available to the product, which runs on different software than Blackberrys.

The Playbook, unlike the Blackberry, will not feature a cellular connection. So who will sell the tablet? RIMM has traditionally relied on its wireless carrier partners to push Blackberrys, either to business customers or consumers. But without a 3G connection, there really isn’t any motivation for the carriers to sell the Playbook.

Will RIMM try its hand at the direct retail business? More likely, it will rely on a retail partner like Best Buy (BBY).

Research in Motion shares were recently up 1.2% to $48.95 in after-hours trading.

- 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.

- The recession getting an official ending isn’t a surprise, but it doesn’t change the fact that to the average Joe, it doesn’t feel like the recession’s over. “Obviously, the employment picture is still dismal, and people complaining that policymakers should focus on labor markets rather than output have a point,” Ryan Avent says. “It’s just not one that’s particularly relevant to what the NBER Dating Committee does.”

- – NBER says recession’s over, but it’s not clear employment has bottomed out yet. “That is my worry about this call,” writes Mark Thoma. “Whether or not we stay near the trough for an extended period or move gradually but consistently back to full employment is an open question, but I don’t think we can discount the stagnation outcome.”

- Many strategists have been cautiously optimistic about the September rally because it has come on low volume, but Reformed Broker blogger Josh Brown says he actually prefers a low-volume breakout. “Nobody is in,” he says. “Fear is the conductor of this train right now, period, end of story…Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario.”

- Expect an interesting week ahead, says PIMCO CEO Mohamed El-Erian, as Europe’s debt crisis returns to spotlight amid increasing solvency concerns. And global configuration of currencies is quickly becoming hot-button issue. “This week will shed light on whether policymakers can do anything to deal with these two issues,” he says. If they continue to stumble and hesitate, what has been simmering may well come to a full boil in the next few months.”

- Calculated Risk blogger Bill McBride doesn’t expect any major changes to tomorrow’s FOMC statement. Too soon for Bernanke to comment on further easing, especially considering his Jackson Hole speech. “Bernanke suggested that additional easing would probably require ‘significant weakening of the outlook’ or a meaningful decline in inflation expectations (or further disinflation),” he notes. “The first hasn’t happened yet…although they might express more concern about disinflation this week.”

- Paul Krugman provides more evidence that unemployment remains high because aggregate demand is too low. “Every single major industry has seen a rise in involuntary part-time work; so has every major occupation,” he says at Conscience of a Liberal. “There’s no hint that any major kind of labor, in any sector, is in short supply.”

- Weak demand remains most important factor holding back job growth. But it’s not the only factor, James Hamilton argues at Econbrowser. He points to latest NFIB data which show respondents say sales are their biggest problem, but they’re increasingly worried about taxes as well as government regulations.

- S&P 500′s double-digit percentage rally off July lows has been broad based, lacking a particularly strong sector during run-up, Bill Luby writes at VIX and More blog. Materials and industrials have been top performers, while consumer discretionary and tech have recently shown signs of life. “Consumer and financial sectors cannot afford to be a significant drag on stocks or the current rally will likely run out of steam.”

- Google (GOOG) CEO Eric Schmidt recently said he wants to add social networking to the company’s core products and services. “When I read those remarks, an alarm bell went off in my head,” Mathew Ingram writes at GigaOm. “To truly be successful, social media or social networking…can’t just be bolted onto what you are already doing. It’s not a software upgrade or a hardware fix…social just isn’t something the company understands very well.”

- Here’s a perfect example of an inspiring hypomanic entreprenuer: “I had friends at Princeton; I’m sure it’d be fun to see them,” says 21-year-old Seth Priebatsch. “But I know that what I’m going after is huge and others are going after it, and if they’re not, they’re making a mistake. But other people will figure it out, and every minute that I’m not working on it is a minute when they’re making progress and I’m not. And that is just not O.K.”

- With today marking the anniversary of Lehman’s bankruptcy filing, the trajectory of the stock market during the past two years has been one wild ride. Bespoke Investment Group notes consumer discretionary and technology are the only two sectors trading above pre-Lehman levels. And while financials have rallied 140% off March 2009 bottom, they still need to gain another 43% “before they can put the pain of the financial crisis behind them,” firm says. Overall, S&P 500 remains 12% lower than it was two years ago.

- “Businesses aren’t hiring because of poor sales, period, end of story,” Paul Krugman writes on his blog. “And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.”

- Twitter’s revamped website has one main focus: Encourage users to spend more time on Twitter.com where the company will show more adds, MediaMemo blogger Peter Kafka says. But Twitter executives say the changes reflect how they want the site to be viewed as a “consumption environment.” “Which is another way of saying that Twitter is a media company,” Kafka adds. “It gives you cool stuff to look at, you pay attention to what it shows you, and it rents out some of your attention to advertisers.”

- Facebook and Microsoft (MSFT) are deep in talks about significantly expanding the search relationship the companies have shared for many years, Kara Swisher reports at All Things D. Broader agreement could include Bing mining anonymized data of consumer usage from Facebook’s “Like” buttons. “Such information might yield a treasure trove of insight for both search users and advertisers.

- Cisco (CSCO) announcing it will begin paying a dividend garnered much positive attention, which surprised Chad Brand, founder and president of Peridot Capita, who called it “unimpressive and unimportant.” “For the investment strategists who claim that income-oriented investors will now all of the sudden flock to Cisco shares, they are clearly overstating the situation,” he writes.

- Eli Lilly (LLY) hops into social media pond, launching corporate blog called LillyPad and accompanying Twitter feed. LLY says blog will address public policy issues, corporate responsibility and advocacy efforts. LLY joins other drug makers including J&J (JNJ) and Glaxo (GSK) that have started corporate blogs. Drug companies have approached social media gingerly, though, because they face strict regulations about what they can say about their drugs.

- Google’s (GOOG) long-awaited music service may soon be a reality, reports music website Billboard. Billboard claims GOOG is circulating a proposal to record labels touting an iTunes-esque music service. Key features apparently include a $25-a-year subscription fee, cloud-based storage and a social networking feature. Unlike Apple’s (AAPL) iTunes, which only offers users short previews of tracks prior to purchase, GOOG apparently wants to offer one full-track stream per song for free.

- Mike Shedlock is skeptical of rebounding retail sales. “I don’t buy it. If retail sales were back to within 4.3% of the pre-recession peak, sales tax collections would be back towards the pre-recession peak, if not exceeding the pre-recession peak.”

- Cash for clunkers revisited. And the verdict? It was one big clunker.

- Details emerge of Horace Mann Educators (HMN) CEO’s DUI arrest. “The chief executive of a midsize insurance company who is in a county jail in Florida on drunken driving charges had “difficulty standing,” was “swaying in all directions” and later fell to the ground as police investigated the May 29 car crash that led to his arrest, according to police records,” WSJ reports.

- AIG and Treasury reportedly discussing an accelerated sale of the government’s stake. WSJ reports Treasury’s likely to convert $49B in AIG preferred shares to common and gradually sell its stake.

- “In case you lost track of this sorry affair, AIG, the biggest ward of the state in human history, continues to get the kid glove treatment,” Yves Smith writes at naked capitalism. “Funny, isn’t it, how creative and accommodating the Treasury can be when dealing with large distressed firms, and its skill seems to evaporate when contending with underwater homeowners.”

- This is not a typical stock picker’s market. Far from it. Since the May 6 “flash crash,” correlation of S&P 500 stocks to the overall index has reached its highest level since the 1987 crash. “The stock market has turned into a schizophrenic herd of sheep,” the Pragmatic Capitalism blog says. “Currently, the herd is grazing happily with not a care in the world. But don’t be fooled — when something spooks them you’ll get trampled if you don’t run with them.”

- Retail sales rise for second straight month and the 0.4% rise in August is the highest percentage gain since March. “If we look at the monthly trend of late, there’s an upside bias,” James Picerno writes at The Capital Spectator. “It’s hardly definitive or strong enough to close the book on worries, but considering what might have been it’s okay and more than welcome.”

- Microsoft’s (MSFT) Bing has overtaken Yahoo (YHOO) as the No. 2 search engine in the US, at least according to Nielsen’s August report. Firm says Bing had 13.9% search share last month, compared to Yahoo’s 13.1%. This will “will surely cause a firestorm of controversy in the search arena today,” Kara Swisher says at All Things D. Regardless, Google (GOOG) still dominates as it holds 65.8% of search, up 0.9% month-over-month and 0.5% from a year earlier.

- The outcome from Basel III has been critiqued left and right, but Reuters blogger Felix Salmon finds some positives, calling Basel III a “quiet victory” and saying the banking restraints are fairly constructive. “The Basel committees did a masterful job of depoliticizing the process as much as possible,” he says. “If politicians and the media had got involved, that might have made the process more democratic, but it would also have made it much more chaotic and quite possibly would have derailed any chance of an agreement at all.”

- Couch potatoes rejoice! Google TV, the new Internet television product Google (GOOG) is rolling out, will hit stores in the middle of October, possibly on Oct. 17, Engadget reports. Citing an internal memo from Best Buy (BBY), the blog says BBY had originally planned to begin selling Google TV on Oct. 3 but the launch has been pushed back by two weeks.

- Investors who try to time the market may be better off sticking with a buy-and-hold strategy. Barry Ritholtz posts a chart at The Big Picture looking at how investors would do if they bought the S&P 500 in 1993 and how their performance would be dictated if they missed the 10 best days or avoided the 10 worst days.

- Rimarkable blog wonders why the BlackBerry Curve 3G doesn’t run on BlackBerry 6 out of the box. Research In Motion (RIMM) says BlackBerry 6 will be available for the Curve 3G upon network certification in the coming months. And RIMM notes the device, which will sell initially through Verizon Wireless, is BlackBerry 6 ready. But for now, it will run on BlackBerry 5, prompting Rimarkable to wonder why RIM would release a device with an “old deprecated OS” a month after the debut of its next-generation operating system.

- Rafael Nadal finally solves New York. Congrats Rafa.