Market Talk

Impact of rising oil prices seemed to rattle investors enough to send US stocks lower Friday, but somehow another two bucks added on to crude this morning — taking it to well above $106/barrel — appears to be little cause for concern.

Figure that one out.

Mood here may be enhanced by advances in European stock markets, and euro dashing above $1.40, though it’s hard to find a substantive reason behind Europe’s gains. Moody’s cut Greece’s credit rating another three notches.

Stocks may bounce at the open, but gains will be tested if oil continues its advance. Thin week for economic data, January consumer credit due at 3:00 p.m. ET.

S&P futures up 0.20, DJ futures up 4. Ten-year note lower, yield at 3.53%. Crude futures up 2% at $106.50, Brent futures up 1.6% at $177.77.

We opined in this space back in March of last year that if you wanted to know what lessons the unfolding crisis at the time in Greece held for the United States, the place to look wasn’t the federal level, it was the state level. Greek stories, after all, I said, always have something to teach us.

That’s becoming more apparent. Be sure to get a gander at the story at the top of page one in today’s Wall Street Journal, New Hit to Strapped States. The market for municipal bonds is getting tighter for all manner of issuers, hospitals, improvement authorities, schools.

With myriad agencies having to refinance tens of billions in bonds this year, it’s creating another headache for the states, which have enough of them to begin with. This isn’t just a bad rabbit hole to go down. It’s a nuclear rabbit hole.

It’s been a bad week for muni bonds, with the highest profile misfortune, the one that really got this whole mess into the public eye, this week coming from my own Garden State. Given that New Jersey sprouts more “improvement authorities” than bad reality shows, this is no surprise.

The New Jersey Economic Development Authority was forced this week to scale back a bond offering and offer higher yields due to weak demand. The authority cited the weather, but many cited Chris Christie, because just before the bond offering, the governor said rising healthcare costs might bankrupt the state.

Bad timing, that. But these problems aren’t going away, in fact they are likely to only grow.

Continue reading…

Let’s hope Germany or France doesn’t have a leg wound like Brad Pitt had in “Seven Years in Tibet.” Oof da.

From Edward Hugh at a Fistful of Euros, a long post but worth the time if you’ve got it (hat tip naked capitalism):

According to one popular analogy currently going the rounds, the Euro Area countries could be likened to a group of 16 Alpine climbers scaling the Matterhorn who find themselves tightly roped together in appalling weather conditions. One of the climbers – Greece – has lost his footing and slipped over the edge of a dangerous precipice. As things stand, the other 15 can easily take the strain of holding the Greeks dangling, however uncomfortable it may be for them, even if they cannot quite manage to pull their colleague back up again. But as the day advances others, wearied by all the effort required, start themselves to slide. First it is Ireland who moves closest to the edge, and gets nearer the abysss with each passing moment. But just behind comes Portugal, while some way further back Spain lies Spain, busily consoling itself that it is in no way as badly off as the others. But if all three finally go over, dragged down by the weight of those who precede them, then this will leave 12 countries supporting four, something that the May bailout package only anticipated as a worst-case scenario. In the event that this is finally what happens, Mr Reglin will find he has plenty of work to do, as will Mr Trichet’s successor at the ECB. In the meantime all the rest of us can do is wait and hope, firm in the knowledge that having come this far, we can only go forward, since there is no easy way back down to the point from which we started. But for heavens sake, the only thing we don’t need to be told at this point is that the danger has already past, even as we slide, inch by inch, onwards and downwards.

- “We have the specter of Greece’s finance minister insisting really, no really, it will never ever default, or default via restructuring,” Yves Smith quips at naked capitalism. “Now given the unfortunate accident of timing, these protests sound awfully Dick Fuld like, although the better parallel is probably Mexico, which kept insisting in 1994, no way, no how would it need to restructure, despite having a lot of dollar denominated obligations and an untenable currency peg,” she adds. “And it was OK, until it wasn’t.”

- As chatter ramps up about new stimulus plans, FusionIQ CEO Barry Ritholtz has his own ideas for what he would do if given $1T to stimulate the economy. “Some folks believe the government should do nothing, spend no money, focus on balancing the budget,” Ritholtz says. “But is the ideal time to begin a new diet and exercise regime when you have pneumonia? The time to reduce the government’s economic deficit and footprint is during a robust expansion, not during (or just after) a contraction.”

- S&P 500 still hasn’t eclipsed its August highs, but market breadth has indicated underlying strength in the September rally, Bespoke Investment Group says. About 80% of S&P 500 stocks are trading above their 50-day moving averages, which is higher than last month. “This isn’t quite to the highest levels seen over the last year, but it’s getting close.”

- “It takes jobs to create households, and usually housing is the key driver for employment growth in the early stages of a recovery,” Calculated Risk says. “So this is a trap: the excess supply means weak employment growth, leading to few new households, so the excess supply is absorbed slowly — putting off more robust employment growth.”

- JPMorgan Chase (JPM) finally issues a formal apology for the web problems that plagued its online banking service earlier this week. “We are sorry for the difficulties that recently affected Chase.com, and we apologize for not communicating better with you during this issue,” JPM says on its website. The apology is notable as many bloggers and folks on Twitter had criticized JPM for its failure to properly communicate this issue with its customers.

- Google Voice cofounder Craig Walker is leaving his role as a manager of real-time communications at Google (GOOG) and returning to his entrepreneurial roots. Walker, who was previously chief executive of Grand Central and renamed Google Voice after its acquisition by GOOG in 2007, will become Google Venture’s first resident entrepreneur, TechCrunch reports.

- “With two strong divergent opinions on gold and low implied volatility levels, this could be an excellent time to buy options in order to establish speculative long or short positions in the metal,” Bill Luby writes.

- All Things D blogger Kara Swisher doesn’t sugarcoat her thoughts on Yahoo (YHOO) CEO Carol Bartz. “Her actions in regards to the Internet giant’s Asian relationships are about as bad as it gets these days.”

- Poverty rate climbed to 14.3% last year, while those lacking health insurance rose to 50.7 million from 46.3 million. Incomes fell slightly as households relied on government and family aid to weather the recession.

- For the city that never sleeps, take a look at some of Central Park’s midnight runners.

So which one of you beauties will be first to "restructure"?

“As the summer draws to a close, it is becoming increasingly clear that neither the European sovereign debt crisis nor the banking sector crisis has been resolved,” Morgan Stanley economist Joachim Fels writes.

So far, it seems the euro and the single currency’s frequent escort, US stocks, haven’t received that memo yet. They show no signs of the turbulence ignited by the last flare-up in May. But that probably won’t last.

“The sovereign and banking crises continue to mutually reinforce each other because governments need to backstop banks, while banks own large amounts of peripheral government bonds,” Fels writes. “So, not much has changed since we last described (in June) this vicious circle, called for a circuit-breaker, and concluded that the obstacles to a real solution of the banking and sovereign crisis were formidable,” he says.

Continue reading…

Irish eyes are not smiling this morning.

So equities traders here in the old USA aren’t worried about European debt today, it seems judging by stock futures, whereas yesterday they were all in a tizzy about it. Does that make sense? No, it doesn’t, so you should ignore the stock moves (unless, of course, you’re actively trading, in which case, all that matters are the numbers,) and focus on, you know, the news. And the news is still coming out of Europe.

The cost of credit default swaps on Irish debt hit a record today on increasing worries over the state of Irish banks. This after the government extended its blanket guarantee of private banking debt (was supposed to run out the end of this month, now they’re extending it to the end of the year. Just seems like nobody can get those exit strategies kicking in, can they?)

Neil Shah reports over at MarketBeat:

Ireland, which is grappling with an increasingly costly bailout for troubled lender Anglo Irish Bank, isn’t alone. Concerns about the health of Europe’s banking system have unleashed a wave of risk aversion that is engulfing other countries on Europe’s fringe too. Portugal’s credit-insurance costs have jumped to $342,000 from $330,000, while Greece’s costs have hit $916,000 from $895,000.

It’s not just Irish CDS, either. Spreads on bond yields between Germany and some of the so-called periphery countries are rising. The spread between Greek bonds and German bonds is at a four-month high of 948 basis points, very close to the record 973 it was sitting at before the Europeans unveiled their grand bailout plan.

That tells you that despite the near trillion dollar safety net the Europeans threw at their collective economies, investors are still worried. It’s not at panic levels, but beads of sweat of forming on the collective European brow.

How many of your problems have you kicked down the road that have eventually gotten better?

Hedge-fund manager Kyle Bass’ testimony before the Financial Crisis Inquiry Commission back in January was a hit with us. He’s another gent who we’d be proud to initiate into the Committee for the Continuation of Keeping It Real. Kudos to CNBC for giving him the floor this afternoon. 

He’s looking a lot more tanned and trim than in January, when he resembled more of small Gandolfini. Good stuff follows: 

Part II

How easy was that?

The hotly anticipated results of the European bank stress tests were released at noon Eastern time. Ninety-one banks were tested, apparently tested very gingerly, and 84 of them came through unscathed. One Greek bank, one German bank, and five Spanish banks. That’s it. Only seven banks on the entire European continent were found wanting.

How credible does that sound?

Let’s be frank: there is no way, no way, these tests were designed to rigorously test the strength of the European banking system. Like their American counterparts, the tests were rigged exercise designed to shore up public confidence. The truth never entered into the calculations, and why should it? Everybody already knows the truth. American banks failed a very real stress test in the fall of 2008, when the government had to come in and save the entire industry. European banks similarly failed their very real stress test this past spring.

First off, the European tests ignored the biggest risk out there, the one that really started this whole downward spiral: a sovereign default. If reality interests you at all, you can stop right there, because if the events of 2010 made one thing clear, it’s that Europe’s banks, on the whole, absolutely were not prepared to suffer through a sovereign default.

Credible or not, these tests will probably go a long way toward fulfilling their real goal: restoring confidence among the populace. It’s amazing to me that last year’s stress tests here get as much credit as they do. I don’t think the tests themselves did anything at all. What would have happened if the feds conducted the stress tests, and did nothing else to rescue the banking system?

If European leaders hadn’t cobbled together that nearly $1 trillion bailout fund, you think anybody’d care about these stress tests? Of course not.

“Regardless of what the stress tests say about a given bank, the real factor driving the willingness of credit markets to do business with a bank in London or Paris is the condition of the government and the probability that the government will support the bank,” Chris Whalen of Institutional Risk Analytics wrote.

I tell you, the market’s in one of those states, like late spring when you don’t know whether to turn on the air conditioner or crank up the heat. Sometimes you do both in the same day.

When the market seizes on a European industrial production report, about April, before the selloff started, and which compares IP to last year, which was awful, you know the bulls have control here. But control these days is a fleeting thing. The Dow was up 118 this morning, and down 13 this afternoon.

Maybe that’s because there are still some ill winds blowing in Europe that at other times would send traders for the exits. But they’ve got some things in their sights, like the 200-day moving average on the S&P 500 (which lives around 1112), it was a bad May, and they’re just in no mood to give it up. Traders drove the S&P 500 as high as 1105.96 today, but weren’t able to punch it any higher. We’ll see what the last hour brings.

Meanwhile, here are some developments to keep an eye on, that don’t have anything to do with British goalkeepers:

- Even as Angela Merkel is promising greater cooperation with France in setting policy on the Continent, her center-right coalition is in danger of falling apart, the Guardian reports. Merkel and France’s Nicolas Sarkozy said they’ll present a “united front” at the G20 meeting in Toronto on June 26-27, but Merkel’s coalition may fall apart after the June 30 election of a new president, which could push her to change coalition partners, or force a new election. Hard to see how lasting anything coming out of the G20 could be if Merkel’s government falls apart.

Continue reading…

Just keep playing, boys. Keep playing.

This upcoming week is going to be light on the data front in the U.S., and we’re still between earnings periods. That’s not really good for domestic investors and traders, because it means, for one thing, they won’t be able to wash out the nasty after-taste of Friday’s dour jobs report and, for another, there won’t be any big counterweight to the continued rumblings and crisis talk emanating out of Europe.

People desperately want to see the U.S. recovery gaining momentum and speed. That’s a must-have if it’s to avoid getting caught in the European storm. Friday’s report cast doubt on just how sturdy the recovery really is. But while the jobs report is the most important data point, it’s not the only one casting doubt. The Economic Cycle Research Institute’s leading indicators’ index hit a 43-week low last week. When this index was rising a year ago, everybody and their mother was touting its predictive powers. Now that it’s rolling over? Crickets.

Then there’s the not very well known Consumer Metrics Institute, which is like a quant shop for consumer data (hat tip, John Mauldin.) They’re more numbers crunchers than economists, and their growth index is pegging 3Q GDP at, hold onto your hats, a negative 2% rate. “Perhaps the U.S. equity markets should obsess less about Greece and Spain and pay more attention to what is happening with consumers in their own domestic economy,” the firm writes.

Look, everybody expected growth to slow down once the various government props were removed. We’ve warned about a contracting money supply. We’ve warned that the only wage growth was coming from tax credits. Now, the props are falling away, and the table is still wobbling.

I was a guest on The John Batchelor Show last night – DJ columnist Simon Constable hosts it every other Saturday — along with Fox’s Alix Steele and Bloomberg’s Joe Brusuelas. Toward the end of our financial roundtable, Brusuelas noted that on Friday he was watching credit default swap spreads on France, Belgium and Austria spike higher, by as much as 30%, and warned that Monday could be especially rough. Austria in particular is one to keep a close eye on; the nation’s banks are especially exposed to Hungarian debt.

Continue reading…