Market Talk

Seems as if corporations feel more cautious than the investors who have bid up their stocks lately, with companies content to conservatively bide their time sitting on loads of cash.

“Healthy profits, combined with opportunistic borrowing at very favorable market interest rates, are providing corporations with an ample cushion against the next business downturn,” Credit Suisse says, noting “the ratio of liquid assets to total assets on nonfinancial corporate balance sheets is hovering near a 45-year high.”

Big cash buffers are a manifestation of “the severe money demand shock American firms experienced in recent years,” the firm suggests. While that’s not good for long-term growth, it remains hard to get businesses “to risk even more of their precautionary holdings” on expansion, which could lift job growth.

The continuing decline in weekly jobless claims suggests employers have trimmed their workforces about as much as they can, but as Credit Suisse infers, they remain reluctant to expand or hire. Demand remains uneven, at best, and there’s clearly enough uncertainty related to the geopolitical picture and global growth to hold off on hiring, at least here in the US. Continue reading…

Today’s Upshot column focuses on the paradox if you will of recovering profits and stagnant hiring:

Corporate profits are humming, dividend increases are up sharply and the Dow Jones Industrial Average is back above 12000. It makes job growth the missing link as the U.S. economy mounts a rebound.

With 73% of the Standard & Poor’s 500-stock index by market value having reported fourth-quarter results, earnings are up 28% from a year earlier and sales are up 7.7%. But the contrast between profit and job growth remains a big hurdle for companies hoping to keep expanding their business.

“I am cautiously optimistic that we will see continued improvement in 2011. It’s just that it’s hard to see sustained growth until the housing market and unemployment improve,” said MasterCard Inc. Chief Executive Ajay Banga last week.

The lack of significant job gains 18 months after the recession was declared over isn’t such a mystery when considering how companies were able to return to strong profit growth in a relatively short period. They mainly relied on aggressive job cuts, and with companies now pleased with their revitalized earnings and demand still choppy, they seem to be in no hurry to add to their payrolls.

There’s no paradox, no mystery when you just accept that for a large swath of the American population, most of it in fact, there has been no appreciable recovery.

I’d like to see some kind of survey that questions whether people are better off, worse off or the same as they were in December 2007. I really would. What are you salary levels? You debt levels? Do you have the same job? Same house?

Because there hasn’t been a true recovery, except for the people at the top of the income pole, there hasn’t been a big uptick in demand here in the U.S. So companies aren’t hiring domestically, not in any great amounts in any case.

- 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.

"Personality test? I got your personality test right here."

The statistic is often thrown around these days: there are five unemployed people for every one job opening in America (it recently was six, so apparently we’re making some kind of progress.) That naturally gives employers the advantage, as they can sift among applicants from a wide pool and pick the best. Conversely, it puts employees at a disadvantage, because the competition is that much fiercer.

Just how far the pendulum has swung was made clear by this article in the Times. It’s written by Carl Deihl, the CEO of Bar Method, a company that peddles exercise DVDs, and he recounts the difficulties he faced finding somebody for an entry level job in the company. He notes upfront that applicants were told the job involved a lot of Xeroxing and routine filing, but that he considered it a stepping stone to bigger things.

If you’ve ever applied for a job, you’ve heard that spiel before, right?

He laments that most of the written applications he saw seemed to be copied from how-to-get-hired books. Fair enough. He then explains the steps he went through to find the perfect candidate, that imaginative, energetic, intelligent person who could help his company grow. “I asked each to examine our Web site as well as those of our competitors, and to chat with me about what our brand stands for and how we distinguish ourselves from our rivals,” he says. Okay, even if you’re just making copies, it helps to understand the company.

At other times, in other economies, this guy’d be happy just to find somebody who could work the Xerox machine and show up on time. I remember one kid who applied for an entry-level editing job at the Newswires, back at the height of the Internet boom. He showed up for the interview in sandals and a Hawaiian shirt, and insisted on listening to his iPod as he took the editing test. I kid you not. And we hired him. Deihl has no idea has good he has it.

Continue reading…

There are red flags out there. They’re just hard to see amid the sea of red, white and blue flags being waved by the likes of Newsweek.

This morning’s weekly jobless claims is one such flag. Claims rose 24,000 to 484,000; the Street was expecting another slide, closer to the 400,000 that indicates some real hiring may finally appear. Continuing claims rose, and emergency claims rose as well.

The fact remains that more people are out of work for longer than since the Dust Bowl days. Yes, all you green-shoots smokers, jobless claims are well off their worst levels. But they have not gotten down to a level that equals consistent job growth, and that has to be a red flag.

Hiring remains sparse. A survey from Grant Thornton last week found that 29% of companies plan to increase hiring over the next six months. A green shoot, right? Wrong. It also found that 22% plan to decrease, and 49% expect it to remain the same. That 29% number is up from 24% in September, incidentally, so over the last six months, 5% of US corporations thought conditions had gotten good enough for them to start adding headcount.

It’s been curious to watch retail sales rise amid all this. Wall Street, the White House and the jingoists don’t care how or why sales are rising, so long as they are rising. But why are they rising, if the job market still stinks, if wages are still flat? Either the jobs data is so lagging it’s missing a big, real pickup in hiring (same for wage data) or the retail sales figures are either wrong, or being driven by factors that are not sustainable in the long term, or even healthy.

Continue reading…

Come on back in and shop, America. Hope's on sale, aisle five. Fantasies, aisle six.

Before you read one more Why So Glum? piece, one more America’s Back cover story, read today’s report on small-business sentiment from the National Federation of Independent Businesses.

This is why people are so glum:

The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8.  The persistence of index readings below 90 is unprecedented in survey history.

“The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.”

The index has been under 90 for 18 months, and nine of the index’s 10 components either fell or were flat in March. The lone riser was business conditions, which rose one percentage point to negative 20%.

Why so glum? Why so glum?

Look, everybody wants America to be back on top (at least everybody in America, right?) But just writing positive-sounding blather and adding an American flag graphic isn’t going to make things better. For that matter, just throwing a couple trillion into a broken, dysfunctional economic machine isn’t going to make things better either. Both just obscure the hard spade-work that has to be done to rebuild the economy. There is no way around this.

People get it. That’s why the Fed reports month after month that consumer credit keeps contracting. Businesses get it, too, at least businesses that aren’t banks. That’s why they’re sitting on a mountain of cash rather than blowing it all on the narcissistic advice of M&A bankers.

It appears only the government, Wall Street, and some elements of the press don’t get it.

As has been repeated a hundred times, small businesses create the majority of the new jobs in this nation (the exact percentage has been debated, but the majority part hasn’t) and small-business owners aren’t feeling giddy. They’re not seeing the great gosh America’s-Backness of this recovery.

Continue reading…

Amid all the hype that the recession’s over and the labor market’s on the mend, we get a sobering report today from the Labor Department showing the jobs market still has a long road to recovery. From Dow Jones’ Meena Thiruvengadam:

WASHINGTON -(Dow Jones)- The number of U.S. workers laid off in February slid to its lowest level in more than a year, but job openings for the unemployed remained scarce.

For each job available at February’s end, there were 5.5 unemployed people, a report released by the Labor Department Tuesday shows.

The U.S. had 2.7 million job openings at the end of February, a slight decrease from January but higher than every other month since February 2009.

There has been a “decisive upturn” in the number of job openings in the U.S. since July, said Raymond Stone, one of the founders of Stone & McCarthy Research Associates. Hiring, however, has yet to pick up.

Stone described February’s data as “generally upbeat,” but noted that data have been “very, very weak.”

When the recession began in December 2007, there were 1.8 unemployed people per job opening. The figure rose to a high of 6.2 in 2009, the Labor Department’s data show.

Employers in February made four million hires. About 1.85 million people quit jobs in February while 1.82 million were laid off, fired or otherwise let go.

“We are moving in the right direction,” Stone said.

The fact that there are more than six unemployed people vying for every job opening doesn’t bode well for all those long-term unemployed folks. And remember there are 6.5 million people in this country considered long-term unemployed – out of work at least 27 weeks – which translates to 44% of all unemployment, up from 41% in February and 24.6% a year ago.

Don’t let anyone fool you – the jobs market has a long path to recovery.

- Barry Ritholtz breaks down the pros and cons of today’s jobs report.

- It’s going to be hard to climb out of long-term jobless pit. Average length of time jobless folks have been out of work hit record-high 31.2 weeks last month. And the longer they stay unemployed “the worse their chances of finding work become – either because their skills become stale and dated, or because they are stigmatized by the giant hole in their resumes,” NYT’s Economix says.

- Job report’s a step in right direction, but doesn’t represent a “robust return to full employment,” Mark Thoma says. “My expectation is that job growth will be frustratingly slow, but just positive enough to keep our hopes alive.”

- Spike in involuntary part-timers puts damper on jobs report. Number of workers only able to find part-time jobs (or have had their hours cut for economic reasons) “increased sharply to 9.1 million in March,” Calculated Risk notes, from just under 8.8 million in February and 8.3 million in January.

- “What does seem clear is that the pace of net job creation is still well below the levels required to appreciably improve the unemployment rate or to make a sizable step toward regaining the eight million-plus jobs lost since the beginning of the recession,” David Altig writes at Atlanta Fed’s macroblog.

- “All in all, the [jobs] report appears to be of the ‘ugly Goldilocks’ sort – not too hot and not too cold, but just ugly enough under the surface to keep the liquidity pumps fully primed,” Pragmatic Capitalist says.

- Don’t count on lots of free TV on the iPad, Peter Kafka reports. Disney’s (DIS) ABC is the only one of the four major TV networks putting a decent amount of programming on the iPad in time for tomorrow’s launch.

- ISuppli expects Apple (AAPL) to ship 7.1M iPads this year, 14.4M in 2011 and 20.1M in 2012. “Suffice it to say, these scenarios are far more bullish than the ones we’ve heard to date,” Digital Daily blogger John Paczkowski says. “Which is ironic given that iSuppli describes them as ‘conservative.’”

- As sweet as the iPad looks, some question the device’s true purpose and whether it’s worth the price.

- Old media’s expecting too much from iPad, MarketWatch’s John Dvorak says.

- Hulu not being shy about broadcasting the fact that it’s profitable. “Even if the number isn’t huge, a profit is well worth bragging about, because I can’t think of another Web video company that has claimed on so far,” including YouTube, MediaMemo blogger Peter Kafka says.

- Capital rules alone won’t keep banks honest. “The better solution is the ‘dumber’ one: avoid having banks that are too big (or too complex) to fail in the first place,” Baseline Scenario bloggers Simon Johnson and James Kwak say.

- Naked Capitalism blogger Yves Smith rips Jamie Dimon’s “self-serving” defense of big financial institutions. “One has to wonder whether anyone in a position of influence really believes what he is selling,” she says.

- “Businesses have dramatically tempered the rate of firing but still seem reluctant to aggressively add to their payrolls,” says Miller Tabak’s Peter Boockvar. “That process will seem more gradual in nature assuming the economy can sustain its healing and recovery in the face of reduced government stimulus and the growing likelihood of higher market interest rates.”

- Felix Salmon discusses the economics of Netflix (NFLX).

- “The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy,” Robert Reich says. “As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.”

- Jeff Miller offers his March employment preview. Following the strong ISM manufacturing report, he estimates zero net job growth before factoring in the temporary census jobs, translating into a monthly gain of 130,000. That’s less than the 200,000 gain economists expect.

- 90% of stocks in S&P 500 are trading above their 50-day moving averages. “This is at the top end of the indicator’s range over the last year,” Bespoke says.

- Hedge fund manager pay soared last year. The top 25 earned a collective $25.3B. “We bet on the country’s revival,” says top-ranked David Tepper, who earned $4 billion. “Those who keep their heads while others are panicking usually do well.”

- Give the good ol’ microwave some respect.

- Good timing for jobless claims to post biggest weekly decline since last summer, James Picerno writes at The Capital Spectator. Drop comes on the heels of two consecutive weekly increases, which prompted fears that the declining trend since March may’ve run its course.

- Even amid the good jobless claims data, keep in mind the pace of firings has diminished, but hiring still seems to be on hold, Miller Tabak’s Peter Boockvar says.

- Financial reform chatter is getting tougher. Larry Summers is the latest to chime in. “We’re certainly emphasizing regulating the bankers now, not supporting the kind of irresponsible growth that we saw historically,” he says. Simon Johnson weighs in.

- Is Google stalling on its “new approach” to China? It’s been a month and Google still censors its search results. “Is the moral high ground the company claimed a month ago proving just a bit too high?” Digital Daily blogger John Paczkowski ponders.

- S&P 500, which firmly traded in overbought territory for months, not finds itself in oversold territory, where it’s been since mid-January, Bespoke Investment Group says.

- If treasury yields break to the upside alongside corporate bond yields, “there is a distinct possibility…that there may be no places to hide in 2010 other than perhaps the much despised US dollar,” says Mike Shedlock, an investment advisor for Sitka Pacific. “Risk is very high, and rising.”

- Dell’s latest deal, acquiring Kace Networks, looks like a “savvy” move.

- Blogs rip Google for privacy concerns surrounding Buzz.

- Furloughs, wage freezes continue at USA Today. “We will evaluate business conditions on a quarterly basis and institute a fair and equitable compensation increase plan as soon as conditions permit,” Gannett Blogger Jim Hopkins reports.

- About a quarter of the 8.4M jobs eliminated since recession began won’t be coming back, according to economists polled in WSJ’s latest survey.