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.

US stocks close higher as Citi’s earnings and a better-than-expected measure of home-builder confidence prompted investors to move into risky assets.

DJIA rises 81 (0.7%) to 11144, led by BofA’s 3% rise and JPMorgan’s 2.8% gain. Blue-chip index posts first gain in three days and hits its highest close since May 3. S&P 500 gains 9 (0.7%) to 1185, behind a 2.3% rise in the financial sector. The broad measure has risen in six out of the last seven sessions. Nasdaq Comp increases 12 (0.5%) to 2481.

Financials on fire after suffering big losses at the end of last week. Citi jumps 5.6%, Wells Fargo rises 5.5% and Fifth Third gains 3.4%. Dollar started the session higher, but as stocks rallied, the dollar fell and the euro rose, continuing a familiar theme.

Focus shifts to earnings. Apple and IBM both fall in after-hours trading even as results exceed expectations. That’s what happens when these stocks are priced to perfection. IBM had been up 16% since August and Apple was sitting at an all-time high of $318 a share prior to results. But Apple only sells 4.2 million iPads and 9.1 million iPods. Shares fall 6.3% in late trading. And IBM’s outsourcing signings fall more than expected in 3Q and shares drop 3.9%.

Next up, BofA, Coke and J&J all scheduled to report quarterly results.

- 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.

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.

- Digital Daily blogger John Paczkowski picks up on an interesting Apple (AAPL) factoid: Its 2Q retail store revenue soared 73% from a year ago to $2.6B. To put that in perspective, AAPL’s store revenue was greater than the company’s total quarterly revenue from 2Q of fiscal 1996 through 4Q of fiscal 2004. IPad is the catalyst.

- “By showing it’s smart enough to swallow its pride and get rid of bad ideas, like Wave and the Nexus One store, Google is showing us it’s probably smart enough to come up with some really successful ideas, too,” Dan Frommer writes at SAI.

- “It’s an uncomfortable moment for a Google fanboy,” Jeff Jarvis says. The company is getting so big it’s becoming unwieldy, as a string of recently launched products, which all failed, shows. “All of these are just early warning signs. It’s good…to see these cracks because, used properly, they are lessons that help a company get back on its track.”

- Warren Buffett rounding up 40 of America’s richest families or individuals and having them donate at least half their fortunes to charity is certainly an admirable act. “But I’m also appalled at what this reveals about how much money is now concentrated in so few hands,” former labor secretary Robert Reich says, especially as 15 million Americans are still out of work and median hourly wages keep dropping. “Most Americans don’t need charity. They need good jobs.”

- Initial jobless claims jump 19,000 to 479,000, their highest level since early April. No wonder Treasurys rallied today, while stocks fell. “Until the economic data signals a change in the trend, yields will inch lower, fears of deflation will continue to bubble,” notes James Picerno. “And the crowd will be increasingly open to arguments that the ‘new normal’ has legs.”

- “In a deflationary environment, unemployment is a coincident indicator, not a lagging one,” Josh Brown writes at The Reformed Broker,  while pointing to data from 1970 to 1982 as proof. “Unemployment began to rise as the economy slowed down and peaked at the nadir of economic activity. The deflationary recessions of that period are more apropos to what we’re experiencing now than anything post 1990. No jobs = no soup for you.”

- The expected return of “quantitative easing” measures from the Fed won’t fix the economy’s actual problems, portfolio strategist Marshall Auerback writes at naked capitalism. “The Fed’s fixation on credit growth is curiously perverse, given the high prevailing levels of private debt.”

- BLS readings on private nonfarm payrolls during 1H have been notably higher than ADP monthly data. “Most likely the correct number is somewhere between ADP’s number which does not factor in new business creation, and the BLS number which I believe hugely overstates it,” says Michael Shedlock.

- The debate about unemployment largely centers around whether the jobless problem is cyclical, meaning more government action can improve the situation, or structural, where there’s not much the government can do. “We don’t know the exact structural-cyclical breakdown, but the cyclical problem is certainly larger than any imaginable Congressional response,” writes Mark Thoma. “So the excuse for inaction based upon the ‘it’s all structural’ claim isn’t persuasive.”

- Mark Cuban chronicles his failed chase of the Texas Rangers.

- National savings rate in June inched up to 6.4% from 6.3% a month earlier and is approaching the 50-year average of 6.9%. “On the one hand, higher savings will put a crimp on consumer spending which of course makes up a majority of US GDP,” says Miller Tabak’s Peter Boockvar.. “But on the other, higher savings is the fuel for investment which helps to finance businesses everywhere that are getting crowded out in their borrowing by the enormous needs of the US government and some European ones.”

- The Wells Fargo/Gallup Small Business Index hit its lowest level since the index’s inception in 2003. Most of the poll’s decline came from the “Future Expectations” category of the survey, which follows business owners’ expectations for cash flows, new jobs, access to credit and capital spending. “In other words, as dour as the subjects are about the present sitch, they are even more so about the near future,” Josh Brown writes at The Reformed Broker.

- By next year, Apple (AAPL) will likely become the second-largest semiconductor buyer in the world, thanks to the iPhone, which prompts TechCrunch’s Steve Cheney to ponder: “Should Apple own its own wireless chip development?” Rumors are swirling Intel (INTC) may be close to acquiring Infineon’s (IFX.XE) wireless chip business, but “based on Apple’s deep relationship with Infineon, and its famed secrecy around M&A, it is a pretty safe bet that Steve Jobs is analyzing the implications of a deal.”

- Consumer spending and personal income were both flat last month, slightly below economists’ expectations. “That’s not terribly surprising these days, but it’s hardly encouraging. Perhaps the best we can say is that it’s more of the same,” James Picerno writes at The Capital Spectator.

- Android may not be a money-maker, yet, but it’s still a success. Google’s (GOOG) strategy differs from Apple (AAPL), which sells great products while tightly controlling its hardware and software distribution. Conversely, Google “sprays its software all over the place for free, betting on owning the future of the mobile Internet and search advertising businesses the way it owns them on the web,” Dan Frommer notes. “That’s why, despite Apple’s huge financial lead, Android is already a big early success for Google.”

- About the Fed potentially plowing cash from its maturing debt back into the Treasury market: “It’s not a huge move, but letting the MBS portfolio slowly burn off is inherently tightening,” Joe Weisenthal says at The Money Game. “Rolling over that portfolio, therefore, maintains the status quo.”

- “Lately the Fed seems more interested justifying why it doesn’t need to do anything more to boost the economy rather than grappling with actual data showing that the economy needs more help from the Fed,” University of Oregon economics professor Mark Thoma writes.

- Ever since stocks bottomed out in early July, gold hasn’t been able to generate a sustainable rally. And for much of 2010 gold and the US dollar, which are usually inversely correlated, have essentially moved in lockstep. “Over the last six months the two assets have been more positively correlated than at any other time in at least ten years,” Bespoke Investment Group says.

- Research in Motion (RIMM) Co-CEO Mike Lazardis calls BlackBerry Torch launch one of most important in the company’s history, which certainly isn’t an understatement. But the question remains: Is this device a “buzzworthy breakthrough or just another BlackBerry?” asks Digital Daily blogger John Paczkowski.

- Many corporations and their shareholders are enjoying surging profits and boosted dividends, but employees are still waiting on returns of the 401(k) matches.

- The main difference between Citigroup’s (C) $75M settlement with SEC Goldman Sachs’ (GS) $550M settlement is GS was guilty of misleading clients while Citi was guilty of negligently misleading shareholders. But the public is much angrier over GS case, which the “Kid Dynamite” blogger finds hard to fathom. “People should be furious about this Citi case and settlement, but you’ve probably hardly heard a whisper about it.”

- Prospects aren’t looking bright for the restaurant industry. Same-store sales and customer traffic both declined for a third-straight month in June, Calculated Risk reports. “Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”

- Roughly 25% of Americans sit in FICO’s least-creditworthy category, a significant jump from only 15% before the recession. “Some people will lament this, but it has a silver lining,” FusionIQ CEO Barry Ritholtz says. “Deleveraging is certainly a good thing, and forcing consumers off of the credit treadmill may actually help these folks over the long haul.”

- The commercial real estate market is getting ugly, slowly but surely. Delinquent unpaid balance for CMBS increased $3.1B in June to $60.45, and has more than doubled from a year ago, according to Realpoint. “This isn’t quite the disaster in the making that subprime was,” Yves Smith notes. But “I’m not sure why people say there isn’t a CRE crash. It’s just happening in slow motion, so far.”

- ISM manufacturing index fell for a third-straight month in July, but at 55.5, it exceeded economists’ expectations. “Bottom line, while the ISM remains firmly above 50, just ten of the 18 industries surveyed reported growth, with four reporting outright contraction and the drop in new orders is worth watching,” writes Miller Tabak’s Peter Boockvar. “With this said, the market is breathing a sigh of relief that while down for a third month, the ISM is still hanging in as inventory builds, albeit at a slower pace, and export growth continuing.”

- Newspaper advertising sales were less bad in 2Q vs a quarter ago. “But less bad is not the same as good — and the outlook for the remainder of the year is decidedly murky,” writes Newsosaur blogger Alan Mutter.

- A new website — JailbreakMe.com — has sprung up offering an easy way to hack, or “jailbreak,” an iPhone to run applications not authorized by Apple (AAPL).

- “This market is one that moves largely on the basis of economywide hopes and fears,” NYT’s Floyd Norris says. “Company specifics take a back seat.”

- “Remember when we weren’t allowed to say the word ‘recession?’ Like it was anathema?” Todd Harrison says at Minyanville. “Or when we weren’t ‘patriotic’ if we weren’t ‘bullish’ after 9/11?,” he recalls. “Is ‘deflation’ the modern day equivalent of ‘recession?’”

- Battle over the proposed Ground Zero mosque is picking up steam.

- If everyone’s so concerned about federal deficits, why the record low yields on US Treasurys, wonders FusionIQ CEO Barry Ritholtz. “Part of the answer is the lack of alternatives. Where else are you going to park yield-seeking money? Euro denominated issues? UK debt? Japanese bonds, emerging markets?” he ponders. “Amongst the motley crew of sovereign debt issuers, the US Treasury is the least ugly girl at the dance.”

- “I have and continue to believe this is a trader’s market in which valuations matter little,” Pragmatic Capitalism says. Ultimately, the macro trends are so fierce that the tides will sink or lift all boats.”

- Apple (AAPL) may be poised to update its iMac and Mac Pro computers sooner rather than later. The MacRumors blog tracks in-store pre-order availability and has taken note of depleted stock at several retail stores, suggesting updated models could be in the offing. MacRumors also points out the iMac was last updated in October, while the Mac Pro was last refreshed in March 2009.

- General tone from European analysts digesting the stress tests is “remarkably sanguine,” NYT’s DealBook says. The tests represent “a substantial step forward,” Goldman Sachs says, although notes if Tier 1 capital ratio was lifted to 7% from 6%, it would’ve tripled the number of failed banks from seven to 24.

- Oracle (ORCL) last week vehemently denied it has a five-year, $70B acquisition budget, which President Charles Phillips originally claimed in a Fortune Magazine article. But, as Digital Daily blogger John Paczkowski points out, it’s obvious Oracle doesn’t want competitors to know its strategic plans. “Hard to believe that a company as aggressively acquisitive as Oracle doesn’t have an M&A budget,” Paczkowski says. “But evidently that’s the party line here and by the sound of things Phillips clearly overstepped it.”

- Google (GOOG) introduces Google Apps for Government, a new edition of its package of Internet-based applications specifically designed to meet the policy and security needs of the public sector.

- When digesting the new home sales report, keep in mind the data point is notoriously noisy, Ritholtz says. June’s 24% monthly increase comes on the heels of May’s 33% drop. “Ignore the swings, look at the moving average to smooth out the volatility.”

- June new home sales surged 24% from a month earlier to 330,000. But don’t get too giddy, especially since the sales level represents the second lowest on record since 1963. “Bottom line, while the figure was better than expected, new home sales make up less than 10% of the overall industry with existing homes making up the balance,” Miller Tabak’s Peter Boockvar says. “It’s good to see a pick up in new home sales but an overall market that still has way to much inventory does not need too many new homes built.”

- IAC/InterActiveCorp (IACI) chief Barry Diller tells CNNMoney that his firm has jumped on the Facebook advertising bandwagon, another indication the social network is gaining traction on Madison Avenue. “My company, which spends a huge amount on advertising, we spend every nickel we can on Facebook,” Diller says. “They’re effective. The targeting of the audience is precise enough. The message and the audience are quite aligned.”

- Robert Dudley has quite the to-do list facing him at BP.

- If Google (GOOG) can grow revenue, why can’t Yahoo (YHOO)? That’s the question Eric Savitz poses at Barron’s Tech Trader Daily blog. “[Yahoo CEO Carol] Bartz inspires confidence, she’s big on taking decisive action, but for all her efforts, the company still isn’t growing,” he says. “At some point, Yahoo is going to need a more clearly defined growth strategy — and it will have to execute on it.” Yahoo shares drop 8.5%.

- Google issues a 20-page response to FTC’s staff discussion draft about the future of journalism in the digital age. Main takeaway: Don’t blame Google for the newspaper industry’s troubles. “The large profit margins newspapers enjoyed in the past were built on an artificial scarcity: Limited choice for advertisers as well as readers,” Google says. (Hat tip, Jeff Jarvis.)

- Any worries that the iPad would hurt Mac sales were put to bed in Apple’s (AAPL) 3Q results. Apple set a quarterly record by selling 3.47M Macs in 3Q, a 33% increase from a year ago. “If the iPad is having any effect on Mac sales, it’s an additive one,” Digital Daily blogger John Paczkowski says. “Like the iPod once did, the new slate from Apple seems to be having a halo effect on Mac sales thanks to the publicity and Apple Store floor traffic it has generated.”

- Just how impressive were Apple’s quarterly results? Look no further than the 3.27M iPads sold during 3Q, TechCrunch says. Put into context, that’s only 200,000 fewer units than all the Macs sold. And 3Q was the best Mac sales quarter ever. “In other words, in just about any other quarter, the iPad would have outsold the Mac,” TechCrunch says, while expecting the iPad to blow past Mac sales next quarter.

- Bulls once again get rejected trying to rally S&P 500 significantly above its 50-day moving average. Bespoke Investment Group reports this is the fourth separate time since the “flash crash” in early May that the index has turned back at its 50-day moving average. “Bulls had been hoping that strong earnings would be the catalyst to take the S&P 500 to the other side of its 50-day, but so far the bears (and Bernanke) are having none of it.”

- Yesterday’s trading showed “the high-frequency-trading nerds were in full swing, but to the upside this time,” Doug Kass writes. “I have written that few complain when the algorithms take the market up (like yesterday). But I would prefer to be intellectually honest, even when the programs take the market up, and I will not stop writing about this subject until the SEC acts responsibly and curbs certain high-frequency-trading strategies.”

- The housing market is stumbling, once again. “In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans,” WSJ says.

- “Returning to a sensible, fundamentals-based housing market is painful, but ultimately, it’s something we’re going to have to do, one way or another,” Barbara Kiviat writes at Time’s Curious Capitalist blog.

- A stumbling housing market offers clear evidence that the housing tax credit was a “clear and unequivocal failure,” Bill McBride writes at Calculated Risk. “Not only did most of the benefit go to people who were going to buy anyway, but the credit didn’t reduce the overall supply,” he says. Ultimately, the tax credit merely pulled demand forward. “This is a textbook example of bad policy.”

- “At just 12 times prospective earnings and with prodigious cash flow enabling it simultaneously to keep up its pace of small acquisitions while still repurchasing shares, the market may soon realize that its diagnosis of J&J was overly dire,” Lex says.

- Are Goldman shares worth a flier at current levels? James Stewart weighs in.

- Yves Smith at naked capitalism doesn’t see much substance in China’s pledge to make its currency exchange rate more flexible. “While this does represent an announcement of an intent to liberalize, it lacks any particulars as to timing and mechanisms.”

- China pledging to make its exchange rate more flexible is, at this point, just an announcement “which may or may not be followed through,” Barry Ritholtz writes at The Big Picture. “As such, we should treat it as a precursor, and not the significant shift the market seems to be making of the announcement.”

- UC San Diego economics professor James Hamilton still sees deflationary forces swirling through the economy even as inflation is the bigger longer-term risk. “America needs leaders willing to talk honestly about our long-run fiscal challenges and what needs to be done to address them,” he says. “I can dream, can’t I?”

- The IPO market has become a “sad tale,” says Fred Wilson. “The cost is just too high and the benefits are just too low for most companies these days.”

- The biggest headwind to US growth isn’t the state of Europe, it’s a lack of credit here. it’s a lack of credit here. “Two years ago, when the government rushed to bail out Wall Street, the justification was always the same. We have to do it. If we don’t, the banks will stop lending. And then the world will end,” Henry Blodget writes at Business Insider. “So we bailed out Wall Street. And the world didn’t end. But the banks still aren’t lending (And you can’t blame them, really.)”

- Apple’s (AAPL) iPad will hurt Kindle sales for Amazon (AMZN), but it won’t be a Kindle-killer, MediaMemo blogger Peter Kafka says. Keep in mind AMZN still offers a wider range of e-books than AAPL and sells them for much less. “My guess is that even after Apple eats into Kindle’s share, Amazon is going to find plenty of people who just want an e-reader.”

- China’s announced currency move probably won’t amount to much in the short term, Michael Schuman writes at Time’s Curious Capitalist blog. “This is a baby step on a long road to a truly market-determined yuan exchange rate,” he says. “Until China allows a free-floating currency, controversy over its value will persist, and the yuan will play a limited role in the global economy.”

- The stock market has reached an important inflection point, as “valuations remain uncomfortably rich and market action is tenuous,” writes John Hussman. “When an overvalued market loses support from market internals, it frequently produces discontinuous outcomes ranging from brief ‘air pockets’ to ‘panics’ to ‘crashes,’” Hussman says.

- Former IMF chief economist Simon Johnson remains less than impressed with financial regulatory reform, labeling it “dead on arrival.”

- China isn’t the first country that has pledged to make its currency exchange rate more flexible. “Exiting up does not doom the economy to a Japanese-style lost decade,” VoxEU says.