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…

Peter Morici, an economics professor at the University of Maryland, is putting a price on the rise in crude prices in terms of jobs lost, and while you can quibble with his math if you like, and he uses the occasion to push for more drilling in the U.S., he makes the very good point that the current crisis, or shock, or whatever you care to call it, is going to cost Americans jobs, and jobs aren’t something we can afford to forego these days.

High Oil, Gas Prices Destroys 600,000 Jobs

Turmoil in the Middle East and elsewhere have pushed up oil prices more than
$20 per barrel, and average gasoline prices from less than $3.00 a gallon to about $3.60. All the additional cash spent on imported oil that does not return to buy exports translates into lost demand for U.S. goods and services, lost growth and fewer jobs. Higher gas prices simply means fewer cell phones, restaurant meals and other good purchased that create jobs.

Most economists built some increase into 2011 GDP forecasts, but the recent surge, if it sticks through the spring, will reduce U.S. growth from 3.5 to 4 percent to 3.0 to 3.5 percent, perhaps less. Overall that translates into at least 600,000 fewer jobs, or nearly 50,000 a month. Moreover, lost taxes exacerbate federal and state budget problems.

U.S. policy arbitrarily limits the development of domestic oil and gas, and the more rapid deployment of abundant domestic natural gas. Premised on false assumptions about the immediate viability of electric cars and alternative energy sources, such as solar panels and windmills, these make the U.S. economy more vulnerable, Americans poorer and raise unemployment, and do little to raise environmental standards—instead of drilling in places the U.S. government can regulate, development goes abroad to places where U.S. enforcement has no teeth.

In combination, limits on conventional energy development and excessive optimism about alternative energy technologies are making the United States even more dependent on imported oil and more indebted to China and other overseas creditors to pay for it.

Newswires’ columnist Al Lewis is in the office this week, so we dragged him onto today’s Markets Hub to talk about the rumor floating around about a Hugo Chavez peace plan for Libya and the real state of the jobs market. Really good stuff in here.

In case you haven’t heard, there really are reports floating around that Hugo Chavez wants to broker some kind of peace plan for Libya. We’re still chasing it down to find out just how credible it is, but it appears to be having some effect on the forex and oil markets, and that’s having an effect on the stock market.

But, I mean, we’re talking about Hugo Chavez here. Come on. When’s Charlie Sheen going to come out with his peace plan?

If you’re looking for a good source of Apple-free news, here’s your rodeo.

Seeing as it’s 3 p.m. and there’s only an hour of trading left, this video’s getting pretty stale. Hey, I’m an honest man. But still, there’s some good big-picture stuff in here for you about jobs and oil. Worth the four-minute investment.

First-day-of-the-month magic for US stocks was a no-show yesterday, the spell broken for the first time since July. Angst over rising oil/geopolitical turmoil seemed to be the most influential force Tuesday, and selloff rippled into Asia overnight with Japan’s Nikkei down 2.4%, largest percentage drop since late August.

European stocks in the red, crude futures still motoring higher, but premarket US stock futures tilt higher, a posture similar to this time yesterday.

ADP’s estimate on Feb private payrolls due at 8:15 a.m. ET; Bernanke goes back to the Hill this morning; Fed’s Beige Book due at 2:00 p.m.

S&P futures up 2.70, DJ futures up 19. Ten-year slightly lower, yield at 3.44%. Nymex crude up slightly at $99.94, Brent down slightly at $115.16.

So much for those notions that GE maybe added jobs in 2010.

Its 10-K fresh out (nice timing, Friday late afternoon/early evening), showing that the company, run by the head of the White House’s special jobs creation panel, cut another 17,000 jobs last year.

The “good news” is that GE only cut 1,000 US jobs, while eliminating 16,000 positions overseas. Still, that was more than 83 people per month cut loose in America last year.

Since 2006, the company has shed 22,000 US jobs, while the overseas workforce is down just 10,000 since 2006.

Again, we are eager to hear Jeff Immelt’s and his panel’s ideas on actually creating jobs in the US.

Didn’t get a chance to do much with this yesterday, but you really should chew on the first two paragraphs of the latest report on the state of small businesses from the National Federation of Independent Businesses:

WASHINGTON, Feb. 8, 2011 – The National Federation of Independent Business Index of Small Business Optimism rose 1.5 points in January, a modest increase, opening the new year with a reading of 94.1. The slight overall uptick in optimism might have been higher, but was blunted by small business owners’ skepticism about the future and continued hesitancy to spend and hire. Weak sales is still the most frequently cited top business problem.  However, price-cutting is fading, and inventory-adjustments to match lower consumer spending appear to be reaching a conclusion.

“Manufacturing and exporting are leading the recovery—industries and activities that are not labor intensive—while construction, an industry historically dominated by small firms, remains depressed,” said NFIB chief economist Bill Dunkelberg. “While recent political rhetoric favors small business, it is belied by the actions of policy makers whose new policies and activities almost exclusively support big businesses.  While the economy is moving forward, albeit at a snail’s pace, it is not nearly fast enough to dramatically improve the unemployment situation, which continues to languish.”

That’s just priceless. Optimism about the economy would’ve been better, except for that skepticism that things are getting better.

Calculated Risk published two good charts showing how even though the survey reached its highest point since December 2007, it’s still well below the bubble highs.

The group also reported that its readings on unemployment are getting worse, not better. That line about “weak sales” says it all. The problem with the U.S. economy, as we’ve said time and time again, is one of demand. Demand is weak, because unemployment is so high. Companies aren’t hiring, because sales — domestic sales mind you — are weak. (Keep in mind that on a per capita basis, sales are below pre-recession levels.)

So around and around it goes, and where it stops nobody knows. We hope, of course, that at some point it does get better, and imagine that at some point it must. But right now, at this moment in time, this vicious circle has not been broken.

We know its early, but here’s our odds-on favorite to win the “screwy logic of the year” award: Deutsche Bank economist Joe LaVorgna.

Joe cuts his expected year-end forecast for the unemployment rate to 7.8% from 8.8%, citing “the rare 0.8 (percentage point) decline in the unemployment rate over the past two months, the largest back to back drop since 1958-59,” he writes. In fact, LaVorgna tells us the rate also declined 0.8 of a percentage point in 1950-51 and 1954-55, and in all three instances, the rate was lower in 12 months by 1.3% on average.

“In light of this new information, we are lowering our yearend unemployment rate forecast to 7.8%, down from our previous 8.8%,” he says.

Whoa, cowboy. In light of what? First off, the jobs picture in the 1950s vs the jobs picture today — no comparison; overall economy in 1950′s vs today — little to no comparison.

Now, we’re not economists like Mr. LaVorgna, fortunately, but we’d venture to say the dynamics of the US economy and its ability to create long-lasting jobs — particularly in manufacturing — were much better back in the 1950s than today. There simply wasn’t the competition posed by cheaper labor overseas, and that’s a key reason the jobless rate won’t drop as sharply as he thinks. Continue reading…

This shouldn’t come as a surprise to dedicated readers of The Upshot or this blog, but there are a couple of reasons why corporate America looks so healthy these days, and it has nothing to do with the state of the consumer.

The main source of revenue growth for corporations is overseas sales, as Gluskin Sheff’s David Rosenberg points out today (see below.) That plus a ruthless obsession with cost-cutting have been the two drivers of corporate America’s recovery (you could add, too, official government policy to make banks profitable again. Okay, three, three main drivers.) Meanwhile, sales growth is the U.S. is running at barely a 3% clip, Rosenberg points out. It gets back to something we’ve been saying for a while: there just isn’t a lot of demand in the U.S., and because of that, companies aren’t doing a lot of hiring over here.

Do not kid yourself; the American economy is still digging its way out of a deep, deep hole, and it will be some time before it’s capable of supporting the populace on its own. It’ll be interesting to see whether or not the Fed has the brass to turn off the spigots in June when QE2 runs out or, Heaven forbid, actually raise interest rates.

Mark this well: the fact that the Fed still has its fed funds rate at zero, zero, tells you everything you need to know about how the Fed really feels about the economy. Absolutely everything.

Continue reading…

In our earlier post, Dennis Gartman references David Rosenberg, the Gluskin Sheff analyst who’s been one of the more prescient voices in the wilderness these past years, and one of the only analysts who seems to never get invited to investing roundtables.

Here’s a bit more detail on what Rosenberg is talking about today in regards to Friday’s jobs report and the economy, from his daily market comment.

You read this stuff, and again it becomes clear that there is no paradox, no mystery as to why corporate profits are rebounding so sharply, but that rebound isn’t leading to a commensurate increase in hiring. Because the profits rebound isn’t coming from the natural result of increasing consumer demand. If it were, companies would have to hire new employees to meet the demand. That isn’t what’s going on here.

From Rosenberg:

It’s incredible how the masses of pundits have responded to the data (the jobs report: editor.)

Real labour compensation contracted at a 0.6% annual rate in Q4, and since the recession technically ended, it has shrunk in four of the last six quarters. How is this the hallmark of a well functioning labour market? We can see now how this environment has been wonderful for equities:

-The Chinese government stimulates to the effect of 13% of GDP in late 2008 and this spills over globally.

- The T.A.R.P. money is distributed around the financial and industrial sector in the U.S.A.

- Bank shares are bought by the Treasury; ditto for shares of auto companies.

- Accounting rules are changed so the banks can start showing a profit.

Continue reading…