Market Talk

- 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.

- SEC narrowing its investigation into Lehman on its questionable accounting practices makes sense. “Lehman has long looked to be the poster child of likely accounting fraud,” Yves Smith writes at naked capitalism. But she notes that while Lehman looks like a “textbook case of excessively creative accounting…I would not hold my breath about obtaining criminal indictments.”

- Reflecting push for ever-shorter trading horizons, CBOE has asked regulators permission to list options expiring daily. Contracts’ lifetimes would be between one and four days. Move follows growing interest trading options that expire weekly. “I guess the question isn’t why, but why not?” asks Adam Warner at Daily Options Report.

- “Growth is slowing when it should be surging,” at this point, former labor secretary Robert Reich complains on his blog. “We may or may not fall into another hole, but a so-called ‘double dip’ isn’t really the worry,” he says. “The worry is we’re not getting out of the giant hole we fell into.”

- Adobe (ADBE) wastes little time celebrating Apple’s (AAPL) move to loosen the reins over its software developer rules.

- Nokia (NOK) replacing its CEO is a long time coming, but Digital Daily blogger John Paczkowski questions timing of the move. It comes ahead of Nokia World and the company’s major product launch. That means new CEO Stephen Elop isn’t starting off with a clean slate, “but a full one overflowing with a new software platform and a new smartphone portfolio.”

- Reuters blogger Felix Salmon is concerned that the average American remains pretty pessimistic about the US economy, and these viewpoints could manifest as self-fulfilling prophecies. “It would be nice to see the bulls out there come up with some good explanation of how their forecasts are consistent with these survey results,” Salmon says. “Because on the strength of these answers, the double dip is coming.”

- But contrary to Salmon’s belief, Business Insider’s Vincent Fernando says when everyone’s sour on the economy, it’s actually in better shape than many think. “When most people are reported as being extremely negative, your contrarian alarms should be going off as an investor.”

- Our colleague Kristina Peterson hits a home run in today’s C1 story on the Briargate traders who trade at the market’s open and close and chill out for the rest of the day. What a life.

- St. Louis Fed President James Bullard says the central bank has moved closer to providing additional support to the economy, although he added he doesn’t expect that action to become necessary.

- With tomorrow marking the ninth anniversary of 9-11, take a few minutes to read Todd Harrison’s reflection of the horrific day. A well-written and extremely moving piece.

- Hewlett-Packard’s (HPQ) suit against former CEO Mark Hurd looks “very much like it was filed in a fit of passion after hearing that Hurd had signed on with Oracle,” Reuters blogger Felix Salmon says. “There’s no tactical or strategic rationale for this: it’s just petulance, really.”

- “Hurd’s knowledge of H-P’s server and data storage-systems business will undoubtedly come in handy at Oracle, which has been aggressively moving into that very space ever since its acquisition of Sun,” Digital Daily blogger John Paczkowski says. “In that sense, Hurd’s hiring is a real coup for Oracle. Who better to put the screws to a rival than a former CEO with a bone to pick?”

- There are currently 161 potential IPOs on file that are hoping to raise $56B. Staggering numbers but, as Josh Brown points out at The Reformed Broker, not necessarily as great as they appear. “Between LBO retreads and the previously bankrupt, it remains difficult to get excited about the initial public offering dealflow, robust as the pipeline seems to be in dollar terms on the surface.”

- Former OMB Director Peter Orszag makes his debut as a columnist for the New York Times by advocating an extension of the Bush-era tax cuts for two years for the middle class, and even for the upper class if that’s what’s needed to get a bill through Congress. “Higher taxes now would crimp consumer spending, further depressing the already inadequate demand.”

- The labor force had little to celebrate this Labor Day, Robert Reich says. Organized labor is down, and non-organzed labor is facing joblessness and underemployment. “Face it: The national economy isn’t escaping the gravitational pull of the Great Recession.”

- If the market has been overly bearish lately, paving the way for relief rallies and such, it’s not really showing. John Hussman notes the VIX, which remains in relatively placid territory. “It’s difficult to look at the evidence and conclude that investors are excessively bearish, much less terrified here.”

- FCIC hearings revealed how reliant Lehman was on daily, short-term funding to cover longer-term costs. “It was a recipe for disaster, a trailer park in search of a tornado,” Barry Ritholtz writes at The Big Picture.

- “The truth is that the trouble in housing is not, for the most part, a demand-side issue,” Ryan Avent writes. “The problem is the millions of homeowners stuck in houses they can’t afford to sell. These households represent a significant shadow supply of foreclosures-in-waiting. I agree that it would be silly for the administration to try to support housing prices by offering more goodies to potential homebuyers. But it doesn’t follow that letting prices go their own way will magically get housing markets moving again.”

- “Newspaper advertising revenues are on track this year to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005,” Alan Mutter notes.

- What’s up with Google’s logo today?

- Soaring currency trading volume won’t have a happy ending. “It is a Fool’s Goldrush and will end horribly for most,” Josh Brown writes at The Reformed Broker. “The good news is, you can take the cautionary tales of the stock game, the mortgage game and the real estate game and figure out how you want to be positioned when the inevitable boom-bust-hatred cycle shifts into high gear.”

- Former Lehman CEO Dick Fuld was given a “surprisingly sympathetic ear” from the FCIC at yesterday’s hearing. “This is a deeply disturbing development,” Barry Ritholtz says at The Big Picture. “It leads to the unfortunate suspicion that the FCIC does not have the slightest clue as to the causes of the housing collapse, recession and market crash…I now fear the FCIC report is going to be an ideological farce.”

- It’s becoming obvious there is “no magic bullet” to immediately speed up the recovery, Harvard economist Kenneth Rogoff writes. “It took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” he says. “Americans will have to be patient for many years as the financial sector regains its health and the economy climbs slowly out of its hole.”

- Investor demand for US Treasuries has waned over the last few sessions after some better-than-expected economic reports. But the “big test” comes tomorrow morning with the August nonfarm payroll report. “A smaller loss of jobs could stoke more optimism about the economy and raise more questions about how much lower interest rates can or should go in the near term,” LA Times’ Tom Petruno says. “But a bigger loss could re-energize bond bulls.”

- Yesterday was a 90% upside day, “the 13th such so-called panic-buying day since the April 26 high,” Jeff Cooper notes at Minyanville. Meanwhile, there’s been 14 panic-selling days during the same period, he says. “This kind of volatility is a market in disarray. It’s not a sign of a healthy market,” he says. “Risk runs high when frenzy runs deep.”

- Slate’s James Ledbetter wonders why people consistently underestimate Netflix (NFLX). “There is one company that has been more consistently underestimated than any other, whose innovations, growth, and, indeed, survival have been dismissed and denied for nearly all its corporate life. That’s Netflix,” he says. But “while its critics were flailing away, the company has continued to grow steadily and spread its influence well beyond the red envelope.”

- AOL renewing and expanding its search agreement with Google (GOOG) was a “surprisingly quick and even stealthy move,” Kara Swisher reports at All Things D.

- “Summertime, and the living is easy…for many, too easy. This July was the worst on record for youth employment: Less than half of all 16- to 24-year-olds had a job,” WSJ’s Heard on the Street says. “Meanwhile, at the other end of the spectrum, more than 40% of over-55s have work or are looking for it, the highest share since JFK was in office.”

- Housing prices still need to drop by 10% in order for the market to correct itself, Barry Ritholtz tells Tech Ticker.

- For all the runners out there, WSJ’s Nick Wingfield reviews three running apps.

- Good ol’ Thomas Brown is at it again. Yes, the same Thomas Brown who called the bottom in bank stocks in July 2008. Now he’s saying Nouriel Roubini and Meredith Whitney are too bearish on the banking sector.

- GDP’s 1Q revised down to 3.0% represents only a “minor disappointment” amid current economic recovery, Ryan Avent writes at The Economist’s Free Exchange blog. “America’s recovery remains young and fragile. Still, many developed nations would be happy to have a nine-month performance like the one the American economy has managed since returning to growth.”

- BofA and Citi incorrectly hid from investors billions of dollars of their debt, similar to what Lehman did to obscure its level of risk, WSJ reports, citing company documents.

-WSJ’s Matt Phillips wonders if Libor fears are overdone.

- FT’s Alphaville relays a century-long look at the US equity market, via Deutsche Bank. Blog wonders whether we’re currently mired in a cyclical bull market within a longer, structural bear market?”

- “I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences,” David Einhorn says in his NYT op-ed.

- Banks aren’t short of cash to spend on lobbying Washington to make sure serious financial reform never gets passed. But considering what’s at stake, the best hope for stronger reform is to make the upcoming House-Senate conference in June more transparent, writes Simon Johnson, former IMF chief economist.

- Palm’s mobile design guru, Matias Duarte — who led webOS development — is leaving the company and is headed to Google (GOOG), Digital Daily blogger John Paczkowski reports, noting Duarte’s departure is a “significant loss” for Palm and H-P.

- Blogosphere has been abuzz about rumors that Microsoft (MSFT) CEO Steve Ballmer would appear on stage at Apple’s Worldwide Developer Conference. But Microsoft quickly squashes those rumors. “Steve Ballmer not speaking at Apple Dev Conf. Nor appearing on Dancing with the Stars. Not riding in the Belmont. Just FYI,” Microsoft says via Twitter.

- Obama says he’s “angry and frustrated” over the spill in the gulf.

- SEC investigating a few dozen financial firms regarding repo 105s is a welcome move, but it brings into question whether the agency has enough reach to be effective, Yves Smith says.

- Amazon (AMZN) currently controls nearly all of the e-book market. That will change with the iPad, Nook and others taking share, but maybe they can all thrive together, MediaMemo blogger Peter Kafka ponders.

- Current financial reform proposals are “toothless facades of what real regulation should look like,” Barry Ritholtz writes. He offers 10 questions finance reformers need to answer before passing legislation.

- New iPhones potentially on both AT&T (T) and Verizon Wireless may possible be Palm’s worst nightmare, Digital Daily blogger John Paczkowski says.

- This March has been a great month for stocks. And more gains may be on the way. April’s historically one of the best months of the year for the market, with the Dow averaging a 1.9% gain in April over last 50 years, according to Bespoke.

- “Regulation has to be smarter than something as simple as narrow banking,” Paul Krugman says. “Government backing — the 21st-century version of deposit insurance — plus regulation so that the backed institutions don’t abuse the privilege is still the way to go.”

- Non-profits can’t possibly save print journalism, Newsosaur blogger Alan Mutter argues.

- Ireland’s government announced plans to inject billions of euros into the nation’s beleaguered banking system and outlined bigger-than-expected discounts on loans to be transferred by financial institutions to the nation’s “bad bank.”

- Wondering what the next big battle between Wall Street and Washington will be? Capital ratios and liquidity, Andrew Ross Sorkin says.

- This perfectly exemplifies how bad the job market truly has gotten.

- Palm’s headed toward a fork in the road as there’s a growing belief that its future contains only two paths: acquisition or insolvency, Jon Stokes writes at ars technica.

- Bronte Capital blogger John Hempton says BofA engaged in some shady accounting engineering during the boom, similar to Repo 105. But BofA defends its accounting procedures. “Efforts to manage the size of our balance sheet are routine and appropriate, and we believe our actions are consistent with all applicable accounting and legal requirements,” BofA tells ProPublica. It all sounds strikingly similar to what Ernst & Young recently said about Lehman, DealBook notes.

- “With all eyes on financial institutions, sovereign defaults, state bankruptcies and pension shortfalls, I’ll humbly submit reason #11 to be wary of this scary bull – unforeseen systemic risk emanating from quant models gone awry,” Todd Harrison says. “This is the first time in history 10-year interest rate swap spreads turned negative…I would venture to guess it wasn’t ‘modeled’ that way by the quant geeks.”

- GE shares up 24% this year and 80% over last 12 months. That’s noteworthy, especially since GE underperformed the broader market during much of the 2000s, Bespoke notes. “Is GE finally ready to lose the ‘dead money’ label?”

- New home sales hit a record low last month and months of supply rose to 9.2 months. “Obviously this is another extremely weak report,” Calculated Risk says.

- Blogosphere loves Sprint Nextel’s (S) new 4G phone – Evo. Engadget says it’s a “breathtaking” device. “Evo 4G is the best Android phone out there. It may even be the best phone, period,” Gizmodo adds.

- “The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators,” Simon Johnson says.

- Will Apple’s (AAPL) iPad live up to the hype? Kara Swisher discusses on WSJ’s Digits show.

- Bank of America (BAC) says it will make principal forgiveness a priority for certain subprime mortgages.

- Starbucks (SBUX) to offer its first-ever cash dividend and announced it will boost its stock-buyback plans.

Just because Goldman Sachs’ (GS) reputation has been hit hard in recent months doesn’t mean its shares have taken the same sort of abuse.

Quite the opposite, in fact, as Goldman’s stock has enjoyed an 18% run-up throughout the last six weeks even as the firm’s rep has been under attack.

Goldman, famously dubbed the “Vampire Squid” by Rolling Stone writer Matt Taibbi, has often been criticized for its controversial role throughout the financial crisis. Recently it seems like Goldman has been bending over backward trying to preserve its reputation. The latest defense came last month from Lucas van Praag, Goldman’s head of corporate communications, who went into granular detail in a blog post rebutting a NY Times story that described the firm’s controversial relationship with AIG.

But putting the negative publicity aside for a second, Chad Brad, founder and president of Peridot Capital, makes the case that Goldman shares are undervalued and at current levels present a good buying opportunity for investors.

Goldman is still the “best investment bank in the world…has seen many of its competitors go out of business or dramatically scale back operations, and yet at around $170 per share the stock still trades for less than 10 times estimated 2010 earnings,” he says.

Brand, which discloses his firm is long Goldman shares, notes the firm trades at a lower valuation than both Bear Stearns and Lehman did pre-crisis.

And buying Goldman at less than 10x earnings is a “tremendously attractive risk-reward opportunity,” he adds.

Goldman shares were recently off 1.4% at $172.44.

- “The disease that left [Lehman] vulnerable was a mad embracing of risk, the excess use of leverage, an extensive exposure to mortgage and real estate, and the enormous usage of derivatives — concurrent with a lack of intelligent risk management,” Barry Ritholtz writes. Citi and JPM merely made matters worse when Lehman’s “immune system was compromised.”

- Tapping Janet Yellen as Fed vice chairman is a good choice. “She’s open-minded, a good counterweight to the inflation hawks who think that any day now we’ll be partying like it’s 1979,” Paul Krugman says. “She’ll provide exactly the kind of intellectual flexibility the Fed needs.”

- Interesting to note the examiner’s scathing report on who should be held accountable for Lehman’s collapse doesn’t mention short sellers, Jeff Matthews points out on his blog. Instead blame falls on “a lot of really bad management by people desperate to keep a sinking ship afloat any way they could, including ‘accounting maneuvers.’”

- Is it surprising that allegations surrounding Tim Geithner and the NY Fed surfaced in the examiner’s report on Lehman’s collapse? Yves Smith weighs in.

- “All in all, the entire system failed,” Barry Ritholtz bluntly states. “The situation is utterly disgusting, and if the investing public pulls its money out of the completely corrupt public markets for a generation or more, it would not surprise me.”

- They can’t be too happy at Ernst & Young today. “Enron brought down Arthur Andersen,” Felix Salmon says. “Will Lehman do the same for Ernst & Young?”

- Takeover talks swarm the rumor mill this week. “I don’t know if this would be considered a sign of a healthy market or an ailing one, but we can’t ignore the presence of so many takeover rumors, specifically those concerning high profile retailers,” Joshua Brown writes at The Reformed Broker.

- Fallout from Lehman raises some troubling questions. There’s a “seminal” question, blogger Karl Denninger says at the Market Ticker, “that is, whether the asset class at the core of the original problem, the banking system, now has clean balance sheets and it can be reasonably assumed that what is reported in terms of assets, liabilities and earnings is in fact real.”

- US-subsidized mortgage modifications rise 6% from a month earlier to one million, Treasury says.

- Economy’s in the midst of a “sham recovery,” former labor secretary Robert Reich writes. Big companies, Wall Street and high-income Americans are doing better, but Main Street, small businesses as well as middle and low-income Americans face a much gloomier outlook.

- “Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to see the risk,” former IMF chief economist Simon Johnson says. “And this time, given that they already used almost all their fiscal bullets, it will be considerably more difficult for governments to respond effectively when they do wake up.”

- Between last week’s jobs report, auto sales data and declining oil and copper prices, deflationary pressures still weigh on the economy, James Hamilton writes at Econbrowser.

- AOL takes another step toward selling its ICQ instant messaging service, Kara Swisher reports.

- No one’s really talking about it, but renewed pickup in credit losses looms as concern, John Hussman cautions. “Credit spreads widened again last week, and we’re keeping a keen eye on those, as well as indications of delinquencies and foreclosures, which may become a renewed source of concern.”

- Lagging labor markets are “inconvenient, but common,” Jeff Frankel says. GDP went from negative in 1H09, to positive in 3Q and strongly positive in 4Q, suggesting the end of the recession may’ve occurred in the middle of last year.

- Advertisers are increasingly underwhelmed by TV advertising. So are viewers – Betty White aside, last night’s Super Bowl ads were a bunch of duds.

- IPad hasn’t even been released yet, but Apple’s (AAPL) supposedly considering price cuts if the device doesn’t perform as well as expected, John Paczkowski reports.

- Lloyd Blankfein’s $9M bonus is “a great move” by Goldman Sachs (GS), not only from PR perspective, but also from internal point of view, Reuters blogger Felix Salmon says.

- Former Merrill Lynch CEO John Thain returns to head embattled CIT Group, uniting two prominent causalities of the credit crisis.

- Man, what we would do to be on Bourbon Street right now.