Market Talk

- The multi-year deal pay-cable movie channel Epix and Netflix (NFLX) agreed to is “a major move for Netflix, and undoubtedly a nice cash infusion for Epix, which has struggled to get carriage deals from traditional cable operators,” MediaMemo blogger Peter Kafka says. “This deal may make Netflix more competitive with cable, but it’s not designed to threaten Hollywood’s DVD business.”

- Demand Media filing a $125M IPO at a reported $1.5B valuation shows making it in the online content business is a “long march to the big time,” Kara Swisher writes. “Hence, the IPO, which will give it both cash and stock to use to grow itself, either organically or via acquisition, all while keeping the costs of content creation lower and lower via innovative technology.”

- Small business optimism sharply declines for second straight month. “Businesses and households are losing confidence and are adjusting their spending and investing plans accordingly,” Ryan Avent says. “A chill has settled on expectations around the country. It will take credible policy steps to change the tune.”

- Former Hewlett-Packard (HPQ) CEO Mark Hurd’s severance package, which could be worth as much as $30M, is “appalling,” writes Nell Minow, shareholder activist and editor of The Corporate Library blog. “While most CEO contracts exempt poor performance as a reason for ‘termination for cause,’ there is no reason to permit a departure following an ethics violation to be characterized as a resignation — when the result is a $50 million payout that would otherwise stay in the corporate bank account.”

- Now that Mark Hurd is no longer H-Ps’ CEO, a “dirty little secret” has been revealed about H-P’s business model. “H-P is a sprawling, ungainly conglomerate of tech companies that have only tangential connections to each other and that generate the most tepid of synergies,” writes Kevin Kelleher at AOL’s Daily Finance blog.

- This won’t get the attention of the Hurd departure, but TechCrunch reports the man who designed the Palm Pre has left H-P for greener pastures. Peter Skillman’s exit is the latest in a string of departures from the recently acquired smartphone maker.

- Productivity unexpectedly posted its first quarterly drop in 18 months as output growth slowed and labor costs rose. “If you were looking for one more reason to wonder about the already shaky prospects for a recovery in the labor market, today’s report on second-quarter worker productivity is just the ticket,” James Picerno writes at The Capital Spectator.

- Don’t get too anxious about Google (GOOG) and Verizon’s (VZ) joint proposal: the net neutrality situation still hasn’t changed much, Stacey Higginbotham says at GigaOm. “The good news is nothing about this compromise has any teeth without the FCC deciding to make it part of its official rules on network neutrality.”

- Rail traffic rose 4.1% last month compared to July 2009, but was still 15% lower than in July 2008, Calculated Risk reports, citing data from the Association of American Railroads. “Rail traffic collapsed in November 2008, and now, a year into the recovery, traffic has only recovered part way,” Calculated Risk adds.

- Former Sen. Ted Stevens, along with eight others, die in a plane crash in Alaska.

Investors aren’t waiting for the Fed decision. There was enough bad news today for them to start the selling early. The DJIA was down about 150 earlier, now down 85. We’ll see if the market decides to turn the FOMC statement into a buying opportunity, or a selling opportunity.

Get back to work, you slugs!

Even if you’re an employer, today’s productivity data should worry you (although it won’t.) If you’re an employee, or even worse if you’re out of work, they’re really disconcerting.

Productivity rose an an annualized rate of 3.6%, which outpaced a 1.9% gain in compensation, which led to unit labor costs falling 1.6%. The rise in productivity and fall in labor costs were both more than expected.

Adjusted for inflation, real compensation rose 0.4% from the fourth quarter, but it fell 0.1% from a year ago. Hours rose in the quarter and fell on the year as well.

We’re working harder for less real pay, not even keeping pace with inflation, which the Fed continues to keep pinned down on the floor along with the fed funds rate, stale beer and peanut shells. We’re just working more hours, which is driving productivity.

Wall Street and the White House have been quite pleased with this little burst in consumer spending, but have conveniently ignored the fact that without strong job growth, which will drive wage growth, which is what will really make the consumer whole again, this burst in consumer spending is little more than a federally financed game. You saw today the nation’s retailers report April sales and…surprise! “Consumers cut back their spending in April, suggesting an edgy recovery for a retail industry that was gaining traction in recent months,” Newswires’ Karen Talley writes this morning.

That’s why that productivity number should worry even employers. Without healthy consumers, corporate profits won’t grow. Make no mistake, this little spurt in consumer spending the past few month has been a confluence of several unsustainable trends, some pent-up demand sure, some relief that the worst has passed, but mainly a big transfer of wealth from Uncle Sam, as well as large carrots like the home-buyer tax-credit. Without sustainable, steady job and wage growth, it will not last, and the economy will remain mired in this languid recovery.

- Paul Volcker’s still confident his rule will pass. And, as Simon Johnson points out, Volcker’s message remains loud and clear: “We need a much stronger approach to big banks – an approach that will strip government-backed banks of their ability to take crazy risks and, most likely, an approach that significantly constrains (and hopefully even reduces) their size.”

- Is the equity market approaching a period where good news on the economic front is bad for stocks? “The real Goldilocks for this market is the one that is just perfectly weak,” Pragmatic Capitalist says. “Strong enough to keep the government pouring the kool-aid, but not strong enough to force them to remove the bowl.”

- SEC investigating about two dozen financial companies to determine if they engaged in accounting shenanigans prompts former labor secretary Robert Reich to wonder “where on earth has the SEC been?”

- “Lack of focus is still a major problem at AOL, and if the company doesn’t sharpen its focus quickly, it will continue to be a jack of all trades and a master of note,” Henry Blodget says.

- Recent research from NY Fed shows upstate NY’s housing markets were insulated from the boom/bust cycle; Buffalo, Rochester and Syracuse have actually enjoyed price increases throughout the recession. “The reason why is fairly simple: ‘The region’s relatively low incidence on nonprime mortgages,’” Barry Ritholtz writes.

- Employers squeezing more productivity out of workers doesn’t explain the economy’s lagging labor market, Dean Baker says. “The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession.”

- Distortions in Friday’s monthly jobs report–temporary census hiring and weather-related boost to employment–could create false sense of security about the labor market. “This allows legislators to claim that past interventions are having a greater impact than they actually are, and escape the difficult politics of trying to implement additional stimulus measures,” Mark Thoma says.

- Looks like Apple (AAPL) stands to gain from at least one university using the iPad to attract students. Seton Hill University in
Pennsylvania says every incoming freshman will be given a tablet in the 2011-12 academic year, NYT’s Media Decoder blog reports.

- There were 14 IPOs that came to market this month. Since last March, 112 IPOs have come to market. “IPOs are starting to make a comeback, albeit a slow one,” Bespoke says. “The average monthly number of IPOs since last month is just over eight. To get to a healthy level, the average should get into the 20s.”

- Bonds cap an epic comeback.

In today’s edition of Tomorrow’s News Today (say that five times fast): That productivity surge sure sounds good, unless you were one of the workers who got fired, and whose costs the company was able to excise, thus allowing the remaining workers to appear to be “more productive.” October’s retail sales rose again, but were a bit disappointing, and central bankers overseas are talking, in banker-speak, about laying off the stimulus.

Madeleine and I break down this morning’s productivity and jobs reports, as well as Australia’s economy. Well worth the three minutes.

US stocks fall as the FOMC begins its two-day confab, and reports show a big jump in productivity and cut to inventories.

DJIA falls 97 to 9241, its biggest one-day slide since July 7; S&P 500 loses 13 to 994, Nasdaq Comp drops 23 to 1970. Financials fall sharply, as do energy stocks, as crude futures slip under $70/barrel. Citi, Wells lose 6%, BofA 5%.

Productivity rose sharply in June, and inventories fell sharply as well. That dovetails well with the general consensus, that a big rebuild in inventory levels is going to boost both GDP as well as corporate profits. But there’s reason to doubt whether or not companies can create demand just by cranking out material. Got three minutes? Watch us discuss it here.

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