Market Talk

- Big Picture blogger Barry Ritholtz addresses the ongoing inflation/deflation debate. “Deflation is a fact. It is happening now, it is real, and we see it in the actual data,” he says. But the first hint of inflation will come from the bid-to-cover ratio on Treasury bond auctions. “That will be your early inflation warning. But now? It’s nowhere in sight.”

- Initial jobless claims are still “stubbornly high” at 457,000, Miller Tabak’s Peter Boockvar says. “GM not shutting auto plants as is typical this time of the year is still a distortion but it is surprising that claims aren’t lower because of it,” he says. “Thus current levels still remain a concern at this stage of an economic recovery.”

- And what’s worse, jobless claims have essentially been stuck in neutral during the last eight months, The Economist’s Free Exchange blog notes. “Claims are stuck at an historically high level. Perhaps that merely reflects some new structural dynamic in the labor market, but it mainly seems suggestive of continued economic weakness.”

- While the advertising industry was crushed during the financial crisis, recent signs have pointed to a comeback. “But it’s not back everywhere. And it’s probably not as strong as you think it is,” MediaMemo blogger Peter Kafka cautions.

- RIMM’s rumored new operating system “should have released years ago, one that should give its devices a bit more appeal in a market increasingly enamored of super-smartphones,” Digital daily blogger John Paczkowski says. “So if the 9800 is announced next week along with a rumored mid-August ship date, RIM will have taken its first big step in addressing the competitive issues that are tarnishing its growth prospects.”

- Moody’s, S&P and Fitch have recently refused to allow their ratings to be used in bond registration statements, fearing they’ll be exposed to new liability from the financial reform legislation. “You can file this one under D for Despicable,” Joshua Brown writes at The Reformed Broker. “Let me put this in schoolyard terms: The ratings agencies are playing chicken against the US economy. The message is to insulate them from responsibility or else they’re taking their marbles and going home.”

- Investing is “an uphill climb against human nature to be bullish when conditions are poor,” the Dorsey Wright Money Management blog says. “To buy when the outlook is dim takes a real leap of faith — and a steadfast optimism that things will improve over time. When things seem like they can’t get any worse, it just might be because they really can’t get any worse–and are about to get better.”

- Payrolls typically lag durables by four months. “Now, the year-over-year change in durables probably peaked a couple of months ago at 19%,” Invictus writes at The Big Picture, noting comps are going to start getting harder to beat. “I fear the hour is growing late and we’re rapidly running out of time as the labor market continues to struggle. I see nothing stimulative on the horizon as far as employment goes.”

- Avis goes to war for Dollar Thirfty. NYT’s Deal Professor Steven Davidoff has the details.

- “Erasing years of academic progress, state education officials acknowledged that hundreds of thousands of children had been misled into believing they were proficient in English and math, when in fact they were not,” WSJ says.

- Gold hit a fresh record high yesterday just as the euro and stocks also gained, while the VIX fell to a six-week low. “Maybe the strange cross-currents were a sign that some market players were wrapping up their week a day early and heading for the beach,” Tom Petruno says. “In fact, Friday might be a good day to take off.” Spot on – Dow finishes up 16 in a sleepy session.

- Not much action out of Palm since word of acquisition by H-P (HPQ), but expect that to change in the near future, Digital Daily blogger John Paczkowski says. At a developer event yesterday, PALM developer liaison Josh Marinacci offered some of the company’s upcoming plans. “We are working on future devices. And a new version of the OS. So I think you’re going to find the next year very exciting.”

- It appears the White House may be changing its mind on reining in CEO pay, according to The Huffington Post. But the change doesn’t seem to be garnering the attention it deserves. “Well, the BP disaster, in particular the intense press coverage of this week, appears to have provided the Administration with some very useful air cover, by diverting public attention from the final rounds in the battle to reform Wall Street,” Yves Smith says.

- Investor sentiment readings this week were mixed. “Although far from extreme bearishness, this level of optimism is consistent with an oversold market, but does not necessarily signify that all is clear,” Pragmatic Capitalism notes. “The majority of the reliable short-term buy signals have coincided with lower levels of bullishness.”

- Ratings agencies played a prominent role in the financial crisis, but the big three agencies have “escaped much blame, liability and scrutiny for most of the post-crisis period,” FusionIQ CEO Barry Ritholtz writes. But that may be coming to an end.

- Enthusiasm for Apple’s (AAPL) iPad has been obscured by excitement over its new iPhone 4, but DigiTimes says the tablet computer is moving quickly. The Taiwanese technology publication says iPad monthly shipments reached a whopping 1.2M units and could balloon to 2.5M by year’s end.

- Nevada registers the highest monthly state unemployment rate in May, coming in at a staggering 14%, marking the first time in four years Michigan wasn’t awarded the dubious distinction, according to a new Labor Department report (via NYT’s Economix blog). By contrast Michigan’s rate was 13.6%.

- Twitter’s strong growth continues. ComScore reports the microblogging service registered 90.2M unique visitors last month, a 7.6% increase from 83.8M uniques in April. “After a lull in the winter, it’s clear that Twitter is back on track,” TechCrunch says.

- “No one will pay any heed to the now discredited Greenspan who ironically was worshiped for all the things he got wrong and ignored the few times he ever said anything that made any sense,” Mish opines.

- WSJ’s Jim Chairusm writes about why the lost US goal in the Slovenia game today shouldn’t matter.

- The Apple/Adobe war over Flash jumps to a new level: Apple (AAPL) CEO Steve Jobs uncharacteristically pens a post weighing in on his decision not to support Flash.

- Adobe’s (ADBE) CEO responds.

- Hewlett-Packard (HPQ) acquiring Palm prompts Digital Daily blogger John Paczkowski to ask: “Why spend $1.2 billion on a company whose downward spiral has been the talk of Silicon Valley for the past year?” The answer is relatively simple — H-P wants its own operating system, which is exactly what Palm has to offer.

- What does the Fed’s “extended period” really mean? NYT’s Economix and Calculated Risk weigh in.

- Hewlett-Packard (HPQ) is taking a page out of Apple’s playbook: It wants an operating system it completely controls without relying on Microsoft’s (MSFT) Windows. Unfortunately, Dan Frommer at Silicon Alley Insider isn’t optimistic about the plan.

- Greece fizzles…But the Dow sizzles.

- “The uptrend remains in place, and until it is broken we maintain an upside bias,” Barry Ritholtz says. “We are not at the sorts of extremes yet that make the contrarian in us scream ‘sell.’”

- Why do markets pay any attention to ratings agencies?

- Initial jobless claims dropped 11,000 to 448,000 last week. “If you’ve been following the soap opera with this data series you know that we’ll need to see something more dramatic before the central bank changes its monetary tune of standing pat,” James Picerno writes at The Capital Spectator.

- Paul Kedrosky looks at stocks vs flows relating to consumer solvency.

- It’s debatable whether technicals or valuation are driving stocks higher, but “excessively bullish sentiment is the biggest risk right now,” Barry Ritholtz writes at The Big Picture.

- The ratings agencies’ flaws need to be addressed. “Perhaps the recent attention to the role the ratings agencies played in the crisis will change that, but I’m certainly not counting on it,” Mark Thoma says on his blog.

- It’s hard to see how Palm considering licensing its WebOS platform to other hardware makers could ultimately be successful, especially as Google’s (GOOG) Android popularity rises, Dan Frommer writes at Silicon Alley Insider. “While licensing WebOS might make a sexy story to tell potential acquirers or Wall Street, it’s not going to save Palm.”

- Can’t be too defensive, right? “I do recognize that my credibility in sounding a cautious note would presently be stronger if I had ignored further credit risks and captured some of the past year’s gains,” John Hussman says. “But the awful outcome of this same set of conditions, which we also observed in 2007, should provide enough credibility.”

- Newspaper circulations keep declining, as average weekday sales have dropped almost 9% since last year, NYT’s Media Decoder writes, citing data from the Audit Bureau of Circulations. “The reality facing American newspaper publishers continues to look stark.”

- “It’s ironic how the ‘Goldman was so smart to have shorted subprime’ meme is now being turned on its head…as Goldman’s conduct in the run-up to the crisis is being re-examined in a new light, Yves Smith writes at naked capitalism.

- Felix Salmon details the continuing Goldman wars.

- Whirpool (WHR) shares soared after its blowout 1Q report. “I continue to think that the panic a year ago was greatly overdone, as individuals and companies cut costs wherever they could, while waiting to find out if forecasts of Great Depression II were going to be borne out,” NYT’s Floyd Norris says. “But now the spending — and the hiring — is coming from people and companies that overreacted in the panic.”

- Google’s (GOOG) decision to scrap plans to sell Nexus One through Verizon Wireless seems a bit curious.

- The current bull market has now gone 400 days without a 10% correction, Chad Brand notes.

A disaster as big as the housing meltdown and credit crisis isn’t cause by just one thing. For one thing, the disaster itself wasn’t even one thing, it was two, the housing meltdown and the credit crisis, so it’s unlikely that only one thing caused both calamities.

People look for a single cause, for that one loose end of the ball of yarn that led to the whole thing unfurling, because it’s then easier to assign blame. Of course, much like there wasn’t one cause, there isn’t one culprit, although some loom larger than other.

There were at least three main causes of our current ailments, and three secondary causes, and then a number of coincident causes, as Barry Ritholtz makes clear today. “The reality of crisis causation is far more complex and nuanced,” he writes. He distills the prime causes from the coincident ones.

The idea is to ferret out the “but for’s” — the problems but for which other problems would not have come about — from coincident causes, some of which are being propagated as the real causes by the ” ‘it’s all Fannie’s fault!’ crew,” he says. “By muddying the waters, they hope to avoid retribution for their own roles in what occurred.  As the mid-term election approaches, we should expect to hear more from this crowd.”

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