Market Talk

- The recession getting an official ending isn’t a surprise, but it doesn’t change the fact that to the average Joe, it doesn’t feel like the recession’s over. “Obviously, the employment picture is still dismal, and people complaining that policymakers should focus on labor markets rather than output have a point,” Ryan Avent says. “It’s just not one that’s particularly relevant to what the NBER Dating Committee does.”

- – NBER says recession’s over, but it’s not clear employment has bottomed out yet. “That is my worry about this call,” writes Mark Thoma. “Whether or not we stay near the trough for an extended period or move gradually but consistently back to full employment is an open question, but I don’t think we can discount the stagnation outcome.”

- Many strategists have been cautiously optimistic about the September rally because it has come on low volume, but Reformed Broker blogger Josh Brown says he actually prefers a low-volume breakout. “Nobody is in,” he says. “Fear is the conductor of this train right now, period, end of story…Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario.”

- Expect an interesting week ahead, says PIMCO CEO Mohamed El-Erian, as Europe’s debt crisis returns to spotlight amid increasing solvency concerns. And global configuration of currencies is quickly becoming hot-button issue. “This week will shed light on whether policymakers can do anything to deal with these two issues,” he says. If they continue to stumble and hesitate, what has been simmering may well come to a full boil in the next few months.”

- Calculated Risk blogger Bill McBride doesn’t expect any major changes to tomorrow’s FOMC statement. Too soon for Bernanke to comment on further easing, especially considering his Jackson Hole speech. “Bernanke suggested that additional easing would probably require ‘significant weakening of the outlook’ or a meaningful decline in inflation expectations (or further disinflation),” he notes. “The first hasn’t happened yet…although they might express more concern about disinflation this week.”

- Paul Krugman provides more evidence that unemployment remains high because aggregate demand is too low. “Every single major industry has seen a rise in involuntary part-time work; so has every major occupation,” he says at Conscience of a Liberal. “There’s no hint that any major kind of labor, in any sector, is in short supply.”

- Weak demand remains most important factor holding back job growth. But it’s not the only factor, James Hamilton argues at Econbrowser. He points to latest NFIB data which show respondents say sales are their biggest problem, but they’re increasingly worried about taxes as well as government regulations.

- S&P 500′s double-digit percentage rally off July lows has been broad based, lacking a particularly strong sector during run-up, Bill Luby writes at VIX and More blog. Materials and industrials have been top performers, while consumer discretionary and tech have recently shown signs of life. “Consumer and financial sectors cannot afford to be a significant drag on stocks or the current rally will likely run out of steam.”

- Google (GOOG) CEO Eric Schmidt recently said he wants to add social networking to the company’s core products and services. “When I read those remarks, an alarm bell went off in my head,” Mathew Ingram writes at GigaOm. “To truly be successful, social media or social networking…can’t just be bolted onto what you are already doing. It’s not a software upgrade or a hardware fix…social just isn’t something the company understands very well.”

- Here’s a perfect example of an inspiring hypomanic entreprenuer: “I had friends at Princeton; I’m sure it’d be fun to see them,” says 21-year-old Seth Priebatsch. “But I know that what I’m going after is huge and others are going after it, and if they’re not, they’re making a mistake. But other people will figure it out, and every minute that I’m not working on it is a minute when they’re making progress and I’m not. And that is just not O.K.”

US stocks rally sharply, after the NBER officially calls the recession over, and the S&P 500 vaults over a key technical threshold.

DJIA jumps 146 (1.4%) to 10754, its highest close since May 13. S&P 500 rises 17 (1.5%) to 1143, finally breaking over the 1130 level. Nasdaq Comp surges 40 (1.7%) to 2356. NYSE volume continues to be low. But the stock rally doesn’t take away from Treasurys, which manage to rise as well, with the 10-year yield falling to 2.70%. Gold also rises, hitting a nominal new closing high of $1,279.

NBER surprises with its call that the recession ended in June 2009; still, it’s the longest recession of the post-War period, and by no means does it mean the nation’s problems are over. Street likes Lennar profit, but home-builder sentiment remains deeply in the doldrums.

Now that the recession’s “officially” over, what changes if any can we expect to see?

- I expect that tomorrow the FOMC, the rate-setting committee of the Federal Reserve, will announce that it’s going to start raising interest rates, now that the recession’s over. After all, the Fed cut its overnight fed funds rate to zero in response to the recession. If the recession’s over, it should be self-evident that a zero percent interest rate is manifestly irresponsible. So forget all this talk about QE II, about another bond-buying scheme from the Fed. It’s time to start the exit strategies and rate tightening.

- I expect the Obama administration to phase out all stimulus programs, and to scuttle the programs it proposed just a few weeks ago, now that the recession’s over. Forget about extending the Bush tax cuts. They are not needed. The economy’s expanding.

- The debate over whether or not to extend unemployment benefits will disappear on its own now that the recession’s over, as companies start hiring again and that army of the unemployed dwindles down to nothing.

- The FASB, the Financial Accounting Standards Board, reinstates the rules for mark-to-market accounting that existed before the recession started, now that the recession’s over. After all, the rules were suspended because of the emergency created by the credit crisis. If the crisis is over, it’s time to reinstate the old rules.

- States and local governments will balance their budgets again, as their revenue rises, since now that the recession’s over and the economy’s expanding citizens will see their incomes recover, which will boost the tax rolls.

How many of those things do you expect to happen? I’d put the odds on them, in order, at zero, zero, zero, zero and zero. So long as the Fed is keeping interest rates at zero, a number that in any other context would be considered dangerously irresponsible, so long as hiring remains stagnant, so long as the government is more concerned about stimulus than austerity, so long as state and local governments remain on the edge of the budgetary abyss, whatever tag we give the economy won’t matter. It’s a point John’s made a few times, and it’s worth bearing in mind as you hear people trying to talk up the recovery.

It’s going to a long, protracted, painful phase we’re going through here.

Word that the recession officially comes to end coincides with a report on housing showing home-builder sentiment remains in the dumps.

But it shouldn’t come as any surprise that US stocks are rising, pushing the September rally even higher. Investors are happy the recession’s over, but continue to overlook the fundamental problems that plague the economy.

As John Shipman quipped earlier in the newsroom: “Hearing the recession ended in June 2009 is like finding out the Yankees won the World Series last year.” Whoop-dee-do; why can’t NBER tell us something we didn’t already know?

In more timely news, the National Association of Home Builders said its September housing market index was 13, which is unchanged from August and the weakest figure in a year and a half. A number below 50 means builders are pessimistic, while anything above indicates optimism.

If that isn’t enough evidence of the troubled housing market, check these straight-forward comments from NAHB Chairman Bob Jones:

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Sigh. So we tape the Markets Hub show at 10:30, and get ourselves up to the set around 10:20 in order to be all set when the lights go on.

That means Kristina, Joe and I were away from our desks when the new hit the Tape that the NBER declared the recession over. Which is why we don’t mention it at all in today’s Markets Hub. We didn’t know, and nobody told us. Damn.

The news will likely be enough to keep the S&P 500 above the key 1130 level (unless you get some kind of buy-the-rumor, sell-the-news sell-off, but I don’t really expect that.)

Go ahead, have a drink. Lift a glass. Stand your neighbor a pint. The recession’s over.

The NBER, the official arbiter of the start and end of recessions, announced today that they’ve called the trough in the economy hit in June 2009, 18 months after the recession ended in December 2007. That means the economy has been expanding for the past 14 months. How’s that grab you?

From the NBER:

The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, 2010, clarified the 2009 time path of the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI). The committee noted that in the most recent data, for the second quarter of 2010, the average of real GDP and real GDI was 3.1 percent above its low in the second quarter of 2009 but remained 1.3 percent below the previous peak which was reached in the fourth quarter of 2007.

You want to hear a President tout the success of his policies? Tune into Obama’s town hall meeting at noon today. I’m pretty certain he’s going to be all over this. ‘Course, this announcement did not create a single job, and it will be cold comfort to the 15 million unemployed Americans, and the million more who are underemployed, and the millions more who are underpaid.

Note, too, the NBER makes no distinction between government-induced economic growth, and plain old economic growth. Whether you agree with what Uncle Sam has done, what this essentially means is the government pulled the nation out of the recession. Wall Street bulls will crow about it, and the Larry Kudlow’s of the world will pretend the government only got in the way. But there really can’t be any other conclusion.

The problem with that, of course, is that nobody’s ready to step in once the government steps out, which is what the right wingers are going to be calling for even more loudly now (see, everybody gets to use this to their own best advantage.)

Shut your eyes, citizens. Just shut your eyes.

Not so hot, friends and countrymen, not so hot at all.

This morning’s reports on consumer prices and inflation-adjusted earnings, what they call “real” earnings, were both broadly flat, and when flat is not what you’re looking for, not what you’re looking for at all, that’s not a very good thing.

Consumer prices excluding food and energy, the s0-called core prices that get so much derision when everybody thinks the government’s trying to mask inflation by excluding those two categories, were flat, the Bureau of Labor Statistics reported. On a yearly basis, prices were up 0.9%. When you consider, too, that the Fed kept its fed funds interest rate at zero that whole time, then those numbers are very precarious indeed.

The news on wages wasn’t any better. Average hourly wages were flat in August compared to July, and up 0.5% compared to a year ago. If you think a 0.5% raise over a year is enough to cover all the necessities of life, then God bless you.

What these two reports show is an economy that is basically stagnant, with a not-insignificant chance of getting worse. Wages aren’t growing, prices aren’t rising, and all that ties back to the fact that everybody is still in the middle of this great unwind, this broad deleveraging of debts. We aren’t going anywhere. Indeed, even a cursory glance at the news over the past day or two tells you we’re going backward: a Census Bureau report shows that wages fell over the past decade, while the bureau also reported that now one in seven Americans, 43 million people, are living in poverty.

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- 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.

Fed tries to put its best foot forward in the latest Beige Book report, noting “continued growth in national economic activity,” while still acknowledging “widespread signs of a deceleration” compared to preceding periods. It’s a forty-three page report, so in an attempt to cut to the chase and distill the key message, we took an admittedly unscientific but hopefully insightful shortcut.

We counted how many times the report mentioned the word “weak” or other derivation (weakness, weaker, weakening, etc), and compared it to other recent BB reports.

In this latest report, the bank used “weak” or other derivative 65 times. That compares to 53 times in the July report and 45 in June. Obviously an uptick in “weakness,” but down from 84 mentions in March, and 94 in July of last year. On the precipice of recession in November 2007, the Beige Book mentioned weak etc 61 times.

Conversely, the Fed mentioned the word “improve” or some other derivation 54 times in today’s report. That’s down from 68 in July and way down from 107 mentions in June.

It’s no deep-dive into the nitty gritty, folks, but seems suggestive of the economy’s direction, at least.

Also interesting to note, the Fed increased its use of the adverb “quite” for added emphasis to some of its observations, as follows:

Demand for commercial real estate remained quite weak but showed signs of stabilization in
some areas.

Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials.

Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans.

A recent flurry of refinancing activity spurred increased demand for residential mortgages in the New York, Cleveland, Chicago, and Kansas City Districts, but new-purchase mortgage originations remained quite sluggish in general.

With builders holding off on new construction, inventories have gotten quite low,
though prices still seem to be drifting lower.

Think we’ve seen quite enough.

Gluskin Sheff’s David Rosenberg rips apart the Obama administration’s latest “emerging program to jolt the economic recovery from its stall,” as the NY Times characterizes it (don’t you dare call it stimulus.) I can’t recall seeing Rosenberg this overly political before; usually he keeps to purely economic themes. It’s safe to say he isn’t a fan of the latest ideas.

I’d argue that the Bush tax cuts didn’t have nearly as much to do with the Aughts rally as the Fed’s low interest rates did, and the booming business in unregulated derivatives, but that’s a quibble.

My great problem with the Obama administration is that the President didn’t go full-bore at the economy the day he got into office. Sure, he pushed the $800 billion stimulus program. But while the price tag was massive, the effort itself was lazy. About the easiest thing in the world for a government to do is to throw money at a problem. I’d rather have seen some creative solutions. Something, anything. Instead, we got a rush job with the stimulus program, and then the White House moved on to more “important” matters, like healthcare.

Anyhow, the latest raft of proposals, which add up to a second stimulus program no matter how they are characterized, are likely to have the same temporary, sugar-rush effect of the first program, if they have any effect at all. As Rosenberg points out, the biggest problem for corporations isn’t exactly a lack of cash.

Aren’t businesses sitting on a record cash hoard right now? In other words, “money” is not an impediment towards business investment growth, say, as much as the regulatory policy backdrop.

This is again one in a long list of quick fixes aimed at boosting domestic spending and is likely to have muted impact, in our view. Even if it does have an impact, it will merely bring forward spending that would have occurred in any event and merely distort the quarterly flow of GDP data much like ‘cash for clunkers’ and the housing tax credits did for the household sector.

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