Market Talk

Dateline Washington: “Treasury Secretary Timothy Geithner on Tuesday told policy makers and entrepreneurs that U.S. small businesses need greater access to capital in order to spur innovation,” Newswires’ reporter Jeff Sparshott reports today.

“The financial crisis caused a great deal of damage to the capacity of innovators to access capital, and we can’t promote innovation and investment in the United States unless we help innovative companies get the funding they need to succeed,” the secretary continued.

Makes for a nice sound bite, but it seems Geithner hasn’t kept his finger on the pulse of small business. They aren’t clamoring for capital. In fact, here’s what they said about credit markets in the latest monthly survey by the National Federation of Independent Businesses:

Overall, 92 percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied, and 51 percent said they did not want a loan.

NFIB said a net 11% reported loans “harder to get” compared to their last attempt — asked of regular borrowers only — up from 10% in January. The organization also says 28% of owners said weak sales continues to be their top problem, and “the historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to ‘pay back’.”

Seems pretty simple, but it’s really more business that small businesses need, not more capital, right now. And demand spurs innovation (remember necessity is the mother of invention?), not capital. Sounds like Geithner, and the White House, doesn’t get that.

- “The global financial system continues to be unsound in the same way that a Ponzi scheme is unsound,” John Hussman writes. “There are not enough cash flows to ultimately service the face value of all the existing obligations over time.”

- On an essentially flat day yesterday, CBOE’s VIX volatility index fell 8.5% to 18.96, lowest levels since April. “If there’s one point I would emphasize when VIX watching, it’s to pay the most attention when it does something unusual,” says Adam Warner, as VIX is exhibiting “clear signs of complacency.”

- Growth of Chinese and Brazilian credit-card balances from 2008 to 2009 “can be a source of either encouragement or worry — or both,” FT’s Alphaville says. “A sustained run-up in debt can be ultimately destabilizing,” blog notes. “So can a burst of capital inflows. And this is all playing out rather quickly against a background of currency wars, central bank interventions, and expected quantitative easing in the US.”

- Remember when the critics came out in droves when Apple (AAPL) released its first versions of iOS without cut-and-paste functionality? “It’s hard to imagine any company launching a new mobile OS would take a similar tack,” John Paczkowski writes. “Yet that’s exactly what Microsoft has done with Windows Phone 7, which will arrive at market next month without that feature.”

- Amazon’s (AMZN) attempting to carve a niche market for Kindle, with plan to launch “Kindle Singles” — essentially works that may be longer than a magazine article but shorter than typical books. MediaMemo blogger Peter Kafka raises some obvious questions: What will pricing look like? How will wholesale pricing work? And is this directed at conventional publishers, or self-published by the authors? AMZN didn’t immediately comment to Kafka.

- Windows Phone 7 may be Microsoft’s (MSFT) best chance at making a serious dent in the smartphone market, Ryan Kim writes at GigaOm. “They’ve done a good job creating something that looks and feels distinct,” he says. “We still need to put the phones through their paces but the basic building blocks are there.”

- Small business optimism barely nudged higher in September, but it still remains at recessionary levels. Poor sales remain the biggest hurdle for small businesses during this sluggish recovery. “Usually small business owners complain about taxes and regulations (that usually means business is good),” Calculated Risk says. “But now their self reported biggest problem is lack of demand.”

- Not only are small businesses not interested in getting more financing, but they increasingly think financing conditions will worsen from current levels, writes FT’s Alphaville, based on NFIB’s small business survey for September. “Maybe investors are front-running the Fed, but small businesses seem unconvinced that further easing will actually loosen credit.”

- Wall Street pay is on pace to break a record high for a second straight year, WSJ reports.

- So far so good. Intel earnings beat expectations. And, as MarketBeat notes, the deets beyond the headline numbers also look pretty solid.

- 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.

- 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.

Stocks are surging after some bellwether earnings report. But are the earnings reports driving stocks? We discuss that and more on the Markets Hub.

Is the stock rally for real? It certainly seems so, right? Well, then why aren’t the stocks that supposedly sparked today’s run-up, Alcoa and CSX, doing better?

A picture of an empty storefront taken in March, of 2009. It's still empty.

Something crystallized in my mind the other day, and while I’m not sure of its significance, it seems telling to me.

I’ve noticed lately that the vast majority, I think all really, of the store fronts that I’ve noticed going back a year ago that were empty…are still empty. These include spaces in New Jersey and Manhattan. I just haven’t seen any new businesses opening up in the past year, and I wonder how many new businesses really are opening up.

There’s a big space at the corner of 42nd and 6th Avenue in Manhattan that has been sitting empty since at least last June (John said he thinks some of the empty storefronts he’s seen on 5th Avenue have been filled recently.) And that’s about as prime a piece of retail space as exists in this world, it’s a huge (that might be part of the problem) space, looking out onto both 6th Avenue and 42nd Street, right across from Bryant Park. But nobody seems to want it.

And the storefronts around my New Jersey home that have closed over the past year have all remained empty. I can’t think of one that’s found a new tenant.

This ties in with comments Bank of America’s CEO Brian Moynihan made during their conference call for first-quarter earnings. On the commercial side, Moynihan said, loan balances are down “fairly dramatically, and that is due to customer demand. There’s no other explanation. That’s because customers are not feeling the need to draw on our lines because they don’t see economic demand.”

He added that while they’re still not sure, things seem better than a quarter ago, and if the economy stabilizes here, they expect to see their draw-down rate improve.

Let's cheer up the bears, shall we?

Apparently pessimism, much like confidence, can be a self-fulfilling kind of thing, as the pessimists are being pessimistic only because there’s a general tone of pessimism in the air. At least, that’s what I got out of Floyd Norris’ blog post last night, in which he takes a blogger (ahem!) from Dow Jones to task, as well as the 800 some-odd people who ripped him online for his column last week, for being pessimistic.

It seems to me such pessimism merely reinforces the central point of the column: There is a general air of pessimism around.

Couldn’t have anything to do with the 15M unemployed Americans, almost half of whom have been out of work for more than six months, and about a quarter of whom have now been out of work for a year. Nope. Or the fact for the rest of us who are employed, real wage growth is stagnant. Average hourly earnings fell 0.2% in March, average weekly earning rose 0.1% (on an increase in hours) the BLS reported today. Nah, that couldn’t be it. Record foreclosures? Record bankruptcies? Nope. Nope.

Any of this ringing a bell? A pessimistic bell, maybe? You really want to claim it’s just the nattering nabobs of negativity?

East Shore Partners’ strategist Joan McCullough pretty well summed it up yesterday in her daily comments. “Okay, so no good-paying jobs, tight credit, sub-par wages, record foreclosures, delinquencies and bankruptcies. And now add on top of all that good stuff, a y/y 39% increase in the cost of a gallon of gasoline. Yet retail sales are said to be moving along nicely.”

Holy cow, we forgot about gas! Add that to the pessimistic pile.

Continue reading…

- VIX volatility index can be a great contrarian indicator — problem is, it’s a backward-looking gauge, Tom Petruno says.

- Crude oil’s getting sneaky high and no one seems to care. “One explanation is that oil prices haven’t climbed as fast as they did in early 2008, with the slope of the ascent being a primary source of worries,” Paul Kedrosky writes.

- “The key to long term economic health, though, will be a greater contribution from exports and less on borrowing and spending all over again,” Peter Boockvar notes.

- He’s chairman and CEO of the world’s largest health-care conglomerate, Johnson & Johnson (JNJ), but yesterday Bill Weldon took on a new role: blogger.

- Twitter users will not abandon the microblogging service just because it will start running search-based advertising, Forrester analyst Josh Bernoff says.

- Rumor du heure for Palm: Let Intel buy them, Jason Perlow writes.

- Google (GOOG) reportedly developing a new tablet device compatible with Android would be great for Adobe (ADBE), but not so good for Apple (AAPL).

- Tech blogger Om Malik gets his hands on Microsoft’s (MSFT) new Kin smartphones, but doesn’t exactly offer a stellar review.

- “If the US economy was about to reach “escape velocity” as Larry Summers says, small business optimism would not be in the gutter and sinking,” Mish says.

- “We live in an age of unprecedented bailouts,” Simon Johnson writes. “The Greek package of support from the eurozone this weekend marks a high tide for the principle that complete, unconditional, and fundamentally dangerous protection must be extended to creditors whenever something “big” gets into trouble.”

Come on back in and shop, America. Hope's on sale, aisle five. Fantasies, aisle six.

Before you read one more Why So Glum? piece, one more America’s Back cover story, read today’s report on small-business sentiment from the National Federation of Independent Businesses.

This is why people are so glum:

The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8.  The persistence of index readings below 90 is unprecedented in survey history.

“The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.”

The index has been under 90 for 18 months, and nine of the index’s 10 components either fell or were flat in March. The lone riser was business conditions, which rose one percentage point to negative 20%.

Why so glum? Why so glum?

Look, everybody wants America to be back on top (at least everybody in America, right?) But just writing positive-sounding blather and adding an American flag graphic isn’t going to make things better. For that matter, just throwing a couple trillion into a broken, dysfunctional economic machine isn’t going to make things better either. Both just obscure the hard spade-work that has to be done to rebuild the economy. There is no way around this.

People get it. That’s why the Fed reports month after month that consumer credit keeps contracting. Businesses get it, too, at least businesses that aren’t banks. That’s why they’re sitting on a mountain of cash rather than blowing it all on the narcissistic advice of M&A bankers.

It appears only the government, Wall Street, and some elements of the press don’t get it.

As has been repeated a hundred times, small businesses create the majority of the new jobs in this nation (the exact percentage has been debated, but the majority part hasn’t) and small-business owners aren’t feeling giddy. They’re not seeing the great gosh America’s-Backness of this recovery.

Continue reading…

- Mark Hulbert says some are drawing the wrong lessons from this week’s market anniversaries.

- The view from the bottom. Our MarketBeat bud Matt Phillips compiles some quotes from market watchers when stocks were bottoming out this time last year.

- “As we celebrate the one year birthday of the current bull market, a key characteristic that still looms one year in is the lack of conviction and confidence in the economic outlook for those on Main Street versus the more optimistic view of those who work on Wall Street,” Peter Boockvar writes.

- Wards of the state enjoy a nice day. Citi (C), AIG, Fannie Mae (FNM) and Freddie Mac (FRE) all rally.

- Small business owners now say conditions will be worse six months from now. “It’s not a pretty picture,” Economist’s Free Exchange blog says. “The problem is clearly not labor supply. Rather, the economy’s principal job creators are seeing too little demand to justify increases in hiring. That’s the drag on recovery.”

- Cisco (CSCO) says faster router “will forever change the Internet? Does the announcement live up to hype? Shares close flat at $26.13.

- Government has bailed out the banks, now it’s time to bail out our nation’s schools, former labor secretary Robert Reich says.

- An improved Web browser on Amazon’s (AMZN) Kindle is long overdue, MediaMemo blogger Peter Kafka notes. “At this point having a wireless device that only grudgingly accesses the Web makes no sense. And it certainly won’t fly once Apple’s (AAPL) iPad ships next month.”

- “The biggest banks in some European countries today are already too big to save,” former IMF chief economist Simon Johnson says. “Unless we take immediate and real action to reduce the power – and size – of our largest banks, we are heading in exactly the same direction.”

- Monetary policy and unemployment: Should the Fed have done more? Mark Thoma ponders.