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 legal construct known as the national debt ceiling is one of the biggest fictions in Washington, a place that surrounds itself in more stories than City Lights. The debt ceiling is a set limit to the national debt, beyond which Congress cannot borrow.

Sounds pretty scary, right?

It’s not. Every time the national debt starts creeping up toward the “limit,” Congress passes some resolution that increases the limit. That increased limit is inevitably and eventually reached, of course, forcing Congress to “act” again (if by the word “act,” you actually mean taking no action, but instead giving yourself another free pass to profligate away.)

So once again, the national debt is approaching the debt ceiling, currently standing at $14.3 trillion, and the game is starting up again. What makes it different this time, though, is the new GOP-led House in Congress, which at least talks a big game on deficits. They will get a chance, very soon, to prove they’re more than talk. Will they just do like past Congresses, and raise the limit? Or will they use this as a “teaching moment,” an opportunity to put their rhetoric into practice?

The Treasury Secretary, Tim Geithner, wrote a letter to Congress, imploring it to raise the limit. The irony of the what is essentially the nation’s chief financial officer begging the board of directors to be less fiscally responsible, there’s a slightly more anxious tone to this year’s letter than there was to last August’s letter.

What’s got the Treasury Secretary so worried is that if the ceiling isn’t raised, Congress legally won’t be able to borrow any more money. That would raise the prospects that the U.S. government would default.

Given how the feds have been issuing a lot of short-term debt in the past few years to take advantage of the low interest rates, I wonder how real the prospect is this time around.

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Is he serious? I mean, seriously, is he serious?

Ahead of the G20 meeting of finance ministers in Seoul, the U.S. Treasury Secretary, Tim Geithner, sent a letter to all his compatriots, in which he urged them to end competitive forex policies. Now, on the one hand, he’s right. All this competitive devaluation business isn’t ultimately good for anybody. It’s destabilizing. But on the other hand, it’s like..I mean…it’s…wow.

That’s like the mob calling for an end to competitive extortion, and no, I’m not comparing the Treasury to the mob. I’m saying it takes an incredible amount of gall to ask other people to stop doing something you yourself are doing, enthusiastically. The hypocrisy just jumps off the page and smacks you right in the face.

Here’s the gist of it, from Newswires’ Geoffrey Smith:

Members of the Group of 20 industrial and developing nations should “commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency,” Mr. Geithner said in a letter to his counterparts in the G-20 ahead of meeting them in South Korea tomorrow.

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- With earnings season only a few weeks away, Josh Brown notes a pattern that’s developed in last six quarters. “A run up in stocks at the beginning of earnings season’s opening month followed by the almost inevitable denouement as hearts are broken and focus is diverted elsewhere,” he says. “The Ghosts of Earnings Past are haunting the nascent rally even as you read this.”

- Now that the recession is technically over, Yves Smith wonders if this is what a recovery really feels like. “The ugly fact is that serious financial crises take a very long time to resolve and result in a permanent fall in the standard of living,” she writes. “The best we can hope for, absent aggressive government action, is an economy that bumps along at a low level of what is technically growth, but is very far from what most businessmen and consumers would consider healthy.”

- Larry Summers’ decision to step down as one of Obama’s top economic advisers is a long-time coming, FusionIQ CEO Barry Ritholtz says. “Summers was a defender of the status quo…The change people voted for never appeared, and the Summers-led economic team gave us two more years of Bush bailout policies. For that humongous error, his departure is a welcome change.”

- Mark Thoma questions why the Fed’s taking a “wait and see” approach on whether more QE or other stimulative measures are needed for the economy. “The Fed should have learned that it needs to act preemptively from its mistake in dealing with the housing bubble,” Thoma says. “Cleaning up after the fact, which is what ‘wait and see’ amounts to, is inferior to preventing problems before they appear.”

- Google’s M&A department has thrown lots of money at many different ideas, but it’s hard to argue with some of its successful wagers throughout the years, including Android and YouTube, Digital Daily blogger John Paczkowski says. “Of course that’s just two acquisitions out of the 80 or so that Google’s made since 2001,” he notes. “But obviously the threat of a clunker investment or two isn’t going to temper Google’s aggressive acquisition strategy.”

- Bullish sentiment among advisors hit 41.4%, according to the Investors Intelligence weekly sentiment survey, which marks its highest level since early August. But, as Bespoke points out, bullish sentiment has hit that level a few times in recent months, with stocks not experiencing much success in the aftermath. “Will the third time be the charm or are we in for more of the same?”

- Keep an eye on the “quiet expansion” of Treasury Secretary Tim Geithner’s duties, especially in the aftermath of Larry Summers’ resignation, Yves Smith notes at naked capitalism. “The speculation has long been that he would not stay much beyond the mid-terms, but that looks like a far less sure bet than it did a few months ago.”

- Housing prices continue falling in wake of government’s home-buyer tax credit, dropping to lowest level in nearly six years, according to FHFA home price index. “With the two-year tax credit experience in the rearview mirror, officials probably need to be thinking about going back to the policy drawing board,” Ryan Avent writes.

- The recession’s officially over, but Tyler Cowen says it’s premature to believe the economy’s bottoming-out process is over. “It looks like a recovery only because things were, for a while, so extremely bad. I don’t yet think of us as being in a true recovery mode at all.”

- Runners are abandoning races with quirky distances in favor of the standard marathon or half marathon.

Nothing can stop the September rally, right?

The September rally marches on.

US stocks mostly drift higher yet again as confidence mounts that the economy isn’t headed for a double-dip recession. Tech and materials pace today’s small gains.

DJIA rises 22 to 10595, its second-straight rise. The blue-chip index is up six of the past seven trading sessions, 10 of the last 12 and is up 5.8% in September. S&P 500 drops 0.4 to 1125 and Nasdaq Comp rises 1.9 to 2303.

Jobless claims post a small drop to 450,000, but still haven’t shown any meaningful progress all year, which is what really matters. FedEx, considered a bellwether for the broader economy, drops 3.8% on cautious outlook and will cut 1,700 employees.

Meanwhile, Geithner urges China to boost value of yuan. Treasurys fall and euro rises against the dollar. But keep an eye on gold: The precious metal registers another new high.

- Jobless claims rising 2,000 is a relatively minor change. “The bigger problem is the trend,” James Picerno says at The Capital Spectator, noting claims have jumped 13% since bottoming in mid-July. “For months, it was treading water. That was bad enough. But now it’s rising, raising fears that it could go higher still.”

- Deflation is “overblown fear” and is unlikely for three reasons, writes blogger and MIT professor Simon Johnson.

- Appears the stock market has finally awoken to poor recent economic news. And Fed saying it won’t shrink its balance sheet isn’t generating much confidence. “The Fed seems to be exhibiting a pretty bad case of ‘if all you have is a hammer, every problem looks like a nail’ syndrome, particularly when it has (or perhaps more accurately, had) other tools at its disposal,” Yves Smith says.

- Reuters blogger Felix Salmon wonders if the “twitchy, volatile” stock market is still a worthwhile long-term investment, especially if long-term volatility continues increasing.

- Yesterday’s steep selloff and today’s drop show the “sharp risk-on/risk-off swings in markets are to be expected given the reality of today’s macro context,” PIMCO CEO Mohamed El-Erian writes.

- Treasury Secretary Tim Geithner recently said surging imports “reflect healthy and growing American demand.” So much for that optimism, especially in the wake of yesterday’s trade deficit report. “Combined trends in exports and imports are simply not supportive of economic growth,” Tim Duy writes at Economist’s View. “And, given the current state of the global financial architecture, where the US is expected to be the repository of global savings, it is difficult to see how the external sector contributes positively to the recovery.”

- Microsoft (MSFT), which lately has been knocked for lacking a strong consumer strategy, is launching a studio to develop games for mobile phones. The idea, it appears, is to promote use of the Windows Phone operating system.

- The latest on the rumor mill regarding a Verizon Wireless iPhone comes from Daring Fireball blogger John Gruber, who says Apple (AAPL) is taking part in advanced testing of a CDMA version of iPhone, the type compatible with VZ’s wireless network. “The drumbeat of reports pointing to an impending Verzion iPhone launch is getting louder,” MediaMemo blogger Peter Kafka says. “Which doesn’t mean that it’s true. Just that there’s a lot of drumming going on.”

- With so much information online, it’s easy to read something one day and forget where you’ve seen it the next. But there may be a solution. On Thursday, TechCrunch reviewed Sentimnt, a search engine that tackles the question, “Where did I read that?”

- Jetblue (JBLU) finally ends the silent treatment regarding its flight-attendant-turned-wing-nut Steven Slater. “It wouldn’t be fair for us to point out absurdities in other corners of the industry without acknowledging when it’s about us,” JetBlue says on its blog. “While we can’t discuss the details of what is an ongoing investigation, plenty of others have already formed opinions on the matter. Like, the entire Internet.”

I’d have had more respect for this editorial if it had been called “Welcome to the Recovery, Don’t Mind the Smell,” but perhaps that’s a bit too lowbrow for somebody as elevated as the Treasury Secretary. Or maybe the stench just doesn’t waft that high.

From the NY Times:

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.

Most of the column is a hodgepodge of data points that purportedly spell recovery. I don’t have the time to rip through them point by point, but I will say this: it’s amazing to me that the only people convinced by the “strength” of this recovery seem to live in the vicinity of Pennsylvania Avenue and Wall Street, and even on those two thoroughfare’s you can find doubters (if not outright agitators.)

I’ll also note that nowhere does he tout wage gains. Because he can’t. I’ve been trying to put together a post on this topic, but haven’t had a chance what with our daily Upshot columns (which end Friday, by the by.) But to my thinking this is the one most important, critical measure among the universe of data points that get spewed out on a regular basis. Take a look at today’s report on income and spending. Hey, look at that; wages went nowhere. How quaint.

Until we see some long-term, inflation-adjusted sustainable wage gains, this economy will not grow in a sustatinable fashion, and we will be vulnerable to booms and busts and related shocks.

Okay, so “Clash of the Titans” stunk, but that’s the least of the Greeks’ problems. The Greeks are in a very tight spot, between a rock and a hard place, between Scylla and Charybdis, even as everybody keeps making statements that sound an awful lot like whistling past the graveyard.

It’s amazing that Greece was this big problem in the morning, with the nation’s 10-year bond yields surging to a record 7.58%, but was forgotten in the afternoon, after ECB’s Trichet said default was not “an issue.” It was a classic nondenial denial kind of comment, because he didn’t say, it’s not an issue because we the nations of Europe will save Greece, and he didn’t say, it’s not an issue because the Greeks can clearly fund themselves through the open market. Frankly, we’re not exactly sure what his point was, but it was enough to mollify the masses, again, for a time.

Tim Geithner figures while he’s in the neighborhood, why not visit the Chinese, the 10-year Treasury auction goes off well (surprise, surprise) and Monsanto’s earnings certainly don’t augur well for earnings season.

It’s now downright painful to watch the government helplessly flail away at the US foreclosure mess.

Tortuous, really. Like standing there watching Sisyphus struggle to push that big rock up the hill, time and time again, only to have it roll right back down. Feels like a punch in the gut.

And so it goes with the administration’s latest scheme, now to get mortgage servicers to reduce principle.

The move comes on the heels of the latest mortgage metrics report for the fourth quarter from the Office of the Comptroller of the Currency and Office of Thrift Supervision. The report says more than half of modified loans fell more than 60 days past due by 9 months after modification, and it’s closer to 60% of mods re-defaulting after 12 months.

Somehow, we’re not feeling too confident that this latest attempt is the magic elixir.

As the OCC report says, servicers expect new foreclosures to increase in upcoming quarters “as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted.”

Exhausted, like Sisyphus, pushing that rock.

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