Market Talk

If you think the emerging markets are overdone, you might want to consider the frontier, says adviser Chris Cordaro. And, Dow Jones’ Brendan Conway relays one way traders are playing the market’s volatility.

- Soaring currency trading volume won’t have a happy ending. “It is a Fool’s Goldrush and will end horribly for most,” Josh Brown writes at The Reformed Broker. “The good news is, you can take the cautionary tales of the stock game, the mortgage game and the real estate game and figure out how you want to be positioned when the inevitable boom-bust-hatred cycle shifts into high gear.”

- Former Lehman CEO Dick Fuld was given a “surprisingly sympathetic ear” from the FCIC at yesterday’s hearing. “This is a deeply disturbing development,” Barry Ritholtz says at The Big Picture. “It leads to the unfortunate suspicion that the FCIC does not have the slightest clue as to the causes of the housing collapse, recession and market crash…I now fear the FCIC report is going to be an ideological farce.”

- It’s becoming obvious there is “no magic bullet” to immediately speed up the recovery, Harvard economist Kenneth Rogoff writes. “It took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” he says. “Americans will have to be patient for many years as the financial sector regains its health and the economy climbs slowly out of its hole.”

- Investor demand for US Treasuries has waned over the last few sessions after some better-than-expected economic reports. But the “big test” comes tomorrow morning with the August nonfarm payroll report. “A smaller loss of jobs could stoke more optimism about the economy and raise more questions about how much lower interest rates can or should go in the near term,” LA Times’ Tom Petruno says. “But a bigger loss could re-energize bond bulls.”

- Yesterday was a 90% upside day, “the 13th such so-called panic-buying day since the April 26 high,” Jeff Cooper notes at Minyanville. Meanwhile, there’s been 14 panic-selling days during the same period, he says. “This kind of volatility is a market in disarray. It’s not a sign of a healthy market,” he says. “Risk runs high when frenzy runs deep.”

- Slate’s James Ledbetter wonders why people consistently underestimate Netflix (NFLX). “There is one company that has been more consistently underestimated than any other, whose innovations, growth, and, indeed, survival have been dismissed and denied for nearly all its corporate life. That’s Netflix,” he says. But “while its critics were flailing away, the company has continued to grow steadily and spread its influence well beyond the red envelope.”

- AOL renewing and expanding its search agreement with Google (GOOG) was a “surprisingly quick and even stealthy move,” Kara Swisher reports at All Things D.

- “Summertime, and the living is easy…for many, too easy. This July was the worst on record for youth employment: Less than half of all 16- to 24-year-olds had a job,” WSJ’s Heard on the Street says. “Meanwhile, at the other end of the spectrum, more than 40% of over-55s have work or are looking for it, the highest share since JFK was in office.”

- Housing prices still need to drop by 10% in order for the market to correct itself, Barry Ritholtz tells Tech Ticker.

- For all the runners out there, WSJ’s Nick Wingfield reviews three running apps.

- “Either market volatility is about to increase substantially from current levels or options traders have overestimated future volatility,” Bill Luby writes. “If we have one or two more days in which stocks show average to slightly higher than usual volatility, expect the VIX to begin to move back down to a level that is a better reflection of those daily moves.” Indeed, VIX drops 9.7% to 34.61 as stocks close slightly lower, paring steep intraday losses.

- Threat of deflation isn’t as concerning as some folks like to believe, says David Beckworth. Even though the recovery has been sluggish and weak, don’t expect another collapse in spending. “Both current and expected spending are growing. It may be not be growing as fast as we want, but it is growing and there is no sign of an imminent collapse.”

- “The most important thing to know about the 1,500-page financial reform bill passed by the Senate last week — now on the way to being reconciled with the House bill — is that it’s regulatory,” says former labor secretary Robert Reich. “It does nothing to change the structure of Wall Street.”

- “Amazon (AMZN) for some time has talked up the success of its Kindle, including the claim that the device is the biggest-selling item on its site. But it is hard to avoid the conclusion that Chief Executive Jeff Bezos was trying to lower expectations at the company’s annual meeting Tuesday,” Martin Peers writes at WSJ’s Heard On The Street column.

- CNet reports Google (GOOG) offered Viacom (VIA) $592 million if the media giant agreed to license TV shows and films to YouTube. Details of the offer, made shortly after Google bought YouTube in 2006, were revealed in documents released by a Manhattan court where Viacom filed its $1 billion copyright lawsuit against Google and YouTube.

- “For a brief moment last fall, it looked as though the American housing sector might not be the persistent economic drag economists had feared,” the Economist’s Free Exchange blog says. “But the good times haven’t lasted.”

- Apple (AAPL) CEO Steve Jobs plans to deliver the keynote address at its Worldwide Developers Conference on June 7, but NYT Bits blogger Nick Bilton wonders how Jobs will wow the crowd, especially since many of his secrets have been revealed. “Product images and specs have leaked out of Apple before previous keynote presentations, but this time the amount of information was a relative gusher.”

- “With margin calls back on the radar screen for the first time since the financial crisis, it’s worth noting that margin debt has hit levels not seen since early in the crisis,” Brendan Conway writes at MarketBeat.

- Calculated Risk blogger Bill McBride delves deeper into yesterday’s existing home sales report and remains worried about increasing inventory and months-of-supply levels.

- Mounting tensions in the global financial system are evident in the increasing Libor rate. “The world’s big banks continue to grow leerier about lending to one another,” writes LA Times’ Tom Petruno. Three-month dollar Libor rate earlier highest level since July, though Petruno notes it remains well off levels seen during the financial-crisis in late 2008 when credit markets froze.

- Keep an eye on the huge shift from bullishness to bearishness throughout the last few weeks.

- The surging US dollar is “eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy,” the Pragmatic Capitalist says. “As asset prices decline and bond yields collapse this is a clear sign that inflation is not the near-term concern, but rather that the debt based deflationary trends continue to dominate global economic trends.”

- University of Oregon economics professor Mark Thoma isn’t on board with Yale professor Robert Shiller’s argument in a NYT op-ed that fears of double-dip recession could become a self-fulfilling prophecy. Bigger economic shocks would seem “the more likely trigger” of double-dip, Thoma says. “Even more likely is an outbreak of extreme hawkishness causing us to pull back too fast on fiscal stimulus, and to raise interest rates too fast.”

- Turns out Palm’s sale to Hewlett-Packard (HPQ) last month wasn’t exactly a last-minute deal. Digital Daily blogger John Paczkowski points to a PALM SEC filing, which reveals the buyout process began in February and the company was in contact with 16 potential acquirers.

- HAMP April data shows program slowing down.

- The “shock and awe” effects of Europe’s big bailout package are already starting to fade, and the concern is that long-term viability is being sacrificed for short-term gains, Pimco CEO Mohamed El-Erian writes at FT’s Alphaville blog. So far, the package is just giving investors an escape hatch, without addressing the real issue: solvency.

- GM isn’t putting on the hard sell for an IPO.

- Reuters blogger Felix Salmon looks at how government bailouts affect moral hazard and the role they play in market volatility. “A lot of investors have made a lot of money from the moral-hazard trade over the past 15 years or so. When that trade comes to an end, expect the losses to be just as big, if not bigger.”

- Ryan Avent shows how the role the declining euro plays in the global economy.

- Though it’s still early for conclusive evidence, it appears Apple’s (AAPL) Mac sales haven’t been cannibalized by the iPad, Digital Daily blogger John Paczkowski says, citing research from Piper Jaffray.

- Jason Zweig looks at the debate over holding brokers to a higher standard.

Worries about the euro have been reverberating through the market as US stocks have been sharply lower for much of the session. In the last hour, stocks came barreling back, with the Dow inching closer to positive territory, only to fall back, highlighting how volatile the markets have truly become throughout the last few weeks.

The Dow was recently off 71, but fell as much as 184 in earlier trading. Prior to today’s session, the index has had 11 triple-digit moves in the past 14 sessions, as wild swings are fast becoming the norm. The S&P 500 was recently down 3 at 1132.

The increasingly volatile nature of the market is bringing back memories of the height of the financial crisis when markets spiraled out of control. But Bespoke Investment Group delves deeper into the details and finds that while volatility has increased in recent weeks, the market looks downright tranquil compared to the crazy daily moves in late 2008 and early 2009.

S&P 500 has been averaging a daily move of 1.32% over the last month, which firm notes is the highest level of volatility since mid-2009.

“But it was a routine level in 2008 and less than a third of the peak readings seen in late 2008,” Bespoke says, as the index was averaging daily moves of 3.5% to 4.5% a year and a half ago.

“On the market Richter Scale, we’re now at about a 3.5 if Q4 2008 was a 10.”

Bespoke’s “Richter Scale” may not forecast crazy volatility ahead, but the stock market’s fear gauge — the closely watched CBOE’s volatility index (VIX) — is up 5.1% at 32.83 and remains perched above the psychologically important level of 30.

The VIX skyrocketed more than a year and a half ago, but settled down in recent months, only to see a recent sharp spike. It closed above 30 on Friday for only the third time since October.

Despite the market’s volatility in recent years, some investment advisers remain big advocates of passive investing. Norm Mindel, a Chicago-based adviser, talks about how he deals with crazy days in the market. Our Dow Jones colleague Donna Yesalavich reports.

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We’ve been noticing a dynamic in the consumer and producer prices reports lately, where the month-to-month changes are positive, but the year-to-year changes are negative, in some cases wildly so.

It happened again this morning. Consumer prices rose 0.7% in June from a month ago. But they were down 1.4% from a year ago, the biggest decline since 1950, back when the buck stopped at Harry Truman’s desk.

The discrepency is mainly due to crude prices, which have whipsawed between $145 last summer and $33 earlier this year. But a larger culprit is monetary policy itself, as the Federal Reserve lurches from flooding the plains, to draining the pool sharply, to flooding the plains again.

That makes it harder for people to properly allocate their money, to know what”ll it cost to heat their homes in the winter or drive their cars in the summer. It makes it harder for investors to properly value assets, because it creates volatility that wracks the idea of efficient markets.

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