Market Talk

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

Looks like bright times ahead

Our colleagues at The Wall Street Journal join a growing voice pointing to a strong economic recovery. On today’s front page, Mark Whitehouse details evidence that the recovery could occur faster than anticipated.

Shoppers turned up in surprising force at U.S. stores, auto dealers, restaurants and elsewhere in March, adding to a growing sense that the recovery could prove faster than anticipated.

Combined with a rebounding service sector, rising financial markets and new efforts to forgive mortgage debts, March’s 1.6% surge in retail sales is tempting forecasters to upgrade their assessments of the economy’s ability to restore the 8.2 million U.S. jobs lost since the recession began.

The renewed consumer and business activity also helped propel J.P. Morgan Chase & Co. to a 55% profit gain in the first quarter, increasing optimism among investors that banks, too, are rebounding from the crisis that floored the industry.

“There’s a growing risk that we’re underestimating the strength of the recovery,” said Stephen Stanley, chief economist at Pierpont Securities, noting that deep recessions tend to be followed by steeper recoveries. “If the economy pops, it’s going to be faster than anyone is forecasting.”

He also points to a recent WSJ economic-forecasting survey, which showed three out of four economists expect their growth forecasts over the next year and a half will prove to be too low rather than too high.

It appears consumers are willing to open their purse strings more than previously expected. Whether this action is sustainable remains in question, especially with the unemployment rate perched at 9.7%.

But as the stock market keeps hitting fresh highs, and as stories keep circulating describing the strength of the rebounding economy, Miller Tabak equity strategist Peter Boockvar asks the question on everyone’s mind: is this recovery real or not?

“I can’t keep but wondering how much of the improvement in all of the above is due to zero nominal and negative real interest rates and how much is due to the natural order of the economic cycle,” he says. “There is no question it is a combination of both but is a zero interest rate environment a proper gauge of what’s real and what’s artificial, what’s organic growth and what’s juiced by easy money all over again.”

Only time will tell, especially when the economy “has to be left on its own without the crutch of cheap money.”

Chart courtesy of WSJ.

(Photo credit: Wikipedia Commons)

Be prepared!

Thomas Hoenig, president of the Kansas City Fed, is out today warning that the federal government’s fiscal policies could lead to the next U.S. crisis, and even raises the spectre of the Weimar Republic to hammer his point home.

But at the same time, I’ve seen two separate reports out today warning about deflation, not inflation, and it seems to me, much like I wrote about back in September, that we are still being pulled by these two forces, and it’s not at all clear that we are going to end up with the inflation that the central bank actually wants.

Hoenig is in the camp that’s worried about inflation. “If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis,” he said. Hoenig went on to reference the hyperinflation of the Weimar Republic. He told a story about a neighbor who back in the ’90s gave him an old, 500,000 German mark note, which in 1921 would’ve bought a house and in 1923 wouldn’t buy a loaf of bread.

“That note is framed and hanging in my office,” he said, and reminds him of the need to guard the currency. But while all the focus lately has been on the Fed’s exit strategies, there are some hints of less pleasant things out there that may shackle the central bank before it can enact its exit.

We noted back in early January when the Telegraph’s Ambrose-Evans Pritchard flagged falling growth rates of the money supply. Today, Capital Economics is out with a note, noting the same thing. “The annual growth rates of the monetary aggregates have slowed markedly in recent months,” the firm’s senior US economist, Paul Ashworth, writes. “With spare capacity still so abundant, a widespread monetary contraction would further increase the risk that deflation eventually sets in.”

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- The government’s bank-friendly posture is tough to change. “The issue is not a lack of leverage, it’s a lack of nerve and a deliberate decision to side with the banks against the public until now,” Yves Smith says. “Having ceded so much ground on so many key issues, it is well nigh impossible for the administration to change course.”

- Banks get mixed messages on risk-taking in lending. Kid Dynamite offers a baseball metaphor to help depict the government’s tough talk to revive bank lending.

- History says Exxon deal sparks more energy M&A.

- Need a job? Look at health care, medical research.

- Former Fed Chairman Paul Volcker won’t relent on the innovation “myth.” The Obama administration must love hearing this guy speak. (Hint…sarcasm…hint hint.)

- Hard to believe little ZIRP’s one year old. How much longer will it last?

- Former Dallas Fed president Bob McTeer attempts to quell the rising uproar of Fed bashers.

- The Boeing Dreamliner finally takes off.

- President Obama wasn’t exactly thrilled that three prominent Wall Street CEOs didn’t attend a recent meeting. Balance of power between Wall Street and Washington shifting back to Wall Street?

- Rising wholesale prices brings some inflation chatter back to the market, but University of Oregon economics professor Mark Thoma says it’s still too early to fret over inflation.