Farrell: Lots of News, Little Volume

I can't believe we couldn't do one billion shares of trading volume Thursday on the NYSE. I know it's August but we have to make a living! Less than 800,000 million shares is startling. I worry that the lack of volume will catch up to us and the market will inevitably drift lower with no conviction seemingly present. It's certainly not for lack of news, though. It seems I am busier than usual trying to field all the reports that are coming in.

The budget deficit was a breathtaking $180 billion versus $102 billion last year. It looks like fiscal 2009 will register a $1.26 trillion deficit. This latest report showed total tax receipts down 5.6%, and individual taxes down 14% as the recession took its toll on the working man. The government is estimating a $1.84 trillion deficit for fiscal 2010. I don't believe too many projections that come out of any administration, and I bet this number proves to be way low.

Home foreclosures rose 7% last month compared to the month before and 32% more when compared to the same month a year ago. The total of foreclosed homes—360,000—was the fifth month in a row greater than 300,000, and the highest on record. This is likely to stay bad as the "shadow inventory" keeps spilling out into the market.

Not adding to investor enthusiasm was the retail sales report announced Thursday morning. Sales were off 0.1% when hopes had been for a gain. Take out automobiles and sales were off 0.6%. Clearly the same forces that are driving people out of their homes—rising unemployment, stagnant wages, and limited access to credit—are affecting the sales situation. Ford Motor (F-rated Buy by Soleil/Ward Transportation Res), however, has decided to raise its Q3 production schedule by 10,000 units to 495,000 vehicles. That would be 18% more than same time last year. Ford also is planning production of 570,000 vehicles for Q4 and that would be 15% more than the third quarter and a whopping 33% more than a year ago.

Unemployment claims were as expected, coming in at 558,000. The four-week moving average was up a touch to 565,000 and continuing claims fell from 6.34 million to 6.2 million. There is no joy in Mudville over that last stat since the suspicion is people are dropping off the end of the line as their eligibility runs out and still no job. In fact, there is no joy at all over any of this report. While no worse than expected, it's no better either, and that number of unemployed can be looked upon as OK only in light of the recent economic debacle.

The above sort of spoiled the early morning news that both Germany and France have apparently exited from recession. Both showed GDP growth of +0.3% for the last quarter. In Germany's case, that followed a quarter of -3.5% which was the fourth down quarter in a row. France had suffered a -1.3% negative quarter and that also was the fourth downer in a row. The 16-nation Euro zone slipped 0.1%, but that was much better than the prior quarter's negative 2.5%.

It's baaack! The Accounting Standards Board is considering a mark-to-market rule that would include marking bank loans. Loans now are marked down only when they stop paying interest. Many fear there are mountains of bad commercial real estate loans on banks' books that will be going bad soon. That may be, but the complexity of marking these things monthly would probably cause a lot of bank analysts to switch jobs. It's very early in the process, but this could be a biggie as the year winds down.

Lastly, the good news. The 30-year auction of Treasury debt went very well. The bid-to-cover was 2.54 compared to an average 2.22 since 2006 when the 30-year was reintroduced. Indirect buying was pegged at 48%, and that compares to an average of 33% since 2006. That last number is a surprise, and a pleasant one. With an estimated $1.84 trillion deficit staring at us for next year, at least it seems that the market is accommodating all the paper that has to be floated.