Farrell: What a Difference a Year Makes

We will soon be "celebrating" the one-year anniversary of the Lehman collapse. The financial world came to a halt and we stood on the brink. Now, almost a year later, the Treasury sells a bushel of 10-year notes that have a cover bid of 2.77 times ($277 bid for every $100 in bonds offered) and indirect buying (mostly foreign) of 55%. Both metrics greatly exceed recent auctions. On Tuesday, more corporate bonds were offered for sale ($11 billion) than any other day this year. Also on Tuesday, 16 equity offerings were announced. And, the stock market is flirting with a new yearly high.

The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage
The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage

Quite a difference.

Mortgage applications responded to a downtick in interest rates and jumped 17% last week. The refinancing part of the index (as opposed to new purchases) rose 22%. Consumers will still buy when value is present. But on balance the consumer is very cautious. I mentioned yesterday that consumer credit plunged $21 billion last month after falling $15 billion the month before. In the past year, consumer credit has declined $110 billion or 4.2% from a year ago. I don't see it picking up as we are still way over-borrowed when compared to any other time in the past — and things usually revert to the norm.

The Fed's Beige Book— so called because of its color (Although some of us old enough, like myself and my pal Art Cashin, call it the tan book; and I still call it the RCA Building, not the GE building; and for that matter, it will never be the Met Life Building, but always the Pan Am Building. It's like calling 6th Avenue the Avenue of the Americas: it can't be done.) was released Wednesday afternoon. Reports from the 12 Federal Reserve Districts indicated economic activity continued to stabilize in July and August. 11 of the 12 reported stable or somewhat improving conditions (St. Louis says the downturn appears to be moderating). Five districts, including San Francisco, which, because of the way things are carved up is the largest district, mentioned "signs of improvement." The Fed said,"Consumer spending remained soft in most districts. . .Loan demand was described as weak. and credit standards remain tight." But staffing firms in Atlanta, Dallas, Richmond, Cleveland, Philadelphia, Boston, New York, and Chicago did report a slight pickup in the demand for temporary workers. I have been fussing about the temporary worker situation for some time. Temp jobs were lost at a 51,000 monthly clip in the first half of the year. Last month "only" 6500 temp jobs were lost, which is a great improvement. Since December of 2007, temp employment has fallen from 2.6 million to a recent 1.7 million. Companies will usually hire temps first if business looks like it is picking up. Any improvement in this measurement is good news indeed.

China's purchasing managers index recently moved well to the expansion side of the scale, registering 54 most recently.

Thursday night we get a whole bunch of economic reports from China, including the Producer and Consumer Price Index, the most recent retail sales results, and Industrial Production. Recent news from Germany showed exports there to have risen 2.3% month-over-month (and Germany's economy is 40% exports). German manufacturing orders rose for the fifth month in a row by 3.5%. The Bank of France reported business sentiment in that country rose for the sixth month in a row. No nation is an island and we are all interconnected. We'll be looking at the numbers from China carefully tomorrow night.

For Thursday we will get trade balance figures (the weaker dollar will start to help this number) and an auction of 30-year bonds. The auctions have lost all of their drama since the demand for US paper seems insatiable.