Farrell: It Doesn't Look Like the Economy is Safe

Call me a technophobe on vacation

We have been coming to the island of Nantucket for over 30 years. We rented forever and when we got lucky, we bought a home. It is very modest by Wall Street standards, but not many people admire Wall Street standards anymore. So that means it is just about right. 30 years ago, there was one place on the island that sold the papers, and only if there was no fog so the plane could get in. You got almost no TV reception, but there was no CNBC to watch, so all we really missed were the Yankee games. But this is Red Sox nation and who wants to watch them!

Now I have a cell phone, an old Palm handheld that I can't figure how to get the addresses off of, an iPad, an iPod (but I can't find it, which doesn't matter because I don't know how to record on it), a Blackberry , a Kindle (which I love, but I'm told I don't need any more since I have an iPad), one working PC (thanks, Raymond, for getting it to me), and one non-working PC.

I need a PC to write this note on because the PC distribution lists don't talk to the iPad which would be easier to carry around. I have 14 or more power cords and I long for the days I couldn't get the paper. But we do have a sign you see as you walk into the house. It says, "If you are lucky enough to live near the beach, you are lucky enough." And we do watch more of the Tour de France than anything else, and hope and pray Armstrong wasn't doping. We need our heroes. But as long as I have Jeter and Mariano Rivera, my cocoon will be safe.

It doesn't look like the economy is safe.

I never believed in the "V"-shaped recovery. I was more with Lee Cooperman's square-root design of an economic graph. It looks to me like that is the best we can now hope for. The stock market toppled last week (why does it always do that on vacation?) due to revenue declines by companies that reported more or less OK earnings. The fear is clearly that the economy is slowing. Consumer confidencetook a dive as well. Retail salessagged and inventories rose. The economic impact from an inventory rebuild may be over almost as soon as it started.

The administration can't win for trying.

A news article in the WS Journaldetailed a school superintendent who admitted the stimulus program saved a bunch of teaching positions and funded a $700,000 computer program for the kids. But his strongest statement was a criticism about the debt created in so doing. The administration didn't help its case when it released a study that said the stimulus program "created or saved" between 2.5 and 3.2 million jobs and "raised GDP by 2.7% to 3.2%" through June 30th. It is tough, if not impossible, to guess the effectiveness of the stimulus program, but with unemployment so high and nearly five jobless workers for every job opening, it's tough to declare any type of victory. The President's approval ratings are plunging like Friday's stock market.

A couple of big banks reported earnings, and while the numbers were good enough, there is little loan growth. One morsel that encouraged me was the release of reserves. I don't give much of a multiple, if any, for earnings so generated but the credit situation is improving if reserves can be freed. That was lost in the noise created by Bank of America's announcement of how much the new financial regs would cost them. Mostly because of a change in fees on credit and debit cards, B of A figures it will lose several billion dollars in revenues a year. Revenues and earnings lost should be more money in the consumer pocket, so I don't know that I would get too upset over this in the aggregate. It certainly affects individual banks' valuations. (Track all your earnings news here)

The stock market failed in several attempts at the 1100 level on the S&P. We thought the battle of 1040 was going to be a long and extended one. It looks like that level is threatened again with the close of 1065 on Friday. I expect 1040 to be breached and hopefully recover. If not, 950 comes into sight as a full 50% correction of the advance from March 2009.