Green Shoots in the Beige Book

• ByVincent Farrell Jr.,
• On 8:30 am EDT, Thursday September 10, 2009

We will soon be "celebrating" the one-year anniversary of the Lehman collapse, when 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, is at 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. That's 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 Wednesday 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 -- just as I call it the RCA building, not the GE building; it will never be the MetLife 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. Eleven 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," while loan demand was described as weak and credit standards were still 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" 6,500 temp jobs were lost, which is a great improvement. Since December 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. Thursday evening we get a whole bunch of economic reports from China, including the producer and consumer price indices, 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.

For Thursday we 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 U.S. paper seems insatiable.

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Know what you own: Farrell mentioned staffing firms. Some stocks in the industry are Manpower, Robert Half, Kelly Services, Comforce and Hudson Highland.

Buzz up!