Economy Watch

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Stocks are up this morning following news that the U.S. trade gap has widened, a sign of economic rebound.

In the first 20 minutes of trading, the Dow is up half of 1 percent.

The broader S&P 500 is up half of 1 percent and the tech-heavy Nasdaq is up seven-tenths of 1 percent.

The U.S. trade gap grew to a 15-month high in March, the Commerce Department said this morning, swelling to $40.4 billion. Both imports and exports were up.

The imports side was largely a function of rising crude prices, as oil rose steadily throughout the quarter. Imports were up 3.1 percent in March to $188 billion. On the outgoing side, exports rose 3.2 percent to $147 billion, which was the highest level since October 2008.

A healthy U.S. economy can live with a trade gap, which is what it's referred to here. I won't call it a "trade deficit," as you often hear, because that implies the U.S. should be a net exporter all the time and that's simply not the case, not in a modern economy.

The U.S. does face headwinds on the export front, however. The biggest recipient of U.S. exports is Europe, which as you know is facing all kinds of problems now. Even before this bubonic plague of debt swept across Europe, the Continent was expecting only a 1 percent gain in GDP for all of 2010. Europeans may not be buying a lot this year.

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UPDATED at 4:15 p.m.:

Stocks couldn't hold onto the gains they achieved in mid-afternoon trading and largely finished in the negative today, eating away a bit at yesterday's big rally.

The Dow closed down three-tenths of 1 percent at 10,748.26.

The broader S&P500 closed down three-tenths of 1 percent at 1,155.79. The tech-heavy Nasdaq, however, which has led stocks since the rally began in March 2009, closed up just above water at 2,375.31.

Looks like we're in for some volatility. That's what the gold bugs think, anyway. Gold for June delivery soared today, closing at $1,220.30 per ounce. During trading today, gold came very close to hitting its record high of $1,227.50 set in December.

Stocks turn positive

11:53 a.m.: Stocks began a steady climb after opening lower and have now turned positive as the trading day approaches noon.

The Dow is up one-tenth of 1 percent.

The broader S&P 500 is just above water and the tech-heavy Nasdaq is up four-tenths of 1 percent.

Markets were cheered by positive news from the Commerce Department, which reported that wholesale inventories climbed in March, and from the housing market, which said that home prices rose in 60 percent of U.S. cities in the first quarter of this year.

Volatility rules Wall Street, stocks down at opening

9:58 a.m.: Volatility rules on Wall Street, as stocks responded to their big surge on Monday by trading lower at opening today.

In the first 20 minutes of trading, the Dow is down half of 1 percent.

The broader S&P 500 is down six-tenths of 1 percent and the tech-heavy Nasdaq is down the same.

There's some inventory news coming out at 10 a.m. and we'll see how that affects the markets.

The markets were unimpressed by Toyota's first-quarter results out this morning. The besieged automaker, waist-deep in recalls and NHTSA investigations, still managed to turn a $1.2 billion profit in the first three months of this year.

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March wholesale inventories rose 0.4 percent compared with March of last year, roughly in line with expectations and a sign that businesses are restocking their shelves, the Commerce Department said moments ago.

Wholesale inventories are a key measure of economic recovery. Simply put: In a recession, businesses deplete their inventories because it costs money to store stuff and, because no one's buying things, businesses reduce their orders for product from factories.

This moves upstream. When businesses aren't ordering products, manufacturers don't make products. This means workers get laid off and company earnings drop. This holds true for manufacturers from automakers to toy-makers to toothpaste-makers.

March marked the third straight month of increasing wholesale inventories. Here's what you have to remember, however: Part of this inventory bump comes from stimulus spending that caused manufacturers to make more things in the fourth quarter of 2009. That's why fourth-quarter GDP jumped up so much (5.6 percent) and first-quarter GDP retreated a bit (3.2 percent).

Here's another good sign. According to the Commerce Department, the amount of goods on hand compared with sales dropped to the lowest level on record, meaning shopkeepers will have to order more product and manufacturers will have to make more product.

Now, we just need consumers to buy all the stuff that manufacturers are cranking out and businesses are putting on their shelves. With unemployment stubbornly hanging near 10 percent, that could be tough.

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This is from Friday, but it holds up like a fine wine.

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Nice, nice day on Wall Street. Nice day. Just what investors and traders needed.

Stocks opened strongly, maintained most of their momentum and even staged a little third-stage boost in the last 30 minutes, closing near their highs on the day.

The Dow closed up 3.9 percent at 10,785.14.

The broader S&P 500 closed up 4.4 percent at 1,159.73. The tech-heavy Nasdaq closed up 4.8 percent at 2,374.67.

It was the best single day for stocks since the March 2009 rally began. All 30 Dow industrial stocks finished higher on the day. Some 97 percent of S&P 500 stocks were up today.

In other good news today, the volatility index(VIX), or the fear index, a measure of activity around options, dropped 25 percent. Practically, this means traders didn't feel the need to protect their positions as much as they did last week.

And just to leave you with one final piece of good news: The two crash days of last week -- Thursday and Friday -- wiped out all of 2010's gains. Thanks to todays' big rally, all three major indexes are now positive again for 2010. Not a lot, but it's still better than it was on Friday.

Stocks give back some of day's games but remain strong

2:28 p.m.: Stocks are giving back some of their gains on the day but are trading at such a high range that last Thursday and Friday seemed unthinkable.

With 90 minutes to go in the trading day, the Dow is up 3.5 percent.

The broader S&P 500 is up 3.8 percent. The tech-heavy Nasdaq is up 4 percent.

Put in perspective, the Dow is back to where it was just before Thursday's "flash crash," as it's now being called.

Stocks settle into cruising altitude

11:39 a.m.: Stocks today are like a jetliner that rapidly rose to its cruising altitude and is now comfortably remaining there, settled in nicely.

Which is pretty exceptional: That such a massive rally could be so, well, quietly underway.

Two hours into the trading day, the Dow is up 3.8 percent, slightly off its day's high.

The broader S&P 500 is up 4.2 percent and the tech-heavy Nasdaq is up 4.2 percent.

The European markets just closed and they enjoyed a terrific day. London's FTSE and Germany's DAX both closed over 4 percent and France's CAC 40 closed up well over 8 percent.

French banks have the biggest exposure to Greek debt of all European banks.

Stocks of European banks surged today, as well.

Stocks surge at opening

10:30 a.m.: Stocks are staging a runaway rally in the opening minutes of trading, as Wall Street responds to the European bailout plan with heady euphoria.

If you've been wondering, "What does the Greece/European debt problem mean to me?" well, now you know.

In the first 45 minutes of trading, the Dow is up 4 percent. Wal-Mart is the only one of the 30 Dow components not in the green. The Dow is making a bid to get back above 11,000.

The broader S&P is up 4.4 percent, and the tech-heavy Nasdaq is up 4.4 percent, as well.

There are a couple of ways to look at this:

(A) This is a wildly unpredictable market, prone to massive swings from one day to the next. There's no way of telling what will happen to your money, so you should probably convert all your stocks into gold and bury it in the back yard.

Or:

(B) This is the recovery rally that takes back all of the real losses from that terrible 900-point crash last week. Look at it this way: About 500 points of the 900 point-loss came from the computer-aided mistakes. Had there not been that glitch -- and I really don't like using the word "glitch" because that was your money going "poof" -- the Dow would have dropped 400 points, not 900. So today's recovery rally is getting the Dow back to where it should be. Now, you can rightly say that any 400-point swing in the Dow makes it wildly unpredictable (Point A, above).

How can we know how wild and unpredictable this market is? One way is to look at the so-called "fear index," or volatility index (VIX). The VIX is an index of options, or protections, that traders are buying on their positions. If the VIX goes really high -- as it did last week -- it means that traders are worried about lots of unpredictability ahead, so they buy options. Today, the VIX is back down where it's been for most of the year.

As you would expect, today's big rally began in Europe, where that big sighing sound you may have heard early this morning was European traders sounding very, very relieved at the bailout deal.

With about an hour to go on the European trading day, London's FTSE is up 4.4 percent.

German's DAX is 5 percent and France's CAC 40 is up an eye-popping 8.3 percent.

Stocks are slightly down from their early-trading peak, but they remain strong. And investors could use it: The big crash last Thursday and Friday erased -- in just two days -- all of the stock market's gains for 2010. Ouch.

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With its $1 trillion TARP-style program enacted over the weekend, Europe's finance ministers threw all-in behind the euro in a sink-or-swim effort designed to save the super-currency. Some commentators have called this a "shock and awe" campaign. Others call it the nuclear option. Translation: when you exercise the nuclear option, you're out of options. It's like being a gunfight and you run out of bullets. Your next move would be to throw your gun at the other guy.

The quotes from Europe's finance brass sound almost personal, like they're protecting a loved one: "We are going to defend the euro," Spanish Finance Minister Elena Salgado told reporters. "We will do whatever is necessary."

The euro may actually be more dear to the 16 Euro zone member states than a relative. They've all tied their future to the thing, which is starting to look less like a balloon and more like an anchor.

The big cash infusion has been great for the European and U.S. stock markets. But have soared upward today, showing their confidence that Europe may not -- MAY not -- collapse in a quickly spreading black plague of debt.

Ironically, however, it has done nothing to help its intended recipient: the euro. After getting a temporary boost from the plan, the euro is giving back its gains already and is shrinking to parity with the dollar. That's bad for Europeans but good for Americans who want to book a European vacation.

The problem with having a super-currency has always been that the union is only as strong as its weakest member. And as happens so often in life when you chain a weaker element to a stronger one, the stronger one does not -- as hoped -- lift up the weaker one. Instead, the weaker one drags down the stronger one.

Europe really has no choice right now but to stand by the euro. Although you can make an argument that the eurozone ought to at least temporarily kick out Greece, have it return to its drachma and let it print money to inflate its way out of its crisis. It won't be pretty, but it will work. With a super-currency, each member state has the power over its own revenue and budget but not its monetary policy.

Instead, the debt problems in Greece, Spain and Portugal (and perhaps the U.K. and France) have forced the eurozone to inflate the entire super-currency, which, if you live in the prosperous, live-within-your-means German, you're going to naturally resent. Greek debt problems now mean higher prices at a Berlin Imbiss. With this step, Europe follows in the U.S.'s footsteps, Miller Tabak equity strategist Peter Boockvar writes:

"The Bernanke school of money printing has spread its wings in a big way as the Europeans have followed in the foot steps of choosing to inflate away its debt problems and bide time rather than deal with the issue of solvency and too much debt. Banks and bondholders have now been bailed out while Greece will go through a depression and others will see painful economic contraction."

As I've written before, there's no way to save Greece pretty. That story is over. The hope now is that the debt contagion will be ring-fenced around the Club Med nations along the Mediterranean coast and not spread to England and Germany.

The euro is now 15 years old. (Adopted in 1995, introduced as currency in 1999, coins and notes entered circulation 2002.) As with many adolescents, it hasn't turned out the way its parents hoped. It has been a disappointment and its worried Mom and Dad are trying one last big intervention, hoping the wayward child doesn't bring down the whole family.

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What do this week's market massacre, the growing European debt contagion and today's unemployment report have in common? Me, talking about all three of them on video!

Click here to watch the video.

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The headlines this morning: The official U.S. unemployment rate rose from 9.7 percent in March to 9.9 percent in April, even as the economy added 290,000 jobs. This happened because a number of unemployed Americans who had stopped looking for work decided to try to re-enter the job force last month. They are called "discouraged" workers. They were not counted as unemployed because, according to the Labor Department, you're unemployed only if a) you're out of work and b) you've looked for work in the previous four weeks. A whole bunch of people who had stopped looking for work started again last month, increasing the size of the labor pool. Not all of them found work, so the unemployment rate ticked up.

That's good news, but that said, a truer measure of U.S. unemployment also increased last month. If you also include all of the people who are still discouraged and all of those who want to work full time but can find only part-time work, that unemployment rate in April was 17.1 percent, a rate that has increased since the beginning of the year and is approaching its all-time high of 17.4 percent, hit in October.

What's going on? If discouraged workers are re-entering the labor force, why is the higher unemployment rate still climbing?

The answer seems to be found among those who are forced to work part time but who want to work full time. That number has increased since the beginning of the year.

In January, Labor reported that 8.3 million Americans were working part time for economic reasons, meaning they could not find full-time work. That number increased to 8.8 million in February, 9.1 million in March and 9.2 million in April.

The number of discouraged non-employed Americans in April was 1.2 percent, up from 1.1 million in January.

According to Tom Nardone, the BLS's assistant commissioner for employment analysis, one of the reasons the higher unemployment number went up was because the lower number went up, simple as that sounds. What he means: In addition to the part-time workers and the discouraged non-workers, the higher number also includes the official number, which went from 9.7 to 9.9 percent.

But there are also other factors that are often hard to quantify in such a large sample, Nardone said. For instance, depending on how the BLS survey questions were answered, an unemployed discouraged worker in April may not have been classified as such in March.

So fair enough. Regardless of the reasons, an official unemployment rate of 9.9 percent -- and a truer rate of 17.1 percent, both on the rise -- are politically unacceptable, ensuring that jobs will be a key issue in November's midterm elections.

By the way, click here to read an interview I did with BLS Commissioner Keith Hall (pictured) on how his agency counts the unemployed.

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UPDATED at 4:11 p.m.

The carnage of the last two days of this week has wiped out all the gains of the year to date.

If Thursday's trading day was apocalyptic, Friday's was merely chaotic and unpredictable. Stocks opened up slightly, following a better-than-expected April jobs report, then fell immediately off the cliff, plunging to a 10:30 a.m. trough.

The spent the rest of mid-day trying to climb back up and the Dow briefly turned positive before the recovery rally ran out of steam and stocks eventually stabilize, albeit in negative territory.

The Dow closed down 1.3 percent at 10,379.60. Bye-bye, 11,000.

The broader S&P 500 closed down 1.5 percent at 1,110.86 and the tech-heavy Nadaq got hit the hardest, closing down 2.2 percent at 2,265.64.

All three major indexes have had their entire 2010 gains wiped out. Today, they stand almost exactly where they stood on January 1. So that's discouraging.

How bad was it? Let us count the ways:

The Dow has now been down for four straight trading days.

If there's a bright side to look at, it's that the April unemployment report out this morning suggested that the underlying fundamentals of the economy are improving. The economy added nearly 100,000 more jobs that expected last month. And perhaps a week or two from today, we can chalk yesterday's Wall Street plunge up to a computer mistake and today's to a let's-bail-out-and-wait-for-Monday reset.

There may be one other bright-side thing to look at: During Thursday's lighting-fast 900-point drop, declines in 3M and Proctor and Gamble stock was responsible for 400 points of the plunge alone, for reasons that are still under investigation. So the terror of Thursday's big dive was not as widespread as first feared. But that's the best I got.

Stocks stabilize in negative territory

2:10 p.m.: For the first time today, stocks have showed some stability. That's the good news. The bad news is that they've stabilized in negative territory.

With a little less than two hours to go on the trading day, the Dow is down 1 percent.

The S&P 500 is down about 1.1 percent and the tech-heavy Nasdaq is down 1.8 percent.

Stocks down but trending upward

12:45 p.m.: I want you to take a look at what the Dow is doing today. Click here.

If there's any encouraging way to look at this chart -- at least as of 12:45 p.m. -- draw a straight line from where the Dow troughed at 10:30 a.m. to where it is now. That line points sharply upward and that means that since the trough -- even with a lot of volatility in-between -- stocks have been moving positive.

Here's a look at the S&P 500 chart. And here's the Nasdaq.

We'll see where it goes between now and the closing bell. Hang on.

Roller coaster ride

11:24 a.m.: This officially has become a roller-coaster day on Wall Street.

After looking like the Street has settled into a sell-off day, stocks have erased many of their losses and the Dow briefly peeked into positive territory before going back underwater.

With nearly two hours gone on the trading day, the Dow is down four-tenths of 1 percent, well off its bottom of the day (so far).

The broader S&P 500 is down about four-tenths of 1 percent and back on the rise. The tech-heavy Nasdaq is still lagging on the day, however, and is down more than 1 percent.

The volatility index (VIX), often known as the "fear index," which is a measure of how traders think about the future, has hit a 52-week high. The VIX reports the implied volatility of S&P 500 index options.

And the price of crude has dropped below $75 per barrel.

Stocks plunge in another sell-off

11:07 a.m.: The early optimism on Wall Street has given way to another sell-off, as traders appear to have thrown in the towel on the week.

Ninety minutes into the trading day, the Dow is down 1.2 percent.

The broader S&P 500 is down 1.5 percent and the tech-heavy Nasdaq is down 1.9 percent.

In even worse news, all three major indexes have now given back all of the gains they have made on the year. Which means your stock portfolio and 401(k) is right back to where it was on January 1.

The pain is not limited to the U.S. The European markets are in a broad sell-off, too. Everyone is getting hammered by the fear of European debt contagion, which I likened to the black death earlier this week, but Europe's getting it especially bad.

The U.K.'s FTSE is down 3.6 percent, the German DAX is down 3.6 percent and the French CAC 40 is down eight-tenths of 1 percent.

You're likely to see more blood in the streets when the Asian markets open.

Stocks see-saw at opening

10:45 a.m.: Stocks opened down slightly this morning, made some gains, and then started falling within an hour, as today's better-than-expected April jobs report did little to boost a market still shaky from yesterday's plunge.

As of 10:44 a.m., the Dow is down 1.5 percent.

The broader S&P 500 and tech-heavy Nasdaq both opened in the red, followed the Dow's lead and turned positive, then dropped back down.

This will be a touchy and widely watched day for stocks. Traders and investors will be watching to try to figure out whether yesterday's massive and unprecedented lightning-fast plunge was a combination of bad computer-generated events or a vote on confidence in the markets.

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UPDATE 12:40 p.m.:The final speaker of the day is the head of a nonprofit in the city that helps at-risk juveniles get quality education. She thanks Goldman for its support and Blankfein thanks her for "all that you do."

On that warm note, the meeting is adjourned. Blankfein shakes a few hands, and looks ready to head out, but is stopped by a shareholder. Again he tries to leave but is stopped by another shareholder. He shakes hands. And he is gone.

Goldman shareholder finally asks Blankfein about SEC charges

UPDATE 12:37 p.m.: Before the voting results were announced, Blankfein got a question from an individual shareholder: I came here to ask you one question -- has all this stuff that's been going on lately affected our business?

Blankfein: Always hard to tell. But It feels like on the whole, our business has held up quite well, due to the support we have gotten from our clients who have been loyal and enthusiastic. I know people don't like to read about their advisers in any context, let alone in the kind of headlines we've had lately.

Each of the 11 director nominees have received more than 95 percent of shares present.

Goldman shareholders' proposals fail

UPDATE 12:32 p.m.: About 1 in 5 Goldman shareholders vote for Chairman-CEO split.

The Q&A session is interrupted to announce the results of the shareholder votes. Bottom line: all five of the management proposals pass, all seven of the shareholder proposals fail.

But some of the shareholder proposals get quite a lot of votes. A shareholder proposal regarding cumulative voting gets 25 percent of vote. Another on over the country derivatives trading gets 34 percent. And a shareholder proposal to split the roles of chairman and chief executive -- currently Blankfein holds both titles-- receives 19 percent of the vote.

Another on executive compensation and long-term performance gets 25 percent.

Goldman's Blankfein draws laughs as he discusses pay disparity

UPDATE 12:09 p.m.: Next up is discussion on a shareholder proposal on pay disparity.

One young shareholder - he says he graduated from UPenn last year - is up. He speaks talks about the importance of pay and retaining talent. He speaks of going through the on-campus recruiting process and "dreaming" about one day sitting up there on stage with the firm's top executives.

"Some of the people there are dreaming of sitting over there," says Blankfein, gesturing first to Viniar, his CFO, and Greg Palm, the general counsel, and then gesturing to where the young man is sitting.

Blankfein gets another round of laughter.

Goldman shareholders raise questions about political contributions

UPDATE 11:45 a.m.: Another shareholder question is about requiring Goldman to make a report of political contributions beyond what is already required by the FEC.

Wall Street firms have received criticism, including from President Obama, about intense lobbying against aspects of the regulatory reform bill now being debated in Congress. Blankfein says Washington has been asking the firm to come down and "educate" lawmakers on the financial system and rules, and that it is the firm's right and duty to do so.

In an understatement, Blankfein adds that the recent marathon hearing in Washington before a Senate subcommittee was "not the most comfortable moment" in his life. Some laughter.

The hearing of course, was on the SEC civil fraud charges, which have been vigorously denied by the firm. So far into the meeting, no one has explicitly raised the SEC charges. But perhaps it will come up in the general question and answer period later.

Blankfein: Should he keep both chief executive and chairman posts?

UPDATE 11:30 am: One of the seven shareholder proposals up for a vote - and the most closely watched - is splitting the role of chairman and CEO. Corporate governance groups generally agree this is good practice. Last year, Ken Lewis, former head of Bank of America, was forced to give up his chairmanship after a shareholder vote.
Several shareholders get up to express support for the proposal. One gets up and notes Blankfein's leadership and Goldman's blockbuster profitability.

"He is doing a very good job. Goldman Sachs is doing very well for shareholders."

The crowd breaks out into applause. Blankfein is smiling. We will get the outcome of the voting later today.

Goldman's Blankfein tells supportive shareholder: You're not being helpful

UPDATE 11:00 am:

A shareholder takes the mic, saying he is disgusted by the liberal leftist commentary attacking Goldman, including religious leaders who have spoken so far at the meeting. He also mentions the Catholic church scandal.

Blankfein says, let's stick to the matters at hand.

Shareholder: "I just want to be supportive of the management."

Blankfein: "If you want to be supportive, you're not being helpful."

Perhaps Blankfein is getting hungry for lunch, but some may question his wisdom in shutting down one of the few shareholders expressing unfettered support for the firm here at the meeting.

Goldman by the numbers

UPDATE 10:40 a.m.: In response to a shareholder questions, Goldman says it has about 250 in-house full time lawyers, up by a few lawyers from the year before. The firm, which is also facing a number of shareholder lawsuits in addition to the SEC lawsuit, spent $593 million in legal fees, roughly half of it on outside counsel.

Blankfein Likes Shopping at Wal-Mart

UPDATE 10:30 a.m.: Evelyn Y. Davis is up at the podium again. She is asking about lobbying expenses, and after some rambling, suggests Blankfein and his wife likely don't shop at Wal-Mart.
"Actually, I like shopping at Wal-Mart," says Blankfein, managing to get a few words in edgewise.

Laughter.

Board diversity questioned

UPDATE 10:20 a.m.: Timothy Smith of Walden Asset Management, an activist shareholder on social issues, asks about board diversity.

Blankfein acknowledges the board looks "less diverse than we did a few weeks ago," a likely reference to Ruth Simmons, of Brown University, who is resigning from the board.

Quiet plea from Jesse Jackson

UPDATE 10:15 a.m.: Blankfein is his usual soft-spoken self as he responds to comments from Jesse Jackson, who stood patiently in line for his turn to speak.

Jackson is quietly expressing his concern about the gap in the health of Wall Street versus Main Street. He wants more Main Street representation on the board. Blankfein, equally soft-spoken and dressed in a dark suit with red tie, says Goldman's health is intricately tied to overall performance of the economy.

Gadfly investor Evelyn Y. Davis takes the podium

UPDATE 9:50 a.m.: After a brief presentation by David Viniar, the chief financial officer, the floor is opened to shareholder comments. First up is Evelyn Y. Davis, the shareholder gadfly who is a fixture at these meetings.

She says the situation Goldman finds itself in now would "never have happened if Hank were still here."

Hank, of course, refers to Henry Paulson, the former Treasury secretary and former CEO of Goldman. Davis gets right to the point, saying she is voting against all of the directors and telling Blankfein he has until Monday to tender his resignation.

"Evelyn, I have no current plans to step down Monday," Blankfein says.

Goldman has set up Business Standards Committee

UPDATE 9:45 a.m.: Blankfein promises a comprehensive review of all of Goldman's businesses, saying the firm has established a Business Standards Committee to do this.

Shareholder meeting gets underway with protesters outside

UPDATE: 9:33 a.m. So here we are at the Goldman shareholders meeting in southernmost tip of Lower Manhattan. Security is tight.

Outside, there are almost as many police officers as protesters. About two dozen are holding up signs such as "Transparency Now" and "Stop hiding the Money."

Inside, the meeting has just been called to order by chief executive Lloyd Blankfein, who is introducing directors, senior management and auditor.

8:22 a.m.: Goldman Sachs, the embattled New York investment bank, is hosting its annual shareholder meeting this morning. Executives are expected to face questioning from shareholders on a range of issues, including the firm's compensation practice, its actions during the financial crisis and of course, the fraud charges filed against the firm by the Securities and Exchange Commission. We'll be live blogging the event shortly before the meeting begins at 9:30 a.m. in Lower Manhattan.

-Tomoeh Murakami Tse