Linkfest

Despite free-falling energy prices and favorable economic news, markets could not string together much progress this week. The Dow Industrials and the Standard & Poor’s 500 were flat for the
week; But a string of earnings disappointments from big tech names weighed down the tech-heavy Nasdaq, which gave up 2.1%, to 2451.

University of Michigan consumer-sentiment reading jumped to its highest level in three years. PPI and CPI were confusing, and Housing data was mixed at best. Oh, and Ben Bernanke said we need to get our collective acts together.

Its about that time . . .    

INVESTING & TRADING

Getting Picky on Tech: Is Sector a Bargain or a Trap? The tech sector remains plagued by tepid corporate spending. Goldman Sachs and Forrester Research, among others, have issued surveys recently showing that CIOs, the corporate gatekeepers of tech purchases, are feeling gloomy about their budgets this year — they will likely reduce spending from 2006 levels. Forrester notes global information-technology spending will grow 5% this year, down from 8% in both 2005 and 2006, making it the lowest growth rate since 2003. (Also, IBM Shares Decline as Hardware Sales Add to Concerns)

Cramer adds: "Tech’s to be sold, not bought, right here. It can be traded. Not owned. Not until the dog days of August." (Video)

And Herb Greenberg weighs in on Tech also too: How Expensing for Options Throws Analysts Off Course (WSJ)

Margin Debt Up 22%; While that’s pretty big, its still below the 2000 peak — but not by much;

The Return of the Day Trader:  Although day trading activity doesn’t resemble the frenzy of the late 1990s, it is heating up again as rising stock prices renew interest (L.A. Times)

•  Who Is Hurt By Oil’s Fall?
(WSJ) Oil companies that have generated the most enthusiasm during the past
two years, such as those based in the Canadian oil-sands region, like
Suncor Energy Inc. and Western Oil Sands, could be at risk.

Is Yahoo! an acquisition target? (Video)

Defense Reloads (WSJ): Defense contractors have enjoyed surging profits in recent years as the government spent heavily to fight wars in Iraq and Afghanistan and combat terrorism in other parts of the world. Recently, some investors have worried that ballooning federal deficits could bring the flush times to an end. The latest Pentagon plans suggest that the long-expected spending plateau is still another year away.

Market Performance relative to "Earnings Season" over the past 17 quarters. Its quite surprising how much this matters

• Earlier this week, we recommended two drug stocks as part of a defensive investment in an underloved sector ( Email me for the report). This week in Barron’s, Mike Santoli tips the sector, while Motley Fool picks Pfizer as The Best Drug Stock for 2007      

• Hussman:  Overvalued, overbought, and overbullish

• Companies are rushing to pay top dollar to put their names on new stadiums and arenas. Three deals in the New York area alone have been announced in the past few months with the sponsorship dollars totaling nearly $1 billion. And potentially the biggest deal, naming rights for the new shared home of New York’s Giants and Jets football teams, is yet to come: A stadium naming bubble?

Three International Stock Picks

•  Chet Currier says Strange Things Happen in the Era of Small Returns

• A Financial Times twofer

The unease bubbling in today’s brave new financial world: "I don’t think there has ever been a time in history when such a large proportion of the riskiest credit assets have been owned by such financially weak institutions . . . with very limited capacity to withstand adverse credit events and market downturns."

Should Atlas still shrug? The threat that lurks behind the growth of complex derivative and debt deals.
   


ECONOMY

The Wall of worry continues to build:

The Sordid Truth About Inflation — The Bank of England raised rates to 5.25% — inflation in the UK is admitted as rising, yet inflation in the US is
declining. This is simply false: "It’s comparing apples to oranges. The UK doesn’t engage in the plethora of ‘hedonic’ adjustments that pervert US CPI, and the UK uses real home prices plus mortgage rates to determine housing inflation.” In other words, inflation is rising in both locales, only its reported differently.

The Euro displaces the Dollar in bond markets

Are Economic Gains Just Hot Air? The economy has benefited from warm weather. Energy prices have tumbled on reduced demand, ground-breaking on new homes increased in November and December. Fewer construction workers are losing their jobs.  While some of the boost from the weather is real, much of it is economic activity that’s just been borrowed from the spring months: The Economy is stronger, but is it just the weather? and 

•  Signs of Economic Resilience Seen and Q1 and 2007 Growth

• I have no idea why this got so popular — its just a cool little graphic, but it got picked up by everyone from DIgg to Reddit to who knows what. Countries GDP as US States

What Boosted Consumption on a Temporary Basis in Q4

• The NYT’s David Leonhardt on  What $1.2 Trillion Can Buy

Workers’ Ire Mounts, Share of GDP Shrinks During a Profit Boom; Also, Upper Class: Why the Rich Are Heading Back to School WSJ (free)

•  Invented Silicon Valley Employment "Statistics"

 



HOUSING

Housing remains the Achilles heel of the economy. The data and news flow is mixed to poor: 

Weak Forecasts Mount In Housing Industry; see also: Pulte Homes pre-announces, takes a huge charge for 2006 Q4

• The high end of the market wasn’t immune, as evidenced by the
lackluster sales of the homes highlighted in the Weekend Journal’s "House of the Week."
GIven the free advertising, you would have thought that of the 46
houses featured between October 2005 and September 2006, more than 18
would have sold (14 closed, 4 in contract).  Most moved at steep
discounts — an average of 16% below the asking price published in the WSJ; (free Real Estate Journal)

• Recent News About Housing. Score: 3 Good Ones Versus 19 Bad Ones

Foreclosure rates up big in December; See also: For foreclosures, Nevada No. 2 (after Colorado)

• Which naturally leads us to: Homeowners With New Exotic Loans Aren’t Always Aware Of the Risk Involved: Mortgage-Trapped

Condo prices reveal housing trends:  Look at the same building six or eight months after the first sales were made — the prices then will be a pretty good indicator of what’s going on. The reason: It’s an apples-to-apples comparison. With condos, there’s, "no adding floor space or big improvements — if you see a price change, it’s usually pure appreciation – or depreciation. Condo prices dropped more steeply than single family homes — 2.1% with 46% of markets showed declines — much worse that single-family house stats. See also Buyers Scarce, Many Condos Are for Rent

Sales of New and Existing Homes Will Continue Their Slide in 2007

Fixed-Mortgage Rates Expected Rise to 6.5%


FEDERAL RESERVE

Lots of Fed speak this week, and commentary also:

• Fed Chair Ben Bernanke kicked up storm this week:

Bernanke Raises Prospect of ‘Debt Spiral’ (Greg Ip, WSJ)
Fed Chief Warns That Entitlement Growth Could Harm Economy  (NYT)
Fed chief says U.S. on crash course
Did Someone Say Personal Savings Accounts? (Kudlow)   
Aging Boomers Are the "Calm Before The Storm"

"The risk that core inflation surges again, or does not subside as
desired, clearly remains the predominant macroeconomic policy risk"
Fed’s Lacker: Inflation is top threat. See also Fed Officials Say Inflation Is Key Risk as Economy Gathers Pace   

• FOMC member battle (Video):

Lacker of Fed Says Inflation Still `Predominant’ Economic Risk

Hoenig of Fed Says `Inflation Will Continue to Recede’ in 2007

Yen Drops to Lowest in Four Years Versus Dollar on BOJ Outlook



Sentiment/Psychology

The value of doing nothing: One of the most profound lessons is that you don’t always have
to be doing something in your portfolio in order to make money. Indeed,
constant fine-tuning is done more for psychological reasons
than rational investment purposes

BORROWING LARGE — Just call them the "leveraged elite":  The rich, in short, have joined the great American borrowing binge. Just as the rich control a disproportionate share of national wealth, they also account for a disproportionate share of debt. The richest 1% now hold 7% of the nation’s debt, with a total of $650 billion in borrowings, up from 5% in 1998.  Debt for this group grew faster than for any other group in the Fed survey. Total debt held by the top 1% increased 150% between 1998 and 2004, compared with growth of about 100% for those in the 50th-to-90th percentile wealth range.

U.S. Economy: Confidence Rises to a Three-Year High

Are you suffering from affluenza?:  "affluenza" – a depressive middle-class sickness brought on by social and material envy;  "Nearly all of us want bigger and better," he says. "Houses, breast implants, penis extensions, televisions, cars. We define our lives through earnings, possessions, appearances, celebrity, and it’s making us more miserable than ever before. The bad news is that a quarter of British people have been mentally ill in the last 12 months and another quarter have been on the verge. The good news is that it doesn’t have to be that way." It leads to a consumptive lifestyle of Earn more, spend more, want more  (I’m guilty of this, especially with cars and timepieces);


Energy/Commodities/War/Politics

High Prices Prod Developed World To Curb Oil Use: "Fresh data from the International Energy Agency show oil consumption in the 30 member countries of the Organization for Economic Cooperation and Development fell 0.6% in 2006. Though the decline appears small, it marks the first annual drop in more than 20 years among the OECD countries, which drain close to 60% of the 84.4 million barrels of oil used globally each day. Industrialized nations’ demand tiptoed into negative territory in 2002, but the dip was so slight that it registered as flat."  (WSJ)

• Thomas Friedman is calling is for a Green "New Deal"    

• Eagles of IEA Says: Oil Supply ‘Tightening’ Even as Demand Falls (Video)

• Jim Rogers Likes Agricultural Commodities, Cotton, Sugar (Video)

• The 3 Keys to the State of the Union Speech: Energy, Immigration and Iran   

Mistakes Were Made?’ Euphemisms Were Employed Politicians are notorious for saying
one thing when they mean something else, for couching outcomes
in the best possible light to deflect attention from their own
failures. Some have perfected dissemblance to such a fine art that
the average person may need a political dictionary to understand
what our elected representatives and other public figures are
saying.  (Caroline Baum,
Bloomberg)

Why the Pentagon’s toughest Internet crime fighter likes hanging out with blackhat hackers (Wired)

Fewer Yuan in Wallets Is China’s Next Headache


Technology & Science

• How to opt out of just about everything:  Don’t Call. Don’t Write. Let Me Be; see also Five ways to clean up your snail mail

How Yahoo Blew It: "Instead of buying Google for $5B, Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel’s decision to opt for this plan B was a fateful one. It was a smart play — but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It’s these ads that are the source of Google’s riches and the basis for its expanding power." Ouch.

See also Yahoo! Sharpens Research Edge    

• (lets hope this is true): Cheap, safe drug kills most cancers

• Damned with faint praise: Walt Mossberg sez Vista, the Windows XP successor, doesn’t break new ground on ease of use, but it’s the best Windows yet: Worthy, Largely Unexciting;   The NYT has a good slide show on the new MS Office

Can red wine help you live forever?

• Doug Kass asks some valid questions about the iPhone; I agree with his comments about speculative excesses, don’t overlook the fact that in addition to expanding into phones, they also created a new Ultra Luxe
category of iPods
: the touchscreen iPod. By the end of this year, we
can expect Apple to have a non PC line of products will span nearly
every price point from $50 to $600
. see also: iPhone Fans and Foes Clash OnlineHow Apple kept its iPhone secrets   
and

• It ain’t 1999: Tech Start-Ups Have Money to Burn, But Choose
to Live Thriftly
;   
 

• Hacking TiVo: 23 Tips to Turbocharge Your DVR

How Thinking Can Change the Brain: Neuroscientists explain that mental experiences reflect chemical and electrical changes in the brain. When electrical impulses zip through our visual cortex, for instance, we see; when neurochemicals course through the limbic system we feel. But the Dalai Lama wondered if it might work the other way around? That is, in addition to the brain giving rise to thoughts and hopes and beliefs and emotions that add up to this thing we call the mind, maybe the mind also acts back on the brain to cause physical changes in the very matter that created it. If so, then pure thought would change the brain’s activity, its circuits or even its structure.

15 surprises ahead in 2007

Are London-Style Traffic Charges The Answer for U.S. Traffic Congestion?

Digital Music Up 80% but Shy of Lost Revenue



Music Books Movies TV Fun!

• The Dave Brubeck Quartet: Terrific Jazz to relax to after a hectic week like this. Check out a few of the videos and songs here

Idiocracy is now out on DVD; the film was barely released in theaters by 20th Century Fox, and conspiracy theories abound (one thesis: the hilarious sendup of Fox News in the movie). "Like "Borat’s" dark twin, "Idiocracy" indicts American culture with a combination of scathing humor and barely concealed rage, as Judge projects what the country will look like 500 years from now."  The bottom line:  "the film is just too savage in its brutal skewering of modern society for mass consumption."

• Two new books that look interesting this week:

In Spite of the Gods: The Strange Rise of Modern India: "All eyes are on China as it races to become the world’s next great power. Smart bettors would be wise to put some money on India to get there first." (reviewed here)

The Utility of Force: The Art of War in the Modern World. It looks at why the strongest armies may lose the newest wars. "Modern armies and their civilian masters are ill suited to win these new-style conflicts, largely because they fail to recognize that the old conceptual model of all-out industrial war between nation states has evolved into political struggles in which combatants do not wear uniforms, mingle with the people and battle as much for hearts and minds as for outright victory on the battlefield. (reviewed here)

• Movie Star Memoribilia (Video)

• Hmmm, Meth Coffee

100 impressions in four minutes

• Let it snow — we actually got a little of the white stuff, but nothing like these poor folk — and  Whooops! Look Out!  (Who are these idiots that jump out of a car to avoid a 15mph collision?)

Ducati, BMW show off new Bikes (Video)

20 short animations you need to see before you die; Not right before you die, as a pre-mortem event — but rather, sometime — years even — in advance of the actual occurence . . .

Old man Winter has finally arrived — its cold and blustery in the NorthEast, and we even got some Snow yesterday (Take some photos to show your grandkids in case they ever ask what Snow is). Stay Warm!

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Discussions found on the web:
  1. rebound commented on Jan 22

    Barry,

    Thank you for the linkfest Wonderful as always.

    Wow. Those, PPI numbers, when annualized, are freakish. I wonder what the Fed will be forced to do? What planet is Hoenig living on? Inflation will continue to recede?

    I think it will not be easy, and there will not be easing. This will not help phase two of the real estate correction. This isn’t the Goldilocks economy. Perhaps it’s going to turn out to be the Little Red Riding Hood economy:

    “A woodcutter, however, comes to the rescue and cuts the wolf open. Little Red Riding Hood and her grandmother emerge unharmed. They fill the wolf’s body with heavy stones, which kills him” … says Wikipedia’s summary. Memories from my youth did not recall the vivid details, as Disney must have edited them out. Perhaps the blood and gore version is closer to the truth.

    So with Ben delivering stark warnings to Congress last week, maybe he is just warming up, trying on new clothes for when he has to really change costumes and raise rates when we are in pain. He may have to morph into Volker before all is said and done.

    -Rebound

  2. rebound commented on Jan 22

    Next topic…

    Are London-Style Traffic Charges The Answer for U.S. Traffic Congestion?

    No. Nothing London-Style is the answer for the United States. That’s why we had the Declaration of Independence. Wait. I’m sorry. My redneck evil twin just grabbed a hold of the keyboard. I think I have wrestled it back, but I’m not sure it won’t happen again.

    In America, we might get started off on the right foot by ceasing all activity related to the selling of our toll roads to foreign governments. This ranks way up there in terms of the THE WORST IDEAS EVER. First we build roads through Imminent Domain and tax receipts, and then Legislators auction off these public assets for short term budgetary pain reduction. Brilliant.

    When looking at the Big Picture, I would argue this is Darwin Award material.

    Warren Buffet has spoken recently on the matter [PBS, Charlie Rose], though in much broader macro-economic terms. This particular manifestation, dare I say metastasization, is a very concrete [sorry] and illustrative example of what he has been warning about

    After we turn things around and take this baby step forward, perhaps then we can entertain other options, including those offered up by our brothers across the pond.

    -Rebound

  3. blam commented on Jan 22

    Scatter the Sheep – Round 25 – They’re Baaack!

    Here comes Wall Street after Social Security – again – repleat with a disengenuos testimony on entitlements from the next republican soldier ready to fall on his sword. The Fed chairman is in good company with Colin Powell and Allen Greenspan.

    Bush has delivered to every industry group – big oil, the drug monopoly, insurance, defense, banking, Wallmart and the import retailers, the offshore platform manufacturers, etc.

    After consequitive losses on Social Security privatization, their tenacity is incredible. Hank Paulson is the street’s hired gun, brought in to get the money. After a draconian warning from bernanke, the offensive moves into overdrive. Hank will now be looking into new alternatives.

    Dick Cheney and Bush have zero respect for the collective intelligence of the US citizens. Frankly, they have good reason, we actually sort-of re-elected them – how dumb was that.

    Once again it’s time to scatter the sheep and pick them off one-by-one. Social Security and retirement benefits are not safe. The insiders rally in the stock market is about paving the way for Hank to get his hands on the Social Security money.

    By the time we wake up, the average American will be peniless, up to his neck in debt, with no social security or medicare safety net.

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