That was an interesting, holiday-shortened week.
Early in the week data signaled a slowing economy, yet NFP on Friday was much better than consensus (Can you remember the last time NFP came out when the markets were closed?) Unemployment claims ticked up, while ISM fell. Barron’s Trader column notes that "analysts’ estimates for earnings growth continued to wane. Now Wall Street analysts are looking for 3.3% growth in the first quarter and 6.3% for the full year, down from 3.8% and 6.7% just a week earlier, according to Thomson Financial."
On the week, the Dow tacked on 200 points (1.7%), and climbed into the green (0.8%) YTD. The S&P 500 added almost 23 to finish up 1.6% — tha’s nearly all of this year’s gains. Same for the Nasdaq — it gained nearly 50 points — up 2.1% last week, and is now up 2.3% for ’07. Trannies gained 2.2% as Oil prices dropped, and the Utes set new record highs.
We got it all covered in the holiday weekend linkfest!
INVESTING & TRADING
• Cheapest Stocks in Two Decades Signal Bull Market: BlackRock Inc., Fisher Investments Inc. and Schroders Plc,
which manage about $1.4 trillion, say stocks are inexpensive
relative to bonds. Profit of companies in the Standard & Poor’s
500 Index, the benchmark for American equity, is growing faster
than shares, and represents a yield of 6.53 percent compared
with 4.65 percent for 10-year U.S. Treasury notes. The gap — the widest since 1986, according to data
compiled by Bloomberg — is encouraging investors because
earnings forecasts indicate the U.S. will keep growing, while
bond yields show confidence that inflation will stay in check. (Bloomberg)
• Well, not exactly: Cheapest Stocks in Two Decades based on Flawed Fed Model: There are a few problems with this sort of analysis: The biggest problem
with the so-called Fed model is that its built on two assumptions: 1)
That profits will stay high, despite being a cyclical peak and
decellerating; and 2) that interest rates will stay low. If either of
these variables move off their present readings by a significant
amount, cheap stocks suddenly look a whole lot less cheap.
• R.I.P., Double-Digit Earnings Growth: Here’s a funeral oration that may bring a small tear to the eye of Wall
Street pro and individual investor alike. "Today we lay to rest our
friend Mr. Double Digit. He was a steadfast ally of investors for a
number of years, and perhaps it can be said that we took him for
granted as he continued his winning ways. True, he enjoyed robust
health up to the very end of his life. But alas, today he goes to his
final rest after 18 consecutive quarters of reliably exceeding that
magical 10% figure we seem to fixate on. He’ll always hold two places
in our hearts." (Businessweek) Also Stovall of S&P Sees
Slower Corporate Earnings Growth (Businessweek video)
• This Manager’s Folksy Manner Belies His Record — and Worries: The $10.6 billion Loomis Sayles Bond Fund, which Mr. Fuss has managed
since its inception in 1991, has returned an average of 11% a year
since then and is ranked as the No. 1 fund in its corporate-debt
category over the past decade. (free Wall Street Journal)
• A Hulbert two-fer: Inflation illusion may provide opportunities: Where should investors turn if they are worried about ever-rising inflation? Hulbert says with housing out and gold dubious, stocks look best; Also, Don’t read too much into stock market’s first-quarter results (MarketWatch)
• The Opportunity in Big Market Swings: The main uncertainty is what shape the current secular period will ultimately take. The 1930s were a period of calming down from a crash to normalcy. The 1970s were a more or less flat period with regular ups and downs. And so far, the higher peaks set by many indexes above their respective 2000 high-water marks could be part of something completely different. It could signal a steep decline to come or just a mild pullback lasting many months if not years. (Barron’s)
• The Money Binge: The change also reflects the deluge of money that has washed over
private equity and hedge funds in recent years. The
multitrillion-dollar infusion is remaking the deal economy and
corporate America, creating a buyout boom not seen since the 1980s,
when Michael R. Milken helped takeover artists finance deal after deal
with seemingly unlimited cash. But where is this money storm coming from? How long will it last? (New York Times Dealbook) You can see the entire Dealbook Spring Section here
• Which generates a better return, Stocks or Bonds? Consider two hypothetical individuals who started investing on the same
day: Nov. 30, 1999. The first put everything in the stock market, while
the second put everything into 90-day Treasury bills.
Guess what: Both investors’ portfolios are today worth almost precisely
the same amount. Since then, each has produced a 3.1% annualized return. (MarketWatch)
• Market Trends: A Flat First Quarter: Barron’s Mike Santoli notes that even though the market may have reached a low, a long-term rally seems unlikely. (MarketWatch video)
• The New York Post’s John Crudele asks the U.S. Treasury Secretary "HANK, WHY ARE YOU IGNORING MY FOIA REQUESTS?" On July 25, 2006, my lawyer drafted a request under Section 552 of the Federal Code called the Freedom of Information Act asking for documents generated by the President’s Working Group on Financial Markets.
Around here we call it the Plunge Protection Team. That request was ignored, although we did get a phone call from someone many months back saying they were working on it . . .
• Buffett Might Just Pick Marbury Before LeBron: Turns out it wasn’t the shoes . . . (Bloomberg)
• These Days, Detective Skills Are Key to Gauging a Stock: To be sure, when it comes to earnings, the bottom line is important,
but it is the quality of that number that really counts. So, rather
than talk to management, which can be prone to "tell you what they want
you to hear," Mr. Germack and his analysts stick to the facts — or, as
the case may be, numbers. With stricter disclosure rules in part
because of the hotly contested Sarbanes-Oxley corporate-accountability
law, "Our feeling is…[a company’s] financial reports should speak for
themselves," he says. (The Wall Street Journal)
• Interview With Legg Mason’s Michael Mauboussin The former Credit Suisse strategist and author of More Than You Know: Finding Financial Wisdom in Unconventional Places in an extensive Q&A.
• What the rich and famous are buying (CNN Money video)
• Think you know charts? Try your hand at Stock or Not — (I started out hot, but slipped to 68%).
Economic data came in mixed, with the strongest news on Friday NFP:
• Achuthan of Economic Cycle Says Jobs Data Shows Turn in Economy (Bloomberg Video); A less sanguine report on NFP came from the Liscio Report.
• Corporate Investment Has a Bad Case of the Blues: Capital spending — specifically investment
in equipment and software — has declined in two of the last
three quarters and is expected to show another drop when first-
quarter gross domestic product is reported at the end of this
month. . . The lull in capital investment is happening at a time of
near-record corporate profits, atypical behavior that has not
gone unnoticed at the Federal Reserve. (Bloomberg) See also The Real Economic Threat: Weak Capital Spending, and Where is the CapEx?
• Poole of Fed Has `High Hurdle’ for Interest-Rate Reductions (Bloomberg video)
• American Home Mortgage cuts profit forecast: This warning suggests subprime woes are spreading to other home loans. AMH Investment Corp. cut its Q1 and 2007 by more than 25% Friday after being hit by problems in the secondary market for home loans and mortgage-backed securities. The company also said that it’s stopped offering some types of so-called Alt-A mortgages because of the high cost of delinquencies on those loans.
The warning suggests that problems in the subprime-mortgage business have begun spreading to other parts of the home-loan industry.(Marketwatch)
• In case you missed this on YouTube, The Real Estate Roller Coaster
• Robert J. Shiller on
"Long-Term Perspectives on the Current Boom in Home Prices": The news is not good for homeowners. According to our data, homeowners face substantial risk of much lower prices that could stay low for a long time after. Luckily, though, derivatives products, notably a futures market, are being developed that they will soon be able to use to insure against this risk. (The Economists’ Voice)
• Denouement of Subprime Story Yet to Be Written: One difficulty in calculating the scale of the subprime-mortgage mess
is that it started with a series of miscalculations. Lenders had
created many new types of mortgages to meet rising demand, including
loans requiring little or no documentation of borrowers’ incomes and
assets and some requiring only a small down payment or none at all.
Standard credit ratings, known as FICO scores, weren’t always a good
indicator of how these loans would perform. (The Wall Street Journal)
• Tuesday’s rally was attributed by some pundits to the Pending Home Sales Index. How reliable is that data?
• When Subprime lender New Century filed for bankruptcy, it also included a list of their top 15 Creditors (by Size). Top of the heap? Goldman Sachs
• Eager Investors Lift Margin Debt To New Heights: After rising 24.2% last year, margin debt, which is accumulated
by investors who bet on stocks with borrowed funds, got off to a strong start in
2007. In January, it reached $285.61 billion as the Dow Jones Industrial Average
gained 1.3%, passing the previous highest level of $278.53 billion, according to
figures from the New York Stock Exchange. That record was set in March 2000, the
same month that saw the Nasdaq Composite Index reach its highest closing on
record (free Wall Street Journal)
• China’s Spying Overwhelms U.S. Counterintelligence: For every person caught and accused of passing U.S. military and trade secrets to China, they say, scores of others go undetected. Taking advantage of an outmanned counterintelligence effort drained and distracted by the wars in Iraq and against al-Qaeda, current and former officials say, China has systematically managed to gain sensitive information on U.S. nuclear bombs and ship and missile designs. (Bloomberg)
• Light Warfare: Forbes looks at the latest in laser, directed energy, and light based military weaponry. Wicked cool stuff . . . (Forbes)
• The great corn gold rush (Fortune)
• Google and Microsoft are bidding billions for the online ad
company. Will one of its competitors be the next on the auction block? The DoubleClick Effect (Forbes)
• Money Talks, but What Does It Mean? The first peek at Republican presidential candidates’ early
fund-raising totals confirms that the party has a reshuffled — and
unsettled — race for the 2008 presidential nomination (free WSJ)
TECHNOLOGY & SCIENCE
• Most of YouTube’s favorite clips aren’t copyrighted material. Thats Good for Google: Vidmeter, which tracks the online video business, determined that the
clips that were removed for copyright violations — most of them
copyrighted by big media companies — comprise just 9 percent of all
videos on the site. Even more surprising, the videos that have been
removed make up just 6 percent of the total views
• Building The Infinite Internet: A special report (Forbes)
• Speaking of which: Don’t Believe the Hype: The 21 Biggest Technology Flops
• Startup hitches a ride with Google (Fortune)
• Human Brain Map (BBC)
• Architect claims to solve pyramid secret (Washington Post)
MUSIC BOOKS MOVIES TV FUN!
• Everyone knows this Sunday marks the retun of the Sopranos — instead reading yet another review, consider 7 Minute Sopranos instead — I’m actually much more excited about Entourage (Hug it out, b*%#~!)
• Rather than recommend a specific book this week, I wanted to point to this Economist article on the future of books: Now that books are being digitised, how will people read?
• Jazz great Johnny Hartman
remained under-appreciated his whole career — until Clint Eastwood’s soundtrack for The
Bridges of Madison County posthumously resurrected an appreciation for his great voice.
• Stax Records, the Soul and R&B label with a huge slew of hits in the 1960s and 70s, issues their 50th Anniversary Celebration. There’s a glowing review of their Golden Oldies: Stax Releases A 50th-Anniversary Boxed Set in the free WSJ, and CNET has free streaming audio. Even if you don’t "know" the music, I guarantee you will recognize half of these tunes from cover versions, film soundtracks, and commercials.
• Logical, linguistical, and infographical analysis of the #1 single on the Billboard chart, This Is Why I’m Hot by Mims. "Mims is hot because he’s fly. But it raises the question: Does being hot guarantee one’s being fly? It would appear that fly and hot are interchangable. If you are one, you are both; if you aren’t at least one, you are neither." (via kottke)
• Aston Martin’s majestic new roadster (CNN/Money)
• What Your Time Is Really Worth? The WSJ looks at ultra luxe watches
• Music link of year: Keith Richards: ‘I snorted my father’
Now that Spring is here, we are waiting for it to arrive in full force — we actually got a few flakes of snow yesterday. Enjoy what’s left of your holiday weekend!