Damn the torpedoes, full speed ahead:
Barron’s Trader column noted that "For anyone but short sellers, there was much to be thankful for." The Dow made it 6 sessions in a row, closing up 1.9% at 12,343 — another weekly record. The Industrials are up 15% this year. S&P500 broke thru 1400, up 12%
for the year. But the big winner this week were the small caps as the Russell 2000 "pushed to an all-time high midweek before finishing up 19, or 2.5%, at 788, putting its year-to-date gain at 17%."
We have a turkey shortened week coming up — (mis)Leading Indicators on Monday, Same Store Sales on Tuesday, Mortgage Apps and Consumer Sentiment on Wednesday. (Markets are closed Thursday) Black Friday may very well set the tone for this holiday season: Look for lots of discounting, increased credit card usage, and more online shopping. (Lots of Black Friday discounts advertised here)
But that is next week. Today, coming in from the NorthEast, we have increasing barometric pressure and a fairly high concentration of cumulus linkage activity!
INVESTING
• Rumors of hedge fund blow ups abound. On Tuesday, an apparent $4 Billion futures short trade bet against the S&P had all the hallmarks of a forced liquidation: Today’s explosion: $4B eMini covering (see also: Citadel Tells WSJ "It Ain’t Us")
• See this towel? It’s 100% cotton. And it just got thrown in: Burying the Bear
• The State of the Internet: The World’s Information is Getting Organized + Monetized
• Barron’s on Why Technical Analysis Matters (parts one and two)
• How Milton Friedman Changed Economics, Policy and Markets; Here is a collection of his most Influential Works; Econ Library has a good Interview with him;
• Joseph Schumpeter’s "History of Economic Analysis" includes an analysis of the 1930’s — which says Friedman’s monetary supply argument ignores the collapse in demand.
• Mark Hulbert asks "Has the the tide finally shifted away from value to growth?" Don’t bet on it: Growth’s alleged comeback
• The Billionaire Next Door: Liz Claman has a fascinating and extensive hour-long interview with Warren Buffett airing November 20th at 8 PM and 11 PM
• Fortune asks: Who is the greatest money manager of our time?
• Jim Jubak names 10 Global Blue Chips for 2007
• The Ludwig von Mises Institute explains: Why Wal-Mart Matters
• Junk Bonds May Yet Earn Their Title
• The anti-short crowd has been defacing Wikipedia
• Rubin, Volcker Say Investors May Avoid Buying Dollars
• What is George Soros’ fund buying and selling?
• How many stock promotors are out there touting junk? Thousands
• In case you ever doubted what Goldman Sachs really is: a giant hedge fund
• Doug Kass Rates His Surprise Forecasts for 2006
• Banks Shouldn’t Name Ball Fields. You Can Look It Up
ECONOMY
The Wall of worry continues to build:
• The U.S. Treasury Yield Curve hit its lowest level since December 2000
• Very cool tool: Reckoning the Odds of Recession
• Forget 1995’s soft landing: Floyd Norris says "Let’s hope it is 1966 again"
• Carolyn Baum asks Consumer Spending Is Holding Up? You Do the Math
• Harvard prof Greg Mankiw (and former CEA Chair) asks, What happened to the surplus?
• How rising prices = lower inflation: PPI Hedonic Adjustments
• Wal-Mart’s early holiday blitz pressures rivals
• It’s Raining Jobs! (um, no its not)
• Everything I think I know about the world, in a single graph
• Do the upward revisions in job creation data improve the outlook for U.S. consumption? (pdf)
• The Economy remains highly Bifurcated• A Bloomberg video twofer:– Fisher of Fed Says Replacing Dollar as Reserve `Very Difficult’ (video)
– De Rato of IMF Sees `Positive’ Outlook for Global Economy (audio)
HOUSING• Housing Starts for October were awful. (Best headline: WSJ’s David Gaffen: Housing Stops) Bloomberg noted they Tumbled to Six-Year Low; Jim Picerno looks at the bottom pickers in the sector; To all those who keep asaying the worst is behind us, I say Stabilize THIS!
• In some areas, supply is just swamping sales: See this chart (via Doug Kass) of Housing Inventory and Sales, Palm Beach County
• To make some sales, sellers are getting creative: Slow-market savings ‘buy-downs’
• UK banking regulators ask: "What would happen if there were a 40% crash in house prices?"
That theoretical scenario is the basis of a UK modelling/stress-testing exercise.• Condo buyers take developers to court over promises
• No Slowdown in Luxury Apartment Sales
• Foreclosure forum is a good resource for learning about Foreclosure purchases
FEDERAL RESERVE
• Minutes of the Federal Open Market Committee, October 24-25, 2006
• Monetary Aggregates and Monetary Policy at the Federal Reserve (Bernanke)
• U.S. Labor Input in Coming Years (Poole)
• Federal Reserve quote of the day:
"The Father of Monetarism (and proponent of free markets), Milton Friedman, died yesterday. Our friend Jimmy says Bernanke’s recent comments that trivialize money and monetary aggregates were probably too much for Milton to take." -Bill King
Sentiment/Psychology
• Volatility Index drop may not be an ominous sign
• Tracking the HBS herd as a stock market indicator
Energy
• Crude oil prices fall to 17-month low; Phil Flynn of Alaron Trading observes a regular energy sell offs close to futures expiration.
• An Impending Ethanol Cost Squeeze
• Renewable Fuels May Provide 25% of U.S. Energy by 2025
• California Plots Greenhouse-Gas Strategy
War/Media/Politics
• Two weeks before the Election, Barron’s predicted a GOP sweep. Here’s how they got it so wrong: Autopsy of a Miscalculation
• Maybe You Did Vote Your Pocketbook
• The WSJ’s Marketbeat blog is now free
• How bad is America’s national Security position? Pretty bad
• Why the Baker commission won’t fix Iraq
• Dan Gross of Slate, and the New York Times calls out the WSJ’s Holman Jenkins for "Wussery"
• New U.S. Congress Will Dismantle AMT, Cut Taxes
• The New Yorker in The Downfall of Donald H. Rumsfeld; And an amusing Craig Ferguson’s take: Rumsfeld Remembrance
• In the Eye of Florida’s Latest Vote Storm
• Tech politics: Making Friends up on Capitol Hill
Technology & Science
• The WSJ has some fun with Videogames Physics (free)
• TiVo rolls out a new menu of high-tech services; Speaking of which: TiVo (my favorite toy) is now free (after rebates at Amazon — the TiVo TCD540080 Series2 80-Hour Digital Video Recorder is $220, and has a $220 rebate with activation. I normally hate doing rebates, but this one was a no brainer.
• Zune vs. iPod: the battle begins
• New Scientist, as part of their 50th anniversary looks at publishes comments by 70 scientists about what the next fifty years may hold.
• The Playstation 3 is actually an Open Source Linux PC
• Hubble Astronomers: Mysterious Dark Energy Has Existed For Most of Time
• Movie Studios Sue to Stop Loading of DVDs onto iPods
• Taiwan’s Hon Hai wins Apple orders for mobile handsets; Also, New Phone Uses Yahoo! Messenger and Linksys (a division of Cisco). And since we are disucssing phones, Still waiting for Skype to pay off for eBay
• Stem cells help dogs with dystrophy; Also, Spiny creature’s genome insight
• WHO WANTS TO BE A COGNITIVE NEUROSCIENTIST MILLIONAIRE?
Music Books Movies TV Fun!• I saw Casino Royale, the new James Bond flick last night, and its a good time. Much grittier, intense and less campy than the more recent versions. Asked if he wants his Martini shaken or stirred right after losing a high-stakes game of poker, Bond replies "Do I look like I give a damn?"
Meanwhile, Entertainment Weekly reviews all 21 James Bond films.
• Eric Clapton and JJ Cale have a new CD out The Road to Escondido. I haven’t heard it yet, but it sure looks promising.
• Best Live Rock Recordings (1969-79)
• I never bought into the Michael Jackson as child molester media spasm (freak, yes, but molester? no) Now we find out that the Mother of Jackson’s accuser is a welfare fraud; He might have been railroaded
• I just got the Skip Barber Racing School book: Going Faster: Mastering the Art of Race Driving. (I’ll have some more on this in coming weeks)
• The 2007 Stock Trader’s Almanac Calendars are out (shameless self promotional link)
• Yummy! Sotheby’s Auctions Rare Cases of 1982 Chateau Mouton Rothschild
• Kiwi!
• A cottege industry has developed around whatever it is that Jim Cramer (Cramer!) is doing at the moment: commenting, anaylzing, and and just plain imitating him; The actor playing Jim in this amusing parody is pretty good.
• Hysterical! Remembering Donald Rumsfeld (just in case you missed it above)
That’s all from this suburban corner of Long Island, where the leaves have finally fallen, the Belgian impatiens are still blooming, and Thanksgiving is
but a few days away. Travel safe! (no linkfest next weekend)
In my neck of the neighborhoods of Orange County CA, re: housing…
I mentioned previously there was a condo development with pretty brisk selling.
In other places, Pulte was offering 99k cash incentive for closing on escrow before the end of the year. These on 900k homes.
In Carlsbad, they are giving you a brand spanking new Mercedes on close of escrow.
All the model homes had very low foot traffic.
This Big Picture blog used to be a fairly well-balanced compendium of economic information, but I’m afraid lately it’s become a Kerry-esque miasma, “Who wants to be the last (wo)man to place a bet on the W5000?” in presenting obviously skewed official economic data, with the usual tepid quotidian, Maybe this Fed data isn’t as bullish as they suggest?
Gosh, do ya’ think!?
When you can smell the WS grifters sweating, as they were last week, when even they are starting to wonder how much farther they can pump this hair-cutting, when
Just … got … to … lock … in … one … more … union retirement … fund … hedge … play, when even Bill Gates has rolled $200M out of his options position in two weeks, hey, come on, toots, say it like it is.
We are upside down.
The flaw in economic theory behind running T printing presses 24×7 and hedging a bonfire, is the same flaw in supercharging a nitro-fueled funny car on a July day.
There is no line between red line, and hot scrap metal.
The core of the housing bust is the Home Builder disaster. Clear signs of falling demand in spring and they continued to produce like it was 2005. How many of these builders go under is unclear though many smaller ones have already or quit the building business all together.
That will make matters worse and force building to fall under demand for several months while a surge of layoffs come from construction, contracters and finally business tied to Real Estate. We are seeing the trickling come from construction this fall, but H1 2007, that will be a flood. How this impacts the economy as a whole is the great question, but it won’t be good, whether it will be real bad depends how the financial structure holds up under the fall. The dot.com bust it held up but things are not as well put together and existing pressures are bigger. A little recession like 2001 may pop the overly mass credit bubble that began in 1996 globally……….or it may be the next econ bubble or the one after. Though things are gonna get interesting just from the economic viewpoint!! The pressures want it to pop, the current management order of the international system doesn’t want it to, contrasting competing forces.
Exciting times..
Logic suggests the stock rally should consolidate yet the market is predicting a major move higher. Demand for equities is winning over supply. LBO’s, M&A, and buy backs are narrowing the field, and the massive pool of private equity is just getting started. There is ample liquidity while hedge funds are perilously positioned for this “surprise” move higher — market neutral and short. The economy, meanwhile, is on a course similar to early 1995. The equity returns the following years are fondly remembered. Speculative real estate money is coming back to stocks at the same time.
The Fed should be done, and the market knows it. I’d suggest any pullbacks will prove to be buying opportunities. I expect large cap growth stocks will be huge winners. The big macro surprise will be a tech led, spending cap-ex “boomlet”, led by the internet “upgrade” IPv6, Wimax, , true mobile broadband, Vista, IP Video, and a many other ideas currently in beta … (late 2007-2009). This should be another huge boost to productivity.
Take a look at the following charts. These “pictures” are worth many words…
http://photos1.blogger.com/blogger2/945/1439/1600/1114-%24ndx.jpg
http://photos1.blogger.com/blogger2/945/1439/1600/1114-%24spx.jpg
http://photos1.blogger.com/blogger2/945/1439/1600/1114-%24compq.jpg
a few thoughts…
I re-read “The Dollar Crisis” this weekend and I’m back in a bearish mood. Nothing like a great doomsday book to set you straight.
Too many dollars with nowhere to go could push up the stock market to new ridiculous levels I guess. Maybe that’s what is going on with our surprise non-stop rally in the face of a slowing economy. Who knows… I guess Dow 6,000 or 1,000 or whatever is waiting for us will have to wait for another day.
I was pretty shocked with the inflation data this week, and I think we should all consider the possibility that we’re heading into deflation…
If home equity extraction has slowed in-line with the housing market there’s no reason not to expect deflation. AND if a huge credit bubble along with oil doubling in price over 3 years can barely inflate prices, we’ve been in the midst of some major deflationary forces for some time.
One more thing…
Anyone else find the bullish dollar article in Barron’s this weekend a little creepy? Let me say this… the dollar had better rally, or we are in some big trouble. Right now it is testing the lower levels of the current trend channel, and in my opinion has already broken through. Next stop is 80, and if we punch through that level… yikes.
Don’t they contradict? A dollar crisis and a deflationary environment?
A falling dollar adds inflationary pressure, but will not prevent deflation. In fact deflationary forces were powerful enough to mute a 30% decline in the dollar from 2002 until now.
Utilization of overseas manufacturing is probably responsible for a large part of those deflationary forces.
The current credit expansion has added many homebuilder related jobs, and has created an explosion of service industry jobs. The service industry jobs are a result of homeowners tapping equity from their homes and spending the money on consumer related goods.
As the homebuilder sector slows and home equity withdrawal ends, those employed by the homebuilder and service industry will have limited new employment opportunities. At this point the full impact of moving our manufacturing base overseas will be felt.
As unemployment expands, wage growth in the US will have to decline. This will really make our recent credit expansion seem unwise. Loan repayment will become increasingly difficult as wages fall and credit contraction will be well underway.
The falling dollar will probably help us through some of those problems, in which case you will have dollar weakness in a large deflationary environment.