Helluva week month quarter, Bernie.
Markets softened a bit this week, following the prior weeks best-week-in-four-years rally. Barron’s Trader column called it "An Orderly Ebb for Stocks," and that sounds just about right: As the second quarter begins, the
stock market is opting for a narrower interpretation: Risk is the
prospect of a debilitating economic slowdown — and the creeping
likelihood that persistent inflation could prevent the central bank
from swooping in to cut interest rates. However, whatever alarm this risk caused just a month ago seems to have
abated. Stocks are now almost 4% above their Q1 lows.
For the week, the Dow slipped a percent; The S&P500, Nasdaq and Russell2000 all gave back 1.1%.
We have lots for you to peruse this week, so loosen up those clicking muscles, stretch your mousing hand, and get busy — Its linkfest time:
INVESTING & TRADING
• Volatile Markets Ruffle Investors But Haven’t Spooked Them Yet: The Dow chart for the past month is a choppy picture. The volatility on
display has jolted professional investors from their tranquility of the
seven preceding months, which saw the Dow Jones Industrial Average rise
19%, but they don’t yet hear the bear growl. (WSJ)• A market correction is coming, this time for real: Market developments in the past few weeks should be seen as a warning.
What has been evident for a number of months is that, in the US, we are
seeing lagging inflation and slower growth. Whether this means that we
are going to have to fend off recessionary tendencies is not yet clear.
However, what is clear to me is that in the next year a material
correction in the markets will occur. (FT)• Gas & Oil: On Monday, I warned that $64 was the line in the sand for Crude, and a move through that would set a high 60s low 70s target.
• The not-inverted yield curve: There is no consensus among economists concerning which particular
maturities should be focused on when determining whether the yield
curve is inverted. One pairing that is widely used, however, is the
difference between the yields on two-year and 10-year Treasuries. (Marketwatch)• The Return of Geopolitical Risk
• In the ABCs of the NYSE, Macy’s Snags the ‘M’: After years of sitting on the shelf, one of the stock market’s vanity plates finally has an owner. But it isn’t who you might think. The New York Stock Exchange said one of its coveted one-letter stock symbols, "M," would be assigned to Federated Department Stores Inc., which plans to change its name to Macy’s Inc. While a symbol change isn’t normally big news, this one is noteworthy because the M letter was long thought to be reserved by Big Board officials for Microsoft Corp., should the software titan ever decide to leave Nasdaq Stock Market Inc. (free WSJ)
• Ken Fischer on Redefining ‘big’ and ‘small’: Small stocks have socked it to their big brethren for seven straight years. Does this mean big’s reign is overdue? No! Size cycles last far longer than folks fathom. But whether big is booming or small is soaring, most folks can’t seem to seize the size swing. Fact is: Stocks you see as big are often small. When it’s time to go big, you’ll likely be stuck small — missing the market move. (Marketwatch)
• A study proves that the bigger his house, the worse the CEO: I wonder howe much Warren Buffet skews this data (Slate)
• Beware of "Investment Porn" Weston Wellington looks out at his new
recruits and warns them of one of the great evils of Wall Street: "investment pornography.” Wellington, a vice president at Dimensional Fund Advisors
Inc., flashes slides of magazine headlines such as "The Next
Microsoft” and "Tech Stocks, Everyone’s Getting Rich.” Investors
who read this stuff and scour stock research are deluding
themselves, he tells the packed conference. (Bloomberg)
ECONOMY
The Wall of worry continues to build:
• Final Q4 GDP: Goldilocks has left the building See also: Q4 ’06 GDP: 2.5%
• Economists Cut Back Forecasts for Growth: As the housing and auto slumps have deepened while business
spending has started to wane, economists are taking another whack at
their GDP forecasts. Earlier this month, the consensus estimate of
economists surveyed by The Wall Street Journal called for GDP to grow
about 2.3% in the first quarter, down from an estimate of 2.5% a month
earlier. see also Productivity Lull Might Signal Growth Is EasingWSJ) (
• Income Gap Is Widening, Data Shows (NYT)
• Pain From Free Trade Spurs Second Thoughts: Some trade critics are bothered by the disappointing performance of Latin America since it slashed tariffs in the 1980s and 1990s while more protectionist China and Southeast Asia sped ahead. Others are struck by the widening gap between economic winners and losers around the globe. The rethinking on trade issues is the most significant since the early 1990s when many in the U.S. worried that Japan would overtake the U.S., a fear that has since abated. (free WSJ)
• 7 retail pricing secrets revealed (Money)
HOUSING• Case Shiller Housing Composite Flips Negative
• ‘Tsunami’ of adjustable-rate mortgage resets coming: More than $2.28 trillion worth of ARMs were originated in 2004, 2005 and 2006, at the peak of the recent housing boom, according to a study released this week by a unit of real estate data company First American. (Marketwatch)
• The Downward Spiral:
An increasing number of analysts are adopting D.R. Horton CEO Donald
Tomnitz’s view on housing in 2007: it’s going to “suck” for the rest of
the year. Data on analyst earnings revisions shows just how polarized
researchers are on homebuilders right now, as revisions have been
uniformly negative in the last four weeks. Today’s results from Lennar
won’t alter this view, as the home builder became the latest to say it
would fail to meet expectations for 2007. (WSJ Marketbeat)• California foreclosure sales accelerate: This dollar volume surpassed the prior record reached in the third
quarter of 1996, and represents a 48 percent increase from December 2006• Doug Kass on The Simple Math of Subprime’s Slide (Street Insight)
• Unwinding the Fraud for Bubbles: Telling the difference between the victims and the victimizers, the predators and the prey, and the fraudulent and the defrauded, is getting a lot harder when you have borrowers not required to make down payments able to lie about their incomes in order to buy a home the seller is overpricing in order to take an illegal kickback. The lender is getting defrauded, but the lender is the one who offered the zero-down stated-income program, delegated the drawing up of the legal documents and the final disbursement of funds to a fee-for-service settlement agent, and didn’t do enough due diligence on the appraisal to see the inflation of the value.
• In Japan, Economic Change Propels Big-City Prices
FEDERAL RESERVE
Lots of Fed speak this week, and commentary also:
• Bernanke Testimony (abbreviated version)
• Fed Has Trouble Getting Across Nuanced Message: The WSJ’s Greg Ip gets the call, and states "Outlook for Economy Looks Bleaker, but Rates Aren’t Likely to Change" (WSJ) If no WSJ sub, see What is the Fed Really Thinking?
• Fed Powerless to Fix Part of Inflation Puzzle: The Federal Reserve has an inflation problem that it is almost powerless to
attack: rising rents. Increasing the Fed’s target for the overnight lending rate, now 5.25 percent,
likely would make the problem worse, not better, because it’s largely the result
of the boom and bust in home prices. Raising rates might push home prices down
even more. (Bloomberg)
• Globalization & Inflation: In a little noticed May 2nd speech at Stanford, Chairman Bernanke acknowledges that Globalization is not reducing inflation, and demand from China and India may indeed be actually contributing to it.
SENTIMENT/PSYCHOLOGY
• Excellent overview: A Sentiment Primer
• In a development that is hardly shocking, it turns out I am Biased
• The Science of Lasting Happiness
WAR/MEDIA/POLITICS/ENERGY
• To be filed under HOLY SCHNIKES! Undercover agents slip bombs past DIA screeners: Only 90% of the bombs managed to slip thru undetected . . .
• How an Open Market Might Save the Planet: Buy every customer a Terrapass, and (like Al Gore) the Big Three could instantly be carbon-neutral. (free WSJ)
• Farmers Head to Fields to Plant Corn, Lots of It: With demand for ethanol pushing corn prices to $4 a bushel or higher, it was not a surprise that farmers intended to plant a lot more corn this season. What was surprising about the Agriculture Department report released yesterday was just how much they intended to plant — a staggering 90.5 million acres, the most since World War II and 15 percent more than last season. (NYT)
• Life is over as we know it: Fresh on the heels of the news that InfoWorld was abandoning its 29-year-old print magazine in favor of a purely online life comes news that LIFE is moving in the same direction. See also ‘LIFE’ Cut Short: Time Inc. Shutters Newspaper Supplement
• As America falters, policymakers must look ahead: "While it would be premature to predict a US recession, there are now
strong grounds for predicting that the US economy will slow down very
significantly in 2007. Whether in retrospect 2007 will prove to have
been a “pause that refreshed” a nearly decade-long expansion like the
growth slowdowns in 1986 and 1995 or whether it will see the end of the
expansion is not yet clear." (FT)
TECHNOLOGY & SCIENCE
• The Wired 40: Google and Apple top the list
• Stealth Inkjet Printer Startup Could Rock Industry:
An Australian entrepreneur betting his company on a nanotech-fueled,
consumer inkjet printer that can print sixty pages a minute for under
$200 has successfully demonstrated the technology. Silverbrook
Research has spent the last ten years developing Memjet, a printer that
uses an array of ink jet nozzles that spans the width of the paper.
Company executives have said they feel that they can ship an 8×10 color
inkjet by the end of 2008 that will cost less than $200 and print 60
pages a minute.• The First Annual YouTube Video Awards. Also, Silicon Valley’s YouTube Envy and Catching Google’s YouTube won’t be easy
• Daniel Gross tells us: The CD Is Dead! Long live the CD!
• Google Maps replaces Post-Katrina imagery with older, pre-hurricaine photos: Some recent imagery update, the satellite photos of the hurricane-devastated city were apparently replaced with pre-Katrina pictures showing homes, parks and landmarks that no longer exist. Some suspicious souls in the city, already feeling forgotten and neglected, were left wondering if this was part of some effort to paper over the Crescent City’s continuing misery or whether politicians lobbied for the change.
• MIT Engineers create SpaceNet–the supply chain
• Netflix vs. Naysayers: In the decade since Netflix Inc. began renting DVDs online, CEO Reed Hastings has faced down a murderers’ row of rivals — Wal-Mart, Amazon.com and Blockbuster. So far, Neflix has outlasted them all. (free WSJ) See also: Vacation policy at Netflix: Take as much as you want
• Nikon web pages shows the complete Universe and its contents, from
sub-atomic particles to Galaxies and everything in between: Universcale• How Radio Listeners Will Fare in a Merger Of Sirius and XM: Depending on antitrust regulators in Washington, the market for satellite radio may soon undergo a 2-for-1 deal of its own. In this case, the winner would involve a marriage of two incumbents, XM and Sirius, who have asked the Federal Communications Commission to be allowed to merge. A decision isn’t expected for several months. (free WSJ)
• The Consumerist asks, Why Are Text Messages Marked Up 7314%
MUSIC BOOKS MOVIES TV FUN!• Friday Night Jazz: Duke Ellington A new box set looks very promising!
• Time Magazine discusses The Armageddon Gang, gives lots of ink to trader Michael Panzner and hsi new book, Financial Armageddon
• Martin Scorsese and Leonardo DiCaprio are possibly teaming up again to film "The Wolf of Wall Street," the story of Jordan Belfort, the Stratton Oakmont penny stockbroker who served 20 months in prison
for refusing to cooperate in a massive 1990s securities fraud case.• Wonders Never Cease On ‘Planet Earth’: We watched the first few episodes of "Planet Earth" — and the photography was astounding. WaPo TV critic says it "sets a new standard in nature documentaries. The 11-part
BBC series is full of astonishing sights — views of the Earth and its
nonhuman creatures that outshine virtually anything seen on the screen
before."• Quentin Tarantino and Robert Rodriguez pick their 10 favorite movie posters
• Israel group nixes pot on Passover: Good to know! In bad news for its religious Jewish supporters, an Israeli pro-marijuana party announced Tuesday that pot is forbidden on Passover. Cannabis is among the substances Jews are forbidden to consume during the week-long festival, which begins Monday, said Michelle Levine, a spokeswoman for the Green Leaf party.
• We can always can on the Onion for a fabulous combination of bad taste and hilarity: Anna Nicole Smith Finally Reaches Target Weight
That’s all from our little corner of the world, where I will be unpacking boxes for what is likely to be the next 31 months. Enjoy the sping weather!
Netflix outlasted who?
This summer Wal-Mart begins selling 60,000 titles by mail order. Imagine the price points! Netflix kicked off the efficient monetization of catalog films – this was the need they met. The secret is out of the bag and is being pursued by dozens of companies now. 60,000 titles should cover most of the catalog films you’ll want to watch over the next 50 years.
Amazon just partnered with TiVo to get downloaded films right to the TV. Amazon both rents and sells downloads.
Blockbuster is having huge success with Total Access. Blockbuster will have 3,000,000 subscribers by the end of the first quarter, 2007. This note from Blockbuster at the end of February.
The Netflix business model sits on the shoulders of 1,200 people who must handle manually every DVD that is sent to customers. These 1,200 people open, inspect, and stuff envelops all day. The actions are so potentially damaging that the workers stop every hour and a half to do mandatory exercises.
The vacation policy for the 300 people in the Netflix corporate office: Take as much as you want. The corporate employees also get free trips to Sundance. The 1,200 in the distribution centers get free DVD playerss. Reed is so nice to the immigants (seriously) that he hires to do the work in the distribution centers. Look it up.
The latest generation of game consoles is going gangbusters. There is a giant competion going on for consumer cash and eyeballs.
barry,
if you enjoy ‘planet earth’, you should get your hands on the bbc documentary series ‘blue planet’. it leaves you scratching your head, wondering how they got some of the shots they’ve captured, for example from inside a bait ball of tuna in the middle of the ocean while striped marlins fly through the bait ball picking them off. stunning stuff.
jay
Great links, as always. Thank you for doing the heavy lifting in assembling this list of articles.
To single out an issue: The ARMs reset is definitely very important, but it is hard to tell how big of an effect there will be. Felix Salmon had a recent blog post (http://www.felixsalmon.com/000765.html) referencing a study by Chris Cagan which seemed to show that for loans originated in 2005 the median teaser rate of ARMs resetting this year looks to be between 6.5 and 7%. If this is representative of most of the ARM resets this year then they might not have that big of an effect.
“Fed Powerless to Fix Part of Inflation Puzzle:”
Heck, its easy! Just change the calculation from implied rental rates in the CPI to actual house prices, and Voila!, the problem is “fixed.”