Barron’s Two Fer


Here’s something new and way cool:
  This week’s market commentary made its way into both the Up & Down Wall Street column as well as The Trader column in
Barron’s print edition.

(If I were to ignore my own advice about being a middle-aged white guy, I would ask "How whack is that?" but I know better, so I won’t go there . . .)  

Bubble 2.0 is the first column, with Randall Forsyth stepping in for Alan Abelson. The excerpt:

"Indeed, with deals seemingly endless in number and boundless in size, the stock market has entered a proverbial melt-up that probably will continue until John and Jane Q. Public get sucked in. With the billions being thrown around by private equity, hedge funds and foreign-government funds, what else would you expect?

On the latter score, the central banks abroad are getting a little restive sitting on trillions of dollars of reserves parked in boring Treasury notes. Japan and China have announced plans to emulate Singapore in investing some of their cache in something other than cash, like stocks, for instance.

This influx of liquidity has produced a seeming paradox — a rapidly accelerating market set against the backdrop of a rapidly decelerating economy, writes Barry L. Ritholtz, chief market strategist of Ritholtz Research & Analytics. "This is now a trading market, where momentum and trend dominate, increasingly detached from the decaying domestic fundamentals."

To attempt to square that circle, investors have been rotating increasingly to the big-cap names that populate the Dow 30 and dominate the Standard & Poor’s 500. While the U.S. economy’s growth slowed to a crawl of 1.3% in the first quarter, S&P earnings so far are posting gains on the order of 7% to 8%, twice the lowered expectations going into earnings season. And much of the those earnings gains are coming from overseas, in part because they’re being translated into depreciated dollars.

As for the economy, proof of the continued slowdown arrived Friday morning in the form of another punk employment report, in which only 88,000 folks were added to nonfarm payrolls in April, the fewest in any month since November 2004. The unemployment rate ticked up by 0.1 percentage point, to 4.5%, which actually understates the weakness. In the household survey, the one used to calculate the jobless rate, some 392,000 folks were estimated to have dropped out of workforce. If you’re not pounding the pavement for a job, you are not counted as unemployed. Had they been, the jobless rate would have been up 0.2 percentage points."

The second piece is the The Trader column, "Even the Bulls Aren’t So Bullish." A quick excerpt of the same:

"But after a long rise, still-confident investors who grow wary of high prices start taking profits in their broader portfolio and funnel those toward blue chips. "The longer the broader averages make little progress in an environment of blue-chip strength, the more likely a top is forming," [Miller Tabak’s chief technical analyst, Philip Roth] says.

To Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics, the juxtaposition of rising stocks and a cooling economy makes this "a trading market, where momentum and trend dominate, increasingly detached from decaying domestic fundamentals." A melt-up to Dow 14,000 would not surprise, Ritholtz says, but that represents a risky "trading, not investing, opportunity."

Whether the rally is slowing — or, as the bulls prefer, consolidating — remains to be seen. For days, the benchmarks have made new highs on dwindling volume and waning leadership. Yet, sentiment is far from excessively bullish. In fact, short interest that is nearly 18% above a three-year average suggests there are skeptics, and money on the sidelines, that might still be converted."

How unbelievable is that? I am honored and humbled  and tremendously appreciative of the work getting recognized.


Bubble 2.0
Randall W. Forsyth
Barron’s, May 7, 2007

Moved to Yahoo Finance: Bubble 2.0

Even the Bulls Aren’t So Bullish
Kopin Tan
Barron’s, May 7, 2007

Moved to Yahoo Finance: S&P High Brings Muted Revelry

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What's been said:

Discussions found on the web:
  1. Winston Munn commented on May 5

    Don’t let fame go to your head, bubba. You’re still just a middle-aged white guy, and when the bear market comes WJS will be publishing Martha Stewart tips instead of cutting edge analysis. :-)

  2. Winston Munn commented on May 5

    Speaking of the M&A activity from your piece, Bill Bonner of The Daily Reckoning had some interesting comments: ““Private equity firms are raising gigantic new funds, which in turn are buying companies on an unprecedented scale. The targets are bigger than ever, and the deals are gushing at fire-hose volume. But that isn’t just a function of all the billions raised from limited partner investors. Borrowed money is the real fuel driving an overheated market.

    “‘The reality is the markets are willing to provide extraordinary amounts of debt, almost indiscriminately,’ says Scott Sperling, co-president of Thomas H. Lee Partners, the big Boston private equity firm.”

    It appears that the subprime lending market has reappeared in new form.

  3. zell commented on May 5

    You’ve also been been quoted a couple of times in Barron’s market watch section- samples of advisory letters. The last time, I believe was last week……..The reason that you are being recognized is not just the quality – information andchuckles- but that you are singing a song that has resonance. If this isn’t a melt up what is? The drinks have all been on the house in this one.

  4. ferd mertz commented on May 5

    “it appears that the subprime lending market has reappeared in new form”.the credit bubble must INFLATE OR DIE! private equity lending has quickly expanded to offset the contraction in real estate. but this round of debt expansion produces even fewer real world economic benefits for fewer participants. what creative solution then ensues when the LBO mania tanks?

  5. brion commented on May 5

    “what creative solution then ensues when the LBO mania tanks?”

    Using Gatorade instead of water for crop irrigation….

  6. KP commented on May 5

    I too am beginning to believe that Idiocracy’s timeline has been nudged forward a bit.

  7. lurker commented on May 5

    Best of all Barry, since I started coming here as a regular, I no longer read Barron’s at all. Why read a derivative when I can go to the source? In addition, many posters here, Munn in particular lately, are funnier and wiser than anyone I can read on paper. Thanks everyone.

  8. Charles Butler commented on May 5

    Is it possible that Abelson has taken ill at the prospect of having Murdoch at the helm?

  9. Winston Munn commented on May 5


    Modesto, Calif.
    May 5, 2007

    In what experts are claiming is the largest merger of its kind, the Bank of Unlimited Leveraged Liquidity has joined forces with Standard Household Income Trust to form a new entitry, BULLSHIT Bank. BULLSHIT will specialize in providing timely financing to private equity firms. New bank president Rick Slick said, “We cannot wait to start making BULLSHIT loans.”

  10. Philippe commented on May 5

    The main issues are not “the deals” even not the « prices » but…the streams of incomes from these deals and prices, few observations are puzzling:
    Prices of the deals on listed stocks have been inflated by the derivatives (in Europe and USA the derivatives on the long side are in multiple of 5/6 compared to 2000 they inflate the prices but they do not purchase anything they are the representation of a virtual transaction)
    Those derivatives support a « real » price benchmark for acquisitions.
    The amount of debts to be shouldered is appalling (see for e.g. comstock comments on cable TV “deal” and financial debts compared to GDP )
    The ratio of dividends to prices on all stocks markets is the lowest (many are giving negative yields)
    The ratio of private indebt ness to GDP is the highest ever recorded.
    The list of these anomalies is long and would be meaningless if incomes, cash flows could match the indebt ness and if interest rates will never matter.

    This leaves the responsibilities to the Central Banks, which seem to ignore that behind this laughable pauperisation of the equities markets, the real economy will meet these realities.
    The underlying assumptions is that the intermediaries are efficient and the proof they are not, is the real estate component of the economy in the US and to come in Europe.

  11. Frankie commented on May 5

    I find it interesting that many bearish posters constantly lean on the “leverage bubble”, as a reason for a coming financial disaster. At some point that is possible, yet the credit spreads (the market — the final arbiter) is showing little respect for that reasoning.

    The overwhelmingly negative MSM and blogosphere have created a continuing “intelligent” fear that fuels the market. Wonderful irony, isn’t it? Some here over think or overcook it a bit. Smart people, no doubt, yet using the other side of the brain is usually worth it.

    That reminds me of the old saying — the A students, work for the B students, and the C students own the company. ;o)

    Budget deficits are collapsing, exporters have been reborn, new technologies are seeding a capex boon, yet the MSM/blogosphere only sees Nero playing fiddle!

    The market is due for a rest, and I await my opportunity to replant my recent trimmings!

  12. Winston Munn commented on May 5

    Quote Frankie: “the credit spreads (the market — the final arbiter) is showing little respect for that reasoning…
    yet the MSM/blogosphere only sees Nero playing fiddle!”

    It appears to me that the credit spreads themselves are artifially low due to the huge influx of foreign recycled dollars into the bond markets, creating a demand that is not justified by the U.S. enonomy or R.O.I.

    Speaking for myself, I view the somewhat pessimistic views of some blogs to be an attempt to reflect potential rather than active forces.

    But I can see which way the trend is running, so my limited activities in the markets recently have all been long positions utilizing a trader mentality.

    I do not see how attempting to understand the risks and macroeconomics behind those risks makes one either a bull or a bear, puffer fish or boomslang, but simply an interested party attempting to quantify risk.

  13. Winston Munn commented on May 5


    Modesto, Calif.
    May 5, 2007

    Bank Earnings Miss Mark

    The Bank of Unlimited Leveraged Liquidity Standard Household Income Trust reported today first quarter earnings of $0.12, down $4.57 from analysts expectations. The bank blamed poor performance from their home mortgage division for the fall.

    President Rick Slick said, “The performance of some of our lower-tiered loans is reflecting the current strain nationwide in the housing market. Our auditors have determined that the bulk of deliquencies and non-performing loans arise from the 80/20 income non-verification loan structure. In order to improve performance, BULLSHIT Bank will now only offer 80/0/20 mortgages. By eliminating second mortgages and rolling the risk into third mortgages, the bank is confident that the deliquency rate of second mortgages will begin to recede.”

    In a further tightening measure aimed at reducing deliquencies, the bank announced it would no longer utilize the British-style “Nudge nudge, wink wink” income non-verification format, but would introduce the American-style “Just lie your ass off on the application” income non-vefification method.

    Rick Slick remarked, “The new standards should reduce the strain on income projection models uitilized by BULLSHIT analysts who follow our stock. Although first quarter results were disappointing, we are confident in the future and therefore reaffirm our BULLSHIT guidance for the remainder of the year.”

    BULLSHIT stock rose 3% in electronic, after hours trading.

  14. S commented on May 5

    Congratulations for the recognition Barry.

    I sure hope Steve Schwarzman and Henry Kratitz are enjoying the limelight.

    My guess is the guys who are out raising ginormous distressed debt funds today, people like Wilbur Ross, David Tepper and David Matlin, will be wearing the Masters of the Universe crown sometime around the 2009 time frame.

  15. Larry Nusbaum commented on May 5

    Winston: For disclosure purposes what is your current position in BULLSHIT?

  16. Winston Munn commented on May 5

    Wall of Worry or Debtor’s Prison?

    Ashley Seager
    Saturday May 5, 2007
    The Guardian

    Record numbers of people declared themselves insolvent in the first three months of the year as they buckled under the weight of their debts, government data showed yesterday.
    The Insolvency Service said a total of 30,075 people went bankrupt or took out an individual voluntary arrangement (IVA) between January and March – the first time that a quarterly total has broken the 30,000 mark. That marked an increase of 1.2% over the previous quarter and a hefty 24% from the same period last year.

    The Liberal Democrat shadow chancellor, Vince Cable, said: “These figures equate to more than 300 people being declared insolvent every day. But these are not freak figures. Sadly, they are likely to get even worse, especially … when interest rates almost certainly rise next week.”

    The Tory chancellor, George Osborne, blamed the government. “An economy built on debt is not an economy built to last.”

    Shhhh. Don’t tell the Keynesians – they still think they are in control.

  17. ManhattanGiuy commented on May 5

    Winston is a short in this market and losing tons. Good luck to all bears. Dow to 14000 before the end of year.

  18. will rahal commented on May 5

    I recently did some work about M2(money supply) spiking to 8% annualized growth. I correlated it with Free Reserves and the S&P.It seems to me that the LBO activity
    is a bigger factor than the Fed causing this growth, as the Free Reserves numbers point to a lesser Fed involvement.
    In my blog I provide with a possible maximum move for the S&P for the month of May, based on the M2 expansion.

  19. super-anon commented on May 5

    I find it interesting that many bearish posters constantly lean on the “leverage bubble”, as a reason for a coming financial disaster. At some point that is possible, yet the credit spreads (the market — the final arbiter) is showing little respect for that reasoning.

    It’s the same bunch of fools that kept predicting that the US housing market would tank, and look where that got them.

    When will these people learn?

  20. will rahal commented on May 5

    Do you tink the housing market is fine?
    Housing activity already dropped 25% while
    the economy was doing well.
    What is going to happen when we get a recession?

  21. Winston Munn commented on May 5

    My current portfolio is plenty long on BULLSHIT and plenty short on cash.

    To ManhattanGuy, paraphrasing Johnny Carson: “Wrong, martini breath.”

    Losing some cash – hedged with a couple of long positions in order to “fit in”.

  22. Larry Nusbaum commented on May 5

    “Super-anon,Do you tink the housing market is fine? Housing activity already dropped 25%.”

    25% is activity and not price. Also, measure the activity against 2001 or 2003. You have to expect fewer transactions after 6 years of rising activity. Maybe everyone has bought….for now.

  23. Larry Nusbaum commented on May 5

    Time Magazine reported, “The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline.” They wrote that in 1947.

    Business Week said, “The goal of owning a home seems to be getting beyond the reach of more and more Americans.” When they wrote that in 1969, the average price of a house was $28,000.

    The Miami Herald wrote, “If you are looking to buy, be careful. Rising home values are not a sure thing anymore.” That sage advice came in 1985.

    Money Magazine said, “Most economists agree . . .a home will become little more than a roof and a tax deduction, certainly not the lucrative investment it was .” That was their best advice in 1986.

    “…for now, the frothy buying conditions in some of the nation’s biggest housing markets, especially for high-end-homes, worry economists, who remember how the housing market crashed in the late 1980s after some markets overheated.” The Wall Street Journal (bottom of page), March 6, 2000

  24. ManhattanGiuy commented on May 5

    sure you are long Winston .. wink wink

    right on Super-anon – housing market is very healthy in Manhattan. The whole subprime market issue was blown out of proportion. I see no one talk about it now, do they?

  25. Winston Munn commented on May 5

    Manhattan Guy:

    Does it surprise that a longer-term outlook can be temporarily set aside in response to the power of momentum and exaggerated liquidity?

    I’m not invested long – I’m trading long.

    “A nod’s as good as a wink to a blind bat.” – Monty Python’s Flying Circus

  26. intrigued commented on May 5

    Fair play Barry. You post great stuff here for people of all ages, backgrounds, intellects, investing knowlege and (financial) intersts (and occasionally more).

    Quick question – what ever happened to the investing idea / proverb of ‘sell all in May and come back on a rainy day’? Do you think this could come to light this year? It sure proved true last year.

    It all went south on May 5th or so, I think, but it didn’t really have to wait for rain to arrive in order for the melt up to begin in late July / early August(more like it waiting for the world cup to finish)

    As a younger visitor to this site 9but no doubt not the youngest) I’m still waiting to know when to jump into the market to kick start my retirement / pension fund as in this day and age I can’t be relying on the government or fund managers. Indexing all the way (that’s one of the first things I learned off You Barry) Cheers & long may your success continue!

  27. super-anon commented on May 5

    Do you tink the housing market is fine?
    Housing activity already dropped 25% while
    the economy was doing well.
    What is going to happen when we get a recession?

    That was sarcasm. I was pointing out something that a lot of people seem to be overlooking these days, or just willfully ignoring:

    The housing bears were right.

    And these people are mostly the same crowd that’s bearish on the overall economy and broader financial markets.

  28. Nova Law commented on May 6

    Thanks for that walk down memory lane, Larry. That BS you quoted in those long-ago articles sounds just like a lot of the BS I read from the modern-day “Sky is Falling” bears whose politics and innate anger keep them from wanting to make money. That’s fine. I’m pleased to do my part to make them continually cover their shorts.

    And who says recycling is a failure?

  29. Frankie commented on May 6

    Super annon…the housing bears have been predicting a recession, a collapsing dollar, exploding inflation/interest rates, a bear market in stocks, and dogs and cats playing together…NONE of which has come to pass, or seem likely to come in the near future. Have prices corrected, and the economy slowed? YES! Have they overestimated the slowdown? Look at the earnings (compared to estimates) and economic numbers to answer that for yourself.

  30. Frankie commented on May 6

    Buffet on the Subprime Crisis:

    The subprime mortgage crisis won’t be “any huge anchor” to the economy, he predicted, though lenders and borrowers will have “plenty of misery.”

    “It will be a very big problem for those involved, but I think it is unlikely that factor alone triggers anything in the larger economy,” Buffett told about 27,000 people crowded into Omaha’s Qwest Center. The prediction assumes unemployment doesn’t increase “significantly” and interest rates don’t go up “dramatically,” he said.

  31. Incognitus commented on May 6

    Frankie, it’s not subprime (or Alt-A) not paying back the loans that’s the problem.

    It’s them not borrowing at the same speed going forward, that will be the problem.

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