Kentucky Derby Linkfest (Part I)

Markets completed a fifth straight week upwards, with the Dow now rising 23 of the past 26 sessions. Despite the rally, the bourses are looking a bit tired, and overdue for a rest, if not a 2-4% pullback. The levitation continues to astound, with traders shaking their heads and shorts queezed to the max. With April now in the record books, U.S. Markets posted their best monthly performance since October 2002.

The Merger party continued, with announced takeovers  sparking the "old media" sector. Murdoch’s News Corp made a $5 Billion bid for Dow Jones, Thompson Financial for Reuters, and even the long rumored hook up of Microsoft for Yahoo! was in play this week.

All these elements managed to drive markets higher: The Dow gained 1.1%, and has 13,500 in spitting distance. For the first time in over 6 years, the S&P500 left 1500 behind, gaining 0.8% on the week, and is 1.4% from its all time (March 2000) highs. The Nasdaq, continued its gaining but lagging ways, up 0.6%. Also gaining but lagging: the Russell 2000 lifted 0.4% for the week.

Barron’s Streetwise column notes the conflicting sentiment out there:

"Surveys that ask active pros what they think have showed steady if not extreme bullishness, and long-only fund managers are and have been "all in," with cash levels at stock funds reported last week to have fallen to a record low of 3.7%. One notable exception to this outburst of optimism: the latest Barron’s Big Money poll, featured in last week’s issue. The American Association of Individual Investors poll, on the other hand, dipped below 35% bulls last week, a level breached only nine times in the past 15 years — and only once after the market posted a gain in the prior month. Clearly, the broad populace is fighting the market trend."

Fighting the trend, or absent alltogether? Trading volumes at the online brokers have been rather anemic. I suspect post 2000-03 crash, the disinterested public has been more interested in real estate and commodities. In the counter-intuitive ways of the market, that may be perversly bullish. 

Meanwhile, there was lots of fascinating stories out this past week. They are at the gate, and they are off, as our linkfest Kentucky Derby edition begins. Pour yourself a cup of coffee cool mint julep, and get clicking!

INVESTING & TRADING

• Dow Theory Sends `Buy’ Signal as U.S. Transport Shares Advance: The oldest gauge of U.S.
transportation stocks reached a record last week, with a boost
from Warren Buffett. For Keith Wirtz at Fifth Third Asset
Management, it’s a sign more gains are ahead for the overall
market. Wirtz adheres to a 19th-century indicator developed by Wall
Street Journal co-founder Charles Dow. When Dow Jones & Co.’s
transportation and industrial averages set records at the same
time — as they did April 25 — a healthy economy and rising
market will follow, Dow’s theory goes. (Bloomberg)

• Buying Panic?

• Every Old Bull Needs a Rest:
With each new high on the Dow Jones Industrial Average, some new bit of
technical evidence surfaces to flash a warning. These warnings are not
signals to sell, but rather a sign that the market is telling us to
expect the long-awaited correction, even as benchmark Standard &
Poor’s 500 is within striking distance of its own all-time high of
1552.87.It is easy to dismiss this as the ravings of a perma-bear. But
the evidence is spreading from one class of technical indicator to
another. And taken together, this market is sporting the excesses we
can forgive for a baby bull but not when the bull is this mature.
(Barron’s)

• IT WAS 40 YEARS AGO TODAY: Barron’s
looks back at how things were four decades ago, and it is quite
fascinating: "Sgt. Pepper’s Lonely Hearts Club Band," was released four
decades ago next month, Bretton Woods system was beginning to buckle at
the knees. The international monetary system, set up after World War
II, fixed currencies’ exchange rate against the dollar, which was in
turn fixed in terms of gold, at $35 an ounce. Foreign governments were
able to exchange dollars for gold at that fixed price under the rules
of the game. In theory, the U.S. would be constrained from expanding
money and credit to create inflation, as would the rest of the world.

• Rupert Murdoch’s bid for Dow Jones was the talk of the town. I discuss one possiblity here: GE Rescues the first family of Dow Jones (the Bancrofts), and then does a big $20B GE/Dow Jones Spin Out

 

• She’s ba-ack: Goldman Sach’s Abbie Joseph Cohen Making the bullish case for a decelerating US economy, looking for 1,550 for the S&P 500 and 13,500 for the Dow (That’s bullish?)  (FT)

• The Street.com’s coverage last week of Jeremy Grantham’s Bubbles Everywhere letter sparked lots of discussion and coverage. We had an interesting gabfest about this on CNBC Monday.      

• Morgan Stanley’s Andrew Xie warns of a China Crash:  Morgan Stanley former star economist Andy Xie warned of an imminent stock market
crash in China — but still hopes to raise money to invest in the
country. Xie, who attracted a wide following while he was at Morgan Stanley because of his often
contrarian views on China’s economy and stock markets, also warned that the
global boom in equities would be over by 2008 and that this would coincide with
a worldwide recession. The recession would start from the United States and spiral down into Asia
where exporters would be hit. (Reuters)

• Baltic Dry Index made a new high, due to a combination of high commodity demand in Asia, and too few cargo ships.

• A Preannouncement Leak for Traders of Dow Jones Options?
Monday, more than 4,300 Dow Jones call options changed hands, bringing
the total for the month to a little more than 10,000 contracts. That
compares with about 7,000 over the first three months of the year (WSJ
Deal Journal) See also Insider Trading: It’s Back With a Vengeance  (free Wall Street Journal)

• The Bespoke Investment Group notes there is a Bear Market in Analyst Sentiment

• Accounting Said to Hide Lender Losses: That technique, called gain on sale, may be coming back to haunt the
company, which filed for bankruptcy protection on April 2 after
disclosing a month earlier that federal prosecutors and securities
regulators were investigating accounting mistakes and stock sales at
the company. The company is expected to file restated results for most
of 2006 as early as this month. (New York Times)

 

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ECONOMY

The Wall of worry continues to build:

• The Non Farm payroll data was released Friday, and despite big adjustments, it was very weak. The initial NFP data was for 88k — and I didn’t even believe that weak number.   

•VIDEO: Achuthan of Economic Cycle (ECRI) Says U.S. Economy `Growing Healthy’ (Bloomberg)    

• The Hedonism Index:
2005 Citigroup research note quantifies it rather precisely: The top
20% of American earners now account for between 37% and 70% of total
consumption. That’s quite a broad range, and like asset ownership, it
is very disproportionate in numbers. You can clearly see the difference
in spending patterns in the chart at right, showing the Merrill Lynch
Lifestyle Index versus the Morgan Stanley Consumer Discretionary Index.

• Dollar decline tracks U.S. fall from grace: The United States may have no military
equals, but the challenges to its financial power have become
impossible to ignore. A stark reminder came on Friday when the weakening dollar
slumped to a record low against its main rival, the euro, after
the U.S. economy recorded its fourth consecutive quarter of
below-trend growth. The strength of the dollar is more than just a matter of
bragging rights. Experts say the consequences of its long-term
decline could have deep significance — for average Americans
and for the country’s position as an unrivaled global power. (Reuters)

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HOUSING

• GDP ex Housing? Puh-leeze! Bloomberg’s Caroline Baum puts the smackdown on an absurd, politically motivated line of analysis. (Don’t mess with CB!)

• As Market Cools, Home Buyers Seek a Way Out: In the latest fallout from the housing market’s
decline, disputes are breaking out between builders and buyers who
signed contracts for new homes and condos when the market was hot —
and now want to get out of them. Even as many of the new buildings are completed,
buyers are filing lawsuits claiming they were duped into purchases they
couldn’t afford, or victimized through fraudulent investment schemes.
Some are scrutinizing their contracts looking for loopholes, or
searching out tiny flaws in finished homes that might allow them to
back out without losing their deposits. (free Wall Street Journal)

• Rents Peak in Housing Glut; New York Escapes Decline:
The glut of U.S. properties for sale is about to hit the rental market.
A record number of homeowners who can’t sell condominiums and houses
are competing for tenants with the country’s biggest apartment owners
led by Chicago-based Equity Residential, said Jack McCabe, the founder
of Deerfield Beach, Florida-based McCabe Research & Consulting LLC.
Metropolitan New York, where demand for housing exceeds supply, may be
the only place where rents increase, albeit at a slower pace, he said.
(Bloomberg)

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TECHNOLOGY & SCIENCE

• How the Internet took over Twenty-five years ago the Internet as we now know it was in the process of being birthed by the National Science Foundation. Since then it’s been an information explosion. From e-mail to eBay, communication and shopping have forever changed (USA Today)

• Honeybee die-off threatens food supply

• Looking for Life? Try Gliese 581c.  When astronomers using the 141-inch telescope at the European Southern
Observatory in Chile detected Gliese 581c, there was more relief than
wonder: they had found the first "habitable" planet. London bookies
immediately lowered the odds on extraterrestrial life from 1,000-1 to
100-1. (Newsweek)

• If You Want to Know if Spot Loves You So, It’s in His Tail  (New York Times)

• Now THATS a halo effect. Steve Jobs claims that iTunes won’t go the way of subscription
services. IT Wire says, Don’t believe Him —  iTunes subscription service is coming

 

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MUSIC BOOKS MOVIES TV FUN!

• Weekend Jazz: Artie Shaw:  Artie Shaw was cool. Not Elvis cool or Sinatra cool, but a darker, more subdued cool. (And that list of wives unbelievable!)

• PHILIP K. DICK’S BIG HOLLYWOOD MOMENT One of my favorite sci-fi authors, Philip K. Dick is enjoying a surge in popularity, some 25 years after his death. Opening this weekend is Next, starring Nick Nolte. PKD’s official site is philipkdick.com, but I must give a shoutout to fan site Total Dick-Head.

• Very, very funny: Top Secret! Memo From Paul Wolfowitz to Bank Staff 

• And what has to be my favorite headline of
the week: Why
can’t gay dwarves get married in Middle-earth?

The Derby is tonite, and while its a wild open field, the Wall Street’s favorite has to be Liquidity — leaving the gate at 30 to 1!  (Those odds are about equal to the leverage on the street)  Storm in May — not a Wall Street fave — is blind in one eye.  Insert your own ironic comments here.   

2007 Kentucky Derby post time is at 6:04 p.m. — enjoy the race — and the gorgeous NorthEast weekend!