Memorial Day Weekend Linkfest, Part II

  Yesterday, we looked at the week that was. This morning we preview the week that will be:

Traders returning from the weekend will slowly ease back into the swing of things. The week starts slowly, but its backloaded with data. On Wednesday, the last Fed meeting minutes get released. Thursday sees the revised Q1 GDP; the initial growth data was 1.3% (annualized), but even that punk number may turn out to be too optimistic. Consensus has been lowered to 0.7%. The silver lining is so poor a growth rate could revise hopes of a Fed rate cut sooner rather than later.

Barrons_econ_calendarFriday is chock full of data: Personal income and spending gets reported, as does the PCE Deflator — a key Fed inflation indicator. Also on Friday: ISM, University of Michigan’s consumer sentiment,  and May car and light-truck sales.

But the main economic event for the week is the May Non-Farm Payroll and unemployment data, via the  Bureau of Labored Statistics. Consensus is for 140,000 new jobs, and unemployment rate is expected to remain unchanged at 4.5%.

A slew of retailers are scheduled to report this week also: Costco, Tiffany, Sears Holdings all release quarterly earnings data. Also on the earnings calendar: New Wal-Mart partner Dell reports fiscal Q1 earnings Thursday.

For you techno-heads, the Wall Street Journal’s 5th "D: All Things Digital" conference is this week. There are a bevy of tech heavyweights scheduled to present, but headline event is a rare joint interview with Microsoft Chairman Bill Gates and Apple CEO Steve Jobs.

The the largest mainland Chinese IPO is scheduled for Friday — solar-power company LDK Solar Co. Ltd. It launches on the New York Stock Exchange Friday, and is expected to raise nearly half a billion dollars. The WSJ noted that the last Chinese solar company, China Sunergy, "soared 51% on its first day of trading on the Nasdaq Stock Market earlier this month, making it the best debut by a Chinese IPO in the U.S. this year."

Warm up that mouse wrist — its clicking time — Here’s our look ahead at the coming week:

INVESTING & TRADING

Skeptical Investors May Help Fuel Rally:
Most chartists are familiar with trends, volume and momentum.
Sentiment, or how people in the market think, is usually given short
shrift simply because the data are not readily available to most
investors. But sentiment analysis is a key piece of the technical
puzzle. It tells us when the majority of investors are thinking alike
and in the words of Humphrey Neill, author of The Art of Contrary
Thinking, "When everyone thinks alike, everyone is likely to be wrong."
(Barron’s)

Relative Short Interest/Total Market Float: You need more than high short interest to bet on a longer lasting market correction.   

• A Business 2.0 Two-fer:

The Top 25 fastest growing tech firms   
Top 25 tech stock returns   

The Psychology of Trading  Professor Andrew Lo (MIT) 

Gold tells a sad story of asset deflation in the future:
Gold is telling a different tale than the equity markets, but the
equity markets have hundreds of billions of private equity dollars (in
the US), and a huge, though less quantifiable, pot of domestic savings
(in China) to propel them beyond sensible levels. Gold is telling us
that there is more asset price deflation ahead of us in the US,
principally through a housing market that will be weaker for longer,
and a commodities price peak later this year. (FT)

How Much Do Interest Rates Affect the Fair Value of Stocks?

Why Japan Hasn’t Joined the Global Celebration: Japan’s economy and corporations are enjoying
the most stable period of growth they have had for decades. So why is
Tokyo’s stock market performing so poorly compared with others? Since the beginning of this year, the Nikkei Stock
Average of 225 companies — which rose 0.14% or 25.07 points to
17705.12 yesterday — is up less than 3%, compared with nearly 9% for
the Dow Jones Industrial Average. Most other stock markets also are
doing better than Tokyo. The DAX index in Germany is up 17%. The
Shanghai Composite Index has shot up 56%. (Wall Street Journal)

• The US Dollar may be setting up for a counter-cyclical snapback: Dollar Rebound?

How
to Hire Brokers Abroad
:
It’s getting easier for you to open a brokerage account — in Botswana. And not just there, but also in many bigger and more
important markets, ranging from London and Hong Kong to Auckland, New
Zealand, and Cairo, Egypt. Around the world, local banks and brokerages
have been rolling out online services that let Americans and
international individual investors open accounts to buy and sell
foreign stocks directly. Their goal is to cash in on the booming interest world-wide in investing in foreign countries. (free Wall Street Journal)

Citibank Annual Strategic Investor Conference (May 18 2007)

 


ECONOMY

The Wall of worry continues to build:

• WSJ looks askance at BLS data: Job Market’s Strength May Have Been Overstated (if no WSJ, go here

• Floyd Norris of the New York Times counsels Wait a Few Months Before You Believe the Numbers:
It is the newest economic statistics that usually get all the attention
as investors and analysts try to gauge the health of the economy. But
sometimes the statistics that take the longest to arrive can provide
the most important information, particularly when they point to
inflection points in the economy. So it may be with jobs data that the
Bureau of Labor Statistics released this month for the third quarter of
2006. The new data calls into question the previous conclusion that
employment grew at a strong rate in late 2006.

Is U.S. Ceding ‘Master of the Universe’ Status?: China is trying to slow its breakneck
pace of economic growth. The U.S. could use a little of what
China has too much of. Are the two countries working at cross
purposes? The notion of a global growth cycle, with countries taking
their cues from the U.S., is being challenged as Asia’s
developing economies continue to boom amid a slowdown in the
U.S. In this new age of globalization, synchronicity is out,
decoupling is in. Yes, China and India are growing in ways that
may be independent of the business cycle. (Bloomberg)          

A stretched credit cycle, a more savage downturn: High finance has never been more sophisticated. Bankers have never been more
clever. Yet in the US subprime lending boom, banks fell over themselves to
advance 100 per cent loan-to-value mortgages to out-of-pocket deadbeats.
According to industry folklore, even an insolvent arsonist was given
accommodation. Lending standards to private equity are collapsing just as risks rise and
returns are being competed away. (FT)

Fed Plans to Revise Credit Card Rules:
Credit card companies would have to disclose interest rates and fees in
clearer, easier-to-understand language under proposed new
consumer-protection rules that could take effect by year-end. The
proposed rules, which the Federal Reserve Board unveiled yesterday
after a 2 1/2 -year study, would be most significant change to the
nation’s truth-in-lending regulations in 26 years. (Washington Post)   

How Worrisome Is a Negative Saving Rate?  (NY Federal Reserve)

Consumers pinched by rising gas prices:
The usually unflappable U.S. consumer is being pinched by high gasoline
prices, and that’s likely to slow economic growth this summer,
economists say. Average retail gas prices jumped by 12 cents to a
record $3.26 a gallon last week, the Energy Department reported Monday.
Gas prices are up nearly 50% since late January, one of the largest
sustained increases ever recorded by the government. Over the past two
decades, gasoline price spikes have proved to be relatively temporary,
so consumers didn’t really change their behavior by cutting back their
discretionary spending in other areas. By the time consumers got around
to changing their behavior, prices had fallen back. This time, it could
be different. (Marketwatch)




HOUSING

The US Mortgage Market – Overexposed and Overrated   

Home auctioneers are back in action:  A sign of the distressed real estate market and growing volume of
foreclosures, the auction of 92 homes, condominiums and apartment
buildings in Los Angeles, Orange and Ventura counties was the kind of
event not seen in the Southland for more than a decade. In fact, the
company that staged the auction — Real Estate Disposition Corp. of
Irvine — came out of hibernation to do it, said its chairman, Rob
Friedman. A sister firm, LandAuction.com, conducts sales of  land,
but, Friedman said, Real Estate Disposition last conducted big home
auctions during the real estate bust of the early to mid-1990s. (L.A.Times)

 Are NYC apartments messing with inflation measures? See OER, CPI and the Fed: A Strange Love Story and OER / CPI and New York Rentals

How Some Agents Tout ‘Green’ In Seeking an Edge With Buyers:
Some real-estate brokers are beginning to tout their
environment-friendly credentials to get an edge in a slowing housing
market. But the brokers are discovering that selling green is harder
than talking about it. Living in homes boasting solar panels and other
energy-saving additions is becoming more mainstream, but brokers must
still convince developers and buyers that green features are worth the
added cost. And even if clients are eager to buy, there is a shortage
of properties offering the features. (Real Estate Journal)

 



MUSIC BOOKS MOVIES TV FUN!

• Weekend Jazz: Oscar Peterson: After recording and performing for over half a
century, Oscar may be the most recorded piano players of all time. His stunningly complex yet elegant and soulful playing worked equally well on ballads, uptempo numbers as well as blues. Check him out.

• The Larry Sanders Show could very well be the best television comedy of all time, edging out Seinfeld (and blowing past  I Love Lucy, The Honeymooners, The Simpsons, The Office, the Dick Van Dyke Show, MASH, and the Mary Tyler Moore Show).

• On a related note, Dick Cavett on What does it take to be a comedy writer?   

Steven Wright twitter page

• Interesting concept for a new book: The Cult of the Amateur: How today’s Internet is killing our culture

That’s all from an overcast Sunday morning out in the Hamptons. Even if it doesn’t burn off, I am loaded for entertainment this weekend. Don’t forget the SPF 15 — you can get burned even when its cloudy!

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What's been said:

Discussions found on the web:
  1. Rosie Pinguis Sus Scrofa commented on May 28

    Re: I completely disagree with FT nearsighted view that “gold tells a sad story of asset deflation in the future”. I am very disappointed with myopic analysis from FT – completely ignoring the facts of gold being overvalued and USD artificially undervalued (thanks to our friends from the Middle East and Russia who have been constantly converting petrodollars into Euros for political reasons). Hello FT! Is anybody home? What about considering the simple fact that gold is historically overvalued and USD is historically undervalued, both need to return back to their historical norms. It has nothing to do with asset deflation in the future.

    Re: I like John P. Hussman’s analysis but I disagree that future market performance can be extrapolated from past historical relations between S&P 500 yield and 10-year Treasury yields. It is not so simple. There are many other factors to be considered. The world is different now from what it used to be in the past and demand for the treasuries now is different from what it used to be in the past; therefore, the historical relationships between S&P 500 yield and 10-year Treasury yields will not necessary hold true in the future. I think psychology and future expectations for growth are more important to consider than past historical relationships.

    Love,
    Rosie
    http://www.rosie.com

  2. Philippe commented on May 28

    It seems that the financial world is at the crossroad of prices divergences and that the rebalancing is underway but the real chock has yet to come.
    Few examples of prices disconnection:
    The equity markets and the bonds corporate and public bonds
    80 % of the SP500 corporate bonds are close to JUNK the equities markets faint to ignore.
    Profit cycle for the companies listed (Europe USA Japan) is at its top. The equities markets faint to ignore.
    The M&A is driving towards more deterioration of corporate bonds implied in the M&A the equities markets are rejoicing.
    The spread corporate bonds government bonds is still too tight.
    An other short term disconnect in Europe
    Eurobond has increased by 40 BP and the equities markets faint to ignore:
    Please see the performance hereunder:
    Disconnection between equities markets and profit expectation:

    Should one had purchased the indices of the hereunder markets as of January 2nd 2007 this is the real percentage gain posted as of May 2007 (Five months):

    DAX + 20.8% (6437 / 7774)
    CAC + 15.2% (5295 / 6100)
    SP + 11.07% (1364/1515)

    There is not a single doubt that there is a page which is on his way to be turned and an other which is yet to be read “the assets repricing”.

  3. Philippe commented on May 28

    It seems that the financial world is at the crossroad of prices divergences and that the rebalancing is underway but the real chock has yet to come.
    Few examples of prices disconnection:
    The equity markets and the bonds corporate and public bonds
    80 % of the SP500 corporate bonds are close to JUNK the equities markets faint to ignore.
    Profit cycle for the companies listed (Europe USA Japan) is at its top. The equities markets faint to ignore.
    The M&A is driving towards more deterioration of corporate bonds implied in the M&A the equities markets are rejoicing.
    The spread corporate bonds government bonds is still too tight.
    An other short term disconnect in Europe
    Eurobond has increased by 40 BP and the equities markets faint to ignore:
    Please see the performance hereunder:
    Disconnection between equities markets and profit expectation:

    Should one had purchased the indices of the hereunder markets as of January 2nd 2007 this is the real percentage gain posted as of May 2007 (Five months):

    DAX + 20.8% (6437 / 7774)
    CAC + 15.2% (5295 / 6100)
    SP + 11.07% (1364/1515)

    There is not a single doubt that there is a page which is on his way to be turned and an other which is yet to be read “the assets repricing”.

  4. V L commented on May 28

    “MAIN CONCLUSION: We need emotions to be rational. We need both, it is not either/or. In trading there is a right level of emotion.”

    WRONG! WRONG! WRONG!

    Making such conclusions based on a poorly designed study and on extremely low specificity of midbrain electric activity measurements is confusing cause and effect.
    (An example of confusing cause and effect fallacy: It is claimed by some people that severe illness is caused by depression and anger. After all, people who are severely ill are very often depressed and angry. Thus, it follows that the cause of severe illness actually is the depression and anger. Therefore, a good and cheerful attitude is key to staying healthy. [false assumption that because A and B regularly occur together, A is the cause of B.])

    “Damasio investigated people who have suffered serious brain injuries and found that people who do not perceive emotions correctly will act irrationally. Emotion is necessary for rational behavior, Damasio says.”

    Investigating people who do not perceive emotions correctly was a poorly designed experiment. The subjects had problems with emotional stimuli interpretation, their cortex gets emotional signals but misinterprets them; therefore, making conclusions that “emotion is necessary for rational behavior” based on this experiment is wrong. (You need to study people who do not get any emotional stimuli to make these conclusions)

    Two independent studies (USC and University of Zurich) studied people who do not get any emotional stimuli at all (communication between the emotional part and rational part of the brain was damaged secondary to a mini-stroke or trauma) and found that the subjects were completely rational.

    You do not need “emotions” to be rational. (Contrarily to Damasio and Castaldo fallacy, emotions interfere with our rational decisions and not needed to be rational)

  5. Winston Munn commented on May 28

    I find it amusing to see claims of gold prices rising or falling. When gold prices are compared with dollars, it is remindful of the pre-Copernicus era of belief that the Earth (the dollar) was the center of the universe, and the sun (gold) revolved around this stability.

    Gold has been a medium of exchange for over 6000 years. It seems much more credible to me to consider gold as the constant to which everything else has a changing, relative value. If not, then why do central banks pay each other in gold and not currency?

    It is not gold price, but gold value around which the finances of the world revolve. It is when you compare asset price to the gold constant that the true nature of value is perceived.

  6. V L commented on May 28

    “Emotion is definitely involved in trading decision making”

    Andrew Lo incorrectly (or conveniently) labeled “learning” as “emotion” to make his theory work.

    The experienced traders have LEARNED how to SUPPRESS their emotions during their decision-making but the author suggests that the emotions were involved in decision-making.

    “Lo attached sensors to traders to measure emotional responses.”

    As I have mentioned before, measuring electrical activity in the midbrain is extremely non-specific experiment. You can make millions of different conclusions. For example, how do you know that you measure the electrical activity of emotional neurons and not the inhibitory signals originating from the rational cortex? (Lo fails to account for the fact that signals travel in both directions, from midbrain to cortex and from cortex to midbrain – it is a two-way highway [not one-way road])

  7. V L commented on May 28

    I agree with Rosie. Gold is overinflated, overbought, overpriced, overrated, over-speculated, overhyped, etc…
    Eventually, when the crowd psychology changes gold prices will come down.
    When? I do not know.

    But I will never agree with your reasoning that two wrongs make a right. (if you are the Rosie)
    Jane:“Did you hear about those terrorists killing those poor people? That sort of killing is just wrong.”
    Rosie:“Those terrorists are justified. After all, their land was taken from them. It is morally right for them to do what they do.”
    Jane:“Even when they blow up busloads of children?”
    Rosie:“Yes.“

  8. Winston Munn commented on May 28

    V L: Quick question – which has the higher risk of falling to zero value, gold or paper?

    Is it the gold that is overinflated, overbought, and overpriced or is it the paper with which it is purchased?

  9. muckdog commented on May 28

    Doesn’t the savings rate exclude retirement savings? (401k plans, IRAs…) So if you’re maxing out your 401(k) plan but not putting any money in a passbook savings account, according to the government savings rate number, you’re not saving anything. Seems a bit screwy to me.

    I’d like to see somebody (other than me) figure out what the savings rate plus retirement savings number is.

  10. Estragon commented on May 28

    muckdog – The personal savings rate is based on (NIPA) personal income less personal spending, so 401K contributions aren’t excluded AFAIK.

  11. V L commented on May 28

    “V L: Quick question – which has the higher risk of falling to zero value, gold or paper?”

    It depends on the circumstances.

    One example, one hypothetical but unfortunately possible example, if crazy jihadists start a nuclear war and everything becomes contaminated; you will not care about gold or paper. You will only care about food, water, and shelter; therefore, both paper and metals will be worthless.

    Another example, technological advances that would make much easier/ cheaper to produce gold from the ground (from dirt); thus, making it dirt-cheap and ubiquitous. In the 19th century, aluminum was more expensive than gold because it was extremely difficult to produce aluminum. Now, aluminum is dirt-cheap and it is everywhere. In this scenario, the paper will worth more and gold will be dirt-cheap (similar to aluminum).

    Yet, during another hypothetical scenario like global financial crisis the metals will worth more (but it may be questionable as to what metal and if metals at all. Why not the diamonds for example?)

  12. V L commented on May 28

    Moreover, if there are global financial crises (aka Financial Armageddon) you should probably have the actual physical bricks of gold and diamonds hidden in your basement. I think that during such crisis and chaos your gold futures will become as worthless (maybe even more worthless) as other paper.

  13. howard commented on May 28

    just to change the subject completely, as one of the people who highly recommended the larry sanders show when barry was asking for dvd recommendations a little ways back, i’m glad that barry has now joined the ranks of its admirers.

    PS. barry, now you really need to check out the sandbaggers.

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