Mother’s Day Weekend Linkfest! (Part I)

It was a mixed week for the Markets. The Dow rose for a sixth straight week, gaining half a percent. Its up just under 7% for the year. Over the past 29 days, the Dow has gained 8.6% in 29 days
The Standard &
Poor’s 500 was flat, and is 1.4% from its March 2000 all time high.The Nasdaq Comp actually fell 0.4%, while the Russell
2000 also slipped 0.4% (is that even allowed?).

On Wednesday, the Fed made it clear that Inflation remains its primary concern, and the odds remain low for a rate cut anytime before September. On Friday, flat core PPI and awful Retail data made traders forget the previous sentence, with rate cut hopes powering the Dow to a triple digit gain for the day.

Earnings season is nearly over (more on this tomorrow), and  M&A activity shows no signs of slowing anytime soon.

You have two things to do this weekend: Send mom flowers, and get clicking!


A superbear turns bullish We saw something that is extremely rare [on April 20 and April 25], in fact I can’t remember ever having seen this before. What I’m referring to is that on those two dates all three Dow Jones Averages — Industrials closed at simultaneous historic highs. To me, a fellow steeped in Dow Theory for over half a century, this was like a clap of thunder… My take on the situation is that the stock market (and the Dow Theory) told us that an unprecedented world boom lies ahead." (Marketwatch)

Another Bear, not so much: Street Insight’s own Doug Kass offers up 15 Reasons Stocks Should Be Falling (

M&A Frenzy Question: Why now? Money was just as cheap 3 years ago, while acquisition targets were much cheaper then . . .

Munger Speaks on Berkshire’s Success: "I didn’t set out in life to become the assistant leader of a cult." That is how Charlie Munger welcomed shareholders to the 2007 Wesco annual meeting. The cult, of course, is the loyal throng of value investors that invade both Omaha, Neb., and Pasadena, Calif., each spring to learn at the feet at Warren Buffett and Charlie Munger, and as Munger noted "to leave a little wiser than they came." (Morningstar)

Where Have S&P500 Returns Come From? Dividends, Inflation and Capital Gains — in that order!

Why investors are so glum with the market so high: With the Dow Jones Industrial Average flirting with record highs — and the broader Russell 1,000, 2,000 and 3,000 also at historic peaks — investors should be positively giddy. Instead, they appear to be glum, their mood dictated by concerns over rising gas prices, falling home values, fluctuations in currency values and worries about inflation. (Marketwatch)

China’s P/E Ratio is Now About 50

What are the odds of the Dow being up  24 days of 27?
Over the course of 111 years — 30,000 trading sessions — since the
Dow was created in 1896, Rudi Fahlenbrach, an assistant professor of
finance at Ohio State University’s Fisher College of Business,
caclualtes the odds are between one and two times in an 111-year period
— exactly what has happened.  (Marketwatch)


The Wall of worry continues to build:

More on NFP: More Recognition of Disbelief  BLS Birth Death adjustment comes under attack by many ddifferent sources 

Economy Is Clawing Back, but Not Much The worst of the economic slowdown has passed, private
economists said in the latest forecasting survey. But they
don’t see any reason to expect a significant acceleration. By a more than 5-to-1 margin, the economists said they
believe the first quarter’s 1.3% growth — the weakest in four years —
marked the low point in the slowdown that gripped the economy much of
last year. However, they expect growth to stay below 3% into early
2008, leaving 2007 on track to have the slowest economic growth since
2002. (free Wall Street Journal

The Tooth Fairy index is off 15% this year! (ABC)

The Fed Has a Target. It’s the Unemployment Rate:  "It makes me wonder why the Fed bothers to employ so many
economists,” says Ian Shepherdson, chief U.S. economist at High
Frequency Economics in Valhalla, New York. "They only need one
guy, half a day a month, to monitor the unemployment rate.” (Bloomberg)         

The Missing Link to Global Rebalancing
Financial markets are giddy over the prospects that a $51 trillion
global economy has once again displayed Teflon-like resilience in
coping with a major problem.  There are signs that a benign global
rebalancing could well be at hand.  A downshift in the US economy has
been largely offset by improved economic conditions in Europe and
Japan.  Meanwhile, the dollar has resumed its five-year downward
trajectory – tilting the world’s relative price structure against the
mother of all external deficits. My advice is to keep the champagne on
ice – there is a critically important piece to the global rebalancing
puzzle that has yet to fall into place.  (Morgan Stanley)


Home Prices Fall in Rich New York Suburbs Once Immune to Slump: The U.S. housing slump has hit New York City’s richest suburbs. Wealth and excellent credit have until now spared bedroom communities in New Jersey, Connecticut and New York’s Westchester County from declines in home prices. Now the tightening of credit in response to rising subprime defaults has disrupted the real estate food chain, bringing the national housing slump to Manhattan’s doorstep. Prices fell as much as 18.8 percent this year in 15 of the 24 areas in which data was collected.  (Bloomberg)

Reuters subprime coverage page

Supply of Homes Continues to Grow The supply of houses and condominiums available for sale continues to grow quickly in much of the U.S., reflecting weak sales. The number of homes listed for sale in 18 major metropolitan areas at the end of April was up 7% from March, according to data compiled by ZipRealty Inc., a national real-estate brokerage firm in Emeryville, Calif. The data cover listings of single-family homes, condos and town houses on local multiple-listing services. The increase was above the seasonal norm. Over the past 22 years, home inventories nationwide have increased an average of 4.5% in April from March, according to Credit Suisse Group. Spring is the busiest time of year for home shopping, as families with children try to get settled ahead of the next school year. Also, Housing prices are rising in some areas of the U.S. that missed out on the boom. (Real Estate Journal)

Toll cites trickle-up effect of subprime: Toll Brothers Inc. said Wednesday that it doesn’t expect to meet its full-year profit outlook and that more stringent lending standards as a result of problems in subprime mortgages are reverberating in its own luxury-home market. (MarketWatch)    


The Secret of Apple Design The inside (sort of) story of why Apple’s industrial-design machine has been so successful. (MIT Technology Review)   

You’re a Nobody Unless Your Name Googles Well
In the age of Google, being special increasingly requires standing out
from the crowd online. Many people aspire for themselves — or their
offspring — to command prominent placement in the top few links on
search engines or social networking sites’ member lookup functions.
But, as more people flood the Web, that’s becoming an especially tall
order for those with common names. Type "John Smith" into Google’s
search engine and it estimates it has 158 million results. (free Wall Street Journal)

• Enter your zip code, and MSN Auto will show you a map of Gas Station prices in your neighborhood, huighlighting the cheapest  (MSN)

Incredible Tornado Video from May 4, 2007 Ellis County, Oklahoma      


• Weekend Jazz: Gerry Mulligan: "the most influential baritone saxophonist in jazz."   

Disney Sells 2 Million Movies on Apple iTunes   

How to Slow Down a Ferrari: Buy It: How long should the world’s super-rich have to wait before they can buy a Ferrari? The answer has as much to do with how luxury-goods companies create an aura of exclusivity as it does with the global economy’s shifting winds minting more millionaires in places like China, Russia and the Middle East. (free Wall Street Journal)

• Quiz: Do You Have a Bulls**t Job?     (CNN Money)


That’s all from the NorthEast, where the last few Sopranos are slowly slipping away. I don’t really mind — so long as long as Entourage remains as good as it has been!

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What's been said:

Discussions found on the web:
  1. Larry Nusbaum commented on May 12

    Home Prices Fall in Rich New York Suburbs Once Immune to Slump: “Prices fell as much as 18.8 percent this year in 15 of the 24 areas in which data was collected.

    “People who may have bought their first home may not be able to do so now, and that stops some of the movement,” said Doug Werner, a broker at William Pitt Sotheby’s International Real Estate in Darien, Connecticut.”

    Nice contradiction. If prices really are down then it will be easier to buy. People with jobs will still be able to buy houses…..ones that they can afford within their monthly income qualifications. The wealthy? Since when was that a problem?

  2. Barry Ritholtz commented on May 12

    Larry, consider the housing sales chain.

    Starter homes were $200-300k — then they ran up to $500-600k. If they pull back to $450k, they are still relatively pricey.

    Remember, just about every housing price level is at least indirectly dependent on the newest entrants into the housing market. Family A buys a starter home from family B, who then buy a bigger house from someone who is buying yet a bigger house . . . They buy, and so on, and everyone moves up the housing ladder.

    When the entry level homes are no longer affordable, a cascade effect is created . . .

  3. Winston Munn commented on May 12

    The cascade effect seems a valid point – somewhat akin to not being able to move up and out of the mailroom until someone new is hired to take your place.

    Commonwealth Magazine shows the importance of subprime and eased lending standards to the cascade effect: “Since 1980, a period of prolonged stagnation in inflation-adjusted median incomes, the income share of the bottom 90 percent of families has fallen by about 17 percent. Even the very upper-middle class folks in the 90-95 income percentiles barely kept their shares constant…”

    The top 5% can only buy so many homes – subprime, ARMs, liar loans – it’s easier to understand the evolution of those loan types in context of a culture that grows poorer every year.

    Of course, if the great unwashed would just dummy up and ride bicycles to work, eat beans and rice, and keep on buying houses there wouldn’t be all this fuss.

    Or maybe it’s time to introduce the Brazilian-style 1-room adobe hut starter shack.

  4. Eclectic commented on May 12

    Happy Mother’s Day, Barringo.

    –Thanks for another year of fun, music, adventure, analysis, philosophy and all around Big Picturizin’ enjoyment!

    You’re a marvel to behold.

  5. Larry Nusbaum commented on May 12

    “If they pull back to $450k, they are still relatively pricey.”

    Yes, I have thought about that point many times. But, prices always go up. So, therefore, prices have run up too quickly in this cycle in which wages (affordability)have not kept pace. I think that’s right.
    But, in this cycle, it seems that more people have access to wealth from stock options, penalty-free 401K withdrawals and from parents than in any past cycle.
    And, still, rates remain amazingly low.

    The problem with older people (like me) is that we know young people are buying, we simply don’t know how they keep doing it. They find ways. Well, we need to stop thinking in 1980’s prices……..

  6. Larry Nusbaum commented on May 12

    “When the entry level homes are no longer affordable, a cascade effect is created . . .”

    Could this be a false fear? When have starter homes (post-depression) not been affordable in this country? And, in what region? The $450,000 price point you mentioned is driven by demand coming from enough people who seem to be able to afford it. And, when they can’t they move to another region of the country as so many have come to the affordable Southwest.

  7. MarkTX commented on May 12



    prices have run up too quickly in which wages(affordabilty) have not kept place….

    CORRECT… and check…

    as for stock options, 401k, low interest rates…

    NO….that is a fallacy. It is still a small % who get the gravy, everyone else THINKS they are in on big money.

    Quit thinking in 1980 prices….


    In 1980 people were afraid of inflation or the cost of living…


    (Or it is a sin/anti USA to talk about what used to be called inflation….)

    Stockholm Syndrome anyone????

    Anyway, good post Larry!

  8. Barry Ritholtz commented on May 12

    Larry — you mix strata and arguments and internally are inconsistent.

    The folks who can no longer afford the starter homes — are these the folks who are cashing in stock options, etc. to buy a starter home?

    Your logic is inconsistent.

  9. Larry Nusbaum commented on May 12


    MarkTX: Larry gives a damn…..He cares. Son, your loan is approved.
    (he just doesn’t like people who post in the third person)

  10. Larry Nusbaum commented on May 12

    “are these the folks who are cashing in stock options, etc. to buy a starter home?”

    Yes, many in California.
    But, I do not believe affordability is a big issue. Hope that clears it up.

  11. ManhattanGuy commented on May 12

    Hey BR – I see that you completely ignored the better than expected inflation numbers on Friday. If you want to be fair and unbiased, you should try posting something positive about the economy, not just always the negative side of it. Hope you are not short!!


    BR: I never ignore PPI or CPI — just didn’t have time to post on it Friday (meetings all day).

    But since you brought it up:

    • Headline PPI rose .7%, .1% more than expected (core rate was flat)

    • PPI is up 3.2% (year over year) — The flat core reading was led by an unexpected drop in prescription drug prices and a not unexpected drop in both car and truck prices.

    • Food prices were up .4% and are up 7.7% y/y

    • Energy rose 3.4%.

    • Inflation in the pipeline remains robust as intermediate goods (that is ex food and fuel) rose .8% — the biggest gain since last year

    Like the Fed said, inflation remains a major issue.
    And thats with April Retail Sales surprisingly weak

  12. MarkTX commented on May 12


    I believe you care.

    I do not need a loan.

    I do not get free stock options.

  13. Winston Munn commented on May 12


    Lee Wheeler, for one, disagrees with the stock equity hypothesis: “The top 1% own about 33% of all stocks. The top 10% own nearly 80%.”

    With 300 million population, 30 million may be able to extract stock equites for home purchases – would these be those who buy starter homes? I doubt it.

    The total disconnect between those who have and the average working Americans is mind-boggling to me. This is a nation with a negative savings rate – do you seriously believe mortgage lenders offered 80/20 loans out of moral obligation to house the poor?

    What spurred the 84 month note on car loans? Affordability of monthly payments.
    And these are the Chevrolets and Fords, not the BMWs and Mercedes.

    We are no longer a beer economy with champagne tastes – we are a WalMart economy with a Dollar Store bank account.

  14. wunsacon commented on May 13

    >> Or maybe it’s time to introduce the Brazilian-style 1-room adobe hut starter shack.

    >> We are no longer a beer economy with champagne tastes – we are a WalMart economy with a Dollar Store bank account.

    Winston, good stuff! :-)

  15. Michael C. commented on May 13

    Larry Nusbaum said Yes, many in California. But, I do not believe affordability is a big issue. Hope that clears it up.

    Yet affordability is at a 14 year low?

    And it is not just that homes are unaffordable for buyers, they are even unaffordable for owners. Witness the 25 year high in foreclosures for San Diego, for example.

    But hey, what do I know. I believe in the Easter Bunny, too. But I don’t let anyone at the bar know that!

  16. Michael C. commented on May 13

    And does anyone have any more information on Richard Russell and his comment that “an unprecedented world boom lies ahead?”

    I missed that during the week. Thanks for including that in your linkfest, BR!

  17. Scot commented on May 13

    Fair and Unbiased?

    Who is that XXXXX?

  18. Winston Munn commented on May 13

    Michael C: “And does anyone have any more information on Richard Russell and his comment that “an unprecedented world boom lies ahead?”

    He flipped bullish due to Dow Theory indicators – three indicators making highs on the same day. Someone else may know more.

  19. ManhattanGuy commented on May 13

    Scot – no necessary for name calling..unless of course if you are an XXXX


    BR: I edited that out of the prior comment — this is a civil blog, and we don’t name call here

  20. Winston Munn commented on May 13


    Curiosity question. You are obviously no dummy, yet you quote BLS statistics as if they were fact when more and more are doubting the validity of those numbers – is this due to the market’s short-term (3-6 month) reaction to these statistics or do you have more faith in them than I do?

    In other words, is your bullishness based on momentum or do you have a fundamental reason?

  21. ManhattanGuy commented on May 13

    Winston ~ my bullishness is based on the current momentum (more than underlying fundamentals). i personally believe the market has more steam left in it. My point is that how BR ignored to report on May 11th that the core inflation came in flat for the 2nd straight month. I am not sure if looking at the economy through a negative lens all the time will help here. If that is the case, your blog is no different from watching Fox News.

  22. Winston Munn commented on May 13


    Thanks for responding. I hope from my posts that all are aware that I consider my views only that – my views, and others who hold different views may well be right and I may be wrong.

    Your answer confirms to me that you are bright as expected – I somewhat anticipated your views were based on a more pure momentum based approach as fundamentals do not argue strongly for a continued sustained runup in this market.

    As for inflation figures, personally I could care less (other than I know the market reacts shotterm to them) what the BLS pronounces as the figures are so distorted as to be meaningless chatter more concerned with reducing COLA effects than on inflation fighting. In fact, most governrnment statistics have become so politicized over time as to be virtually worthless.

    I do not fault your views though, as in the short term bullishness has worked – I simply keep in the back of my head the notion that momentum works until it doesn’t work any more, while economic fundamentals are unimportant until they become important.

    The timing is what no one knows.

  23. ManhattanGuy commented on May 15

    Thanks Winston – Not sure why RE market is so healthy in Manhattan. Don’t mean to brag … but I just flipped my property for a nice 70% profit on my original investment. Woohoo!!

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