End of Quarter Linkfest: Week in Review

That’s the quarter!

While it might have been a bumpy week, it was a helluva Q for most asset classes. The Dow saw its best Q since 2003, gaining 8.5%, while the Nasdaq was
right behind at +7.5%; Despite the newfound love for many of the big
caps, the S&P 500 was the laggard for the quarter, gaining a still
respectable 5.8%.

Those numbers are even more impressive when you realize that the major indices failed to make any headway in the month of June:  the S&P 500 gave up 1.8%, the Dow and the Russell 2000  both slipped 1.6%, while the Nasdaq chopped around, ending up down 0.05%.

For this past week, the biggest gainer was Crude Oil, up 2.2% (hitting a  10-month high of $70.68 a barrel), followed by AAA and Treasuries, up 0.7% and 0.6% respectively. The Nasdaq kept even with Treasuries, while the Dow tacked on 0.4%. The S&P500 gained a bip, while the Russell 200 lost one. Emerging markets, REITs, non-oil commodities, Junk bonds and Gold  all gave up ground for the week.

The final numbers for the week does not describe how erratic the trading was: It is clear that the subprime/CDO mess had traders on edge; With opening gains being reversed, and clawing back from losses. Indeed, the indices repeatedly hit intraday highs only to fail those levels by day’s end.

Barron’s Trader column notes: "Uneasiness over a potentially over-levered market was summed up recently by Punk Ziegel analyst Richard Bove, who outlined a wobbly inverted pyramid. At the bottom is real GDP growth of about 1.9% over the past year. On top of that is personal income growth of about 5.8%. But total credit outstanding has increased 8.7%, asset-backed securities have grown 18.7%, while debt held by broker dealers is up more than 26%."

So where will we begin? The iPhone? Quarter’s end? FOMC Meeting? No, the dominant meme this past week was the Bear Stearns hedge fund implosion, and where that might go next:

INVESTING & TRADING

• Wall Street Fears Bear Stearns Is Tip of an Iceberg:   The near-meltdown of two hedge funds at investment bank Bear Stearns Cos. last week underscored — and in some ways aggravated — a growing
fear on Wall Street: that hard-to-trade investments may suddenly turn
south and set off a broader market downturn. The Bear Stearns funds, whose investors include wealthy individuals, other hedge funds and some of the firm’s own executives, are part of a recent boom in investment vehicles specializing in illiquid assets, such as exotic securities, highways and timber lands. Unlike stocks or bonds listed on an exchange, such assets can’t be readily bought or sold. That makes it hard to establish an accurate price for them. Fund managers have broad discretion in attaching a value to these assets, and often don’t reveal many details of their trades. (Wall Street Journal)

• Hedge Funds laden with collateralized debt obligations have some surprising similarities with a certain well known corporate debacle: 
CDO Hedge Funds = Enron ?

• Who else is sitting with all of this toxic debt? You’ll be quite surprised to see The Poison in Your Pension  (Bloomberg Magazine)

Moving on:

• Mutual funds up 6.3% in Q2, led by natural resources funds: The 8,010 U.S. diversified stock funds tracked by Lipper showed an average preliminary return of 6.3% for the three months ended Thursday. They are up 8.6% for 2007.The final trading session of the quarter was Friday, when major stock indexes were little changed. Collectively, the funds’ assets rose to $4.14 trillion from about $3.82 trillion at the end of the first quarter.The Standard & Poor’s 500 index rose 5.8% during the second quarter compared with an increase of only 0.8% in the first quarter. The Dow Jones industrial average, made up of 30 blue chip stocks, gained more than 1,000 points in the second quarter, advancing 8.5%. Its first-quarter increase was a modest 0.9%.Some of the same fund types that have showed strong performances in recent quarters continued to climb in the second quarter. The 63 China regional funds tracked by Lipper showed an average return of 21%, while two dozen Latin America funds had an average return of 20%.  (AP) 

• Money vs Fortune:

–Don’t count out the bull (Money)

–In a rocky stock market, play it safe (Fortune)

• Buffett Bets a Million: Buffett said he makes $46 million a year in income and is only taxed at a 17.7 percent rate on his federal income taxes. By contrast, those who work for him, and make considerably less, pay on average about 32.9 percent in taxes – with the highest rate being 39.7 percent. To emphasize his point, Buffett offered $1 million to the audience member who could show that one of the nation’s wealthiest individuals pays a higher tax rate than one of their subordinates. "I’m willing to bet anyone in this room $1 million that those rates are less than the secretary has to pay," said Buffett. (CNNMoney)

• Rich investors shunned hedge funds for property in 2006 – study (Forbes)   

• Whoops! An order that originated from Fidelity Investments was transmitted incorrectly, causing shares of Wyeth to be halted this morning on the New York Stock Exchange as specialists identified what they considered erroneous trades . . . But in an episode likely to revive debate about the benefits of human involvement in trades, the Nasdaq was forced to cancel, or break, so-called off-market trades made via electronic platforms in the morning hours prior to the NYSE halt.  Fidelity Data Error Triggered NYSE Stock Halts (The Street.com)  See also: Beware the Fat-Thumbed Trader!

• What Bubble? China’s Analysts More Bullish Than Ever Analysts who cover Chinese companies, such as Zhang, are the most bullish they’ve been at any time in the past 10 years. Total buy calls on mainland shares from local and foreign analysts rose to 67.4 percent of all ratings this month, the highest since Bloomberg began collating the data a decade ago. The bullishness comes as the government is trying to cool a rally that’s made
shares there the most expensive in Asia. (Bloomberg)

• Quote of the Day: "We do think if you’re dumb enough to buy a home builder (share), you ought to buy us."  – R. Chad Dreier, Chairman and Chief Executive Officer of Ryland Group
Inc to an investor audience at the JP Morgan Basics and Industrials Conference, held June 11-12, 2007. (Reuters)

 

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ECONOMY

Funny thing about The Wall of Worry this week: The backward looking stuff is fairly positive, while tomorrow’s forward looking items are all negative  . . .

• Yield Curve Rights Itself Without Fed’s Help: (Bloomberg)

• Ranks of Rich in U.S. Grow at Faster Pace (free Wall Street Journal

• U.S. Deal-Making Topped $1 Trillion in First Half (NYT)   

• Another Greenspan Legacy: "Ben S. Bernanke is not Alan Greenspan with a beard." (Barron’s)

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HOUSING

• Housing Deterioration Continues   

A CNN/Money comparo:

–Slump? What slump? Home values OK
–Weakest home sales in 4 years

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WAR/MEDIA/POLITICS/ENERGY

• Critiques of Iraq War Reveal Rifts Among Army Officers: The conflicting theories on Iraq reflect growing divisions within the military along generational lines, pitting young officers, exhausted by multiple Iraq tours and eager for change, against more conservative generals. Army and Air Force officers are also developing their own divergent explanations for Iraq. The Air Force narratives typically suggest the military should in the future avoid manpower-intensive guerrilla wars. Army officers counter that such fights are inevitable.  See also U.K. Bomb Plot Raises Questions  (free Wall Street Journal)

• Time magazine‘s cover story on Rupert Murdoch:  "They’re taking five billion dollars out of me and want to keep control," Rupert Murdoch was saying into the phone, "in an industry in crisis! They can’t sell their company and still control it?? that’s not how it works. I’m sorry!"  Rupert Murdoch Speaks

• The Washington Post looks at Dick Cheney, the most influential and powerful man ever to hold the office of vice president. This series examines Cheney’s largely hidden and little-understood role in crafting policies for the War on Terror, the economy and the environment.

• Al Gore’s $100 Million Makeover: Not long ago, he was the butt of jokes–lockbox, earth tones, a
postelection beard. Then he dusted off an old slide show and jumped
with both feet into the private sector. The untold story of how an epic
loser engineered what may be the greatest brand makeover of our time. (Fast Company)

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TECHNOLOGY & SCIENCE

• Forget the hype a moment, and consider the following: What Does the iPhone Teach Us About Technology & Commerce?

• Overlooked in the iPhone hype: First Bacterial Genome Transplantation Changing One Species to Another  (This is pretty amazing stuff) 

•
Life at
Google – Perspective from a Microsoftie: From my interview with a former Google employee I hired into ABC Development as a Senior Software Design Engineer —  Here it is. This candidate is also a former MS employee who left the company and founded a Start-up called XYZ, which was purchased by Google and he was hired on as a Senior Software Engineer II / Technical Lead. Here is his take on Google’s environment as well as areas Microsoft should consider improving in
order to be more competitive . . .
 

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MUSIC BOOKS MOVIES TV FUN!

• Blade Runner Turns 25: One of my all time favorite films, based on a 1968 science fiction novel "Do Androids Dream of Electric Sheep?," by one of my favorite Sci-Fi authors, is having an anniversary.

• Why are financial markets becoming more prone to crises even though the underlying economy has grown less risky over time? A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation looks at that very issue. It got a nice review from the CFA Institute.

• Rolling Stone reports on where the music business went wrong: The Record Industry’s Decline   

• This is ostensibly real email has been circulating from a disgruntled employee:  Farewell!

• I’ve been to wineries all over the country, from Sonoma and Napa Valley to Long Island’s North Fork. On either coast, this is great advice: Fifteen Steps to a Successful Winery Visit   

 

I am compelled to remind people that 1.0 of anything is usually problematic, and as much as I find the iPhone droolworthy, I know that 2.0 will be faster/cheaper/smaller with more iPod capacity and all of the bugs worked out. Until, then feel free to keep me in the loop on iPhone Experiences.

See y’all tomorrow.

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