Quadruple Witch Linkfest

Following last week’s rough patch, markets regained their footing this week, as Bonds stabilized. The 10 year settled for the week over 5.1%. 

Overall, the economic numbers were not great: Retail sales gained 1.4% in May, but that was mostly due to higher gas prices. The CPI jumped 0.7%, the fastest pace since April 1999 (excluding Katrina). Mortgages foreclosures rose to an all-time high. And oil passed $68, gaining 5% on the week. It was not just Oil — wheat, copper, gold, cotton, corn, soybeans — all helped to send commodity futures up 3.9%. 

But as Barron’s Trader column observed, that was not what mattered most: "In a liquid world, and compared with real estate, bonds or metals, the stock market manages to look…somewhat safe and chaste. That honor may seem as dubious as being called the least-ugly contestant in a beauty pageant, but it was enough for a winning performance."

And the winners could be found worldwide: The big gainers were the emerging market stocks (+4.2%) and the global stocks (+2.2%). Nasdaq was right behind, tacking on 2.1%. The S&P, Dow and Russell 2000  added 1.7%, 1.6%, and 1.5% respectively. Bonds were the big loser, with REITs getting hit also.

For your clicking pleasure, here is the week that was:


Chet Currier asks what seems to be the question the market’s have been wrestling with: If Bonds Hit Bad Patch, Must Stocks Also Suffer? There are several plausible reasons why higher rates look
like bad news for stocks. But all that is theory. In practice,
does a bad year for bonds automatically mean trouble for stocks
as well? The short answer is no. In the last 15 years, the yield on the 10-year Treasury has risen by
more than 10 percent four times. In three of those four years,
the Standard & Poor’s 500 Index of stocks posted gains averaging
better than 20 percent. (Bloomberg)

• The terms oversold and overbought get tossed about quite often. Unfortunately, many glib pundits and talking heads use the phrase incorrectly:  A fast primer: Oversold!

Bond Yields Were Too Low Anyway: What’s behind this battering of bonds? The usual suspect that has been rounded up by the press has been inflation. But that doesn’t square with the facts: Gold is down, as are industrial metals, while the dollar is firmer, all disinflationary signs. Meantime, Treasury Inflation Protected Securities also don’t evince any increased worries about rising prices. (Barron’s)

LowRisk Investor Sentiment at Extreme Bearishness

Jim Rogers and Bill Gross on Bloomberg: Billionaires Jim Rogers and Bill Gross were on Bloomberg Video yesterday. It sounds like Rogers is doing his best to unload his New York mansion so he can move to China and, since he shaved off his mustache and hired Alan Greenspan as a consultant, Bill Gross hasn’t made all that much sense.

An era of cheap money – gone:
This month’s rise in global interest rates is probably a sign of the
beginning of the end of an era of supercheap money – a change with
profound implications for the recent record-setting stock rally, the
buyout boom and economic growth worldwide. (CNNMoney.com)   

End of the uptick rule —  S.E.C. Ends Decades-Old Price Limits on Short Selling: The Securities and Exchange Commission voted yesterday to end price restrictions on short selling, meaning that investors seeking to sell a share that they do not own will no longer be barred from doing so because the price of the stock is falling. (New York Times)

• With sentiment towards the dollar almost universally bearish, its no
wonder that the market appears to be setting up for a major rally in
the greenback. Some fundamental factors that might be behind the move: Dollar Breakout?

Lehman’s `Gazillions’ in Profit Show Firm No Longer a Bond Shop: Lehman, the fourth-largest U.S. securities firm, made
almost as much trading stocks as it did bonds, and Fuld’s
efforts to expand paid off in gains of more than 25 percent in
investment banking, money management and brokerage services for
the wealthy. Lehman generated 48 percent of its revenue
overseas, almost as much as industry leader Goldman Sachs Group (Bloomberg)

No correlation between president’s ratings and stock market: With President Bush’ approval ratings at an all time low, Mark Hulbert looked to see what it means for the sotck market. Surprsing answer: Nothing.  (MarketWatch)   

The Federal Reserve And History of Money


The Wall of worry continues to build:

A Tale of 2 Inflation Rates: Inflation rates are terrific. Or terrible. It depends upon what you look at. See also Inflation? Food, energy costs’ exclusion debated:

Rising Rates Squeeze Consumers and Companies
The unusually low interest rates of the last three years have been an
enormous boon to almost every corner of the American economy. (New York Times)

Retail sales snap back – and then some: Retail sales snapped back with surprising strength in May from a weak April, the government said Wednesday, news that could ease growing worries about a possible consumer spending slowdown in the months ahead. The
Commerce Department said sales jumped 1.4 percent in May, boosted in
part by higher gasoline prices, after falling 0.2 percent in April.

Fed’s Yellen warns against pricking ‘bubbles’:  Central banks should be prepared to respond to events that could have systemic risks but should not try to "prick" asset bubbles with tighter monetary policy, San Francisco Federal Reserve President Janet Yellen said Friday.  (Reuters)   


•  How are Housing Analysts like the Dot Com Analysts? Henry Blodget observes "Those of you who had the misfortune to live through the dotcom crash
will recall that I and other analysts correctly predicted that there
would be a slowdown and shakeout, but drastically underestimated its
severity and duration. All the way down, we kept revising forecasts
(read: cutting estimates) to previously inconceivable levels, and each
time we cut them, we reiterated our expectation that the inevitable
trough and upturn was about six months away. It wasn’t until two years
after the shakeout began, when half of online advertising revenue had
evaporated and more than 75% of the companies in the sector had keeled
over that the downturn finally ended… And by that time, most of us
were so demoralized that we’d stopped predicting that there would ever
be an upturn."

Toll Brothers Has a Secret: In recent weeks, the homebuilder slashed prices by nearly 20% to sell a block of condo units that have less-than-desirable views in the first tower of Northside Piers, TheStreet.com has learned. What’s more, the company appears to be having trouble selling the remaining 11 units that also suffer from poor views at North 8, a nearby project that has had these units on the market since October 2006. (TheStreet.com)

U.S. Mortgages Enter Foreclosure at Record Pace:
The number of Americans who may lose their homes because of late
mortgage payments rose to a record in the first quarter, led by
subprime borrowers pinched in an economy that grew at the slowest pace
in four years.The share of all mortgages entering foreclosure rose to
0.58 percent from 0.54 percent in the fourth quarter, the Mortgage
Bankers Association said in a report today. Subprime loans entering
foreclosure rose to a five-year high of 2.43 percent, up from 2
percent, and prime loans rose to a record 0.25 percent. (Bloomberg)

Overheated housing markets cool down: Some of the nation’s most overheated housing markets may be cooling off to more reasonable levels following their unprecedented run-up in the first half of the decade.  (CNNMoney)


The wet planet: There was life on Mars (probably):
Scientists now say that an ocean several miles deep once covered a
third of the surface of the planet, enough water to support the origin
and evolution of life. The red planet, they said, had once been a deep
blue, just like Earth. (Independent)

Top 25 Most Popular Blogs June 2007

• Fascinating look at how mankind spread out from East Africa through the
Middle East, Asia, Oceania, Europe, and the Americas over the past
150,000 years. Especially interesting are the interaction of migration
and climate, and the effects of geological events, such as the eruption
of Mt. Toba in Sumatra.

The Best Online Research Apps/Sites You’ve Never Heard Of

Jelly in the Belly: A Diet Pill That Expands So You Don’t:
Italian scientists are testing a new diet pill that turns into a clear,
gelatinous blob the size of a tennis ball that may help shrink
waistlines by giving dieters a sense of satiety. The pill, currently
undergoing clinical trials at Rome’s Policlinico Gemelli hospital,
would be downed with two glasses of water at the first sign of a
stomach rumble.  (Wired)   



• Outstanding video series on the making of some classic albums: I was blown away by The Making of Steely Dan’s Aja, and ordered a bunch of other DVDs by the same producers.

Rocco DeLuca & The Burden have put out the most interesting new rock album I’ve heard in some time: I Trust You To Kill Me. Their sound is original — jangly roots-rock romp laced with bluegrass and countrified leanings. Cole’s expert production brings those mapled vocals — but is flavored with dollops of Jeff Buckley, Coldplay and most of all, Bron Y-Aur Stomp Led Zeppelin (Videos are here; The bands Myspace page has four songs to stream)

Strain on U.S. grid to make blackouts common:  Most people in the United States only
think about where electricity comes from when the lights go out
suddenly. But unless the antiquated transmission grid is fixed,
expensive blackouts that bring modern life to a grinding halt
will become ever more common, according to Lights Out: The Electricity Crisis, the Global Economy, and What It Means To You, a new book by Jason Makansi.

• The two most interesting wrap ups of the Spranos Finale I’ve seen: Sopranos Watch: Don’t Stop and DISSECTING ‘SOPRANOS’ FINAL SCENE: QUESTIONS ABOUND    

Top 10 plays of the 06/07 NBA season (Video)   

I must admit: I am relieved to be finshed with the Sopranos, and I am looking forward to the new season of Entourage, starting Sunday night. 

Enjoy your weekend!


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Discussions found on the web:
  1. Steve commented on Jun 16

    Retail sales gained 1.4% in May, but that was mostly due to higher gas prices.

    Retail sales ex-gas were up 1.2%


    BR: I lost part of that paragraph: It should have read:

    Retail sales gained 1.4% in May, but that was mostly due to higher gas and other commodity prices. When May retail sales are adjusted by the CPI for commodities (goods), May was up only 0.2% and April was down 0.7%.

    The 3 months ended May, price-adjusted retail sales contracted at an annual rate of 3.4%.

  2. Philippe commented on Jun 17

    Interesting and enduring journey of the humankind, according to my readings they were two species of humankind (DNA) one disappeared and survived only through breeding with the surviving present specie. No mention is made of this group in the historical journey from East Africa.

    “How mankind spread out from East Africa”

  3. blam commented on Jun 17

    “If Bonds Hit Bad Patch, Must Stocks Also Suffer?: Chet Currier”

    GDP has been growing through debt expansion, which occurs when wage growth doesn’t keep up with productivity growth. Debt expansion has a finite limit that is related to how much debt one already has and the level of interest rates, which determines how big a payment one can carry. On the margin, one can decide to save or spend on the basis of rate of return versus utility yada yada yada.

    Excess productivity earnings go into the corporate coffers, pumping stock prices into the stratosphere (even though during the time of record profit margins stocks appear to be realistically priced). After debt has expanded to the maximum leverage, consumers run out of borrowing capacity and actaully may begin to default. Bankers get scared or supply-push inflation shows up and rates begin to rise.

    No big deal at first but consumption starts to decline because the people who supply 80 % of the consumption are spending all the money they make and can’t borrow any more, especially at the higher interest rates.

    Corporate earnings begin to slide and the wailing for the Fed to pump more money to reinvigorate debt expansion reaches a cresendo. In a horrifying lurch, stocks are seen as overpriced and the highly levered accumulation phase begins to unwind, but suddenly there are no buyers for overpriced financial assets. News begins to trickle out that the earnings for the past two years were inflated by 15 – 20 pct, the writedowns begin in earnest.

    Well Chet, I think that an economy running on debt expansion may actually be pretty darn vulnerable to rising interest rates.

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