August Linkfest: Week-in- Preview

Yesterday, we looked at the week that was. Today, we preview the coming week.

We have a very light calendar of economic releases. All eyes will be on the FOMC, which meets on Tuesday. Few are expecting any change in their stance (Goldman Sachs is forecasting a change in "bias" from inflation-fighting to a neutral stance). I am looking for some acknowledgment in either the statement or the minutes as to the recent credit crunch and market turmoil.

Earnings releases continue this week: On Tuesday, Cisco Systems (CSCO) reports results, and John Chambers has proven himself to be the master of "Beat by a penny".  Marsh & McLennan (MMC) reports before the open; Tyco International (TYC) also reports. We should also hear about earnings from leveraged buyout target TXU — what’s $44 billion amongst friends?.

On Wednesday, American International Group (AIG) will release earnings, and may provide some insight into how much subprime
mortgage-backed securities its sitting on. On the same day, I expect Toll Brothers (TOL) to be somewhat circumspect as we hear how much revenues, contracts and backlogs have been hit even in the luxury home market. We also hear from media heavyweights News Corp. (NWS) and Cablevision Systems (CVC).

Thursday looks like Retailers day: Macy’s (M), Sears Holdings (SHLD) and Wal-Mart Stores (WMT) will release earnings, and preview back to school season. We will also learn how much consumers may be feeling the effect of higher gas prices and the closing of the housing ATM window. Also on Thursday: Sprint Nextel (S) and Vonage Holdings (VG).

Pour yourself a strong cup of joe — its that time:


Why Global Stocks Make Sense
Richards strikes the deepest chord with readers. His interviews seem to
be the ones that get tacked to walls or saved in a desk drawer,
treasures of insight and wisdom. People who have benefited from his
calls on gold (2002) and energy (2004) or just plain enjoy hearing a
smart man put the global economy in perspective ring us asking whether
we plan to talk to him again. His time running public money at two
respected firms, Primecap Management and Capital Research &
Management, may be over, but he still puts in long days of research and
travel, particularly as a member of the Rand Corporation’s Center for
Middle East Public Policy advisory board. During a conversation in his
Deer Isle Maine barn looking out to the waters of near Penobscot Bay,
we found him most bullish, excited by the cheap valuations on many
big-cap U.S. stocks with extensive international operations (Barron’s)

• On Monday morning, I posed the following question: Is the Bull Market Over, or Are Stocks Cheap?

When It Comes to Rebalancing, a Little Means a Lot
It’s a question that has been on many investors’ minds since the stock
market hit the skids two weeks ago: Should portfolios be rejiggered in
light of rising market volatility? (New York Times)

"Some People Worry about Peak Oil. I Worry More about Peak Grain." So says Niall Ferguson in a commentary in the UK Telegraph: Worry about bread, not oil  "Can world food production keep pace? Plant physiologist Lloyd T Evans
has estimated that "we must reach an average yield of four tons per
hectare… to support a population of 8 billion". But yields right now
are, as we have seen, just three tons per hectare. And a world of eight
billion people may be less than 20 years away."

The Coming Oil Plunge:
HERE’S THE LONG AND SHORT OF OIL: Prices of crude will remain high
through 2008, helped by a falling dollar and production shortfalls in
Mexico and Venezuela. But eventually, oil will take a hard fall, maybe
as early as 2009. And when oil’s swan dive finally does arrive, it will
be disastrous for Washington’s twin pets — ethanol and wind power.
Despite generous government tax subsidies, the two sources of "clean"
energy can’t go head-to-head with lower-priced petroleum. Car buyers
might want to think twice before plunking down money on a hybrid.

Macro Analysis and Market Application: Getting the analysis right is barely half the battle. You then have to apply it to the stock market — a much trickier task than you may have imagined . . .      

Grantham Says Hedge Funds, LBO Funds to Collapse:
Jeremy Grantham, the money manager who oversees $150 billion as
chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said
credit-market declines may force as many as half of all hedge funds to
close in the next five years. The loss of investors’ appetite for risk
also may cause at least one global bank and “one or two” of the
largest private- equity firms to go out of business, Grantham, known
for his pessimistic outlook, said yesterday. The 68-year-old investor
said he’s still bullish on emerging-markets stocks. (Bloomberg)

With Asset Boom Essentially Over, Is It Time to Buy?
The more timely question is whether it’s time to buy. The answer: not
yet. The Common Sense approach, reiterated often in this column, is to
buy lower, sell higher, and stocks are now indisputably lower than they
were just a week ago. I buy at intervals of 10% declines in the Nasdaq
Composite, which peaked at 2720 on July 19. A 10% decline would take it
to 2450, which is my new buying target. Even though we’re not there
yet, you should begin to map out a buying strategy. At this rate it may
not be long before it’s time to implement it. (Smart Money)

Getting in the Skin Game An entrepreneur tries to make it easier for everyone to profit from one of the economy’s dirty little secrets:  the $12
billion a year Porn industry. (Business 2.0)

HomeBuilder Myths Meet Reality:
It wasn’t supposed to happen like this. Today’s home builders were
thought to be better-capitalized, savvier and more geographically
diverse than many of their predecessors in the last downturn, in the
early 1990s. While many are expected to weather the slump, concern is
mounting about the balance sheets of a growing number of companies. (Wall Street Journal) see also The Stunning Failure of Responsibility

Mortgage Mania Didn’t Grip Everyone:
It is never pretty, watching a mania come undone. Unless you are one of
the folks who never bought into the madness in the first place.
Michael A. J. Farrell, chief executive of Annaly Capital Management
(NLY), a high-grade mortgage real estate investment trust, is one such
man. And with a perspective on the residential mortgage and credit
markets extending back to the 1970s, he is an excellent person to
consult on what is likely to happen next. (New York Times)   

Poole Says Subprime Investors Deserved to Lose Money: (WOW!) Federal Reserve Bank of St. Louis President William Poole said investors who lost money buying subprime mortgage-linked securities got what they deserved. (Bloomberg)

• Here’s a derivative two-fer:

How does a CDO work?
How does a Credit Default Swap (CDS) Work?      

New contest: Pick one big tipping point. Paul Farrel invites readers to decide which of 20 triggers will end ‘aging bull’ — Folks, that’s the "Law of Unintended Consequences" at work. Pentagon generals call it "Blowback." The Irish know it as "Murphy’s Law." If anything can go wrong, it will. The future’s unpredictable. Best-laid plans can screw up. The law baffles humans, but it works. Sometimes it’s comic, like the consequences triggered by Jerry’s innocent joke. Sometimes it’s tragicomic, like Congress’ agri-subsidies for corn farmers, designed to encourage ethanol production and make America energy-independent. Guess what: Subsidies drove up corn prices so high pigs and cattle are eating cheaper stuff, like trail mix, cheese curls and candy bars. Seriously. Now both gas and meat prices are rising, as Congress debates an wasteful new $260 billion farm-subsidy bill. Meanwhile, Detroit’s still pushing gas-guzzlers while lobbying against higher mileage standards."  (MarketWatch)

Get the Real Picture on Kodak: The Business Press Maven gets paid by newspapers — in addition to Web sites like this one — so about the dumbest thing he can do is call those who run them a bunch of delusional dopes. Thing is, though, these delusional dopes are proving a good point about why we have to pay attention to the words that come out of the mouths of industry leaders — and what is written about those words. (

Credit Chill Freezes Will Leveraged Deals The big chill gripping global credit markets has caused
46 leveraged financing deals around the world to be pulled since June
22, representing more than $60 billion in funding that companies had
planned for mergers and acquisitions. The number of deals pulled last year? Zero. (Wall Street Journal) See also Buy-out deals may be on hold for months and $43bn of deals pulled in a fortnight (Wall Street Journal)

• DJ FiniFinito has some fun with Jim’s CNBC rant Friday: Mashup: Cramer/Crystal Method – Right Here, Right Now (No Idea Mix)   


The Wall of worry continues to build:

America’s Economic Mood: Gloomy: Americans are feeling decidedly sour about the economy and those in charge of it, fueling Democratic efforts to target business interests in the 2008 election campaign. More than two-thirds of Americans believe the U.S. economy is either in recession now or will be in the next year, a new Wall Street Journal/NBC News poll shows. That assessment comes despite the fact the economy has experienced sustained growth with low inflation and unemployment and generally rising stock values ever since the recession that ended early in President Bush’s tenure. (free Wall Street Journal)

Tuesday’s Fed Meeting: Saladin (Fed’s use of prose) vs. Richard (The Fed Funds Rate)

Rubin Should Teach Paulson Secret PPT Handshake: Where is the PPT? If that acronym, short for Plunge Protection Team, doesn’t immediately conjure up images of government officials and representatives of large Wall Street banks (think Goldman Sachs) conspiring to support the stock market, you don’t spend enough time with the black-helicopter crowd. (Bloomberg) see also Market Volatility Won’t Affect Fed’s Decision 

• And just how good was that Non-Farm payroll report?

Minsky Has His Moment: The Minsky Moment is important because it means the beginning of forced selling. Buying driven by ever-increasing leverage stops, and selling to decrease leverage begins. The deleveraging sellers are there because they must sell. 

In a Maze of Indexes, Finding Prices to Live By How fast is the cost of living rising? Few questions about the economy are more important. Nearly every policy decision, every investment decision and every retirement decision hangs on the answer. Inflation today influences our expectations about inflation tomorrow. If people anticipate accelerating price increases, they tend to buy in advance of current needs, often causing those increases to happen now instead of in the future. That process could end up like the great inflation of the 1970s, cured only by a terrible blast of unemployment and financial failure. (New York Times)


Slate’s Daniel Gross  points us to The Real Morons of Orange County  Why America’s most reckless real estate investors come from Irvine, Calif.

The Loan Comes Due: SUDDENLY it’s not so easy to borrow. That is true for homeowners, and it is true for companies. Only two months ago, it seemed as if almost any company could borrow money at low interest rates. Now loans seem to be drying up everywhere. What had seemed like a contained problem, involving home loans to people with poor credit, has suddenly mushroomed into a rout that threatens to make life difficult for everyone who needs to borrow money. Home buyers are likely to pay more for mortgages, and some with less-than-pristine credit or an inability to come up with a down payment may find they no longer can borrow at all. (New York Times)

Foreclosure rates could soar:  Moody’s forecasts that defaults won’t peak until 2008 due to ARM resets and falling home prices. (CNN Money)

Home Insurers’ Secret Tactics Cheat Fire Victims, Hike Profits: Insurers often pay 30-60 percent of the cost of rebuilding a damaged home — even when carriers assure homeowners they’re fully covered, thousands of complaints with state insurance departments and civil court cases show.Paying out less to victims of catastrophes has helped produce record profits. In the past 12 years, insurance company net income has soared — even in the wake of Hurricane Katrina, the worst natural disaster in U.S. history. (Bloomberg) 

• Countrywide Financial (CFC) shows all of their lender-owned property, also referred to as a REO (real estate owned) on their books. They created a tool to search for Countrywide owned properties for sale in your state.

Subprime’s Other Victims: The Yacht-Owners (Dealbook)


A Family’s Benign Neglect at Dow Jones: The primary reason I was in favor of the deal,” said Elisabeth Goth Chelberg on Wednesday, “is because I did not think that family ownership was ever going to be in the best interest of the company.” She paused for a second, and then offered a small, sad correction. “I mean this family ownership.” (New York Times) see also Why Murdoch shouldn’t change the WSJ   

McCain’s Hail Mary If McCain wants to prove he’s still committed to winning, it’s time for him to throw his Hail Mary pass. That can only mean one thing: doubling down on his support for continuing the war in Iraq and taking on his opponents for being half-hearted about it. His big chance to do this will come in Sunday’s early morning Republican debate, the first since the McCain campaign went into its graveyard spiral. (Slate)

Economists look at Global Climate Change

Doomsday Simulations Help U.S. Gird for Hurricanes, Terrorism
The computer screen shows a toxic cloud rolling slowly over buildings,
a visualization that permits scientists to record every lethal swirl
and eddy and to calculate the toll for a city’s residents.It’s a far
cry from "The Sims,” an addictive computer game that lets users create
a virtual universe. As displayed on computers nicknamed “Coyote” and
“Thunderbird,” disaster simulations conducted under a $25 million
program run by Sandia and Los Alamos national laboratories are helping
the U.S. government predict the impact of chemical or biological
attacks, killer hurricanes, or accidents such as the collapse of the
bridge on the main highway into Minneapolis. (Bloomberg)


Biologists Helping Bookstores: according to kottke, "is a guerilla effort to reshelve pseudo-scientific books (books on intelligent design, for instance), taking them from the Science section and moving them to a more appropriate area of the store, like Philosophy, Religion, or Religious Fiction."

The modern science of subliminal influence

Report: Google Working on Cellphone to Compete in Mobile Market According to an article in the Wall Street Journal, Google has created a prototype cellphone (GPhone?) and the company plans to give free subscriptions to consumers by bundling ads with its search engine, Web browser apps and Gmail. see also Report: Google shows phone prototype to manufacturers 

Debunking third-world myths with the best stats you’ve ever seen 

• ‘Mashups’ Sew Data Together
Mashups essentially are a way to take data trapped in separate software
applications and combine them into new, hybrid applications. At most
companies, data typically have been stored in silos — customer
information is in a customer-management system, for example, and
information about order status is in an inventory-management system. (free Wall Street Journal)

Robots and Robotics

Firms accused of trying to mislead consumers on rights: An association of computer and communication companies, including Google, Microsoft and Yahoo, on Wednesday accused several professional sports leagues, book publishers and other media companies of misleading and threatening consumers with overstated copyright warnings.   


Woody Allen on Ingmar Bergman (Time)

The Bourne Ultimatum is garnering some surprisingly terrific reviews for an action flick   

Joy ride with a genius: Racing
idol Michael Schumacher takes Fortune columnist Sue Zesiger Callaway
out for the (face-sucking, tire-burning) ride of her life. (Fortune)

How Do You Escape From a Sinking Car?

HypoSurface is a bizarre undulating computer controlled 3 dimensional wall — see the video

That’s all from the hot, sticky, disgusting,
NorthEast, where I am heading to the beach — waves, ho!


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What's been said:

Discussions found on the web:
  1. Dave C. commented on Aug 5

    Countrywide and Mashups: Countrywide foreclosures $2.1B & Counting – Link

    “The Trend is Your Friend”

  2. W.Edwards commented on Aug 5

    Whoa, there’s something funky going on with Countrywide’s (CFC) website where the REO (foreclosure) inventory data has originated from!

    Even though there has been a 300% annualized rate of growth on CFC’s REO inventory up to Aug 1st, the CFC website is now showing sharp declines that don’t make any sense. Most glaring examples:

    GA – Aug 1: 554, Aug 5: 157
    MI – Aug 1: 1526, Aug 5: 202
    OH – Aug 1: 620, Aug 5: 35

    Either something was wrong with the data reflected up to Aug 1, there’s a technical glitch affecting the current numbers or something major has happened in the background that hasn’t gone public yet.

    Just throwing this out as a caution for anyone who may look at this!

  3. Neal commented on Aug 5

    Maybe they are off by a factor of 10?

  4. VJ commented on Aug 5

    But eventually, oil will take a hard fall, maybe as early as 2009. And when oil’s swan dive finally does arrive, it will be disastrous for Washington’s twin pets — ethanol and wind power. Despite generous government tax subsidies, the two sources of ‘clean’ energy can’t go head-to-head with lower-priced petroleum.

    Actually, prior to the banishment of MTBE (don’t get me wrong, that was some really nasty stuff), which caused a shortage of ethanol to replace it, the wholesale price of ethanol was much cheaper than the wholesale price of regular gasoline, and this was when the wholesale price of regular gasoline was like $1.20. So ethanol would be quite competitive even if the price of gasoline falls to half it’s present price. Even more so when the cellulosic process is refined. Even more so if the Congress continues to remove corporate welfare from Big Oil and add subsidies to Renewable Energy.

  5. VJ commented on Aug 5

    More than two-thirds of Americans believe the U.S. economy is either in recession now or will be in the next year, a new Wall Street Journal/NBC News poll shows. That assessment comes despite the fact the economy has experienced sustained growth with low inflation and unemployment and generally rising stock values ever since the recession that ended early in President Bush’s tenure.

    Fact” ? (Purple Kool-Aid alert)

    I see Harwood is in his usual position as White House stenographer.

    A) “Sustained growth” ? Try massive military spending as GDP.

    B) “Low inflation” ? Only in Bizarro World.

    C) “Generally rising stock values” ? Only if one ignores the inflation that somehow doesn’t exist.

    John conveniently forgot to mention the record bankruptcies, record home foreclosures, the largest inventory of unsold vacant homes in history, “Home price depreciation at levels not seen since the Great Depression”, runaway food and energy prices, declining wages, high levels of jobless workers, the savings rate being negative for the first time since the Great Depression, and Poverty rising every year of the past six years.

    And that’s the short list.

    But I guess it’s all moot if one intends to put one’s hands over one’s ears and sing, LA LA LA LA LA LA.

    (And Murdoch has yet to take over)

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