Yesterday, we looked at the week that was. Today, we preview the coming week.
The WSJ’s Lookahead notes that "Analysts are cautiously optimistic about the effects of the Fed’s decision to cut the discount rate. But the near-term direction of stocks still hangs on "what shoes happen to drop" in the credit market, says Art Hogan, of Jefferies & Co. More news of frozen funds or troubled lenders would continue to rattle the stock market, he says."
Its a very light week of economic releases, with the Conference Board’s index of leading
indicators on Monday (Its declined in four of the last six months). Not much happens til Friday, when we get the Durable-goods report, and July new-home sales.
Earnings continue to trickle in. We already heard a disappointing report from Home Depot (HD); arch rival Lowe’s (LOW) reports Q2 results Monday. If my own personal spending there is any indication, they should have a boom quarter (alas, it don’t work that way!) Target (TGT) reports Tuesday; they seem to be the discounter retailer holding up tyhe best in the presentenvironment.
On Wednesday, we get a snapshot of the
demand for McMansions and luxury homes when Toll Brothers (TOL) reports Q3 profits. Its expected to be grim report
of write downs and low buyer traffic.
A slew of other retailers reports this week: Gap (GPS), Limited Brands (LTD), Barnes & Noble (BKS), AnnTaylor Stores (ANN) and Saks (SKS).
The big question: Has the credit crunch been alleviated, and investor confidence restored? We will find out soon enough. In the mean time, its the preview linkfest:
INVESTING & TRADING
• Remembering a Classic Investing Theory:
More than 70 years ago, two Columbia professors named Benjamin Graham
and David L. Dodd came up with a simple investing idea that remains
more influential than perhaps any other. In the wake of the stock
market crash in 1929, they urged investors to focus on hard facts —
like a company’s past earnings and the value of its assets — rather
than trying to guess what the future would bring. A company with strong
profits and a relatively low stock price was probably undervalued, they
said. (New York Times)• Why are big American companies hiring foreign-born CEOs?
Gross’ first law of journalism holds that any phenomenon found to occur
three times is a trend. And clearly, there’s a trend of Dow components,
the iconic representation of American corporate achievement, appointing
non-American CEOs. (Slate)• 5 strategies for a sinking market:
To make sense of this condition, which is beginning to look like a
slow-motion crash, I’ve turned to five analysts and observers who have
provided a lot of great advice to readers over the past decade. I’ll
start with the most bearish and work my way toward optimism. (MSN Money Central)• Dow Theorists watch, worry and wait: Russell now seems to be hinting he won’t give up on the bull market, which he finally acknowledged only recently, until the Dow falls below 10,643, giving up half of its gain since 2002. Gulp. That’s rather a long way down. (Marketwatch) see also Is the Dow Theory now on a sell signal?
• The New York Times, the Magazine Cover Indicator, and Mean Reversion
• At Mortgage Banks,`Going Concerns,’ Going, Gone:
You think your job is tough? Think about the poor schlimazels from
Deloitte & Touche LLP who blessed the books at American Home
Mortgage Investment Corp., mere months before it went belly up.
(Bloomberg)• Say hello to the Trichet Put: Five Reasons to Welcome a Global Credit Crunch: Stock markets have tumbled, lending has been frozen, and central banks have injected emergency funds into the banking system. It has been impossible to miss the atmosphere of panic in financial markets for the last 10 days. But hold on. So long as it doesn’t turn into a rout, it’s healthy to blow the froth off the top of a four-year bull market. Once you get rid of the excess, you can see the substance underneath. Here are five useful things that might come out of the credit crunch of August 2007. (Bloomberg)
• Is Productivity Growth Back In Grips of Baumol’s Disease? Named for economist William Baumol, the theory argues that the labor-intensive nature of some services acts as a constraint on productivity growth in an economy that increasingly produces services. It’s relevant again years after some economists pronounced it "cured." Between the mid-1970s and mid-1990s, annual productivity growth in the U.S. nonfarm business sector averaged about 1.5%. In the past decade, it has averaged about 2.6%. For a couple of years in the early 2000s it was near 4%, and Mr. Baumol’s idea looked destined to join others in economics that looked good in theory but wrong in practice. Yet last week’s downward revisions of U.S. productivity growth for the past three years suggest that the trend is closer to 2%, and shows that productivity growth has slowed for four straight years (free Wall Street Journal)
• Credit contagion Is the worst over? Fortune’s Peter Gumbel offers a
10-point guide to understanding two harrowing weeks – and what’s likely
to happen next.• Countrywide Falls; Merrill Cites Bankruptcy Prospect:
Countrywide Financial Corp., the biggest U.S. mortgage lender, fell 13
percent, the most since the 1987 stock-market crash, after Merrill
Lynch & Co. raised the possibility of bankruptcy. "Effective
insolvency” would result if creditors force Countrywide to sell assets
at depressed prices or investors lose confidence in its ability to
raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in
a research note. (Bloomberg)• WILD RESEARCH: Thought
Contagion and Financial Economics: The Dividend Puzzle as a Case Study
ECONOMY
The Wall of Worry is ground zero for this market’s recovery:
• IT’S NOT CONTAINED, IT’S COUNTRY-WIDE. And even global: On Borrowed Time Barron’s explains the Fed’s actions.
• In Time of Tumult, Obscure Economist Gains Currency:
The recent market turmoil is rocking investors around the globe. But it
is raising the stock of one person: a little-known economist whose
views have suddenly become very popular. Today, his views are
reverberating from New York to Hong Kong as economists and traders try
to understand what’s happening in the markets. The Levy Economics
Institute of Bard College, where Mr. Minsky worked for the last six
years of his life, is planning to reprint two books by the economist —
one on John Maynard Keynes, the other on unstable economies. The latter
book was being offered on the Internet for thousands of dollars. (Wall Street Journal) See also Fed Treads Moral Hazard• Credit Lessons from 1812 by Michael Farrell, Chairman of Annaly
• Being Right Is Bittersweet for a Critic of Lenders: For more than a decade, even before he was named a governor of the Federal Reserve Board in 1997, Mr. Gramlich was warning of dangers in the housing market, a stance that has made him a sought-after expert in the current crisis. Still, in June, he published a timely book, Subprime Mortgages: America’s Latest Boom and Bust,” that has linked his name once more to the home loan situation, which he says he never could have expected would become so dire. (New York Times) See also How Missed Signs Contributed to a Mortgage Meltdown
HOUSING
• Overrated Portfolio’s Jesse Eisinger explains how the complicity of the ratings agencies.
• Mortgage Fraud Is Prime: Amid a jump in the number of foreclosures, federal and state prosecutors have stepped up efforts to crack down on mortgage fraud. The scrutiny by prosecutors comes as the housing industry undergoes a shakeout, further exposing fraud schemes said to be as rampant as ever. Federal prosecutors in a number of jurisdictions — including Houston, Los Angeles, Phoenix and New York — have indicted dozens of mortgage-industry professionals in recent months for their roles in a variety of alleged scams that were operating as recently as June. (Wall Street Journal) See also Home Inequity: Borrowers With Good Credit Are Paying Higher Rates.
• Why is Manhattan’s Real Estate so bulletproof? According to the New York Times, its a robust local economy, huge Wall Street bonuses, and the weak dollar: Up to 35% of real estate agents’ clients in the the Big Apple are overseas buyers: Manhattan’s Real Estate Slump That Wasn’t
• Real Estate’s Fault Line:
Call it the international house of pancaked leverage, built on the
proliferation of subprime and exotic mortgages that did away with many
of the safeguards built into the classic 30-year fixed rate with a 20%
down payment. Riskier loans originally designed for a narrow band of
home buyers–interest only, adjustable rate, balloon payment, no
documentation (of income, that is)–took off broadly in the last rising
market, and Denver was one of the many areas where they were hot. (Time)
WAR/MEDIA/POLITICS/ENERGY
• Warren Buffett to Raise Campaign Funds for Obama’s Presidential Bid
• A fascinating discussion about last week’s Newsweek cover story: The Truth About Denial. Newsweek called the global-warming deniers "A Well-Funded Machine." This week, one of their editors complains about "Greenhouse Simplicities" (If it turns out he is funded by a oil company, I will personally run him over with a Prius).
• Cartoonists Say Goodbye to Karl Rove
• Army Reports Brass, Not Bloggers, Breach Security
For years, the military has been warning that soldiers’ blogs could
pose a security threat by leaking sensitive wartime information. But a
series of online audits, conducted by the Army, suggests that official
Defense Department websites post material far more potentially harmful
than anything found on a individual’s blog. (Wired)• Venezuela: is Hugo Chavez in control?
TECHNOLOGY & SCIENCE• Seeing Corporate Fingerprints in
Wikipedia Edits:
Since Wired News first wrote about WikiScanner last week, Internet
users have spotted plenty of interesting changes to Wikipedia by people
at nonprofit groups and government entities like the Central
Intelligence Agency. Many of the most obviously self-interested edits
have come from corporate networks. (New York Times) See also CIA, FBI computers used for Wikipedia edits• 10 Pragmatic Steps To Raising Venture Capital and Do’s and Don’ts for Wooing Angel Investors
• DeskLickr — Flickrize your desktop with this screensaver
• ‘We have broken speed of light’
A pair of German physicists claim to have broken the speed of light –
an achievement that would undermine our entire understanding of space
and time.
MUSIC BOOKS MOVIES TV FUN!
• The John Butler Trio are rising stars in their native Australia, but are not all that well known elsewhere. That might be changing with Good Excuse, the single off of their lastest album, (and my personal musical recomendation for Mike B)
• Blows Against the Empire: The return of Philip K. Dick (New Yorker)
• How pathetic is this story? RIAA Fails to Pay Attorneys Fee Award; Debbie Foster Asks Court to Enter Judgment for Attorneys Fees What a bunch of weasels!
• Wearing your anatomy on your skin: the anatomy tattoo gallery
• Cute! Sandwich Art
Yesterday’s weather report was way too optimistic. I prolly won’t see you on the beach! (Damn weather channel!)
~~~
Got a comment, suggestion, link idea? Or do you just have
something on your mind? The linkfest loves to get email! If you’ve got something to say, then by all means please do.
mr ritholz…what is charles nenner predicting? thank you
Prolly? Prolly? Do you use that as a joke?
Credit contagion Is the worst over?
The issue is cash flow, or the lack there-of. Housing prices went through the roof because people had sufficient cash flow, at low interest rates, to buy the house and make the payment.
Throw in a large fraud by the bond rating agencies, corruption by the Fed and regulatory agencies, out-right fraud by the lenders, and we have had a bubble.
Now, interest rates have rebounded and cash flow is insufficient for the average bloke to buy a house or for many to hold on to the over-priced bubble property they purchased. A reduction in the short term funds rate does nothing to address the fundamental issues of over-priced housing. It will simply allow some pretty shady characters time to unload their toxic shit or spread the risk.
This ain’t over by a long shot. Prices or interest rates have to fall in order to normalize the cost of housing with consumer cash flow. My bet is that prices will fall farther and faster. Interest rates will follow during the derivative recession.
The bubble should have been stopped when commodity prices took off. Oh, I forgot. We can’t tell if it’s a bubble until it collapses. Yeah, right.
Up, UP, And Away, Then down, two days! The clown(king) will lower, and the Jester(clown) will throw a fit, and that will be it!
“Since I am launched into the open sea and I have given my full sails to the wind, nothing in all the world remains unchanged. All things are in a state of flux, all shapes receive a changing nature. Time itself glides on with constant motion, ever as a flowing river. Neither river nor the fleeting hour can stop its constant course. But, as each wave drives on a wave, as each is pressed by that which follows, and must press on that before it, so the moments fly, and others follow, so they are renewed. The moment which moved on before is past, and that which was not, now exists in Time, and every one comes, goes, and is replaced.” Ovidius
There’s something familiar about those global warming arguments.
Aha, here it is:
http://n3xus6.blogspot.com/2007/08/economies-of-scale.html
Reading with interest the « audacious » parallel drawn by Mr Michael Farrell; the accounting of Napoleon army (as established by Mr Mignard) and the financial resources as left after a financial debacle.
The only conclusion available, which comes in my mind « This was a time when the marshals and generals were contributing in life to their duties» I am awaiting to see if modest golden parachutes will be inflicted to Ceo’s and chairmen whom presided to financial frauds and deceits.
PS For accuracy purpose there are few books which are authority when it comes to relate the Napoléon’s campaigns
SEGUR PHILIPPE-PAUL (COMTE DE. 1780-1873). – HISTOIRE DE NAPOLEON ET DE LA GRANDE ARMEE EN 1812. 14 EME EDITION. PARIS. HOUDAILLE. 1842
LA CAMPAGNE DE RUSSIE ; LE RECIT D’UN OFFICIER DE LA GRANDE ARMEE 1812 LABAUME EUGENE
From memory in one these two books there is at the end an exact accounting of the men,horses(600.000 men were participating to this campaign and around 200.000 were back)