Autumn Linkfest: Week in Review

And that’s the bell!

At the end of the qurter, we see the scoreboard is rather different than many imagined just a few short volatile weeks ago.

The leader for the third quarter is the Nasdaq,which added a solid 3.8%. The Dow Industrials were right behind, gaining 3.6%. Leadership continues to come from Tech and very big cap. The S&P 500 was held back by the financial sector, and gained less than half of what the Dow did — a mere 1.6%. The big loser were the small-caps, with  Russell 2000, sliding 3.4%. Since the Fed cut the discount rate on August 16,
the S&P500 is up 11%. Both the Dow and the Nasdaq gained 4% in the the month of September.

Hotnot_20070928For the week, the big winners were emerging market stocks; They gained 3.8% for the week — as much as the Nazz did for the quarter! Gold added 1.5%, while REITs saw a gain of 1.4%, as the dollar’s slide continued, falling 0.6% against a trade weighted basket of currencies.

Barron’s Trader column noted that the "Dow Jones Industrial Average has
climbed in the fourth quarter for nine consecutive years, and in 24 of
the past 27 years. The Standard & Poor’s 500 has produced
fourth-quarter rallies in 13 of the past 15 years."

Will this 4th quarter be as market friendly as Qs gone by?  Perhaps not; Barron’s Trader column quotes Goldman Sachs economist Jan Hatzius:

"But for all the hopes, there are plot twists that could thwart this year’s happy ending. For a start, last year’s economic rot was well-contained within the housing market and proved meaningful enough to push rates lower but not enough to dent S&P 500 earnings. So even as housing slumped, consumer spending managed to improve 3.3% over last year’s second half, due to the twin tailwinds of declining rates and waning energy costs.

"This year, things look different," says Goldman Sachs economist Jan Hatzius. Consumer-spending growth has already slowed to 2%, which could affect a greater swath of consumer-dependent companies and retailers. "Rates have eased, but credit is tighter." A reprieve from high oil prices also looks unlikely, with crude oil up 34% this year and gas-refining spreads threatening to widen."   

The key will be Q3 earnings. If they stay strong, the Bulls will keep the rally going; If they fall precipitously, then recession talk will begin in earnest, and investors may seek more defensive asset classes.

But that’s still weeks away. For now,we have some links to click!:


U.S. Stocks Have Biggest September Gain Since 1998 on Rate Cut: U.S. stocks rose this week to complete the steepest September advance since 1998 as the Federal Reserve’s interest-rate cut helped energy and raw-material companies lead the market’s recovery from a summer rout. It was the fifth straight quarter of gains for the  Standard & Poor’s 500 Index. The Fed’s Sept. 18 reduction to 4.75 percent of its rate for overnight loans sustained the stock market’s recovery from losses spurred by subprime-mortgage defaults. In July and August, the S&P 500 had the largest slump in four years. (Bloomberg)

Tech Stocks Get Giddy :) Technology stocks are posting big gains, after a long period when they were scoffed at by the market, and some money managers say the recent rally is just the beginning. [This week] three of the best-known tech stocks finished at all-time highs: Google Inc., Apple Inc. and BlackBerry maker Research in Motion Ltd. And the tech-dominated Nasdaq-100 index of large nonfinancial stocks is now up 18% so far this year, reaching its highest level since February 2001. "There’s a lot to be positive about in tech," says Bruce Bartlett, a portfolio manager at the $263 million Lord Abbett Large-Cap Growth Fund, which has roughly 30% of its assets in tech stocks. (Wall Street Journal)

• Bear Stearns snookered the NYT, CNBC, and lots of other folks the other day with a far-fetched story about Warren Buffett. The very next day, they issued a few billion in new debt. I was having absolutely none of it: Buffett to Buy Bear? Bull$%*#

• Merrill Lynch’s 10 major macro themes of the past week (PDF)   

Most hedge fund strategies lost money in August: Most hedge fund strategies lost money last month as the effect of the credit crisis swept through the $1.7 trillion industry, according to firms that track manager performance.Funds run by firms including SAC  Capital, Red Kite and Third Point were among those affected.An index of hedge fund managers run by Credit Suisse (CS) and Tremont Capital Management fell 1.53% in August, leaving it up 7.03% so far in 2007, the firms said on Monday.All the different strategies tracked by Credit Suisse and Tremont lost money last month, including managers with a short bias, who mostly bet on declines in the price of securities, the firms noted. (Marketwatch) 

Still Seeing Bargains, Selectively: The Federal Reserve’s interest rate cut has given fresh momentum to the stock market, but that could make buying opportunities harder to come by. Still, fund managers say they are finding companies that offer solid growth prospects at a decent valuation.(New York Times)

Fed’s Rate Move Slows Nasdaq Bears:
Short-selling activity fell sharply on the tech-stock-led Nasdaq Stock
Market in the latest monthly reporting period, which included a rally
in tech shares as investors placed their bets ahead of the Federal
Reserve’s latest interest-rate cut. (Wall Street Journal) but see European Stocks Post Quarterly Loss   

Brokers’ Fictitious Gains: Most of the Street applauded earnings by the big brokers. They shouldn’t have — the earnings gains, which were due to a new accounting rule, don’t exist.   see also Why I Distrust Goldman Sachs’ Good Fortune (NY Post)

Papers Study August Crisis, From First Wave to Last Ripple:
Smart investors love crises. People panic, everything gets out of
whack, securities get cheaper, and the world gets more interesting.
Academic types also love crises because they produce data, which
prompts questions and every once in a while produces some answers.
August, the month in which everything went awry on Wall Street, offered
up fascinating data. The financial world trembled, which it does every
so often, and even though everyone seemed to know it was coming,
everyone seemed surprised. Two recent papers, one academic and one
written for investors, examine the August unwind. They reach similar
conclusions about risk (there is more of it) and the cause of the
collapse (an unknown multibillion-dollar fund unwinding), but they
differ slightly on what it means for the types of hedge funds that were
most affected. (New York Times)

The Barron’s 400: You gotta think an ETF is soon to follow . . . 

How Wal-Mart accidentally became "green":
The “Wal-Mart environmental moment” starts with the C.E.O. adopting a
green branding strategy as a purely defensive, public relations,
marketing move. Then an accident happens — someone in the shipping
department takes it seriously and comes up with a new way to package
the latest product and saves $100,000. This gets the attention of the
C.E.O., who turns to his P.R. adviser and says, “Well, isn’t that
interesting? Get me a sustainability expert. Let’s do this some more.”
The company then hires a sustainability officer, and he starts showing
how green design, manufacturing and materials can save money in other
areas. Then the really smart C.E.O.’s realize they have to become their
own C.E.O. — chief energy officer — and they start demanding that
energy efficiency become core to everything the company does, from how
its employees travel to how its products are manufactured. (New York Times)

Betting On Yahoo! (Forbes)

A SHORT COURSE IN THINKING ABOUT THINKING with the co-creator of behavioral economics, Danny Kahneman   


The Wall of worry continues to build:

• We have long argued that CPI Inflation Data is a "Lie". For the most part, the media has dutifully reported the nonsensical CPI
data as if it were scripture. This drumbeat of criticism — both here
and elsewhere —  has begun to penetrate the MSM. We’ve seen a few
critical columns over the past year or so. But I never expected to see
this kind of critical reporting in a mainstream outlet such as Bloomberg. See also Speechless on Core CPI

In Sequel, Fears Of Stagflation Haunt Economy:
There hasn’t been serious stagflation since the 1970s and early 1980s,
when inflation and unemployment hit double digits. With inflation,
expectations make all the difference, and inflation expectations are
much lower and more anchored now than then.In the 1970s, an oil-price
shock helped to convince people that all prices would keep soaring.
Businesses passed higher costs to customers and workers demanded huge
wage boosts. Inflation became a fact of life.By 1980, the Philadelphia
Federal Reserve’s inflation expectation survey found professional
forecasters anticipated consumer-price inflation of nearly 9% annually
over 10 years.In the first half of this year, the survey projected
long-term inflation at less than 2.5%. Consumers and businesses are now
used to low inflation. Having learned from history, central bankers are
more vigilant.(Wall Street Journal)

Is the Fed Deflating?   

Fed Bank Presidents Warn Against Assuming an October Rate Cut: Four Federal Reserve bank presidents warned investors against assuming the central bank will lower interest rates in October, indicating that weaker economic data would be needed to justify the move. "It would be a mistake for markets to bake into the cake the assumption of ongoing rate cuts,” St. Louis President William Poole said today in New York. Atlanta Fed President Dennis Lockhart said he had an “open mind” on the need for further reductions. The remarks are at odds with traders, who are betting that the Fed will lower borrowing costs for a second straight meeting on Oct. 31, interest-rate futures show. Stocks fell to their lows of the day after Poole’s remarks. (Bloomberg)

The Econoblogosphere!

• Inflation rates in China are very high: Food inflation is running 18.2% year-over-year, led by meat and poultry (49%) eggs (23.4%) and vegetables (22.5%): see Exporting Inflation from China   see also Inflation is Dead? Part II

Housing Chill Grows Worse, Bites Consumers: The housing market is going into a deeper chill, and consumers are starting to shiver.Sales of existing homes in August fell sharply, and home inventories by one measure soared to an 18-year high, according to data released yesterday. One major home builder, D.R. Horton Inc., is auctioning homes this weekend with starting prices for some units at 50% off an earlier price.The housing market is worrying consumers, raising fresh concerns about economic growth. Consumer confidence fell this month to its lowest level in almost two years, a new survey showed. Retailers such as Lowe’s Cos. and Target Corp. said they’re feeling the pain. Both reported softer-than-expected sales Monday. (Wall Street Journal)



• CNBC reshuffles their line up: Fast Money to 5:00 pm; Kudlow & Co. to 7:00pm   

• Apple iTunes killer? Not quite but, Amazon’s DRM-Free MP3s is quite interesting. is a nexus of information about the United States Congress. Bringing together information on the status of federal legislation, voting records, and other congressional data from official sources, and turning it into an understandable and trackable free information resource for everyday citizens, GovTrack aims to narrow the divide between the public and our government.

Run away the ray-gun is coming : We test US army’s new secret weapon    

The Piracy Paradox: A recent paper by the law professors Kal Raustiala and Christopher Sprigman suggests that weak intellectual-property rules, far from hurting the fashion industry, have instead been integral to its success. The professors call this effect “the piracy paradox.” (New Yorker)   

Trust in Federal Government, On Nearly All Issues, Hits New Low — Even Less Than in

Watergate Era   

‘Miracle’ saved teenager’s eye after chair assault The xrays are astounding . . . 



• One of the all time great science fiction movies is finally restored to its director’s original specs: BLADE RUNNER: FINAL CUT NYC makes its big screen debut in NYC Saturday night.  The Q&A we mentioned last week with director Ridley Scott is now on line. Also, BR Movie is an utterly massive Blade Runner fan site.   

RIAA Complaint Dismissed as "Boilerplate"   

The top 10 hand gestures you’d better get right      


This week, we end with a quote: 

real trouble with this world of ours is not that it is an unreasonable
world, nor even that it is a reasonable one. The commonest kind of
trouble is that it is nearly reasonable, but not quite. Life is not an
illogicality; yet it is a trap for logicians. 
looks just a little more mathematical and regular than it is; its
exactitude is obvious, but its inexactitude is hidden; its wildness
lies in wait." 
G. K. Chesterton


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something on your mind?
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  1. whipsaw commented on Sep 29


    If you run the blog to which you provided a url in post #1, please note that options did not expire yesterday, they expired the previous week.

    But you (or whomever) correctly noted there that the NetBank shutdown did not seem to get much play altho I saw something about it earlier today. Maybe because the bank doesn’t have any branches and isn’t very important or maybe it was just the FDIC’s plan to slip this into an easily overlooked portion of the financial news cycle.

    At any rate, I can imagine that there will be more shutdowns of marginal institutions which will result in the big banks picking up loan portfolios for next to nothing while John Q. Sucker covers the shortfall one way or another.

    Since most people do not have more than $100k in a single institution, I don’t foresee depositors actually taking a hit regardless. But one thing to consider is that if and when the big day comes and your bank is liquidated, I am pretty sure that FDIC will square up with you by cutting a check for your balance less any outstanding loans. So it is entirely possible that you will just wind up with no cash and a prepayment against that second mortgage. Strictly speaking, you are even, but it doesn’t seem quite right that you wound up making a mid-loan balloon payment only because the greedy and stupid bastards with whom you dealt ran their business into the ground does it?

    So deposit at one and borrow from another would appear to be a much sounder plan. I personally have always maintained a minimum of two banking relationships, one national and one local, at least in part because I know that eventually I am going to get pissed off at somebody about something. In recent years, the local side has been a credit union for a lot of reasons all of which revolve around the fact that the people who run it and work there are not serpentine.


  2. peter from oz commented on Sep 29

    if you think predicting this quarter is difficult our commodity driven market looks assured for a speculative run
    nothing fundamental
    china, europe and asian economies all look less commodity consuming from here and all appear headed for a relative slowdown.we all agree that the US looks flat (to be kind)
    so its hard to believe this coming commodity driven qr is not another speculative bubble waiting to burst
    rgds pcm

  3. whipsaw commented on Sep 29

    peter from oz said:
    “if you think predicting this quarter is difficult our commodity driven market looks assured for a speculative run
    nothing fundamental”

    True enough I suppose, but foreign ETFs like EWA that are commodity related are traded in dollars here and will naturally rise as the $USD falls all else equal. A narrow view I admit, but it helps my NAV.

    btw, my son has been living in Adelaide for two years and now says there are no jobs there so he is going to Hobart in Tasmania. What’s that all about, why the hell would there be more jobs there? It would only be of moderate interest to me, except guess who is paying for his exploration of your country?


  4. wunsacon commented on Sep 29

    Whipsaw, I was looking at NZ and Australian properties online and consider them to be expensive. Do those markets have affordability problems?

  5. Dee Lirious commented on Sep 29

    S&P 500 4Q07 up ~3%. Sorry. Lucky if that.
    1Q08 new hire sub-zero. (UE under-reported).
    2Q08 down more (no seasonal hiring bump up).
    Head fakes off 4.5% dead cat bounce selloff and rebound still zig-zag within that range.
    3Q08 frantic Fed manipulation pre-election.
    S&P up ~15% YTD. (China Hang Seng up ~225%)
    4Q08 post-election air-pocket, US and China.
    Prez Guiliani seez Turbulent Era “behind”.
    Price of rye bread >> cost bbl oil in EU’s.
    Just sayin’….

  6. wunsacon commented on Sep 29

    Hey all,

    We’ve all heard worries about “what if” the yen carry trade were to reverse. But, Japan has a higher debt/GDP ratio than the US (well, using cash accounting). If we expect the US to debase its currency to welch on its debts, why wouldn’t Japan do this? So, why should carry-trade participants worry about the yen appreciating significantly (and for a long time)?

    Just wondering.

  7. SINGER commented on Sep 29

    thanks for the Kahneman gems — DABIGPIC4LIFE

  8. whipsaw commented on Sep 29


    From what I am told (by my son mainly), real estate ownership is completely out of the range of most normal people there. When we brought him and his wife back over here in May 06 for a little tour of the US, I took them thru some of the high end Atlanta neighborhoods with houses the size of a smallish hotel- they were less impressed with those than how “cheap” a more or less normal house in other areas was even tho I considered the prices to be absurd.

    So I guess that the answer is yes, there is an affordability problem with the ANZAC area. It seems to me that Australians in Melbourne and Sydney are doing ok but the rest of the country is not so great, ala China. If you want to throw some money into foreign real estate, look at Costa Rica. I was there in May, very cool place (altho I think it is where the CIA guys go once they bail out of the drug trade), and if you buy raw land up in the highlands around Arenal, probably free money. Assuming that the volcano doesn’t blow :)


  9. peter from oz commented on Sep 29

    whipsaw and wunsacon
    plenty of work at very good wages in the minefields of WA/SA/Qld
    not as remote as it might sound as conditions are good and work agreements can include 4 weeks on and one week off with return air fares
    don’t think Hobart will offer the same, but its a nice place!
    for the US Investor our property prices are way overblown
    think costa rica mightn’t offer the same personal security
    we are yet to experience a pricing downturn in housing due to demand from both the aspiring young and the baby boomers/empty nesters
    however there is inexorable upward pressure on interest rates due to a booming economy (even with the worst drought in 100 years) currently only kept stable by global credit risk uncertainty and its potential impact on our financial institutions
    this should bring a dampening of prices by 10-15%
    rgds pcm

  10. wunsacon commented on Sep 30

    Thanks, whipsaw, peter from oz.

  11. whipsaw commented on Sep 30

    peter from oz said:
    ‘think costa rica mightn’t offer the same personal security ”

    hey thanks for the reply but I was not kidding about Costa Rica being run by the CIA, it is the the safest place on earth for an American. Everybody from Mexico to Argentina basically hates us and you can tell it, but these people do not. There are a few bad ass Jamaican immigrants on the east coast and some misfits in San Jose, but otherwise the entire country is like it is on Prozac. Up in the central highlands, an American is considered a good human being, unlike most of the world since 2003.


  12. peter from oz commented on Sep 30

    whipsaw that’s good feedback thanks
    re oz perth and brisbane are doing very well thanks to the resources boom
    wellness in Sydney is like wellness in NY and to the exclusion of housing which is booming inner city melbourne is as well as any user friendly US major
    you should come down but its a big country and a long way so make time
    and if you come all that way don’t miss New Zealand
    rgds pcm

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