Yesterday, we looked at the week that was. Today, we preview the coming week.
With the medics attending to Goldilocks — she was mauled after getting caught eating someone else’s porridge — this week will be dominated by rate speculation. With a dearth of economic releases and no major earnings reports, the Fed moves Front and Center. Will they or won’t they before September 18th? Quarter point? Half point? Discount window cut?
Further complicating things are the many Fed speakers lined up: Fed Chairman Ben Bernanke is due to speaks Tuesday (subject: global imbalances). Fed Governor Frederic Mishkin speaks that Monday after the close about the economic outlook. Numerous non-voters also speak this week: Atlanta President Dennis Lockhart, San Francisco President Janet Yellen, Dallas President Richard Fisher.
Across the pond, ECB President Jean-Claude Trichet speaks to the European Parliament on the subprime mortgage crisis; both Bernanke and Trichet meet up at a Bank of International Settlements conference.
Also on the agenda: Gen. Petraeus presents his report to Congress on the "surge." (I assumed this was a written report, but that turns out not to be the case).
Tuesday — the sixth anniversary of the Sept. 11, 2001 terror attacks, and its the first time the anniversay has fallen on a Tuesday since "9/11." My own recollections of that day can be found here.
Enough chatter: We have links to get to this week!
INVESTING & TRADING
• Hey, Big Spenders: Will the rich save the economy? For the last several years, personal consumption has accounted for
about 70 percent of gross domestic product. This decade, Americans’
preternatural ability to spend has rested on the following legs: 1) the
strong housing market, which allowed people to tap into home equity; 2)
cheap and plentiful credit for people at every rung of the economic
ladder; and 3) job growth. (Slate)
• In the Green Marathon, Which Stocks Will Be the Winners? High oil prices, cheap credit and government subsidies have been a boon for companies that promise to make more efficient use of energy or produce it from renewable sources. But it’s unlikely that the investment climate for alternative energy will always be this favorable. If it shifts, some businesses will surely falter. (New York Times)
• Yahoo! Finance introduces Community Sentiment: Fascinating concept I came across on Yahoo Finance — Community
Sentiment. The site wants to look at increases in message board content
to identify when sentiment has shifted. This has the potential to be a very interesting tool — albeit with a lot of caveats.
• Profits of Doom
When financial markets are as volatile as they are right now, wit
stock and bond prices plummeting and soaring in a manic-depressive
fashion, it’s natural for the media to seek out gurus an insiders to
make some sense of the chaos. But in times of crisis it can b hard to
find any insights that aren’t tinged with bias and self-interest. The
result is that the picture we’re getting of the market—and of the
economy as a whole—may reflect what people want to happen as much as it
reflect what is actually happening (New Yorker)
• Is China quietly dumping US Treasuries?: A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable. Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone. (UK Telegraph)
• Credibility of financial blogs is questionable Go figure . . .
• Jeremy Grantham: Danger: Steep drop ahead Credit crises have always been painful and unpredictable. The current one is particularly hair-raising because it’s occurring amid the first truly global bubble in asset pricing. It is also accompanied by a plethora of new and ingenious financial instruments. These are designed overtly to spread risk around and to sell fee-bearing products that are in great demand. Inadvertently (to be generous), they have been constructed to hide risk and confuse buyers.How this credit crisis works out and what price we end up paying has to be largely unknowable, depending as it does on hundreds of interlocking and often novel factors and how they in turn affect animal spirits. In the end it is, of course, the management of animal spirits that makes and breaks credit crises. (Fortune)
• History teaches that financial crises do finish – eventually:
Sometimes historical perspective is needed to shrink the events of the
present into their proper context. The current crisis is about as
unprecedented as the passage of the seasons. See also Don’t write off lure of US assets (FT)
• Market-timing editors more bearish, which is a bullish sign (Marketwatch)
• Unraveling the Subprime Mess: With Congress returning today from summer recess, the nation’s political machinery will turn in earnest on the subprime-mortgage meltdown, specifically on who might be to blame. One likely target: credit-rating firms. Already, the wheels are in motion. The President’s Working Group on Financial Markets is looking into what role the ratings firms played. The Securities and Exchange Commission has opened more than a dozen related investigations and has begun notifying firms that it will soon start a series of onsite examinations. (free Wall Street Journal)
• Scholars Link Success of Firms To Lives of CEOs (Wall Street Journal)
The Wall of worry continues to build:
• First Houses, Then Jobs: The credit crunch that first hit home now is reaching the workplace. News Friday that U.S. payrolls fell for the first time in four years in August makes all but certain that the Federal Open Market Committee will cut its federal-funds target rate at its Sept. 18 meeting, if not before. The main question will not be whether to lower the overnight money rate, but whether to do so by a quarter- or a half-point, from the official target of 5.25%. (Barron’s)
• Bernanke, the Fed and 2008:
Until financial markets went haywire last month, the Sept. 18 meeting
of Federal Reserve policy makers was shaping up to be pretty routine.
The Fed, after all, has not changed its benchmark interest rate in more
than a year, and there was no reason to think that the coming session
was going to be any different. It sure looks different now. The latest
blow came on Friday with an estimate from the Labor Department that the
economy actually lost jobs last month, ending a four-year string of
uninterrupted gains in employment. But even before that dismal report,
most people on Wall Street had been clamoring for the Fed to cut rates
significantly to help ease the credit crunch. (New York Times) See also Plosser Says Fed Rate Cut Not Always Needed to Soothe Markets
• Countrywide May Fire as Many as 12,000 as Mortgage Demand Wanes:
Countrywide Financial Corp. (CFC), the biggest U.S. mortgage company,
plans to cut its workforce by 10,000 to 12,000 in the largest round of
firings since the industry’s contraction began last year.New U.S. home
loans probably will drop 25 percent in 2008 from this year’s levels,
forcing the company to eliminate as much as 20 percent of its staff,
Calabasas, California-based Countrywide said in a statement yesterday.
(Bloomberg) See also Dollar Falls to Lowest in a Month Versus Euro Amid Job Losses
• Homeownership Reached Apotheosis in 21st Century: Homeownership has long been considered a desirable goal. Put a person in a home of his own, the thinking goes, and he starts to care about the quality of local education, maintaining a drug- and crime-free neighborhood, and the appearance of his property and the block on which he lives. (See Summers, Lawrence: "In the history of the world, no one ever washed a rented car.”) Once the government decided homeownership was in the public interest, it went about making it more affordable. Mortgage interest and real estate taxes are deductible. The first $250,000 of profit ($500,000 for a married couple) from the sale of a home you’ve lived in for at least two years is exempt from capital gains taxes. (Bloomberg)
• What People Can Do If Foreclosure Looms: More and more borrowers, many with adjustable-rate loans, are finding themselves in Mr. Wilt’s shoes. Nearly one in five subprime borrowers, or those with poor credit, were 60 days or more past due on payments in June, according to First American LoanPerformance. But the problem is spreading to other homeowners: Also in June, 1.24% of second mortgages for so-called prime borrowers, those with better credit, were 60 days or more late, up from 0.54% in the same month last year. And some 4% Alt-A borrowers, who fall between subprime and prime borrowers, were 60 days or more past due in June, up from 1.25% in the same month last year. (Real Estate Journal) See also New Mortgage Foreclosures Set Record
• Why California housing matters: Affordability ultimately hits the economy: Stephen Levy is worried about the health of the housing market in California. Even if you haven’t heard of him or are simply tired of hearing about anything having to do with housing, Levy is a man who should be listened to. As senior economist at the Center for Continuing Study of the California Economy in Palo Alto, Calif., which he co-founded more than 35 years ago, Levy has seen more than his share of cycles. This cycle doesn’t look like it is going to end well, he says. His reasoning is deceptively simple: "There’s a limit to what people can afford." When the coastal areas of the state were reporting home prices that seemed unrealistically high in the late 1990s, Levy was among those who thought prices throughout the state, on average, could go even higher. (Marketwatch)
TECHNOLOGY & SCIENCE
• Iraq War Veterans are using
the web to protest their treatment at the hands of the VA and Pentagon.
The way war vets are treated is a national embarrassment . . .
• Storm worm botnet more powerful than top supercomputers:
The Storm worm botnet has grown so massive and far-reaching that it
easily overpowers the world’s top supercomputers.That’s the latest word
from security researchers who are tracking the burgeoning network of
Microsoft Windows machines that have been compromised by the virulent
Storm worm, which has pounded the Internet non-stop for the past three
• How to write a perfect email: Email, not the web, is the most-used Internet application by transaction volume. It’s also the most misused. Since it’s such an important and often overlooked component of our online lives, I’m going to step away from preaching about the web for a moment and focus on simple steps to make your email discussions more effective. (Wired)
• Art of Office: Using Microsoft Office to create art. Fascinating.
MUSIC BOOKS MOVIES TV FUN!
• Can humans count before they can speak? That’s one of the many fascinating discussion in The Number Sense: How the Mind Creates Mathematics You can read the NYTimes Book Review here; the Times Book Review also posted the first chapter here.
• Are America’s Rich Falling Behind The Super-Rich? Hysterical video, via the Onion
That’s all from the Northeast, where the hazy and humid days of summer are still making themselves felt.