Another wild week is in the books. This one had a little something for everyone: mystery, intrigue, murder (ok, no murder).
Let’s start out with the numbers: Some of last weeks big winners were this week’s losers, and vice versa: Crude Oil gained 3% — its up ~43% over the past 52 weeks! Emerging market stocks tacked on 2.4%, while European bourses added 1%. So too, did Gold grab a 1% gain.
The Nasdaq edged up 0.9%. Global stocks, corporate junk bonds, and commodity futures all saw 0.7% moves higher. The S&P, the Dow and Investment Grade Bonds each were barely positive, gaining 0.3, 0.2, and 0.1% respectively. The Russell 2000 spent this week in the red, down 0.4%. REITs, last weeks big gainer, were down 2.2%.
Had it not been for Thusday’s intraday reversal — a ~250 point peak to trough swing — the weekly numbers would have been much better.
Barron’s Trader column notes that while "early reports on third-quarter results, which were disappointing in
some high-profile cases like Alcoa (AA), Monsanto (MON) and
International Paper (IP)," we should not read too much into them. "There are reasons to believe the quarter will still be positive and beat expectations, even if not by as much in the past."
They add:
"It’s true that estimates have come down hard. Analysts’ quarterly S&P 500 earnings-per-share projections have dropped, thanks mainly to subprime-mortgage losses at financial companies and home builders. Including those that have reported as of early Friday, the consensus is for S&P 500 third-quarter profits to fall 1.3%, says Morgan Stanley analyst William Smith. That’s a notable swing from a projected 5.5% rise at the beginning of the third quarter, and the lowest expectation since 2002. From the 41 S&P 500 members reporting by midday Friday, earnings have missed expectations by 0.3%, says Smith.
Hold the phone. There are important factors that suggest the gloom is misplaced.
It’s very early in the season, and so far the headline number has been skewed lower by a small part of the S&P 500, Smith says. For example, take out the $800 million or so in losses from two mid-cap homebuilders and the earnings growth of the remaining 39 companies is a much more robust 6%. And the median growth rate, including those already reporting, is 7.8%, according to Zacks Investment Research."
Interesting take. This week is heavy with bellwether earnings reports (nmore on this tomorrow) so we will know much more soon enough.
Where to begin this week? Market Rally? The Dollar? Housing? No matter — we got it all
covered. Its linkfest time!
INVESTING & TRADING
• BusinessWeek’s Gene Marcial says This Market Rally Has Legs: Recession fears are misplaced, and despite some sluggish sectors in the U.S., worldwide growth should keep pushing the numbers up.
• Strong Gains in U.S., Except by Comparison:
Of the 83 countries for which records of a major stock index were
available, the American share price increase in the five years after
Oct. 9, 2002, was better than those of only four. All four are small
countries, either in the Caribbean or Latin America. (New York Times)
see also Yeah! We’re #78! (of 83 global bourses).• Spoilsports on the rally:
–As Tech Heats Up, Sages Dust Off Bubble Indicators
–Some Warning Flags Fly As Stocks Continue to Soar• Meanwhile, the Fear & Greed Index is neutral
• Earnings season casts long shadow on rally:
The unexplained rally in shares of the search engine giant up more
than 30% in the past seven weeks and some 7% in the past five trading
days, can only mean tech-crazy investors are gearing up for another
blockbuster quarter. But behind the traditional pre-earnings rally in
Google, which this time has helped propel the Nasdaq Composite Index to
within shouting distance of 3,000 for the first time in almost seven
years, dark forces are gathering. (MarketWatch)• Good visuals: Romping Through the Biggest M&A Year in History (free Wall Street Journal)
• The very erudite Dr. John P. Hussman and I see things very differently on the Liquidity question:
–The Bag Will Not Inflate, And Liquidity Will Not Be Flowing (Hussman Funds)
–Money Supply Growth: 24.3%! (Big Picture)
• WSJ QUIZ: How Well Do You Know Municipal Bonds?
• The startup king’s new gig:
After more than a decade of launching dotcoms, Gross has rediscovered
the pleasures – and profitability – of the physical world. Idealab’s
current lineup is crowded with companies that make actual products:
robots, 3-D printers, electric cars, rooftop solar collectors. As Gross
puts it, he’s much more interested today in "atoms businesses" than
"bits businesses." He recently sat down with Business 2.0
Editor-at-large Erick Schonfeld to talk about why (Business 2.0)• Fortune’s India, Inc.
• Why Google should invest in Microsoft:
Of course Google’s not investing in Microsoft or Yahoo. Buy as a big
and growing problem that more successful competitors and a more
balanced market could help it solve – an ever-growing swath of the
world’s businesses are becoming dependent on its services.That’s a
recipe for regulation. To stave that off, Google needs strong
competitors. Google may be too good for its own good. Or maybe its
competitors, especially Microsoft and Yahoo, are just inept at copying
its successes. The company has taken an overwhelming lead in Internet
search, with a corresponding advantage in search advertising. It
commands about 50% of the market for Internet search in the United
States. (Fortune)• Barron’s asks: "How Has Bush’s Stock Market Done?"
• This is circulating via email around trading desks: Market Cheat Sheet: How to respond to new data (very amusing)
ECONOMY
The Wall of worry continues to build:
• Money Supply Growth: 24.3%! The most recent data out of the St. Louis Fed shows the printing presses are running 24/7. see also U.S. Affects a Strong Silence on Its Weak Currency (NYT)
• Why G-7 should stick to the bromides: It has been a long time since
meetings
of the Group of Seven finance ministers were newsworthy events. Though
economics reporters dutifully continue to log the air miles in pursuit
of some elusive hint of a global crisis, their hearts aren’t really in
it. The discussions are over before any of the officials has even
arrived and amount to a series of bromides about the importance of
global economic stability. While currency traders scan it as though it
were some archaeological discovery, the communiqué issued after each
gathering is as predictable as a telephone directory, only not as
interesting. (London Times)• Alan Greenspan on The Daily Show
• Study Says Wal-Mart Often Fights Local Taxes:
Wal-Mart doesn’t believe just in lower prices — it believes in lower
property taxes, too. The big discount chain has sought to reduce the
property taxes it pays on 35 percent of its stores and 40 percent of
its distribution centers, according to a report to be released today by
Good Jobs First, a group that is critical of Wal-Mart (New York Times)
HOUSING• For the eighth consecutive month, the National Association of Realtors revised their Housing forecast downwards; its now a steeper than previously anticipated
drop of 10.8%.• The United States of Subprime: As America’s mortgage markets began unraveling this
year, economists seeking explanations pointed to "subprime" mortgages
issued to low-income, minority and urban borrowers. But an analysis of
more than 130 million home loans made over the past decade reveals that
risky mortgages were made in nearly every corner of the nation, from
small towns in the middle of nowhere to inner cities to affluent
suburbs. The analysis of loan data by The Wall Street Journal
indicates that from 2004 to 2006, when home prices peaked in many parts
of the country, more than 2,500 banks, thrifts, credit unions and
mortgage companies made a combined $1.5 trillion in high-interest-rate
loans. Most subprime loans, which are extended to borrowers with
sketchy credit or stretched finances, fall into this basket. (free Wall Street Journal)• Desperate Seller Unloads Miami Condo — by the Inch
• And what of the Home Builders?
–Housing: That Sinking Feeling? (BusinessWeek)
–Home builders trying to design a comeback? (Atlanta Journal-Constitution)• When Borrowers Face Foreclosure: THE interest rates on some two million adjustable-rate mortgages will be reset over the next two years, according to an estimate from the Department of Housing and Urban Development, and of them, about 500,000 are expected to go into default. FHASecure, the plan announced by President Bush in September, is expected to help about 240,000 of those borrowers, but the rest may well find themselves on their own. (New York Times) see also Median Rises, but Sales Fall
TECHNOLOGY & SCIENCE
• The Blog Distributed Content Advertising Model
• Google’s Evil Eye: Does the Big G know too much about us? A few months ago, a friend told me that he had stopped using Gmail.
This seemed crazy. Gmail is free, it looks good, and you never have to
delete anything. He thought it was a bad idea to entrust your personal
communication to one company: "You don’t know what they do with your
e-mail. Even if you delete it, it still exists on their servers."
Another friend, a lawyer, told me how Gmail exists in a murky privacy
area. Because the Google servers "read" your e-mail to place the ads
that appear next to it, a note sent via Gmail may not be a protected
communication in the same way that a letter sent through the postal
service is. (Slate)
• The CommSec iPod dollar index
• Death special: How does it feel to die? (newscientist.com)
MUSIC BOOKS MOVIES TV FUN!• Fun discussion at Friday Night Jazz on Frank Zappa
• "Disintermediation Blues” shoots up the charts: “How fast will the music industry model come tumbling down." (Good Morning Silicon Valley)
• Video: Bill Murray Gets His Facts Checked (very funny)
That’s all from the lovely NorthEast, where Autumn has finally arrived, and the leaves are on the edge of turning . . . enjoy your weekend!
~~~
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.
As for earnings, what exactly IS the situation with banking? How much risk are we talking about?
It’s beginning to have the feel of panic below the surface and an actual risk of systemic collapse.
Bringing a little of another topic forward, the Fed has exempted a number of large banks from regulation 23A, which waived the 10% reserve requirements on conduits.
As Karl pointed out, there is more to it as this also bears on regulation W and removes safeguards placed into effect from the Great Depression Era to keep a systemic collapse from occuring – but now these very safeguards have been waived.
Now there is this from Forbes: http://www.forbes.com/business/2007/10/13/banks-siv-treasury-biz-wallst-cx_pm_1013citicorp.html
What is Treasury doing in bid with these banks?
How big of crisis is just below the surface?
Riddle: “What is he that builds stronger than either the mason, the shipwright, or the carpenter?”
Answers- The printer, for his money printing press outlasts a hundred Presidents.
Excess printing press money impoverishes us all with inflation.
The linked NY Times article below reminds me of the sign in an elevator I used to ride daily: “In the event of an emergency, do not become alarmed. Press the button marked ‘alarm’ and await assistance.”
Ok, so, let’s see here, I press “alarm” but shouldn’t become “alarmed”….
Banks May Pool Billions to Stop Securities Sell-off
By ERIC DASH
Several of the world’s biggest banks are in talks to put up about $75 billion in backup financing that could be used to buy risky mortgage securities and other assets.
http://www.nytimes.com/2007/10/14/business/14bank.html?ref=business
Murray is funny…use to spot him every now and then out around my home town – Twin Lakes, WI. Of course we gave him his space; just the way us Cheeseheads are…
Barry, I sure do not want to suggest how to run your blog but some insight into this citi, and the rest of the banking community would be most appreciated. How can such supposedly intelligent people make idiotic choices if it wasn’t all in the name of greed? Futhermore, why should they be able skirt justice? The executives at Enron had to walk the blank, but not these guys? Something seems unjust.
dukeb, and what happens to us speculators who forsaw (i’ve been drinking my spelling sucks..even when sober for that matter)all this coming and now have to eat it because of unnatural market forces. Shouldn’t we be able to be compensated? Couldn’t this make be a case to make it to the federal courts…or am I just whisling into the wind here?
Justin,
I have read a couple of sources, Forbes being one, that state this super SIV may have as much as $100B in funding from the banks supporting it.
Here is the gist of it as I can gather. The ABCP market is still frozen, with no bids for MBS paper. The bank’s conduits are stuffed full of MBS paper, which has been financed by short term debt. If they had to mark-to-market now, all hell would break lose.
To forestall this, the U.S. Treasury brought together some major bank players and it appears those banks have agreed to pony up for a co-op conduit in order to create a market (buyer of last resort) for the MBS crap that no one else wants.
So this appears the deal. Citibank created off-balance sheet SIVs that borrowed shortterm and bought MBS paper, profiting from the higher return versus low borrowing costs. By regulation 23A, they could leverage 10-1. (10% reserve requirement.)
But that wasn’t enough – the MBS market went to crap, shortterm money becaome hard to come by, so instead of taking losses on the MBS and selling out, Citi petitioned the Fed to bail it out of its 10-1 leverage requirement. The Fed agreed, and now who knows how much leverage is used – my guess more like 100-1.
Still, the MBS goes further into the crapper and shortterm money is still hard to find – others have played this game and are in the same boat as Citi.
So, now we have a handfull of big banks who are going to pony up $100B to buy this MBS paper? What will that do for Citi and whomever else is in on the gig?
It will allow them to dump their own SIV MBS holdings at an artificial market price while everyone else will have to eat the big one. The MBS the SIVs sell can then be marked-to-market at this artificial price.
The worst that happens is that the super SUV goes belly up, but that risk is spread around the banks that set it up; meanwhile another 10-15 SUVs of these same banks are saved by selling their holdings and successfully marking-to-market.
Ever heard of the shell game? At least, that’s how it looks to me.
There are serious questions regarding this move. From what source comes the $100B? How does a co-op SIV fall into the 23A and 23B regulations and regulation W? How much exposure will these banks have to losses from this SIV? How does regulation W prevent this co-op SIV from obtaining the federal safegaurds afforded the affiliated banks? Will the banks in question be able to utilize this Super SIV “buyer of last resort” to market the holdings from their own other crappy SIVs?
In short, what the hell is going on, who is at risk, and what type of calamity are we trying to avoid with this move?
Winston, but yet the markets all over the world trend higher, supported by a Chinese consumer who doesn’t command enough salary to be able to consume in quality and quantity and an American consumer who appears hasn’t any gas left in his tank. So much for the theory that the consumer leads everything. If I was a guessing man, I’d guess that Alan Greenspan’s conversation with John Steward suggest that the FED actually is about “smoke and mirrors, and so are the big banks of the world.
Isn’t a market say such as « markets fear uncertainty? »
Now that they know that the whole banking system is bankrupt and nevertheless can show profits, it is quiet a relief and they may progress further.
Many banks have now shown that their Net Assets Value are negative pooling them together to guarantee liquidity on their SIV is playing a blindfold game with again private investors savings.
Turnarounds of non-performing assets, which underlying reasons are insolvencies and not market volatility are ill-fated propositions. Intermediaries have shown their limits when it comes to evaluate risks and understand it.
Underwater homeowners cannot re-finance because the market price for the property has dropped. There is a freeze up because the banks have rejected the market price for these securities, choosing to falsely and publically lie about valuation.
There is a criminal cover-up going on that would land any of us in jail including a) the banks are flexing monopoly control and manipulating the market b) the Federal Reserve and the SEC are allowing the banks to mis-state their financial statements by not publically reporting material information while insiders are trading on the information. c) they are manuevering to cheat other investors by dumping their undisclosed toxic crap on them as well as withholding information from investors in their stock. d)
IMO, the US Treasury and the US Federal Reserve are part and parcel in breaking the securities laws of the US, and misappropriating tax payer money to do it. If the risk of a meltdown is so great and the taxpayer needs to pony up, we at least have a right to know about it.
This country has come so far down since bush and cheney were elected and re-elected.
Where’s the outrage. Where are the cops ?
Sany Weil and Citigroup, with the help of Greenspan, dismantled the securities laws put in place after the Depression. Those laws were enacted because of long experience with banks and financial schemers. The same is true of the changes to the bankruptcy laws.
With the financial business accounting for such a large percentage of the S&P, how in the world is it making new highs.
We had better wake-up, and soon. The banks can make the boo-boo go away if we just give them the resources. Criminal defendents don’t usually walk away with just an apology. They have to pay the piper. Under what system are the wall street banks above the law ? When did this happen ?
“Under what system are the wall street banks above the law ? When did this happen ?”
1913