November Linkfest: Week in Review

Triple threat: Stocks suffered their worst three-day decline in five years, as market participants  simultaneously recognized 3 of our favorite themes: Inflation is far worse than previously recognized; Fed Chair Ben Bernanke acknowledged that the Economy was appreciably slowing; The Financials exposure to sub-prime, derivatives and other crappy paper is far worse than previously admitted.

Hotnot_20071109Technology, which has held up better than the rest of the market throughout most of the recent turmoil, was not so lucky this time: It took the biggest bitch-slapping of the major indexes, as the Nasdaq dropped 6.5% for the week. That’s about half an average year’s S&P500 gain. The Nazz is still plus 10% for the past 52 weeks.

The Dow Industrials were off 4.1% for the week; they have fallen 7.9% from the
record close on October 9.

The S&P500 was off 3.7% for the week. The trailing 12 month gains are now a disappointing 5.3%.

The Russell 2000 was off 3.2%, and they are now flat for the past 12 months.

Everything else ‘cept commodities lost ground. Gold popped 3.5%; Crude Oil was up fractionally. They are higher by an astonishing 32.5% and 61.6% respectively for the past year.

Barron’s Trader column notes that whatever fear there is also has an unhealthy dollop of complacency along with it:

"But the slide readily — perhaps too readily — brought out traders jockeying for a buyable bounce. More than one firm noted how big Nasdaq drops typically were followed by gains in the ensuing week or month. Morgan Stanley pointed out how stocks began prior recessions with sharp corrections averaging 14.2%, but followed those with recovery rallies of 20.6%. "Holding stocks during a 14% sell-off is painful, but missing the subsequent 21% rally might be more damaging," notes strategist William Smith.

The anxiety in the credit and option markets grew more acute, but was it enough? The 30-day risk forecast, as quantified by the VIX volatility index, has jumped 78% over the past month to 28.50, but remains shy of its mid-summer spike above 30.8. At the International Securities Exchange, investors were buying fewer than 1.2 calls for every put — down from 1.43 recently, but still more hopeful than the 0.51 registered during the depth of August’s despair."

Regardless, there’s plenty of interesting thing to digest this week. Loosen up your mousing wrist, its time to get clickin’:


Stocks, the Comeback Kids, Lose Edge Is the air coming out of the stock market?  Once-highflying tech stocks are stumbling and the broader market can’t seem to bounce back from its recent declines. Over the past four years, the stock market has repeatedly surprised investors with its ability to bounce back from every decline. This past week, as renewed investor jitters about the economy spread beyond the financial sector, stocks posted three consecutive days of losses that taken together represented the worst percentage decline in five years. (Wall Street Journal)

• What do we know now that we didn’t know then? It seems that many assumptions about risk, earnings, and valuations were all wrong. Were we looking at the S&P500 ex-Risk?

Where’s the bubble?  Oil and stocks can’t both go up in tandem forever: It used to be taken as axiomatic that oil and equities moved inversely.
As recently as five years ago, for example, an academic study found
that an investor could have easily beaten a buy-and-hold in the stock
market over the previous three decades by following a simple rule that
calls for being out of stocks whenever oil, in the previous calendar
month, rose by at least 5%. (Marketwatch)

Best and Worst Performing S&P 500 Stocks Since the 10/9 Top   

Halloween Indicator Comes Up Hollow: Mark Hulbert writes "I HAVE BOTH GOOD AND BAD NEWS for those who are trying to handicap the well-known Halloween Indicator on the basis of how the stock market performed this summer.The good news: There is no statistical reason to expect that just because the last six months were better for the stock market than the indicator predicted, the next six months will be any worse.The bad news: This past summer’s strength is not a good reason to expect the next six months to be any better than average, either.The Halloween Indicator is the seasonal pattern based on the stock market’s tendency to perform better during the November through April period (the so-called winter months) than in the other six months of the year (the summer months). On average, in fact, the stock market has produced all of its gains during the winter months; the market on average is flat during the summer months. This is why the indicator is also known by the old saw, "Sell in May and go away." (Barron’s)

The Credit Recession   

Why you’re not a rational investor:
We like to think we make investment decisions based on facts. But we
often end up paying to express our beliefs, to acquire status, or to
seem smarter than our peers. Investors who abhor smoking or
environmental degradation are regularly told by financial advisors that
they should choose stocks that yield the highest returns, including
stocks of companies that produce tobacco or pollute the environment,
and then donate their profits to campaigns for the causes they support.
(Fortune Magazine)


Performance-pay Perplexes: The havoc on Wall Street following the collapse of
the subprime-mortgage market boils down to a simple truth: for years,
lots of very smart people took lots of very foolish risks, betting
borrowed billions on dubious mortgage derivatives, and eventually the
odds caught up with them. But behind that simple truth is a more
surprising one: the financial whizzes made bad decisions in part
because that’s what they were paid to do.  (The New Yorker)

How Sensitive is Growth in Emerging Markets to a US Slowdown? (Deutsche Bank Global Economic Perspectives)

Stockpicker of the decade: Joel Tillinghast of Fidelity Low-Priced Stock Fund has best delivered consistently superior returns over decade since MarketWatch’s launch.

Bill Fleckenstein renames the Dollar the Xera: That’s a combination of Xerox, for the piece of Xerox paper that it is;
lira, which in the past was one of the world’s chronically weak
currencies; and, most importantly, the fact that it sounds like zero. (See this cartoon and add your comment here)

Sarbanes-Oxley turns 5 amid mixed results   

Carbon Traders Create Cheap Credits in China for Sale in Europe:  Since co-founding Climate Change Capital in 2003, Cameron and his business partner, Mark Woodall, have turned their company into a powerhouse in the burgeoning global market in greenhouse gases. Driven by the Kyoto Protocol on global warming, an accord Cameron helped write, this corner of the derivatives arena is growing as never before.Global warming may present the greatest challenge humans have ever faced. For Cameron, part of a new breed of climate- change capitalists, it also offers something else: a chance to make money. Whether this quest for profit will avert the potentially catastrophic consequences of a warming Earth is, at this point, unknowable. One possible alternative to trading would be to tax emissions, thereby making it costly for companies to keep polluting. (Bloomberg)


The Wall of worry continues to build:

• A weak Back-to-school season, followed by sub-par September and October Retail sales are raising fears of a dreary Christmas . . .  Ironically, in my neck of the woods, Retail sales seem to be thriving (Anecdotal Evidence only)   

• What little Retail strength there was (Sam’s Club, Target, CostCo) was primarily a function of Food Inflation.

• The very funny "Bernanke Cycle" (its a shame its true)

• Inflation wasn’t the reason that Consumer Sentiment Dropped to 2 Year Low; rather, it was a lethal combination of depressed Yankee fans, suicidal Home Builders, Fox’ cancellation of this season’s 24 — and Larry David.   

How Powerful or Wise is the Federal Reserve?

• Has the Fed forgottent he 1st rule of economics? With Crude Oil = $98; Gold = $845, someone needs to remind them that there is no free lunch . . .       

•  The Credit Recession   


Biofuels can match oil production: Peering into the future seldom produces a clear picture. But this is
not the case with bio-energy. Its long-term impacts on the global
economy appear to be pretty clear, making many long-term predictions
quite compelling, including the demise of the price-setting power of
the Organisation of the Petroleum Exporting Countries and the end of
agricultural protectionism. (FT)

Poll Suggests Clinton Is Vulnerable  (free Wall Street Journal)

Herb Greenberg has written about business for
MarketWatch, WSJ, Real Money, San Francisco Chronicle (amongst others).
He details his transition from print to the web in     Life in the online lane. (See also Newspaper Circulation Takes a Hit

Schwarzenegger: The Green Governator?  Deteriorating air quality, coastal erosion, pest infestation and monster wildfires could also convulse the state, the 12th-largest emitter of greenhouse gases in the world. Similar scenarios could befall entire continents, according to a 2007 report by the United Nations’ Intergovernmental Panel on Climate Change, which shares the 2007 Nobel prize with Gore. "I love tackling big problems,” the governor said at a town hall meeting in Chico, California, in June. "I don’t like incremental steps. I like big things.” There are few things bigger than melting icecaps and rising oceans.  (Bloomberg) 


Bloglines top 1000 blogs

What Will Google Mean to Phones?  What new tricks does Google Inc. have up its sleeve for changing mobile phones? With its announcement today of details of its ambitious plans (see related article), the Web search and advertising giant hopes to induce software companies to develop an array of new features for cellphones, from more widely available location-aware services that automatically link users to reviews of nearby restaurants to ways to almost instantly share photos with everyone in a user’s address book. (free Wall Street Journal) See also Google, Bidding For Phone Ads, Lures Partners

The top 50 thinkers

For a Time in the ’50s, A Huckster Fanned Fears of Ad ‘Hypnosis’ It turns out that subliminal advertising never existed . . .  (Wall Street Journal)

Health vs. Pork: Congress Debates the Farm Bill   


Eagles Disintermediate Major Labels, ITMS: Best selling 1970s group Eagles (they have the #s 1 and 18 on the all time charts) have totally bypassed the major labels and Apple. They are selling MP3s and FLACs directly from their site; Wal-Mart is the exclusive reseller of their newest CD — which sold over 700k units in its first week. 

• Rudy Rucker’s new psipunk novel, "Postsingular," available as a free download (or a $25.95 hardback).

How to Win at Monopoly – a Surefire Strategy   

How To Measure Any Distance With The Pythagorean Theorem


That’s all from a weekend of shopping in
the NorthEast, where it now gets dark before 5pm!


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,
send email to thebigpicture [AT] optonline [DOT] net.

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What's been said:

Discussions found on the web:
  1. bizzXceleration: Performance, Value and Profit commented on Nov 10

    Tremors: Assessing the Markets

    Now this was a fun week, wasn’t it ? Lots and lots of news and events. Before doing our weekly review it seemed like a good idea to step back and take a careful appreciation of the markets; plus there’s…

  2. David commented on Nov 10

    There is no “Wall of Worry” people are beyond worrying, they are scared and frightened.

    “Listen to many, speak to a few.”
    William Shakespeare

  3. Fred commented on Nov 11

    The list of Top 50 Thinkers that Barry linked has Alan Greenspan at Number 3. I guess it doesn’t matter what it is that these people are actually thinking about. I think I’ll turn US Currency it ass wipes…

  4. Juan commented on Nov 11

    Predicting the demise of OPEC price setting power (FT) is, well, a little odd since it is to predict what already happened during the 1980s, i.e. oil price formation was shifted into the futures markets during that decade, first in ’83 with the opening of Nymex trade in ‘paper barrels’, then in ’88 when the IPE did same. (plus, of course, the increased weight of non-OPEC production during that decade).

  5. justin commented on Nov 11

    Can’t be a very big “wall of worry,” because I seen plenty of, “Dips,” buying on the dips Friday. If the truth be known o’l wall o’l worry hasn’t the same meaning as it once had. True trepidation is what awaits!

  6. Th Dirty Mac commented on Nov 11

    The Top 50 Thinkers is extremely short on economics/finance. Also, I would have voted for Bill James.

    “Poll Suggests Clinton Is Vulnerable”

    I know its probably a coincidence, but the market tanked at just about the time the results of this poll wewre announced.

  7. Eclectic commented on Nov 11

    Barringo, this is my last special offer of modified terms:

    What about?… Say?… center the cluck-cluck deal around a 4.900 or lower *on* closing, end day naught-siete, or I script a $100 BB certificate for the over?

    Game?… That get you’re little “I’m-not-shoppin’-at-BB-anymore-cause-they-done-me-wrong ” corpuscles itching for another foray back to eat your words?

    But the offer is only good until NYSE opening, Monday, Nov 12, naught-siete. I can’t linger and park the deal like the Fed suggests for some. Too risky… too volatile… too much at stake. I imagine the cluck-cluck suit is pretty itchy and would be pretty hot under the camera set lights. Our readers, not to mention average hard-working market participants everywhere, really depend on leaders for fair dealing, straight talking and for honoring their responsibilities, don’t they? They wouldn’t sit still for fudging contract terms, now would they? And I wouldn’t be none too happy writin’ out the cer-tificate either. So, no… you only have mere hours to ponder this latest challenge.

    I know what you’re thinking:

    …is he kidding or doesn’t he know the history and volatility of the 10-Y-T, and doesn’t he know it might just b-l-o-w his big mouth and his $100 certificate right up in front of this BP audience?… and, you’d like to spend that certificate buying trendy electronic accessories with it after Festivus For The Restivus, right?… and maybe it’s about time to take OLE Eclectic up on it?

    …All that HOT in-flation!… and all this mall shoppin’ talk this weekend right here on TBP, no less… among the most disgruntled class of humanity on the planet. It’s just got to put you in the money, huh?… I mean, it’s just GoT tO!!… Ain’t that what you’re thinkin’ ‘bout now?

    On the other hand of course, you WOULD have to deliver on the cluck-cluck if you’re wrong and… that would be a tad troublesome to have to be shedding feathers on the G.S.N.T. show… so early in the upcoming and newly minted naught-ocho.

    So, you feelin’ lucky, Barringo?… It’s a long, long 7+ weeks, man!… You just got to think luck is on your side:

    Well, are you feelin’ lucky…. are you… Punk?

  8. Mook commented on Nov 11

    I agree entirely with the initial statement in this column regarding inflation being under-recognized. Grocery store prices have almost doubled in less than 2 years. I clearly remember being able to often purchase Cauliflower and broccoli on sale for under $1 lb for broccoli or a head of cauliflower. These days, it’s nearly impossible to find either under $2, typically around $2.50 each. Same story with virtually every vegetable and meat that we purchase. Bread has nearly tripled in this time period. I’ve seen extreme inflation in grocery prices and gasoline prices, but I haven’t seen much inflation in apparel, autos, or housing. Not sure how to make money with these inflation anecdotes, as I don’t see inflation in full force “across the board” yet.

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