Another nasty week following last weeks gains: Despite the Fed funds and discount rate cuts, the market threw a hissy fit, with the Dow taking a ~300 point dip.
The Bulls continue to hold out hope that someone (anyone!) can free them from the morass of a gnarled financial system, choking on a Demon of its own own design (reference intended). Meanwhile, Inflation refuses to go away, growth continues to slow, and energy prices remain stubbornly high. Well, at least the war(s) are going swimmingly . . .
By the numbers, last week was a bit rough — but not outstandingly so. REITs once again got walloped for a 7.5% weekly loss. The Russell 200 also got clocked, sliding 4% while global stocks lost 3.2%. The Nasdaq, SPX, and Dow gave up 2.6, 2.4, 2.1%; European stocks took a 1.5% hit. Gold was down marginally.
The winners? The US Dollar gained nearly a full 1%, and despite this, Commodity futures were up 1.3%, and Curude Oil gained 3.4%. While REITs are down more than 15% for the past 52 weeks, Crude is up nearly 44%.
The technicians will tell you last week was worse than it appeared — especially the ugly reversal following a 270-point gap open on Wednesday , following the coordinated Central Bank credit facility announcement. Both Tuesday and Wednesday were 90/10 days, with 90% of the volume to the downside. Often, short term "reflex" rallies follow that much selling.
Meanwhile, the Bears are showing signs of getting too cocksure, as Mike Santoli points out in this week’s Barron’s column, An Army of Worriers to the Rescue? Santoli is a savvy, long-time watcher of markets. He observes that, given the all the naysayers complaining about the negatives, he has a "hard time taking a place in this chorus just now."
Alas, if only the negativity were an all-clear sign. With the major indices within 10% of their all-time highs — Dow (6%), SPX (7%), and Nasdaq (8%) — its difficult to imagine that the worst of all the negatives are fully reflected in equity prices. Just as Freud said "Sometimes a cigar is just a cigar," so too, can bad news merely be bad news — and on occasion, a harbinger of wickeder things to come. (Where else do you get to read contrary sentiment and homo-erotic Freudian analysis in the same paragraph?)
Looking to the week ahead, we have quite a few items on our plate: Of all the major Wall Street firms, Goldman Sachs (GS) seems to be the only one that profited from the mortgage meltdown (they report Tuesday). Morgan Stanley reports on Wednesday, and Bear Stearns Thursday. Neither is expected to have fared remotely as well a Goldie. Further substantial write downs a both are likely.
Hovnanian (HOV) reports Q4 and fiscal-year results Tuesday. A good look at the consumer comes when Best Buy (BBY) reports Q3 results Tuesday; Circuit City (CC) reports Friday. And economic bellwhether FedEx (FDX) reports Q2 earnings on Thursday (FedEx took down their quarterly estimates about 10% previously)
Lots of Tech earnings this week: Palm reports Tuesday, Oracle (ORCL) reports Wednesday, Micron Technology (MU) on Thursday. Research in Motion (RIMM) reports its third-quarter results Thursday. We’ve been short RIMM for a few weeks, tho we may end up hedging the position prior to earnings.
We have a lot of interesting economic releases this week: Monday afternoon brings the National Association of Home Builders "Housing Market Index." The Home Builders group are a manly trade group, and they don’t sugarcoat the index (It is what it is, no bullshit). Unlike, say, the more effete National Association of Realtors, with their interminable sunshine. Despite the obvious deluge. Tuesday morning we get Housing Starts, and Wednesday is Mortgage Apps.
weekly On Thursday, we learn the final Q3 GDP, and consensus is a laughable 4.9%. As the recent inflation data revealed, this number is sheer nonsense. Also on Thursday are Corporate Profits, Jobless Claims, and the conference board’s bastardized Leading Indicators. Regardless of the monkeying around with these 10 indicators by the Conf Board, they have deteriorated significantly over the past year.
Friday is Quadruple Witching (for real this time), along with Personal Income and Outlays, and Consumer Sentiment.
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• A Bullish Call: Barron’s polls a dozen strategists, who all see higher stock prices in 2008, ranging from 3% to 18%. On average, the group sees the Standard & Poor’s 500 at 1,640 by the end of next year, or about 10% higher than the recent 1486, thanks to global growth and a benevolent Fed.
• Investors Pray For Wall Street Hail Mary With only ten trading days remaining in the calendar year, there will be plenty of investors and fund managers looking to make big gains to pretty up their portfolio before turning the calendar to 2008. (Forbes)
• 2008 Sector Outlook: Technology (BusinessWeek)
• I always enjoy slicing and dicing the interactive Fortune 500 — in terms of profits, revenues, growth, etc.
• This year’s model: Looking for growth stocks when there is not much growth (Economist)
• Sorry, Warren, Your Stock’s Too Pricey: The Class A shares of his Berkshire Hathaway (ticker: BRK-A) have surged 30% since Aug. 1, to $143,000, after hitting a record $151,650 last week. Berkshire now has a stock-market value of $220 billion, ranking it sixth in the U.S., behind only ExxonMobil (XOM), General Electric (GE), Microsoft (MSFT), AT&T (T) and Procter & Gamble (PG) — and above such heavyweights as Johnson and Johnson (JNJ) and Google (GOOG). (Barron’s)
• Energy Stocks On The Cheap (Forbes)
• Google Gets Ready to Rumble With Microsoft: A cerebral computer-scientist-turned-executive, Eric E. Schmidt has spent much of his career competing uphill against Microsoft, quietly watching it outflank, outmaneuver or simply outgun most of its rivals. Then, six years ago, Mr. Schmidt snared the C.E.O. spot at Google and today finds himself at the helm of one of computing’s most inventive and formidable players, the runaway leader in Internet search and online advertising. With its ample resources and eye for new markets, Google has begun offering online products that strike at the core of Microsoft’s financial might: popular computing tools like word processing applications and spreadsheets. (New York Times)
• In the balance: The teetering government-bond market:
WHILE recent media attention has focused on equity markets, events in
the government-bond markets have been, if anything, more remarkable.
This supposedly placid asset class has seen some wild swings in mood.(Economist)
• Top foreign stocks for 2008 (Fortune)
• KISS Investing Means Keep It Simple, Smarty: Find yourself spending days examining countless bits of data before deciding where to invest? The bad news is you might be wasting your time. The good news, if you can call it that, is you have plenty of company — particularly in the professional investment community. "Our industry is obsessed with the minutiae of detail,” says James Montier, chief global equity strategist at SG Securities in London and a specialist in applying psychology to finance. One reason is that analysts seek to impress with quantity over quality, often producing voluminous reports that amount to the ostentatious presentation of the obvious. Another is that "analysts are often petrified of saying, ‘I don’t know,”’ Montier says. (Bloomberg)
The Wall of worry continues to build:
• What Bankers Fear: The aim isn’t so much to prevent a downturn — the bankers aren’t sure that’s possible, or even desirable — as to mitigate its effects. Fed officials have decided that they need to let the adjustment happen in financial markets, with prices of mortgage-backed securities and other assets falling to levels that will allow the markets to clear. (WaPo)
• Six experts assess the current state and forecast the future direction of the American economy. Are We in a Recession? (New York Times)
• INFLATION FEVER:
–Inflation? What Inflation? (Part II)
–Rice Prices Are Steaming,With Many Implications (WSJ)
–Rising Food and Fuel Costs Spur Inflation in China
–Fuels, Food Boost Euro Zone Inflation Beyond Forecast
• More Recession Fever:
–Mild recession likely, Morgan Stanley says (Marketwatch)
–Reccession Odds: Greenspan 50%, Merrill 100%
–Economists Say Recession Risk Is Climbing (WSJ)
–13 reasons Bush’s bailout won’t stop recession (Marketwatch)
–Consensus debating how severe the hard landing will be
• Internet Sales Increase 18 Percent on Higher Discounts: U.S. Internet sales gained 18 percent this holiday season after retailers slashed prices and offered free shipping to lure consumers seeking bargains.Online spending from Nov. 1 through Dec. 14 increased to $22.7 billion from the same period a year earlier, Reston, Virginia-based ComScore Inc. said today in a statement. Web sales in November and December may advance 20 percent, a record low for the industry, and slower than the 26 percent gain in 2006. (Bloomberg)
• Ho-hum fashion hinders holiday sales (Fortune)
• Sony Holiday Sales Are ‘Holding Well,’ CEO Stringer Says Fears of a slowdown in the U.S. economy may be rising, but holiday sales of electronics products have been strong, Sony Corp. Chief Executive Officer Howard Stringer said."So far, the electronics sales seem to be holding well," he told a group of reporters yesterday. While warning that the U.S. economy is "dodgy" and the situation could change in the new year, Mr. Stringer said Sony is on track to achieve its goal of an operating-profit margin of 5% for the business year ending in March. (Wall Street Journal)
• Nintendo’s Wii Wonder: Nintendo’s taking on the big boys with its new Wii consoles. On Friday, the NPD Group, a research firm, released its November sales report for game consoles. At the top of the pack was Nintendo (NTDOY), with 981,000 Wii consoles sold. Behind Nintendo, was the Microsoft XBox 360, with 770,000 consoles sold, and the Sony Playstation 3, with 460,000 units sold, less-than half of Nintendo’s figure. (Forbes)
• No, Pending Home Sales Index Did Not Rise: The NAR has now stooped to misrepresenting what their own data says.
• Worst. Forecasters. Ever?
Within the fraternity of financial and fiscal forecasters, the seers at
the National Association of Realtors—longtime chief economist David
Lereah and his successor Lawrence Yun—may be uniquely ill-equipped to
deliver sobering forecasts. They work for a trade group whose mission
is to buck up the spirits of real-estate brokers. And real-estate
brokers—who live to sell, promote, and market—are constitutionally
disinclined to hear anything but good news. Indeed, as I noted last
summer, Lereah’s penchant for putting out positive spin on dismal
housing numbers inspired a blog and led critics to dub him the Baghdad
Bob of real estate. Lereah has moved on. But Yun has picked up where he
• U.S. Housing Crash Deepens in 2008 After Record Drop: For U.S. homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008. Everyone from mortgage-finance company Fannie Mae to Lehman Brothers Holdings Inc. expects declines next year. Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year. (Bloomberg)
• America’s Big, Fat Housing Inventory: At the current existing-home sales rate of 5.04 million units a year, it would take a full 10.5 months to sell the 4.4 million existing homes now on the market, according to data released by the National Association of Realtors (NAR) on Oct. 24. The supply of existing single-family homes was at 10.2 months in September—the highest since February, 1988. Compare that with the height of the housing boom in January, 2005, when it reached a record low 3.6 months. (BusinessWeek)
• U.S. Mortgage Crisis: In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide. An examination of the resulting crisis shows that it is comparable to some of the biggest financial disasters of the past half-century.
• Why Borrowers May Not Benefit From Rate Cut: Not all borrowers are benefiting from the Fed’s moves to cut interest rates. The problem: Loans that are tied to a variety of interest-rate benchmarks — some of which aren’t necessarily moving in lockstep with Fed action. (free Wall Street Journal)
• Top 10 Things You May Not Have Known About the FOMC (Very funny)
• Central Banks Launch Effort to Free Up Credit: In the biggest coordinated show of international financial force since Sept. 11, 2001, the Federal Reserve Wednesday joined four other central banks in a plan aimed at coaxing banks to lend more readily at a time when fear has seized up world credit markets. (free Wall Street Journal)
• How Inflation Hobbles the Fed: An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven’t receded, and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.Ken Goldstein of the Conference Board discusses factors that will continue driving consumer prices. Kelsey Hubbard reports. "This is a much tougher monetary-policy environment than anything I experienced," former Fed Chairman Alan Greenspan said in an interview Friday. He said the Fed has less leeway to cut rates than it did during the stock bust of 2001 because underlying inflation pressures are greater. (WSJ) See also Greenspan sees early signs of U.S. stagflation (Reuters)
• Is the Fed the new FEMA?: Seeing how the two agencies have responded to the biggest challenge they have faced in recent years—the subprime mortgage debacle for the Fed, and Hurricane Katrina for FEMA—there seem to be certain commonalities. The analogies are admittedly imperfect, but the agencies’ subprime response to the submerging of New Orleans and the subprime crisis encapsulate the way in which the Bush administration has failed to anticipate and prepare for significant problems and then to respond with alacrity and efficiency. (Slate)
• The Fed and LIBOR: If you want a better understanding of the present conundrum the Fed faces between rates, the credit crunch, and inflation, go read Bloomberg’s John M. Berry’s column form last week: Fed Rate Cut May Hinge on Where the Libor Goes
• The Llama of Lame: Dear the Fed, You suck.
• Inside the CIA’s notorious "black sites" A Yemeni man never charged by the U.S. details 19 months of brutality and psychological torture — the first in-depth, first-person account from inside the secret U.S. prisons. (Salon)
• Where Bloomberg Fits in Election: Shifts atop the polls for both parties in early-voting states suggest uncertainty among some voters about the current crop of candidates, while an increasingly nasty campaign could badly bruise whomever comes out on top, Mr. Bloomberg’s supporters said. Gridlock in Congress could open the door for Mr. Bloomberg’s nonpartisan message. At the same time, national polls show voters worrying more about the economy and less about Iraq — a trend that plays to Mr. Bloomberg’s strengths. (free Wall Street Journal)
• WTF? Pre-9/11 Surveillance ? The Lawless Surveillance State
TECHNOLOGY & SCIENCE
• Encouraging people to contribute knowledge: Google competing with Wikipedia?
• Human Evolution Speeding Up, Study Says
Explosive population growth is driving human evolution to speed up
around the world, according to a new study. The pace of change
accelerated about 40,000 years ago and then picked up even more with
the advent of agriculture about 10,000 years ago, the study says.
• Porn producer sues YouTube knockoff (L.A.Times)
• Copyfraud: Copyfraud is everywhere. False copyright notices appear on modern reprints of Shakespeare’s plays, Beethoven’s piano scores, greeting card versions of Monet’s Water Lilies, and even the U.S. Constitution. Archives claim blanket copyright in everything in their collections. Vendors of microfilmed versions of historical newspapers assert copyright ownership. These false copyright claims, which are often accompanied by threatened litigation for reproducing a work without the owner’s permission, result in users seeking licenses and paying fees to reproduce works that are free for everyone to use.
• If the Earth Had No Moon: The Earth has a large moon, making it unique in the inner solar system. Mercury and Venus have no moons, and Mars has only two small asteroid-sized objects orbiting it. In this essay, the father of the SMART-1 lunar mission, Bernard Foing of the European Space Agency, looks at the effect the Moon has had on the Earth, and explores how different our world would be if we had no planetary companion. Would life have evolved differently, or even appeared on Earth without the Moon?
• The 5 PC users you meet in hell (Computerworld)
MUSIC BOOKS MOVIES TV FUN!
• Holiday Book Shopping III Out third venture into the seductive world of holiday book shopping . . . see also
• Led Zeppelin Blows away London — and every other panty-waist rock-n-roll band for that matter . . .
• Bloody Merry: One of my favorite shows, Extras, has their Series Finale tonite on HBO. — a must see!
A wintry mix of snow and sleet has me trapped inside, working on this double review/preview linkfest — I hope the weather is better where you are!
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