3 Day Weekend Linkfest: Review/Preview

Another ugly week in the books. Given the carnage this past week, traders will need 3 full days to recover. The economic consensus has flipped from discussing IF there will be a
recession, to how long and deep the recession WILL BE. That’s a major
sentiment shift.

Since it was so fugly, let’s start with the numbers up front: Treasuries and Investment grade bonds were the only winners; even gold and oil gave up some ground.   

The REITs got slapped around for 3.9% lost, the Dow industrials got cold-cocked for 4%. Nasdaq got pounded for 4.1%, while a 4.5% shellacking hit the Russell2000. European and Global stocks got unmercilessly whacked for 4.7% and 5.1% respectively; The S&P500 got bloodied for 5.4%, while the Emerging markets were bitch-slapped to the tune of 6.4%.

All US indices are now down for the past 52 weeks: The Dow is off 3.7%, the Nasdaq down 4.5%, the S&P500 lost 7.4%, and the Russell 2000 down 14.3%.

Outside of treasuries, there simply was no place to hide. Barron’s Trader column notes:

"Stock benchmarks fell for a fourth straight week, putting the market on track for its worst January ever. The Dow Jones Industrial Average ended the week down 507 points, or 4%, at 12,099. It has fallen 10% in four weeks, and is 15% off its October peak. This is the Dow’s worst-ever start to a year.

How afraid is Wall Street? The S&P 500 is at a 16-month low. Only 11% of its components are holding above their 50-day averages. The bond lunge has forced the yield on 10-year Treasuries to a four-and-a-half-year low near 3.6%. One question making the rounds is which benchmark is most negatively correlated to Wall Street bonuses, and thus might make a useful hedge. (The answer, courtesy of Strategas Research: There isn’t a perfect hedge, but leveraged bets on gold, or selling financial stocks short might work.)"

Fear is rather endemic.

My best guess is that we are near a tradeable low — the oversold point
where a rally can run a few days to a few weeks — but my instinct is
we are nowhere near the 2008/09 recession bottom.   

A holiday shortened week — all U.S. markets are closed Monday —  is also light on economic releases. Other than Jobless Claims and Existing Home Sales on Thursday, there’s not a lot of data. However, its a busy week for earnings: Apple (AAPL) reports on Tuesday, while their iPhone partner AT&T (T) reports Thursday — Nokia (NOK) is on THU also. Texas Instruments (TXN) is also out on Tuesdays. On Wednesday, Motorola (MOT), eBay, and Qualcomm (QCOM) report. Microsoft (MSFT),  and Xerox (XRX) also reports Thursday   

A slew of big pharmas are queued up:  Johnson & Johnson (JNJ) reports on Tuesday, while Pfizer (PFE) and Abbott Laboratories (ABT) report Wednesday, and Amgen (AMGN) reports Thursday. Ambac Financial Group (ABK) and Wachovia (WB) report Tuesday, while Bank of America (BAC).

The week ends with Dow components Caterpillar (CAT) and Honeywell (HON) on Friday.

Enough Ben Steinery! I have a Giants game to watch — On with the linkfest:

INVESTING & TRADING

• Worries About Credit and Economy Again Take a Steep Toll on Stocks: In many ways, the markets seem to be stuck in a loop. Two familiar themes — a slowing economy and a fresh batch of financial problems for banks — sent stocks into a tailspin Friday, putting the major indexes on track for one of their worst starts to a year. Another familiar scourge — losses stemming from subprime mortgage loans — struck two prominent players in the financial industry. Recession fears have sent investors scurrying from companies like retailers that could be hit hardest by an economic slowdown. Many market watchers, including the chairman of the Federal Reserve, expect consumers to cut back on purchases this year as they feel pressure from a softening job market and oil prices at record highs. (NYT)

• Here’s the straighht shit about Equities, Earnings and Recessions;  see also Emerging Stocks May Drop 20% in a U.S. Recession, Templeton’s Mobius Says

• This NYT magazine article is what everyone will be talking about this week: The Education of Ben Bernanke

• NYSE % of stocks > than 200 Day Moving Average: this indicator is starting to get bullish   

• Overseas Investors Buy Aggressively in U.S.: For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market. (NYT)

• Get used to hearing this phrase: Counter-Party Risk   

• Michael Lewis asks What Does Goldman Know That We Don’t?: In retrospect, the most intriguing subplot in the collapse of the subprime mortgage market has been not the size of the losses but their distribution. Wall Street firms have a talent for getting themselves into
trouble together. They all were long Internet stocks when
Internet stocks collapsed and they’ll all be long North Korean
credit-default swaps whenever North Korea gets hot and then
crashes. What’s odd about the subprime crash is Goldman Sachs Group
Inc. A single firm took a position contrary to the rest of Wall
Street. Giant Wall Street firms are designed for many things, but
not, typically, to express highly idiosyncratic views in the
market. (Bloomberg)  Discussion here:  Goldman Smart. You Dumb.   

• Do Retail Investors Matter Anymore?   (Dealbook)

•  The Marriage From Hell: Sears (SHLD) was once America’s largest retailer — it now finds itself between a rock and a hard place — down market from Target, but not as cheap as Wal-Mart. (Portfolio)  see also Eddie Lampert’s Debacle at Sears

• ‘Black Swan’ author Nassim Taleb warns traders to look out for the
improbable: Market meltdowns that scorch investors, 100-year floods that occur
every 10 years and terrorist attacks such as 9/11. Nassim Taleb, an
author, lecturer and big thinker, calls such unforeseen events "black
swans," borrowing from a tale about 17th Century European seafarers who
landed on Australia and, much to their surprise, learned that not all
swans were white. Such shocks occur, Taleb says, because even experts
fail to consider the likelihood of extreme scenarios. That’s why his
theory, outlined in his book, "The Black Swan: The Impact of the Highly
Improbable," is so intriguing to Chicago’s trading community, which
seeks to lessen risk by exchanging futures and options. His ideas have
earned him cachet with investment bankers as well as rock ‘n’ rollers. (Chicago Tribune)

• Nasdaq Historical Bear Markets

• A Recession’s Impact Is All in the Timing:  Does the timing of a recession really matter? If you’re an equity investor, it does.  (NYT)

• Some odd and interesting sentiment measures: Blog Traffic Spike? and Google Trend

•
MBIA, Ambac: Dead Men Walking  Ooof, I am in possession of a hefty and detailed presentation on MBIA
and Ambac by an investor that is short the stock of the two holding
companies. I believe it is kosher to summarize its findings,
particularly since it is all derived from public information. And you
probably didn’t want to something that long anyhow. It is one scary and persuasive document. The bottom line: there is no
way these companies will survive. Their liabilities are so far in
excess of their capital that there is no hope, nada.  If Berkshire was uncommitted, the fantasy that the Omaha
insurer could ride in as a rescuer was still a possibility. And the
shocker that a supposedly savvy private equity firm like Warburg Pincus
would step up at such a late hour to commit up to a billion in equity
to MBIA suggested to me that there might be other chumps, um, investors
out there.

• iBank Writedowns = $100 Billion 

• Moody’s says spending threatens US rating: The US is at risk of losing its top-notch triple-A credit rating within
a decade unless it takes radical action to curb soaring healthcare and
social security spending, Moody’s, the credit rating agency, said on
Thursday. The warning over the future of the triple-A rating – granted to US
government debt since it was first assessed in 1917 – reflects growing
concerns over the country’s ability to retain its financial and
economic supremacy. (FT) see also Why triple-A ratings are not always top notch: (FT)

• How Rational Are Markets?   

• Why people believe weird things about money: Would you rather earn $50,000 a year while other people make $25,000,
or would you rather earn $100,000 a year while other people get
$250,000? Assume for the moment that prices of goods and services will
stay the same.  Surprisingly — stunningly, in fact — research shows that the majority
of people select the first option; they would rather make twice as much
as others even if that meant earning half as much as they could
otherwise have. How irrational is that? (LATimes)

• Baltic Dry Shipping Index   

• Ten Recurring Economic Fallacies, 1774–2004   

• Rich Kid Syndrome:  America’s burgeoning money culture is producing a record number of heirs—but handing down values is harder than handing down wealth  (New York Magazine)   

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ECONOMY

The Wall of worry continues to build:

• U.S. Warning Signs Point Toward a Deep Recession: Housing is in the midst of its worst downturn since at least the 1970s. That has led to a meltdown in the mortgage market; with financial firms struggling to make sense of their losses, they are making it harder for even credit-worthy borrowers to get loans. The combination of heavy debt loads, still-high energy and food prices and a weakening job market has households tightening their belts. Consumer spending, long a bulwark of the economy, is faltering. That sets the stage for something more severe than the 2001 recession, which spanned just eight months, says Merrill Lynch economist David Rosenberg. During that slump, in which gross domestic product declined a slight 0.4%, quarterly consumer spending slowed but never contracted — the first time that happened during a recession since the 1940s. (WSJ)

• Remember all those guys who told you to ignore the inverted yield curve? Turns out they were a buncha freakin idiots . . .

• For first time in over a century, UK living standards outstrip US:
Living standards in Britain are set to rise above those in America for
the first time since the 19th century, according to a report by the
respected Oxford Economics consultancy.  The calculations suggest that,
measured by gross domestic product per capita, Britain can now hold its
head up high in the economic stakes after more than a century of
playing second fiddle to the Americans. (Times)

• Bernanke: Fed Must Avoid Greenspan Errors   

• Fed’s Communications Effort Blew Up in Its Face: Two and
a half months ago Federal Reserve officials overhauled their strategy
for communicating with the public, and it promptly blew up in their
face. (Bloomberg) see also
How low will Ben go? and Mishkin: Stop Obsessing about the Fed

• Retail Heading Towards Biggest Wreck in 17 Years also, Fed Says Holiday Sales Disappointing   

• New Research: Supply Side Economic Theories Don’t Work    

• Rising Prices Unlikely to Deter Fed: Consumer prices crept higher last month, but the rise is unlikely to discourage the Federal Reserve from cutting interest rates amid signs that the economic slowdown is spreading and credit is tightening. (WSJ)

• Here’s an odd juxtaposition of three articles:

• Recession Theorists Confront Recession Reality:  The calendar flipped from 2007 to 2008, and just like
that, the talk turned from if to when, how long and how deep.
(Bloomberg)

• No consensus that recession looms  (Los Angeles Times)

• Odds are, U.S. is in a recession: It’s much too soon for an official judgment on whether the U.S. economy has fallen into a recession, but early indications show that a recession may have already begun.Of the five monthly economic indicators used to judge whether the U.S. economy has fallen into a recession, three are declining and one other is flattening out. Three of the five numbers peaked in September. Only one has grown with any vigor over the past few months, but it’s starting to look weaker.  (Marketwatch)

• Whole prices up by 6.3 percent last year: Wholesale inflation shot up in 2007 by the largest amount in 26 years even though falling gasoline costs allowed price pressures to moderate in December.  The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.   

• Arthur Laffer: US is in Recession Now   

• via Abnormal Returns, Skepticism reigns on the efficacy of fiscal stimulus.  (Mankiw Blog, Econbrowser, Marginal Revolution)

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HOUSING

• U.S. Home Sales to Reach Bottom in 2008, Bankers Say:  U.S. existing home sales will reach a bottom in 2008 as
buyers find it tougher to get mortgages, according to a forecast by the
Mortgage Bankers Association, the industry’s largest trade group. Sales of previously owned homes probably will drop to an 11- year low
of 4.94 million from 5.68 million last year and then increase to 5.12
million in 2009, the Washington-based group said in today’s report. New
home sales likely will tumble 15 percent to 666,000 from 2007, before
rising 6.6 percent in 2009.  Stricter lending standards are making it harder for people to buy real
estate as the U.S. housing slump enters its third year. A “credit
crisis” caused by subprime losses has depleted the capital of mortgage
lenders and hobbled their ability to make new loans, said Doug Duncan,
the group’s chief economist.
(Bloomberg)

• Housing Starts Plunge 14%

• Las Vegas Default Highlights Commercial-Property Crunch: Owners and developers of some of the country’s choicest properties are having trouble refinancing shorter-term loans they received during the boom days.Recent casualties include Centro Properties Group of Australia, one of the largest owners of shopping centers in the U.S. Its stock has sunk because it can’t refinance $3.4 billion in short-term debt. Also, New York developer Harry Macklowe, who bought a group of Manhattan office buildings last year at the top of the market, is struggling to repay some $7 billion in debt that comes due in February. Mr. Macklowe just put his prized General Motors Building in midtown Manhattan on the block. (WSJ)      

• Reckless Mortgage Lenders Do Not Deserve to Be Rescued Either

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WAR/MEDIA/POLITICS/ENERGY

• The Next President, Revealed: Economic formulas are proving to be better at predicting the presidency than opinion polls. Why the Republicans are in trouble. see also Bloomberg NYC tax cut could help any ’08 run   

• Dear Rich People …ALL YOU WEALTHY AMERICANS, STOP COMPLAINING AND SAVE THE ECONOMY  (Slate)

• McCain Faces Payback From Old GOP Foes: Over the past decade, Sen. John McCain has annoyed, aggravated and
nearly destroyed some of the most powerful members of Washington’s
Republican establishment, creating a list of antagonists including
anti-tax crusader Grover Norquist and the vehement Gun Owners of
America. (Washington Post)

• Energy Costs Drive Inflation Across Europe: Home-energy bills across Europe are soaring this winter and are set to rise further, eating into household budgets and frustrating efforts by central banks to keep inflation in check. Continental European economies are also feeling the pain, with the then-13 countries that shared the euro seeing energy prices rise 9.2% over the year to December 2007, according to the Eurostat statistics agency.The retail-price increases follow soaring global energy prices, which added about 60% over 2007, pushed up in part by oil prices, which touched $100 a barrel in early January. (WSJ)
   
 

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TECHNOLOGY & SCIENCE

•  Why thinks suck: The 33 Things That Make Us Crazy  (Wired)   

• Google Gains Video Viewing Market Share:  Google’s investments in YouTube and its own video search software are paying page view dividends. The search engine has gained more than 2 market share percentage points in online video watching, according to ComScore’s latest compilation of monthly video watching. Google’s online video market share grew to 31.3% from October to November. And more than 75% of Web surfers watched streaming video or progressive video downloadsduring the month surveyed by ComScore’s Video Matrix report. Web users love to watch for long periods of time, too. They averaged 3.25 hours of monthly video watching, according to ComScore. (InformationWeek)

• An Apple two-fer:

– What Bugs Apple Fans (Forbes)
– Why Apple Will Buy Adobe  (Cringely)

• AT&T and Other I.S.P.’s May Be Getting Ready to Filter    

• Weird news:  FBI Wiretaps Dropped Due to Unpaid Bills   

• The 10 Wildest Extinct Animals (Wired)

• Mysterious $100 ‘supernote’ counterfeit bills appear across world:

• The octopus who loves his Mr Potato Head

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MUSIC BOOKS MOVIES TV FUN!

• Rough week — even for the Bears. Pop this into your musical
device of choice and enjoy: John Coltrane & Johnny Hartman      

• If you want something less relaxing, check out Radiohead’s In Rainbows   

• Lawrence Lessig’s book, The Future of Ideas is now online free   

• Speaking of free: The Economist is offering free trial subscriptions 

That’s all frommy corner of the world, where a big screen, a comfy chair, and a cold brew awaits. I suspect this game will be closer than the line !

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