End of January Linkfest

Down. Down big, then down small. Down big, then up big. Up big. Up big,then down big.

Hotnot_20080125 That represents each of the five days trading action this past week. Despite all the sturm und drang, markets finished remarkably unchanged.

The big winners were REITs (+8.6%), Gold +3.4% and the Russell 2000 (+2.3%). The Dow and Crude Oil each gained under a 1%, while the S&P500 added 0.4%, and the Nasdaq slipped 0.6%.

Deeper in the red were emerging market stocks (-2.2%) and European stocks (-1.6%). The US dollar had an awful week, falling nearly three quarters of a point — about the same amount the Fed cut rates on Tuesday. It was the biggest single day emergency cut ever.

The big losers? Soc.Gen (down -$7.1B), some 31 year old trader named Kerviel (career ender), and the Federal Reserve’s credibility (down inestimably).

There were other assets, organizations and individuals who comported themselves across a pectrum of (in) competencies. We shall leave to your judgment  any further critique of these

Barron’s Trader column noted:

"Heavy stock-selling in Asia and Europe last Monday — when the U.S. markets were closed for a holiday — likely nudged the Fed toward Tuesday’s surprise rate cut, since a market collapse would be disaster for the already stretched financial system. But by Friday, however, it appears the brutal selling had been exacerbated when Société Générale liquidated positions created by an ill-supervised rogue trader. This begs the question: Will the Fed still feel compelled to deliver another big rate cut in quick succession?

To get a sustained rally, as opposed to a transient bounce, Credit Suisse’s global strategists say the government must guarantee the viability of bond insurers — a major source of market worry — and oil must retreat below $80 a barrel (which will alleviate inflation and spur spending). The European Central Bank also must cut rates, they say. "The problem with economic growth is now in all developed markets, not just the U.S., and thus a global response is needed."


In the upcoming week, we will get a full run of earnings, and a heavy slate of economic releases. But its getting late — Enough Ben Steinery! On with the linkfest:


Day in the Life of Volatility:  Traders reported pandemonium on trading floors as investors rushed to change their bets during the day. The 631.86-point, 5% swing from low to high was the biggest such intraday swing since 2002 — and stocks have featured big swings for several days now. (WSJ)

On Wednesday, we called for a tradeable low, and a fat bounce.    

• How did the one day, 600 point reversal & snapback rally rank in the great scheme of such things?

• A few Bullish technical observations:

NYSE % of stocks > than 200 Week Moving Average   
This morning’s gap down led to a surge in the VIX to 37.57   (VIX & More)
Bullish insider Buying ratio (Hulbert) 

• A few bearish comments:

-DecisionPoint’s Carl Swenlin says: Bear Market Rules Apply;
-Paul Desmond notes "Classic Bear Signals"   
The False Promise of Buybacks (Risk and return)   

• I continue to ask individual investors: WHY BOTTOM GUESS?

Where Have Buybacks Gone?
In past market stumbles, investors could count on one thing to help
stabilize the situation: a round of share buybacks.This time around,
there are even higher hopes for such repurchases, given that the
stock-market rout has made prices cheaper and falling interest rates
make it less expensive to borrow money to buy stocks.But most companies
aren’t biting. Many bought back shares in recent years when they were
much more expensive, leaving them with less ability and leeway with
their investors to jump back in now. (WSJ)

How to Save the Bond Insurers (Pershing Square Capital Management)

Has Wilbur Ross lost his mind?  If Ross were to purchase Ambac in an "as-is" arrangement, he would be buying an enterprise with a staggering $67 billion in CDO exposure, of which $29.1 billion consists of asset-backed CDO’s of increasingly dubious credit quality. The company also has $8.4 billion in sub-prime mortgage paper in its portfolio. All told, Ambac’s financials show that the insurer has $14.5 billion of claims-paying resources to support a $524 billion guarantee portfolio, figures so unbalanced that the company’s attempt to raise $1 billion or more in emergency capital via an equity or convertible offering had to be scrapped last week.  See also Billionaire to rescue of crisis-hit US insurer

• Idiots on Parade!
    –Ben Stein Tells Us It’s All the Traders’ Fault (naked capitalism)
    –Don Luskin blames the market rout on Da Bears! (Infectious Greed)

speaking of which: So Much for the Decoupling: A critical look at some of the well established rules ignored by the "its different this time" crowd.

Crisis grips European hedge funds: A raft of European hedge funds have been forced to introduce emergency measures to protect their businesses from collapsing in the wake of the turmoil in financial markets.Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.A London prime broker told The Sunday Times that even before last week’s extreme gyrations, nearly two-thirds of London-based hedge funds had lost between 4% and 10% of their value. A “significant number” had lost much more, he said. (London Times)   

Banks May Need $143 Billion for Insurer Downgrades: Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barclays Capital. Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Assurance Corp. are cut one level from AAA, and six times more for downgrades by four steps to A, Paul Fenner-Leitao wrote in a published report. (Bloomberg)

Fun With Data Analysis: The Art of the Plausible    

• Floyd Norris, the New York Times chief financial correspondent, notes on his blog that consensus expectations of sharply higher profits and increased margins exist for nearly every tech  company in 2008 (forecasts are that 91% of all tech companies will grow their top lines in 2008 vs. 2007 — up from 71% in 2007 vs. 2006). Optimistic Analysts, Part 1   

Except for all the losses, U.S. Banks were wildly profitable last year (Bloomberg)

Anatomy of a cycle:
Economic history is one enormous string of business cycles, some
noteworthy enough to get their own names: the Roaring ’20s, the Great
Depression, the Go-Go ’60s, the dot-com ’90s, the buyout boom of the
new century. Now that the most recent cycle seems to be over, the
M&A boom that defined it, and that ended in the still-spreading
mortgage mess, may well prove the largest ever, especially for that
rich M&A subset of leveraged buyouts. With about $4.5 trillion of
companies bought and sold in 2007 alone, its sheer size is astonishing
and unparalleled.   (The Deal)

The Minsky Meltdown and the Trouble with Quantery (GMO)

• I have a few choice quotes in this NYT piece: Société Générale’s Sales May Have Incited Market Plunge: As panic swept European markets on Monday, word spread that a big hedge fund was in trouble and dumping stocks. Someone was selling, all right — Société Générale. The French bank was frantically unwinding an estimated $75 billion of bad bets on European stocks placed by a rogue trader, Jérôme Kerviel. As the bank struggled on Friday to determine how Mr. Kerviel could have run up $7.2 billion in losses before anyone caught on, the scope — and global impact — of his fraud began to emerge.

• How does this correction compare to 3 Prior Market Crashes   

Total Earnings Battle to Stay in the Black (ZACHS)

• Paul Kedrosky, Herb Greenberg and I are part of a debate whether bloggers are too bearish. My take on the matter is here: The Bulls, The Bears, & the Media.   

How is the Market Trading Infrastructure Holding Up?    

Hung over:
When private equity was riding the easy money wave in 2006 and 2007,
the industry’s richest players raised investment funds of unparalleled
size. Almost as fast as the money cascaded in, it poured out. Before
the wave broke last July, Kohlberg Kravis Roberts & Co., for
instance, committed almost $20 billion to LBOs in just 24 months-more
than a third of the equity it had invested since 1976, the year it was
formed. Other industry heavyweights plunked down lesser, but still
mammoth, amounts. As one buyout after another was announced, debt
levels and purchase multiples soared, touching record levels. (The Deal)

Smackdown! Santelli vs Cramer


The Wall of worry continues to build:

Juicing the economy will come at a cost

US pawnbrokers benefit from hard times: Hard times in the US are benefiting pawnbrokers as beleaguered consumers pledge jewels, electronics and other goods in return for loans with interest rates running as high as 300 per cent a year.Dave Adelman, president of the National Pawnbrokers Association, said the number of loans at US pawn shops had risen 15-20 per cent since October. He attributed the increase to rising fuel prices and deteriorating economic conditions – an assessment echoed by other industry executives. (FT)

Philly Fed Coincident Indexes   

Banks May Need $143 Billion for Insurer Downgrades:  Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barclays Capital.Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Assurance Corp. are cut one level from AAA, and six times more for downgrades by four steps to A, Paul Fenner-Leitao wrote in a report published today. Barclays’ estimates are based on banks holding as much as 75 percent of the $820 billion of structured securities guaranteed by bond insurers  (Bloomberg)   

Why We Won’t Have a Recession: The CBO View: (Real Time Economics)

• SocGen round up:

Equity Derivatives House of the Year – Société Générale   
Conspiracy theory of the day   
Société Générale’s Sales May Have Incited Market Plunge   

Ambac, MBIA Lust for CDO Returns Undercut AAA Success:
"Municipal bond insurers such as MBIA Inc. and Ambac Financial Group
Inc. had a good thing going. For years, they earned some of the highest
profit margins in any industry — by writing coverage for securities
sold by states and cities to build roads, schools and firehouses.
During the past five years, MBIA’s average profit margin was 39
percent, more than four times the average of the Standard & Poor’s
500 Index, according to data compiled by Bloomberg. Ambac’s average
profit margin was 48 percent. The good times are over, and the culprit
isn’t municipal bonds; it’s subprime debt, a market the insurers waded
into in pursuit of even greater profits. Some of the biggest bond
insurers are facing potential claims that may deplete their capital.
Their share prices have plunged, and credit rating companies are
scrutinizing their AAA status. Ambac became the first insurer to lose
its triple-A rating, when Fitch Ratings downgraded the company to AA on
Jan. 18. (Bloomberg)

Will the cure be worse than the disease?
The wobbly economy is overtaking Iraq as the issue weighing most
heavily on the minds of America’s voters. And Washington has noticed.
The White House and Congress are almost certain to enact some kind of
stimulus package. But like all such temporary, feel-good measures, it
will generate a quick blip in growth that will quickly evaporate. In
reality only one player has the power to do anything swift and
decisive: the Federal Reserve. And its chairman, Ben Bernanke, has
already made his intentions abundantly clear. Unfortunately, the cure
he’s prescribing may be worse than the disease.  (Fortune Magazine)


Option ARM Specialist FirstFed: Delinquencies Up 231 Percent in One Quarter (Housing Wire) 

• Uh-oh: New Real Estate phrase:  Intentional Foreclosure   

•  "Foreclose me … I’ll save money"   A homeowner who can’t sell his house tells the L.A.Times, "Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on." Banks and lenders fear this kind of thinking — that walking away from a house could be the smart economic move — appears to be on the rise.  Wachovia, in a conference call yesterday, warned  investors that increasing numbers of homeowners are walking away from their homes by choice: "… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…" (LA Times)
As safe as houses? Dutch history suggests not: This can be seen in a unique index dating back 350 years, drawn up by Piet Eichholtz, a real estate professor at Maastricht University using records of house prices on the canal. Even for people with no intention of buying property, it has been cited by Yale economist Robert Shiller for its reflection of the inexorable logic that bubbles always burst. (Reuters)   

(Use only during FOMC meeting or other wise relevant)

Lots of Fed speak this week, and commentary also:

A Fear That the Cure Could Be Poison: Even as the Federal Reserve grapples with the collapse of a speculative bubble in housing — the second speculative bust in less than a decade — is it at risk of repeating recent mistakes? (NYT)

• Bernanke colleague Gertler: Fed Criticism “Way Overboard”  (Real Time Economics). See the comments; the readers are having none of this.

• A three-fer of Fed commentary:

“A Whiff of Panic . . .” 
Is the Fed a Paper Tiger? 
Fed’s Folly: Fooled by Flawed Futures?      

Fed didn’t know about SocGen trades on Monday: The Federal Reserve was not aware that Societe Generale was unwinding trades in Europe on Monday that had been amassed by a rogue trader at the French bank, a Fed source said Thursday.  The bank’s scramble to get out of those trades is now presumed to be a factor behind the panic sell-offs that roiled overseas markets on Monday. And those sharp declines in Europe and Asia were cited by Fed watchers as a central concern that moved the Fed to engineer an unprecedented emergency rate cut only one week before their formal meeting. (MarketWatch)

Big Rate Cut May Not Offer Big Fix: Some investors are disappointed that U.S. stocks haven’t rebounded more decisively after last week’s Federal Reserve rate cut, the largest since 1982. These investors have been taught that stocks rise when the Fed cuts rates, especially when it cuts this much. They want to know what is wrong.Stock indexes remain well below September levels, even though the Fed has cut its target rate four times, to 3.5% from 5.25% since September began. Policy makers are widely expected to cut again after meeting tomorrow and Wednesday (WSJ)

European Central Banker Says Inflation Is Still Focus: The president of the European Central Bank gave a full-throated defense Wednesday of the bank’s determination to fight inflation, quashing hopes — at least for now — that it might follow the United States Federal Reserve in cutting interest rates to contain an economic slowdown.Jean-Claude Trichet, the central bank president, said the bank, which hinted this month that it might raise interest rates, needed to focus on keeping inflation low, an approach that he argued would help calm increasingly chaotic financial markets.  (NYT) 


Wall St. Journal to Continue Its Charges for Web Content  (NYT) 

The Economy Sucks. But Is It ’92 Redux?
Not since James Carville helped Bill Clinton take the White House 16
years ago by reminding him "it’s the economy, stupid," has the nation’s
economic state played such a key role in a presidential campaign. CNN’s
New Hampshire exit poll found that 97 percent of Democrats and 80
percent of Republicans expressed anxiety about the economy. Of course,
the economy is in a worse place than it was when Hillary Clinton’s
husband was on the campaign trail. Today, the nation is perilously
close to sliding into a recession; in ’92, the economy had already
started growing, though a jobless recovery doomed George H.W. Bush’s
re-election bid anyway. The lesson? Voters’ perceptions matter more
than whether the economy is technically expanding or contracting.

Comparative Histograms of World Economic Powers 

Waving Goodbye to Hegemony: The more we appreciate the differences among the American, European and Chinese worldviews, the more we will see the planetary stakes of the new global game. Previous eras of balance of power have been among European powers sharing a common culture. The cold war, too, was not truly an “East-West” struggle; it remained essentially a contest over Europe. What we have today, for the first time in history, is a global, multicivilizational, multipolar battle. (Sunday Times magazine)

Glum Mood Bodes Ill for GOP: Just when it seemed Americans couldn’t get any gloomier about the country’s direction, they have. That finding, from the latest Wall Street Journal/NBC News poll, could leave Republicans the gloomiest of all, as prospects for their party darken further in a presidential-election year.Amid a weakened economy and market turmoil, President Bush’s stock has slid again as he prepares to deliver his final State of the Union address next week, underscoring the burden he could pose for his party’s presidential nominee in the race to November’s election. (Free WSJ)

Illustrated President


R.I.P. the CD 1982-2007:  Once praised for its clear, crisp audio quality but panned for its susceptibility to scratches and smudges, the compact disc passed away in 2007 after a quick but painful illness. It was 25 years old.The final cause of death has not been determined, but friends and fans blamed digital-download sites such as iTunes and illegal file-sharing among rich kids. In addition, doctors pointed to the big record companies and mega-selling artists who put out CDs in recent years that featured only a few good songs and lots of filler. (Star Tribune)

Web Trend Map 2008 Beta   

Teach your brain to stretch time   

• WTF?  NYPD Seeks an Air Monitor Crackdown for New Yorkers   

MST will help extend Moore’s Law for another 15 years. (Robert X. Cringely)   

America’s 25 Fastest-Growing Tech Companies   



Black Friday Night Jazz   

• This is offensive, but its so funny that it doesn’t matter: Downfall of the Cowboys   

Visualizing and cross-referencing connections  found in the Bible

• Way cool: sleeveface

29 things to be happy about   


That’s all from the NorthEast, where a dusting of Snow did not slow down our weekend fun . . .


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. bt commented on Jan 27

    The derivatives house of the year award to SocGen reminds me of the three CFOs recognized by the CFO magazine as great CFOs. Of course, that was before the companies run by those three CFOs turned out to be the most corrupt in the country’s history.

    Barry, maybe you recall the three. I recall Enron’s CFO and maybe WorldCom’s CFO. Don’t rememeber the third one.

    My point is these Wall Street insider back rubbing is a result of in breeding and ineptitude.

  2. Bob A commented on Jan 27

    Watching 60 Minutes episode on ‘walking away’ from homes.

    Seems like only yesterday we were talking about the inevitability of this while skeptics were telling us how all these folks would ‘oh… just refinance’.

  3. halbhh commented on Jan 27

    As usual, good job BR in gathering links. I think those housing links are for about the best articles I found also.

  4. Stuart commented on Jan 27

    “We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose”,

    French President, Sarkozy from yesterday.

    oh, how true those words are.

  5. Pat Gorup commented on Jan 27

    “Will the cure be worse than the disease?”

    Spot on!! So the FED believes that as long as they keep telling us that inflation is under control that we’ll believe it, in spite of the fact that prices for just about everything keep rising? How stupid do they think we are? Please, just get back to reporting inflation (to include food and energy) like you used to and stop trying to B**LS**T us. I’m no child.

  6. Steve Barry commented on Jan 27


    You identified the root of the whole problem. The Fed’s mandate is a juggling act…to keep inflation down and maximize employment. By mis-reporting inflation, their job becomes really simple…maximize employment by cutting rates at the drop of a hat. Cut if economy slows…cut if stocks drop…cut if the president wants to win some elections. Now we have the greatest credit bubble ever seen. The public is so stupid they beg for more cuts…like a 4 year old asking for more and more candy.

  7. Winston Munn commented on Jan 28

    From where I sit, it looks to me like the Fed has stabilized us into a 15% drop in home values, a 15% drop in market values, and a 15% drop in corporate earnings.

    If they stabilize us any more, we just might go broke.

  8. Pat Gorup commented on Jan 28

    But you know what Steve? They mis-report unemployment too. So they are lying to us about both mandates. As to rate cuts, the public & the markets are addicted to cheap money which is going to come back to haunt us later.

  9. blam commented on Jan 28

    “President Illustrated”

    So Bush’s description of “A Charge to Keep” struck me as very strange.

    [Bush] came to believe that the picture depicted the circuit-riders who spread Methodism across the Alleghenies in the nineteenth century. In other words, the cowboy who looked like Bush was a missionary of his own denomination.

    Only that is not the title, message, or meaning of the painting. The artist, W.H.D. Koerner, executed it to illustrate a Western short story entitled “The Slipper Tongue,” published in The Saturday Evening Post in 1916. The story is about a smooth-talking horse thief who is caught, and then escapes a lynch mob in the Sand Hills of Nebraska. The illustration depicts the thief fleeing his captors. In the magazine, the illustration bears the caption: “Had His Start Been Fifteen Minutes Longer He Would Not Have Been Caught.”

    So Bush’s inspiring, prosyletizing Methodist is in fact a silver-tongued horse thief fleeing from a lynch mob. It seems a fitting marker for the Bush presidency. Bush has consistently exhibited what psychologists call the “Tolstoy syndrome.”

    Barry, you devil.

  10. E commented on Jan 28

    Check out this week’s Newsweek cover story -“The Road To Recession”. Do we have a Magazine Cover Indicator bottom tick?

  11. A Second Hand Conjecture commented on Jan 28

    Counter party risk is no longer just a risk

    Banks May Need $143 Billion for Insurer Downgrades: Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barc…

  12. The Nattering Naybob commented on Jan 28


    Most analysis of the stimulus package seem to miss the point.

    The business tax incentives and tax payer rebate checks are a diversion.

    Lets mail the working stiff a one time $300 check, while we give $150K to the buyers and a hall pass to the banks that got us into the mess.

    Where’s the beef? The pea is under the pod called the GSE loan limit increase from $417K to $729K.

    The more stringent FNMA, FHLMC limits are raised for one year, while the less stringent FHA limits are raised, permanently.


  13. David commented on Jan 29

    “Teach your brain to stretch time” article is an interesting link and an interesting concept.

    When I got to the line about how the squash player wants to teach people to “go faster by going slower”, it made me think of the scene in the movie 24 Hour Party People where the character of Martin Hannett is telling the Joy Division drummer to rethink his playing; do it again, “slower, but faster”.

Read this next.

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