Barron’s called it "The worst start since 1932."
That is not how you want to start the new year.
By the numbers, the week’s winners were Gold (+2.8%), Commodity futures (+2.7%) and Crude Oil (+2.0%). Gold has tacked on 42.7% for the past year, while crude grabbed 73.9%. Wow.
Nearly every equity indice was down for the week: Emerging markets held in well, slipping just 1.8% while Global and European stocks lost 3.2% and 3.4% respectively. The Dow took a 4.2% hit, while the S&P500 got slapped for a 4.5% weekly whackage. That loss erased the entire prior 52 weeks gains in the S&P.
The real pain was felt in other indices: The Nasdaq was down 6.3%, the Russell 2000 lost 6.5%, and REITs fell 6.9%. On a trailing 52 week basis, their returns are not very pretty: Nasdaq +2.9%, Russell 2000, -7.0%, and REITs, -20.9%.
Barron’s Trader column looks at Stagflation, but doesn’t see much "there" there:
Don Rissmiller, Strategas Research Partners’ chief economist, thinks stagflation fears are "overblown" since we’re nowhere near "the wage-price-spiral misery" of the 1970s. Still, "price pressure will mount as we move through the latter stages of the business cycle," he cautions. "Wage pressures, in particular, are likely to cut into profit margins, eventually leading companies to cut jobs. Also, mounting price pressures mean that the [Fed] will have a harder time justifying rate cuts as we move through the year."
Looking ahead, its a light week of economic reports — Pending Home Sales Index on Tuesday, BOE and ECB Announcements on Thursday. Additionally, there are 7 Fed speakers giving speeches this week, including the head honcho.
We are in full bore confession season, and that could make things interesting. Expectations are for S&P500 stocks to see year over year earnings slip ~8% or so. As always, Alcoa (AA) kicks off the quiarterly cavalcade, announcing Q4 numbers on Wednesday. Since I’m under the weather, that will have to do for this week . . .
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
•A Bloomberg Bull/Bear, stock/bond, Yin/Yang:
–U.S. Stocks Fall Most in 5 Months on Weaker Jobs, Manufacturing: U.S. stocks had the steepest weekly loss since July after unemployment increased to a two-year high and manufacturing declined, bolstering speculation that a recession will stymie profit growth.
–Treasuries Post Best Start Since 2001 on Jobs, Manufacturing: The Treasury market had its best start to a year since 2001 after U.S. unemployment rose to the highest rate in more than two years and manufacturing expectedly contracted.The yield on two-year notes, more sensitive to changes in monetary policy expectations than longer-maturity debt, fell the most since October amid increasing speculation the Federal Reserve will cut borrowing costs by a half-percentage point, more than forecast, to prevent a recession. Fed Chairman Ben S. Bernanke and six other policy makers speak about the economy next week.
• How Long Will Profits Slump? A share of stock is a claim on a company’s earnings, and when earnings fall, so should stock prices. As you may have suspected, however, it’s not that simple, and it may be even more complicated than usual this time. (New York Times)
• Uh-Oh: Goldilocks gets her foreclosure notice
• Its not all gloom: Cheapest Stocks Since 1974: The steepest yearend slump in global stocks since 2000 left equities with the cheapest valuations in more than 30 years as inflation accelerated and the U.S. economy showed signs of slowing. (Bloomberg)
• Over at the Street.com:
-I review 13 Things You Wish You’d Known in 2007
-Doug Kass’ 20 Surprises ("Possible Improbables") for 2008• Dan Gross of Slate looks at some of the billionaires who have been
buying unloved stocks on the cheap — and getting badly burned: Beware of Falling Knives• Bad Start, Recession Near? (Floyd Norris, NYT)
• It’s 2008, and No Longer the Best of All Possible Worlds: It is anything but the best of all possible worlds with gold hitting a record Wednesday, crude oil touching $100 a barrel and manufacturing activity contracting. Rising prices and falling output describe the worst of all possible economic worlds, stagflation.And then there’s politics. On the eve of the Iowa caucus and days from the New Hampshire primary, there is the dispiriting realization that one member of the motley crews trudging through the snows of the Midwest or New England may actually win the presidency in November.No wonder, then, that the Dow Jones Industrial Average had its worst opening session of the year in a quarter century, tumbling 220 points, or 1.7%. (Barron’s)
• We interviewed Mr. Crude Oil when he hit $100
• Going for Growth, Even in a Slowdown: In times of economic uncertainty, you would think that investors would flock to traditionally defensive stocks, like shares of stable utility companies or value-oriented dividend-payers.Stuart GoldenbergYet in the current slowdown, which may turn into a full-blown recession, money managers are betting on what has often been a riskier segment of the market: growth stocks. (New York Times)
• On Sale: 29 Stocks at Bargain-Basement Prices (Barron’s)
• Could It Be the Year of the Rising Dollar? THE dollar’s sharp drop over the last two years has been a huge boon for Americans who bought foreign stocks.But now many market strategists are cautioning investors that the principle would hold true in reverse if the dollar switched course for an extended stretch: a sharp rise in the dollar would cut into foreign stock returns. While these strategists are not saying the dollar will erase all its losses anytime soon, they say it has probably hit bottom and may even be on the rebound.
• Guy Lerner gives us 11 Rules For Better Trading In 2008
• A very overlooked story: In Unforgiven Margin Call, Bear Funds Failed on Merrill CDOsBloomberg) discuss/comment here Some 90 percent of the face value of the CDOs was loaned to
Bear by Merrill, as is normal in such transactions. When the
prices of the funds’ CDO holdings started to fall in June,
Merrill demanded that the firm increase collateral in what’s
known in the debt markets as a margin call. Bear Stearns executives pleaded for time, arguing that the
forced sale of their assets would push down all CDO prices.
Merrill Lynch officials brushed off the entreaty, according to
people involved in the discussions. Among those that lost value: $23 billion of CDOs Merrill
held on its own books. (• Prosecutors Eye Bear Stearns Over Hedge Funds (CNBC) Bear Stearns Cos (BSC.N: Quote, Profile, Research) officials are expected to meet in the middle of January with U.S. prosecutors to discuss the failure of two of its hedge funds, CNBC television said on Friday. The funds, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, sought protection from creditors over the summer after investing heavily in collateralized debt obligations backed by subprime mortgages (Reuters)
• Market Sentiment data implies that bearishness is getting very negative. Prior to Friday, it was not yet at the point where a rally was absolutely imminent, but was slowly moving in that direction.
ECONOMY
The Wall of worry continues to build:
• Over the past few years, the official stats have Overstated Job Growth, Understated Inflation
• Goldman, JP Morgan see Fed cutting 50 bps in January: A sputtering job market has convinced economists at key U.S. investment banks that the Federal Reserve will need to resort to a steeper half-percentage point interest rate cut when it meets later this month. Both Goldman Sachs and JP Morgan said on Friday they now see the Fed slashing the benchmark federal funds rate down to 3.75 percent from the current 4.25 percent, with Goldman also considering the possibility of an intermeeting move. (Reuters)
• Subprime’ Is Linguists’ Word of Year: Even the American Dialect Society knows how risky home mortgages are
these days. The group of wordsmiths chose "subprime" as 2007’s Word of
the Year at its annual convention Friday."`Subprime’ has been around
with bankers for awhile, but now everyone is talking about `subprime,’"
said Wayne Glowka, a spokesman for the group and a dean at Reinhardt
College in Waleska, Ga. "It’s affecting all kinds of people in all
kinds of places." (AP)
• NFP December 2007 and NFP = 18,000
• Manufacturers shift into reverse: Manufacturing activity unexpectedly declined for the first time in 11 months in December, a survey of purchasing managers in that sector released Wednesday showed. The Institute of Supply Management’s manufacturing index weakened to 47.7, compared to 50.8 in November. Economists surveyed by Briefing.com had expected the index to show slower growth forecasting a reading of 50.5. The unexpected weakness in manufacturing came due to a sharp drop in new orders and production. The reading, one of the first looks at the economy in December, raised questions of whether more Federal Reserve rate cuts and possibly a recession were on the horizon. (CNNMoney.com)
• Minus Housing, U.S. Job Cuts Look Tame Aside from that Mrs. Lincoln, how’d you like the play?
• Jump in U.S. Jobless Rate Always Signaled Recessions: The U.S. economy may be on the verge of — or already in — a recession, based on the increase in 2007’s unemployment rate, economists said.The jobless rate rose to 5 percent in December, the highest in two years. The figure was 0.6 percentage point higher than March’s 4.4 percent, which was the lowest reading of the expansion that began at the end of 2001.“Since 1949 the unemployment rate has never risen by this magnitude without the economy being in recession,” John Ryding, chief U.S. economist at Bear Stearns Cos. in New York, said in a note to clients. ‘We now put ourselves on recession watch.’ (Bloomberg)
• Spin and denial survive the global credit crunch (IHT)
HOUSING• Existing Home Sales Drop 20%
• Everywhere except Manhattan — Apartment Prices in Manhattan Defy National Real Estate Slide: As the housing market across the country continued to stagnate in the fourth quarter of last year, the market in Manhattan set a record, according to reports to be released on Thursday by four of the city’s major real estate brokerage firms. The average price for an apartment reached $1.4 million in the last quarter of 2007, up 17.6 percent from the fourth quarter of 2006, according to data tracked by the brokerage firm Prudential Douglas Elliman. (New York Times)
• Home Prices Must Fall Far To Be In Sync With Rents: U.S. house prices "likely would have to fall considerably" to
return to a normal relationship with rents, says a study by one former and two
current Federal Reserve economists.The study, which doesn’t necessarily reflect the views of Fed
policy makers, suggests prices would have to fall 15% over five years, assuming
rents rose 4% a year. House prices would have to fall further if the adjustment
took place more quickly. The study tracks rents and home prices back to 1960 and found
annual rents fluctuated at around 5% to 5.25% of home prices until 1995. At the
end of that year, the average monthly rent was about $553 (or about $6,600 a
year) and the average home price was about $134,000. (free Wall Street Journal) Discuss here• New Year Brings Another False Dawn for Housing: Maybe, just maybe, housing is stabilizing.That was the hope at year-end 2006, based on a plateau in existing home sales. After falling 13.6 percent from a peak annualized rate of 7.21 million in September 2005, sales of existing homes treaded water from September through December 2006 and came up for air in January and February before submerging again.Home sales manifested the same pattern a year later, stabilizing from September through November at a pace 20 percent below that of a year earlier. (Existing home sales for December will be reported on Jan. 24.)There is hope once again that housing has bottomed — hope that’s as audacious as it is misplaced. (Bloomberg)
• Real Estate: How Far Will It Fall in 2008?
• Dirty Deeds: The mortgage crisis has blighted the landscape with boarded-up houses. Now a few cities are holding giant lenders accountable for what foreclosure leaves behind (BusinessWeek)
• Credit crunch, building boom push vacancies to 12-year high: A sluggish economy, credit crunch and rampant construction took their toll on San Diego’s commercial real estate market in the fourth quarter, with office vacancies spiking to their highest level since 1996. (San Diego UNION-TRIBUNE)
WAR/MEDIA/POLITICS/ENERGY
• OIL IS AT $100 PER BARREL. GET USED TO IT. When the price of a barrel of oil briefly hit $100 in trading on Wednesday morning, it was basically a non-event. After adjusting for inflation, $100 a barrel in 2008 still isn’t an all-time record. And really, what’s the difference between $99 and $100? (Slate) see also Does Energy Efficiency Save Energy?
(CIBC)• Political Analysis:
–Huckabee gaffes could undermine straight-shooter image
–Will Bloomberg Jump In?
–New Hampshire Democratic Primary: Obama 39% Clinton 27%• Few Viewers for Infancy of Fox Business: How many people are watching the new Fox Business Network? About 6,300, on average, on any given weekday, according to early estimates compiled by Nielsen Media Research. By contrast, Fox Business’s chief competitor, CNBC, attracted about 283,000 viewers each weekday from Oct. 15 through Dec. 14, the first two months that Fox Business was on the air, according to Nielsen’s calculations. While Nielsen, at the network’s request, has measured the viewership of Fox Business since its premiere, Nielsen is not permitted to release or even confirm those figures publicly. That is because they are so low as to fall below Nielsen’s minimum standards for reporting, said Gary Holmes, a Nielsen spokesman. (NYT)
TECHNOLOGY & SCIENCE
• Top 10 Obscure Google Search Tricks Also, I thought this was interesting: "Stock" beats "sex" in Google China keyword searches;
• Recording Industry Says Ripping CDs To Computer Is Illegal The Recording Industry Association of America has filed a landmark federal lawsuit in Arizona, claiming that it is illegal for users to make copies of CD tracks to their computer for personal use. (Tom’s Hardware) also, see: Death of DRM Could Weaken iTunes, Boost iPod
• Predictions 2008
–John Battelle’s Searchblog
–Macworld’s annual forecast of the year ahead
–Always Certain, Sometimes Correct: Bob Cringley’s Fearless Predictions
• Don’t bet on Gates’ predictions:
For the 10th time, Bill Gates will inaugurate the International
Consumer Electronics Show in Las Vegas by touting new Microsoft Corp.
products and describing his view of the future of computing.Before you
rush to the edge of your seat Sunday, consider this: Gates is a
mediocre prognosticator. (Globe & Mail)• Spam’s ‘poster boy’ indicted
• What This Gadget Can Do Is Up to You : HACKERS, welcome! Here are detailed circuit diagrams of our products — modify them as you wish.” That’s not an announcement you’ll find on the Web sites of most consumer electronics manufacturers, who tend to keep information on the innards of their machines as private as possible. But Neuros Technology International, creator of a new video recorder, has decided to go in a different direction. The company, based in Chicago, is providing full documentation of the hardware platform for its recorder, the Neuros OSD (for open source device), so that skilled users can customize or “hack” the device — and then pass along the improvements to others. (New York Times)
• An astounding chart: Per Capita Spending and Life Expectancy
• Warner’s Blu-ray Endorsement Boosts the Buzz at CES
• Only in Japan: Tenga is a real company; I can’t even begin to describe what they make. Astounding & Insane (click around; almost safe for work)
MUSIC BOOKS MOVIES TV FUN!• Readers of the Big Picture bought nearly 1,000 books in the month of December via Amazon. Here’s what the top 25 or so books Big Picture Visitors are reading/buying.
• The Latest Book from former NAR Chief Economist David Lereah. (very amusing)
• 2007 Movie Theater Attendance = Flat
• Sleevage is a blog all about music cover art. From the LP’s of the 60’s to the digital artworks of now
• Way cool: Fractal Art Contest
• 2007 Darwin Awards Honoring those who improve the species . . . by accidentally removing themselves from it!
• Malcolm Gladwell: What we can learn from spaghetti sauce
That’s all from a flu abbreviated, most-of-the-weekend-spent-in-bed, Linkfest HQ. (But I’m already feeling much better, thank you)
~~~
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.
Feel Better!! Go GIANTS!!
Feel Better!! Go GIANTS!!
Have you seen the $SOX (semiconductor index)? It really sux. Down 9% in four days.
http://stockcharts.com/h-sc/ui
I’m waiting to see if it bounces off 350. If it doesn’t, look out below.
No shortage of Purple Kool-Aid at the White House:
Ah, “that negative drag on the economy” over the last seven years has been the failed policies of the occupants of the White House.
.
LONG – Gold, Commodities, Oil, Solar, Mobile, Agriculture, BRIC, Euro, Canadian Dollar
SHORT – Financials, Real Estate, Russell 2000, US Dollar, Transports
See my 2008 outlook for this year.
http://www.stockroar.com/2008/01/06/what-stocks-and-sectors-to-trade-in-2008/
BR Glad you are feeling better. That flu is a killer.
I’m piecing together more a theory of depression coming than recession.
Research depression on Wikipedia I come up with:
“In the 1920s, in the U.S. the widespread use of purchases of businesses and factories on credit and the use of home mortgages and credit purchases of automobiles, furniture and even some stocks boosted spending but created consumer and commercial debt. People and businesses who were deeply in debt when a price deflation occurred or demand for their product decreased were often in serious trouble—even if they kept their jobs, they risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.”
We already see it in homes and auto demand.
Now put this other piece into it:
“John Maynard Keynes, a famous British economist, believed that the classical business cycle theory broke down when interest rates went below about 2%. People then had no incentive to save money, because they earned so little interest. This meant that banks did not receive money with which they could make loans. The lack of loan money disrupted business, according to Keynes.”
Think about how long personal savings rate has been negative. I think in Oct it ticked up +1% but it’s been a long time since I’ve seen any upward movement.
The fact that our economy can’t handle a 5% fed funds interest rate which is historically low on average is a bad omen.
Now let me just say, that is a nice cornucopia of subject matter.
What did I learn:
1) I was not alive, neither was my father, and his father was just a little boy the last time we had a market opening week this bad. Uh-Oh.
2) Every real estate market in the USA is heading down, except Manhattan. Hold on a moment [scratch-scratch] … Manhattan to Wall Street to Investment Bank to Write Downs. Can I short Manhattan real estate? Just a thought … and a matter of time. Someone call The Donald and let him know his immunity is about to expire.
3) Blu-ray Wins! I sure am glad I bought my kid (it’s really mine) a PS3 instead of the XBOX 360 for Christmas. Microsoft losses once again.
worst since 1932? ok, but didn’t 1932 work out pretty well? better than 1929 i’m sure…
July 5th,1932 was the market bottom.
Emergen-C is awesome for colds and the flu, Barry – get you back on your feet in no time….
I take it now to fend off the bugs when I feel them coming on….
Hope you are better soon!
The RIAA headline is misleading. They’re suing for placing ripped cd files in a shared location, something beyond merely copying them to your computer or mp3 player. Doesn’t mean the RIAA isn’t evil, just that they aren’t completely bsc.
>> thinks stagflation fears are “overblown” since we’re nowhere near “the wage-price-spiral misery” of the 1970s.
If the 70s were “misery”, what term do we use to describe the situation where we have the commodity inflation but none of the nominal wage increases to help maintain workers’ buying their power?
jf, that’s how I read those articles, too.
“Wage pressures, in particular, are likely to cut into profit margins, eventually leading companies to cut jobs.”
After years of stagnant to declining real wages, just when the working stiff is starting to regain a bit of leeway, here’s a pundit telling us that this is unacceptable. Either don’t regain anything or see your job go down the drain.
Well…screw you Mr. Rismiller