Another raucous week in the books. Following the previous week’s disaster (down 4.4%), this week’s volatility wasn’t really all that bad.
The biggest gainer was the surge in Crude Oil, now back over $95. Emerging markets popped 3.5%, while the S&P500 and the Dow rose 1.4%. The Nasdaq gained only half of that. The dollar, gold and bonds all slipped. Year-to-date, the S&P500 os down 8.1%, and off 7.3% over the past 52 weeks.
The past weak’s action was a result of ugly news on both the economic and corporate fronts. Consumer Sentiment, Retail Sales, Import Prices and the NY Fed’s report on business conditions were all rather poor. UBS wrote down $13.7 billion dollars, and its a fair bet that there is more to come.
On the retail side, Best Buy’s guidance cut was the latest in a series of dour forecasts from the consumer sector. NY utility Con Ed (ED) warned of more households falling behind on their electric bills (delinquencies have increased 12%). Retail giant Wal-Mart (WMT) reports on Tuesday, and you can be sure its future guidance will be closely watched.
Barron’s Trader column noted:
"Cheaper prices have attracted bargain hunters, and mildly good news has now begun to surprise — as did data last week showing a minuscule uptick in January retail sales. But rallies keep running out of steam and for all the mileage on its odometer, the zigzagging Standard & Poor’s 500 index remains mired not far above its January low."
Looking ahead, we have some important earnings and economic releases. All US markets are closed Monday for President’s day. The rest of the week has a few economic releases of import: Tuesday has the Housing Market Index, On Wednesday we learn MBA Purchase Applications, CPI and Housing Starts. The FOMC Minutes are also released on Wednesday. Thursday brings the release of Leading Economic Indicators and Philly Fed Surveys.
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• The ‘Told Ya So’ Analysts: The mortgage upheaval is costing some stock analysts their jobs as Wall Street firms cut expenses. But the doom has vaulted the careers of a handful of analysts who correctly predicted some of the biggest blowups. Among those most often mentioned as making a name for themselves with smart calls about firms in the vortex of the credit storm are Goldman Sachs Group Inc. brokerage analyst William Tanona and Meredith Whitney, a bank analyst at Oppenheimer & Co. (Wall Street Journal)
• Two fascinating historical studies explain market and financial crisies:
• When Will Earnings Recover? One group on Wall Street — the stock analysts — still aren’t convinced [that the economy is near a recession]. Amid all the talk of an economic slowdown, these analysts are forecasting a stellar year for corporate profit growth.To be sure, earnings estimates for the fourth quarter of 2007 and the first half of 2008 have come down in recent weeks. The consensus forecast for the fourth quarter now calls for a decline of 21.1 percent, worse than the drop of 9.4 percent predicted at the start of the year for the same period, according to Thomson Financial. Thomson tallies the earnings forecasts of around 7,000 analysts at big brokerage firms, boutique firms and independent shops, and combines them into an aggregate forecast for the Standard & Poor’s 500-stock index. On balance, these analysts are bracing for relatively flat profit performance in the first and second quarters this year. (NYT)
• How SubPrime Really Works: This utterly hysterical Powerpoint has been circulating round Wall Street trading desks for a few days now. I embedded it into Google apps and posted it on line — boom! IUnstant viral video. Now everyone can
enjoy the warped sense of humor that accompanies losing $100s of
billions of dollars. (MS Office not required)
• Big things are afoot with the monoline insurers:
–The Monolines Are F#@%ed!
–Bonds Unbound (New Yorker)
–FGIC: Let Us Split in Two
–MBIA-Ambac Timeline (Marketbeat)
–Bond Insurer Seeks to Split Itself, Roiling Some Banks (WSJ)
• Bill Gross nicely summed up the monoline situation in the FT: "How
could Ambac (ABK), through the magic of its triple-A rating, with
equity capital of less than $5bn, insure the debt of the state of
California, the world’s sixth-largest economy? How could an investor in
California’s municipal bonds be comforted by a company that during a
potential liquidity crisis might find the capital markets closed to it,
versus the nation’s largest state with its obvious ongoing taxing
• Uh-oh: Northern Rock to Be Nationalized By UK Government (Bloomberg)
• Survey shows risk aversion at seven-year high: The outlook for equities darkened in February, with fund managers more risk averse than at any time in the last seven years, according to Merrill Lynch’s monthly survey. A total of 190 fund managers running $587 billion in assets participated in the February survey. The survey showed that 41% of fund managers are now overweight cash, up from 32% in January and 26% in December. This is the highest reading since September 2001 when investors reacted to the terrorist attacks on the U.S. Still, a net 25% of respondents said that they believe global equity markets are undervalued, compared to 15% holding this view in January. (Marketwatch)
• Buffett sitting on his wallet: Equity markets are not yet bargain-priced and there’s more pain to come
on Wall Street because of the debacle in U.S. mortgages, says Warren
Buffett, the world’s second-richest man. (Globe & Mail) but see also Berkshire Becomes Largest Kraft Shareholder
• Keep It Simple, Says Yale’s Top Investor: Don’t try anything fancy. Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals. That is the advice of David F. Swensen, who has run the Yale endowment since 1988, relying on a complex strategy that includes investments in hedge funds and other esoteric vehicles. The endowment earned 28 percent in its last fiscal year, which ended June 30, beating all other endowments. It finished the year with $22.5 billion. For most people, he recommends a very basic approach: use index funds, exchange-traded funds and other low-cost instruments, and stick to your long-term asset allocation even when the markets are in tumult. (NYT)
• Almost lost in this week’s turmoil were changes to the Dow Industrials: BAC and CVX in, MO and HON out. Updating the Dow, top ticking Energy?
• Farmers Wonder if Boom In Grain Prices Is a Bubble: With corn, wheat, soybeans, barley, sunflowers and other grains selling
at or near record prices, U.S. farmers are preparing for a potentially
historic planting season. A rush to make biofuels from crops and
soaring demand for grains in China, India and other emerging markets
have pushed up grain prices world-wide, helping drive food prices
higher. (free Wall Street Journal)
• For the mathematically challenged: Patriots Lose, Markets Win? (Marketbeat)
The Wall of Worry continues to build:
• If you got suckered by the January Retail sales data, don’t blame us:
• U.S. Recession Indicators Are All Pointing South: It now appears that the four
indicators used by the National Bureau of Economic Research’s
Business Cycle Dating Committee (BCDC) to assess turning points
in the economy have peaked. Not by very much, mind you. And not for sufficiently long
for the BCDC to make a determination that a recession has begun.
The committee typically waits anywhere from six to 18 months
after a recession has started to make it official. As it now stands, though, the four indicators are all off
their highs, with industrial production and real personal income
less transfer payments peaking in September, real manufacturing
and trade sales in October, and, most recently, employment in
• Floyd Norris notes: Consumer Sentiment Not All Dark: 69% say this is a good time to buy a house, more people think their personal financial situation will get better (27%) than get worse (19%), and expectations for the next five years are much higher than they were then. (NYT)
• Job cuts on the rise – report:
Job cuts increased 69% in January from the previous month, as the U.S.
economy continues to struggle amid a housing and credit slump,
according to a survey released Monday by a consulting firm. (CNN/Money)
• Joseph Stiglitz: Unfettered Markets Do Not Lead to Societal
Well-Being (Economist’s View)
• How to Predict recessions (or not) (Econbrowser)
• Who knew John Hussman had a sense of humor? Watching for Audit Delays and "Qualified" Opinions (scroll down for photo)
• THE MINSKY MOMENT:
Twenty-five years ago, when most economists were extolling the virtues
of financial deregulation and innovation, a maverick named Hyman P.
Minsky maintained a more negative view of Wall Street; in fact, he
noted that bankers, traders, and other financiers periodically played
the role of arsonists, setting the entire economy ablaze. Wall Street
encouraged businesses and individuals to take on too much risk, he
believed, generating ruinous boom-and-bust cycles. The only way to
break this pattern was for the government to step in and regulate the
moneymen. Many of Minsky’s colleagues regarded his financial-instability hypothesis, which he first developed in the
nineteen-sixties, as radical, if not crackpot. Today, with the subprime
crisis seemingly on the verge of metamorphosing into a recession,
references to it have become commonplace on financial Web sites and in
the reports of Wall Street analysts. Minsky’s hypothesis is well worth
revisiting. (The New Yorker)
• Proving once again that truth is infinitely funnier than fiction, the lobbying group representing homebuilders has decided to cut off contributions to federal congressional campaigns. Why? They claim lawmakers and the Bush administration have not done enough to stabilize the housing market. Builders: No Soup for You! Come Back One Year!
• Tracking Housing Prices — Why the Numbers Conflict: Tracking home prices is harder than tracking the price of stocks, which are traded constantly in public view on exchanges. And it’s harder than tracking the price of toothpaste. That just involves sampling posted prices on grocery-store shelves and Web sites. The two best — though far from perfect — measures of housing prices are the Office of Federal Housing Enterprise Oversight’s index and the gloomier Standard & Poor’s Case/Shiller index. Both are based on a concept, developed in the 1980s by Karl Case of Wellesley College and Robert Shiller of Yale University, that looks at repeat sales of the same houses. (free WSJ)
• Housing and Monetary Policy: Interesting academic work on Housing Prices, Monetary Policy, and Subprime issues from Stanford’s John B. Taylor. Incidentally, if you recognize the name Taylor — as in Taylor rule — they are one and the same person.
• Banks Tighten Lending Standards, According to Quarterly Fed Survey: U.S. banks have tightened their standards on loans for prime, non-traditional and subprime mortgages, a survey said Monday. In its quarterly survey of senior loan officers, the
Federal Reserve also reported demand for bank loans weakened for both
businesses and households. Banks got the survey in early January and their
responses were due Jan. 17. The survey was based on responses from 56
domestic banks and 23 foreign banking institutions. (Wall Street Journal)
• Tom Brown points out that Some Subprime Mortgage Loans Are Actually Current , asking the sarcastic question "Who would have guessed that Underwriting Discipline makes a difference in Mortgage Lending?"
• Tips for Buying A Foreclosed Home (Real Estate Journal)
• See You Next Tuesday! Will Fonda’s On-Air Blooper Help CBS in the Janet Jackson Case?
• Much more than you ever wanted to know about the life and death of hedge fund manager Seth Tobias (NY Mag)
• The Repudiation of Karl Rove (Washington Post)
• fun article on various forecasting markets: Looking for Sure Political Bets at Online Prediction Market (NYT)
TECHNOLOGY & SCIENCE
• I asked readers for some suggestions about a Site Redesign & Advertising — And got lots of great ideas from you guys!
• Lots of Yahoo stuff this week:
–Was a Private Equity Bid for Yahoo Thwarted by Microsoft ?
–Love-Letter to Yahoo (Infectious Greed)
–Big on Microsoft, Especially Without Yahoo! (Barron’s)
–Microsoft and Yahoo: Playing Chicken? (BusinessWeek)
and my personal favorite
–"They tried to make me go to Redmond, I said, No! No! No!"
• AOL’s sorry status a grim omen for Yahoo: To see what the future of Yahoo would look like under Microsoft, take a look at the news on AOL this week. The once proud portal, which famously merged with Time Warner Inc. (TWX) in the biggest deal of the dot-com era eight years ago, is limping toward yet another corporate restructuring, with sales down, layoffs coming, and thousands of former dial-up customers a day continuing to bail. (Marketwatch)
• Building the Perfect Laptop (BusinessWeek)
• Study Finds Humans’ Effect on Oceans Comprehensive Human activities are affecting every square mile of the world’s oceans, according to a study by a team of American, British and Canadian researchers who mapped the severity of the effects from pole to pole. The analysis of 17 global data sets, led by Benjamin S. Halpern of the National Center for Ecological Analysis and Synthesis in Santa Barbara, Calif., details how humans are reshaping the seas through overfishing, air and water pollution, commercial shipping and other activities. The study, published online yesterday by the journal Science, examines those effects on nearly two dozen marine ecosystems, including coral reefs and continental shelves. (Washington Post) see also Map paints gloomy picture of world’s oceans
• Feds nipped state efforts to slash mercury
While arguing in court that states are free to enact tougher mercury
controls from power plants, the Bush administration pressured dozens of
states to accept a scheme that would let some plants evade cleaning up
their pollution, government documents show. (ain’t deregulation
grand?) A week ago, a federal appeals court struck down that
industry-friendly approach for mercury reduction. It allowed plants
with excessive smokestack emissions to buy pollution rights from other
plants that foul the air less. (USA Today)
• OBESITY, GENETICS, AND RESPONSIBILITY: the American Journal of Clinical Nutrition, examined 5,000 pairs of British twins aged 8 to 11. By comparing similarities of outcome between identical twins (who share all their genes) and fraternal twins (who share half), the authors calculate that BMI in the sample was 77 percent heritable. That is, 77 percent of the variation between thinner and fatter kids could be attributed to genetic differences. Of the remainder, "shared environment" (growing up in the same household) accounted for 10 percent, and "non-shared environment" (for example, being the eldest kid instead of the youngest) accounted for 13 percent. (Slate)
MUSIC BOOKS MOVIES TV FUN!
• I have so many books stacked up its embarrasing. Look for a few new updates later this week.
• One of my favorite new movies this past year has been 300, the green screen film of Frank Miller’s graphic novel. Simply awesome (if a little ultra violence doesn’t bother you). I saw the DVD wide screen version, but I’m really curious about the extras on the special 2 DVD set. Trailers here,
• There’s been some buzz about Billie Holiday’s newest live set, "Billie Holiday: Rare Live Recordings, 1934-1959" on Bernard Stollman’s ESP-Disk label. The WSJ’s Nat Hentoff raves over it, andour wriite up is here.
• Happy belated Valentine’s Day: The 10 Best Robot Chicken Sex Moments (video)
That’s all from a quiet but chiily weekend in
the NorthEast, where we are out in the Hamptons seeing whats left of our house after the last Nor’Easter.
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