The Big Picture | June 2004

« May 2004 | Main | July 2004 »

Fed's Measured Moves

Wednesday, June 30, 2004 | 11:07 PM

click for larger chart

Source: NYT

Two good articles on the Fed from the New York Times.

Sources:
Up, Yes. But How Much, How Fast?
By EDMUND L. ANDREWS
NYTimes, June 27, 2004
http://www.nytimes.com/2004/06/27/business/yourmoney/27fed.html

The Phantom of the Fed
By DANIEL GROSS
NYTimes, June 27, 2004
http://www.nytimes.com/2004/06/27/business/yourmoney/27view.html

Post Fed Increase Market Performance

Wednesday, June 30, 2004 | 02:15 PM

in Finance

Ned Davis Research put out a piece in December 2003 titled "FED WATCH -- Much Ado About Nothing or Something?"

I really think the whole thing is much ado about nothing. As shown on table (below), after the Fed has raised rates the first time, the stock market has, on average, risen one month, three months, six months, nine months, and 12 months later, with the 12-month gain actually above the average gain for one-year returns. Moreover, the Fed funds rate at 1% is well below the 6% nominal growth for GDP. Therefore, if the Fed raises rates, they (and Wall Street) can argue that the rate is still very low and stimulating.

NDR's bigger concern stems from the belief that:

The Fed's main job is to protect the purchasing power of the U.S. dollar . . . The Fed is actually helping the dollar lose purchasing power both at home and abroad with its easy money stance. I worry that the dollar decline, while bullish if controlled, could turn into a dollar collapse, which could cause foreigners to dump bonds sending bond yields soaring, like they do in every currency crisis.

"Our research shows that the first hike the Fed institutes doesn't really mean anything. After one single hike, the market typically goes up for the next year. It is really only after a series of hikes that the Fed becomes a negative for the market. Normally, the first hike is seen as the result of stronger earnings, and that offsets any negative interpretation. But lately several Fed governors have said they thought a neutral range for the fed-funds rate [the overnight rate banks charge each other] is somewhere between 3% and 3.5%. We are not talking about a quarter-point hike. Once it looks like they have started down the road, the market is going to make the leap to the 3% to 3.5% range they are talking about. The Fed must hope the economic news is not quite as smoking as it has been so far this month."

Good stuff. Its supported by other research by James Stack of Investech, who notes:

"Shown in this table are the 10 tightening cycles undertaken by the Federal Reserve over the past 50 years. Along with the date of the first Discount Rate hike is the date at which a resulting bear market (or near-bear market in the case of 1960) began.

Note the following:
• Two of the tightening cycles (1977 and 1994) did not result in a bear market or significantdecline in the S&P 500 Index;

• Another (1958) resulted in a “mild” bear market that began over 15 months after the first rate hike;

• Four others (1955, 1963, 1967, and 1999) resulted in more bull market gains that generally lasted between 7 and 16 months;

• In only two cases -1987 and 1973- did the first rate hike occur prior to the start of the bear market.

So one might say that 80% of the time, the first rate hike did not lead to an immediate bear market. Those are not
bad odds in an election year (which is normally bullish in its own context).

Now let’s look at the associated downside market risk after the first Discount Rate hike. Of those 10 tightening cycles:

• Only one (1987) saw the S&P 500 Index decline over 6% in the 3 months following the first rate hike;
• However, three experienced double-digit losses after 6 months and after 12 months;

• Surprisingly, six out of ten experienced double-digit gains after 12 months. But out of those six, ALL still experienced a subsequent bear market as interest rates kept moving higher.

So while the downside risk of the “first rate hike” cannot be ignored (as evidenced by the 1987 Crash), there’s a dichotomy between expectations and historical reality. Based purely on past precedent, we should still expect higher stock prices over the next 6, and possibly 12, months. This is one reason why our strategy and allocation cannot be determined by monetary policy alone.

Sources:
Contrarian Jitters
Barron's MONDAY, APRIL 19, 2004
A master technician sees a yellow light flashing
http://online.wsj.com/barrons/article/0,,SB108215678443785333,00.html

Clarifying the '5% Rule' and 'Mirror Image' Scenario

Wednesday, June 30, 2004 | 11:12 AM

in Finance

I received a lot of questions recently about the same issues, mentioned both on the air and in a recent TheStreet.com column: Recapping the First Half of the Year.

So many emails make it obvious that I was unclear -- Allow me to resolve the confusion:

The first question had to do with what I termed "the 5% rule." Although I had mentioned it here previously, not everyone (horror!) reads my every last word. I discussed the 5% retracement rule back on March 11.

In brief: Rarely does the first 5% pullback doom a rally to failure. Historically, this initial 5% retracement on the Dow and SPX (but not the higher beta Nasdaq) occurs at -- roughly -- the 60% mark (i.e., the rally has achieved 60% of its gains and has another 40% to go). Note that this is just an average, and there will be occasions when the first pullback happens either sooner or later than that point. You can read more about it at the link above.

The second issue was what I meant by a "mirror image" of the first half of the year. Since 2004 started strong, peaked late in the first month and then reversed for the next five months, the mirror image would mean starting out soft, bottoming and then rallying for most of the rest of the year.

That's my expectation for the next six months -- we are a little overbought at present, the next major dip (in my opinion) should be a good buying opportunity, and then the presidential election year trends and the big M2 increases should power us higher the rest of the year.

My apologies for the confusion...

A Journalistic First

Tuesday, June 29, 2004 | 11:29 PM

in Media

This has to be a first:

Altercation, Eric Alterman's fine blog on Media matters, ran with the F9/11: What political impact? today in his correspondent's section.

And as the previous post mentioned, National Review's Larry Kudlow picked up a quote from yesterday's "Do Over."

Altercation and NRO on the exact same day.

That has to be some kind of a record: simultaneous mentions in the most politically inapposite publications imaginable. (Too bad the comments in the Gay Financial Network were from Monday).

Small world.

National Review picks up "Do Over"

Tuesday, June 29, 2004 | 03:55 PM

in Media

nro

National Review picked up a quote from yesterday's "Do Over." (Hey, anyone else who wants to compare me to Sinatra should feel free to call, and I''ll give you good quote also):

World stock markets applauded the sooner-than-expected U.S. handover to Iraq. Energy prices fell significantly. Former Coalition Administrator Paul Bremer immediately took the next plane out of town. Things are looking up. Wasn't it Sinatra who sang "love is lovelier the second time around"?

Quoting from the Bayonne, New Jersey crooner is not as far fetched as one might think. Here is market strategist Barry Ritholtz on the surprise handover decision:

"The Neo-Conservative hawks who pressed for the invasion of Iraq failed to create an adequate strategy for a post-war period. This created an opportunity for insurgents to cause havoc and mayhem. With the handover to the Iraqi Ruling Council a few days early, the planners have gotten one right for a change."

Speaking to National Public Radio, U.S. Deputy Secretary of State Richard Armitage talked about the benefit of "somehow confusing the [terrorists'] plans, or what we believe are plans, to disrupt the proceedings." Ah, we are learning. The second time around.

It is lovelier the second time around

Source:
Cornering the Campaign Market
Larry Kudlow
National Review, June 29, 2004, 9:20 a.m.
http://www.nationalreview.com/kudlow/kudlow200406290920.asp

Bush Slipping Amongst Corporate America?

Tuesday, June 29, 2004 | 02:37 PM

in Politics

wsj_format_logo

Two recent polls/anecdotal surveys reveal disturbing realities about what should be near automatic support for the President amongst GOP voters in the upcoming election. They are not good news for the incumbent

The first is a 1H 2004 CNBC poll of 30 professional money managers. This group manages over $320 Billion dollars -- a third of a trillion bucks. They were questioned about the market, the economy and the upcoming election. While 92% of these pros thought the stock market would do better under Bush than Kerry, a surprising 37% of them were supporting Kerry anyway.

For the incumbent, this amounts to a very large vein of discontent running through what should be a heavily GOP stronghold. Republican presidents do not typically get re-elected when they are only polling a 63% support on Wall Street.

Adding support to this survey was an article from Tuesday's WSJ: "Chinks Appear in Bush Business Armor." Again, we see a strong vein of discontent amongst what should be a GOP stronghold: VCs, technology execs, and corporate executives.

The article took quotes from participants at the Wall Street Journal's recent "All Things Digital" conference of senior technology executives. "An informal show of hands revealed many more planning to vote for Mr. Kerry than Mr. Bush. Even "Undecided" beat the president." The audience included large and small company execs, Wall Street Analysts, and Venture Capitalists. In the high-tech sector -- a younger and less-traditional set of players -- is where the Journal suggests Mr. Kerry will find the most fertile ground for support.

This development is yet another example of a demographic voting bloc that should be a lock for a GOP President -- but isn't for this one. As we have seen in the recent past (Cubans, Arab-Americans, etc.), the incumbent should not lightly assume that traditional GOP voters will be fully behind him in November.

"Though George W. Bush has been a decidedly pro-business president, a few cracks are surfacing in what had been a solid wall of business support.

Those small cracks, some stemming from dismay with record budget deficits, others from fears that his foreign policies are clouding the global business climate, have grown wide enough for Sen. John Kerry to launch a behind-the-scenes effort to woo business executives. While the Democratic candidate has no chance of matching the incumbent Republican's business support, even a few notable defectors could help blunt Mr. Bush's advantage, raise doubts with swing voters and draw more money into the Kerry coffers.

Increasing Deficits Cause Exec Worry

Source: WSJ

The upshot is a mostly quiet but significant struggle over business's allegiance.

For Mr. Kerry, last week's endorsement by onetime corporate icon Lee Iacocca, the former Chrysler Corp. chairman, was only the first of what his campaign promises will be more such staged appearances with business leaders. Mr. Kerry already had won backing from Berkshire Hathaway's Warren Buffett and Apple Computer's Steve Jobs."

As we mentioned back on March 10 (Market Adapting to Ugly Realities), there is a brewing backlash against Corporate America to the foreign policy adventures of the present administration. I'm glad this meme is gaining traction in the mainstream media -- hopefully, before too much damage is down to US brands and reputations:

Brand America Damaged by Foreign Affairs?
exec_gripes_ii
Source: WSJ

WSJ:
"Among Kerry supporters is Eric Best, a managing director at Morgan Stanley, who says Mr. Bush's tax cuts go too far at the expense of mounting deficits. "I was raised as a fiscal conservative, and I think his fiscal policy is scary," he says. Mr. Best, who remembers Mr. Bush as an upper-class dormitory proctor at Phillips Academy Andover boarding school, says that what really motivates him to stump for Mr. Kerry is the hostility the global strategist finds as he travels.

"I can testify to the extraordinary destruction of 'American Brand Value' accomplished by this administration, from Europe to Hong Kong to Shanghai to Tokyo, and beyond," he wrote in a recent e-mail that he widely distributed. "If any CEO of a global multinational had accomplished this for his enterprise as quickly and radically as George Bush Jr. has done for the U.S., he would be replaced by the board in no time."

Fascinating stuff.

Source:
Chinks Appear in Bush Business Armor
Kerry, Sensing an Opening, Tries to Gain Political Capital By Courting Corporate America
By JACKIE CALMES
Staff Reporter of THE WALL STREET JOURNAL
June 29, 2004; Page A4
http://online.wsj.com/article/0,,SB108846166940349698,00.html

Media Appearence: Kudlow & Cramer

Monday, June 28, 2004 | 02:08 PM

in Media

A quick heads up: I just got tagged for Kudlow & Cramer tonite, 5:10 pm, CNBC.

We will be 2nd up on the show, following a General who will be discussing the handover and insurgency. The subjects will be all the usual things: Today's comment, including Iraq, Presidential Elections, Economy, Interest Rates and the Markets.

UPDATE: June 28, 2004 8:55pm

Wow! That was quite a pleasant surprise. Larry Kudlow was beyond generous in his compliments for the Do Over! piece (Jim asked good questions, too) -- Larry's kind words were surprising, especially 'cause I've been so unrelentingly critical of the incompetent execution of the post-war occupation.

The funny thing is that I wrote the piece in question in all of 7 minutes in my head on the train. I got to the office and punched it out pretty quickly.

Funny how that works . . .

Do Over!

Monday, June 28, 2004 | 11:10 AM

in Finance

The year is nearly halfway over. As such, we thought it might be instructive to reflect on the progress, gains and losses so far in 2004. Much to many people’s surprise, the markets have made scant progress over the previous 6 months. Indeed, many of the key factors we observe closely are just about where they were at 2004’s beginning:

1) Major U.S. Markets: Most apparent are the major indices: As of Friday’s close, they are within a % (or two) of where they started the year – Its as if the first 2 quarters of the year never happened.
Do Over: The second half allows investors to (once again) try to catch an early part of a Bull leg up;

2) Economy: First Deflation, then Inflation. As the stimulus faded, initial fears were that a deflationary cycle was about to occur. When that failed to materialize, the new fear was that the economy was getting too hot to handle, with inflation rearing its ugly head, forcing the Fed to react;
Do Over: GDP, Durable Goods and Unemployment levels all have dropped to sustainable levels. The economy has entered, a not-too-hot, not-too-cold non-inflationary growth stage;

3) The Federal Reserve: Fed critics blame Greenspan & Co. for allowing the bubble to over-inflate, only to ultimately be forced to pop it in 2000 as the economy overheated. When the Fed started a rate hiking cycle four years ago, in our opinion, they raised rates too far too soon.
Do Over: The Fed will get it right this time, going only a ¼ point per meeting, allowing the markets to adjust;

4) Post War Iraq: The Neo-Conservatives hawks who pressed for the invasion of Iraq failed to create an adequate strategy for a post-war period. This created an opportunity for insurgents to cause havoc and mayhem;
Do Over: With the handover to the Iraqi Ruling Council a few days early, the planners have gotten one right for a change. The insurgents will be denied an opening to thwart sovereignty for Iraq;

5) Presidential Polls: President Bush has taken a battering in the polls over the past 6 months: Abu Ghraib torture scandal, Fallujah Insurgents, and other problems drove his approval rating to the lowest levels of his term;
Do Over: Bush has regained a slim lead in recent surveys, improving the odds against his being a “one-termer.”

Chart of the Week: Nasdaq Breaks its Downtrends

Monday, June 28, 2004 | 11:00 AM

in Finance

From when the Composite peaked on January 26, to the May 17 lows, the Nasdaq has been trying to fight through a stubborn downtrend line. It finally managed to break through last week.

Nasdaq Breaks its Downtrends
nasdaq_june_2004

Source: StockCharts

With the down trend cleanly broken, the path of least resistance remains northwards. The next two resistance levels are 2055, and 2080 respectively.

Random Items:
Study Finds Housing Not a Bubble
Ready for $60-a-Barrel Oil? (not me)
U.S. Productivity Is Booming, with No End in Sight
Getting More Out Of Gmail
Making Torture Legal
Mistakes Loom Large as Handover Happens

Quote of the Day:
"Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan."
-Tom Landry (Head Coach, Dallas Cowboys 1960-1988)

CD installs virus/spyware

Friday, June 25, 2004 | 06:45 AM

in Music

The_Register

Here's a different spin on the "DRM" story: The Register discusses a very different approach taken in the new Beastie Boys CD (as compared to the Velvet Revolver DRM). When the disc is inserted into a PC, the disc, "To The 5 Boroughs" surreptitiously installs a virus to prevent ripping the disc to MP3s.

This is an unauthorized hack -- an "executable file is automatically and silently installed on the user's machine when the CD is loaded," According to a recent thread at BugTraq.

No permissions, no disclosures, no authorization. It meets all the definitions of a virus.

The virus file is said to be a "driver that prevents users from ripping the CD (and perhaps others), and attacks both Windows boxen and Macs." Note that under fair use doctrine, a legal purchaser of a CD has every right to back up the disc or convert it to MP3s for their own personal use on an portable player or PC.

A least the Velvet Revolver CD (discussed here) asks permission before installing such DRM measures. Apparently, the new CD from the Beastie Boys doesn't bother with such niceties.

The great irony is that the Beastie Boys became so successful by very creatively sampling the works of other artists. Observers have noted that their 1980's albums (including their masterwork, "Paul's Boutique") couldn't even get made to day, due to all the newer copyright restrictions.

Of all people, for these guys to have drunk the DRM Kool-aid is the ultimate irony -- and sell out. No wonder their fans have been so angry.

Here is the Register's CD virus protection advice:

Autorun can be defeated quite easily -- to disable autorun in Windows, hold down the Shift key when loading a CD (each time the CD is played). You can also disable the autorun "feature" on your Windows machine permanently so that this and other CDs infected with viruses won't affect you in the future.

To do this:

go to the Start menu ==> Run, and type in the command regedit . Your registry editor will launch. Navigate to the following key, and edit as shown:

HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Services\CDRom and set Autorun DWORD=0

It might be necessary to create the value, thus: Data Type: DWORD Value Name: Autorun Value: 0

As usual, you must reboot your Windows box for the changes to take effect.

Ahhh, but what if you have already been infected with the CD virus? The above procedure "assumes that you haven't previously installed a suspected Capitol Records virus, or a similar one from another fine entertainment conglomerate."

If you have, you will need to find and uninstall the malware first. The autorun.inf file on the CD will likely indicate the name of the relevant file(s), the locations where they're installed, and any registry changes made.

Armed with that information, go to the Windows 'uninstall' utility:

Start menu ==> Settings ==> Control Panel ==> Add or Remove Programs ==> Change/Remove.

Look for any program files referenced in the autorun.inf file and uninstall them. If no related programs are listed, you will need to launch the Windows Search Companion and search for any files named in the autorun.inf file and delete them manually. Be sure to activate the options in the "more advanced features" dialog allowing you to search the entire disk (search system folders, search hidden folders, and search subfolders).

Too much work to listen to a CD. My advice -- return the damned thing as defective . . .

Source:
Beastie Boys CD installs virus
By Thomas C Greene
Published Wednesday 23rd June 2004 11:18 GMT
http://www.theregister.co.uk/2004/06/23/beastie_boy_cd_virus/

Unemployment Claims & Elections

Thursday, June 24, 2004 | 05:11 PM

in Politics

last of today's quant trilogy regarding the Presidential Elections: This fascinating chart is courtesy of Don Hays:

click for larger chart
Unemployment Claims, 4 week moving average (thousands)

Source: Hays Advisory

The red circles were where the unemployment claims started getting appreciably better. The red arrows show when the elections were held. Hays is implying that Bush I lost because the election came about 6 months too early. Bush II doesn't appear to have the same issue.

Hays observed:

"You can see the reaction. The herd—and of course the Fed is the chief of the herd—was under the strong belief that the economy (remember it was the no-jobs recovery they told us) was still in the doldrums until the March employment news screamed out from its cocoon. It happened in an almost perfect replay of that 19992-93 experience. Take a look once again at the unemployment insurance claims chart.

You can see the difference in the two graphs, how the election in 1992 occurred almost simultaneously with the strong jobs recovery coming out for the world to see. Good Bye Bush, Hello Clinton with “It’s the Economy, Stupid,” slogan. History shows that voters vote how they feel, and the job security, real disposable income, and inflation (interest rates) are the three factors that determine if an incumbent will win or not. So I continue to believe strongly that George W. Bush’s timing is a lot luckier than George H.W. Bush, and that his election is about as certain as you can get in this world."

For those of you who have read me over the years, you know that Hays was extremely influential in the development of my own market viewpoint. Although he is far, far to the right of my own flavor of pragmatic, centrist, Libertarianism, he is nonetheless a reasonable guy and a deep thinker.

I also recognize the potential variance versus this quantitative analysis: Consider the differing impact the success of the 1991 Iraq war had relative to this one; Clouded issues of the incumbent's credibility at present and the basis for this war; Lastly, the generally changing global marketplace from what was then in 1992 a simpler world.

As Twain was rumored to have said: "History may not repeat, but it often rhymes."

Do Stocks point to Bush loss?

Thursday, June 24, 2004 | 02:59 PM

in Politics

cnn_money_logo

More on presidential indicators -- This time, using the stock market:

"Past performance is not a reliable indicator of future returns. That's good news for President Bush, because if past stock-market patterns hold true this year, he will lose his bid for re-election in November.

Presidential elections are usually won by the incumbent party; in the past 104 years, in 26 elections, the party holding the White House has lost it only 10 times.

But those incumbent losses have been heralded every time by poor stock-market performance, either in the four years leading up to the election or in the last year before the election, according to recent research by Ken Tower, chief market strategist at CyberTrader, a unit of Charles Schwab."

While this is an interesting approach, readers of this blog should be well acquainted with my general disdain for controlling for a single variable on complex problems.

incumbents

Other considerations are also at play: Beyond the problems in Iraq, and issues of credibility, "Wage growth has been slow since the 2001 recession, while prices for food and energy have lately skyrocketed. Many voters are only vaguely aware of the stock market's health at any given time, but they are constantly aware of their wages and what they have to pay for gallons of milk and gasoline."

Its not all bad news for the incumbent: "there has lately been good news for the president -- the University of Michigan's consumer sentiment index rose in June, and the latest weekly ABC/Money consumer comfort index also rose from a very low level, led by improving confidence among Republicans and some independents. "

The race continues to be utterly fascinating . . .

Source:
Stocks point to Bush loss?
If history is any guide, Bush needs a summer rally -- but history may not be such a great guide.
June 23, 2004: 4:55 PM EDT
By Mark Gongloff, CNN/Money senior writer
http://money.cnn.com/2004/06/23/markets/election_stocks_bush/index.htm

Presidential Election Indicators

Thursday, June 24, 2004 | 01:58 PM

in Politics

usa_today_logo

We spend a lot of time discussing various market indicators, and how to balance some against others when they are in apparent conflict.

So when I came across Dan Froomkin's take of USA Today six 'reliable' presidential-election indicators, I simply had to reproduce them:

• Economic formula suggest Bush wins;
• Low approval-rating precedent says Kerry wins;
• War-president precedent says Bush wins;
• Ohio is a bellwether: Tossup;
• Northern Democrats don't stand a chance. Bush wins;
• Kerry is taller; Kerry wins

The fact that these disagree with each other makes them all the more amusing . . .

Sources:
Election-predicting tools point both ways

Depending on which criteria you use, either Bush or Kerry is a lock to win in November
Susan Page
USA TODAY, June 24, 2004
http://www.usatoday.com/usatonline/20040624/6314204s.htm

White House Briefing
Dan Froomkin
Washington Post, Thursday, Jun 24, 2004; 11:50 AM
http://www.washingtonpost.com/wp-dyn/politics/administration/whbriefing/

Bad Faith in Music Industry Litigation Settlement

Thursday, June 24, 2004 | 05:59 AM

in Music

msnbclogo

To review our story so far: As a part of their settlement for being price fixing, anti-competitive, ologopolists, the music industry had agreed to make substantial donations of CDs to schools and public libraries.

Given the pounding the Music Biz rep has taken over the past few years -- the price fixing, the illegal conspiracies, the not paying their artists, (the list goes on and on) -- this was a golden opportunity to generate a little good will, rub some of the tarnish off, and shine up their (deservedly) bad reputation.

Instead, they have used the settlement as an opportunity to dump worthless, unsellable junk on these unsuspecting public non profits. (scum sucking weasels apparently don't change their stripes). This is precisely why when settling litigation, one should never accept "trade." It encourages, well, lets just call it bad behavior:

"Fifty-seven copies of a CD featuring the classically trained trio may be a bit much for one library in Tacoma, Wash. "I was pretty surprised by the numbers,” said librarian Lara Weigand."

Is anyone surprised at this? The class action attorneys have already been paid -- this is as clear an example of bad faith as you will ever come across:

"The CD cornucopia — consisting of approximately 5.6 million compact discs — was billed as a windfall for libraries and schools when it was announced in September 2002 as part of a $144 million settlement of the lawsuit, which alleged that music distribution companies illegally inflated the price of CDs by requiring retailers to sell them at or above a set level in order to qualify for substantial advertising funding.

But when the first shipments began arriving last week, some librarians suspected that the companies — the Bertelsmann Music Group, EMI Music Distribution, Warner-Elektra-Atlantic, Warner Music Group and Sony Music Entertainment — were dumping CDs that had been gathering dust in warehouses when they received hundreds of copies of some titles for which there is little or no demand."

The industry has blamed this on a programming bug: "The good news is that the mystery has been solved and the source of the overabundance has been determined to be nothing more sinister than a computer-programming glitch that will soon be fixed, law enforcement officials say."

Why is it that I doubt that?

UPDATE: 11:07pm June 24, 2003
The Seattle Post-Intelligencer Reporter details the pathetic industry droppings in excruciating detail . . .

Source:
Librarians: Free CDs too much of a good thing
Settlement of music industry price-fixing case yields some odd lots
By Mike Brunker
MSNBC: 1:35 p.m. ET June 17, 2004
http://www.msnbc.msn.com/id/5226945/

CD trove is proving short on treasures
Candace Heckman
Seattle Post-Intelligencer Reporter, June 24, 2004
http://seattlepi.nwsource.com/local/179304_cdupdate24.html

DRM Tales picked up by New Scientist

Wednesday, June 23, 2004 | 03:22 PM

in Media

Our recent comments, Music Industry Spinning DRM Tales, got picked up in an article in New Scientist.

I continue to think that this is going to be a significant issue, and represents the Music Industry's focus on the wrong problems.

One of these days, I'm going to have to write an article on "How to Save the Music Business in 10 Easy Steps (even though its not my job, dammit!)."

Source:
Claim of spyware on Beastie Boys CD denied
Celeste Biever
NewScientist, 15:10 23 June 04
http://www.newscientist.com/news/news.jsp?id=ns99996063

iTunes Rocks Europe

Wednesday, June 23, 2004 | 07:35 AM

in Music

Apple's online music service iTunes has reported sales of 800,000 songs since it opened its European store last week, the BBC reported.

Yet another of the many reasons the music industry has been getting shellacked over the past few years has been their obstinate refusal to address this marketplace demand. Kudos to Apple for stepping into the void and giving consumers what they have been demanding.

There's a lesson here for other industries: When your consumers DEMAND the ability to legally access your product in a different format -- lets hypothetically say music in digital form over the internet -- if your industry fails to address that demand, they run the risk of losing those consumers to a competitive medium, legal or otherwise. Its an amazing proposition -- the provider of such services stands to profit handsomely from answering that demand.

Its the marketplace, stupid.

Here's an excerpt from BBC News:

"iTunes has proved enormously popular in the US, with about 85 million songs downloaded since its launch in April 2003.

Among the top-selling tunes in the European store's first week were exclusive tracks from the Pixies, Anastacia, Alicia Keyes and Herbert Gronemeyer.

Ken Goes, manager of the Pixies, said the release by iTunes of their single Bam Thwok' had boosted sales in four countries. "By distributing our first song in 13 years exclusively on iTunes, we were able to quickly and inexpensively make it available to millions of fans in the US and Europe," he said."

itunes_2032

I'm curious: What has the reaction been to the IFPI -- the European version of the RIAA -- when they filed 200 or so lawsuits against their downloading clients in Denmark, Germany and the Netherlands?

Note that even in a positive story, the BBC had to address the US litigation issue:

"The iTunes service means songs can be legally downloaded to a PC, copied to CD and played on a portable iPod. Rivals Napster and OD2 offer a similar deal to customers.

The news came on the same day as the music industry in the US began legal action citing copyright infringement against 482 computer users. The legal action targets suspected online music file-swappers in St Louis, Washington, Denver and New Jersey, the Recording Industry Association of America said.

The group, which represents major recording companies in the US, brought the legal action against defendants known only by their internet protocol addresses. The tactic means internet access providers can be ordered by the court to reveal the names of their customers."

So sad . . .

Source:
Strong sales for iTunes in Europe
BBC News: Wednesday, 23 June, 2004, 11:50 UK
http://news.bbc.co.uk/2/hi/entertainment/3832201.stm

Silicon Valley (Version 2.0)

Wednesday, June 23, 2004 | 06:46 AM

in Finance

A surprising article in the Times yesterday: Silicon Valley, despite the overall surge in the economy, has not had as much in the way of a revivial as might be expected. While, the macro situation has certainly improved, we are still no where near the pre-Bear market levels on most measures: Office vacancies, VC investments, job creations. I guess technology is just as cyclical and economically sensitive as most other sectors.

NYT:

"Silicon Valley is back" is on the lips of eager entrepreneurs and venture capitalists, who are rejoicing over the success of Google and pointing to the modest comeback in computer sales. The three-year-long depression, they say, is over.

But other signs tell a different story. The famed traffic jams of Silicon Valley's boom times are still uncommon. A last-minute reservation at some of the area's hot restaurants, like Tamarine or Spago Palo Alto, can still be had. And a suite in a gleaming office park that would have cost nearly $10 a square foot in monthly rent in 1999 can now be had for less than $3.

Big portions of sprawling projects built on optimism in the mid-1990's, like the Midpoint Technology Park in Redwood City, sit dark and unoccupied. On Mission College Boulevard in Santa Clara, 750,000 square feet of office space is still available in an archipelago of office parks built during the boom.

The optimists tend to compare today's prospects with that of the mid-1990's, when Netscape Communications' initial public offering in August 1995 touched off the greatest boom the area has ever witnessed. They believe that a new era, which some are calling Web 2.0, is here."

click for larger chart

Source: NYT (Note darker bars reflect 2004 data)

Interesting stuff.

Source:
Silicon Valley (Version 2.0) Has Hopes Up
By GARY RIVLIN
NY Times: June 22, 2004
http://www.nytimes.com/2004/06/22/technology/22VALL.html

Barron's picks up "Rinse, Lather, Repeat"

Wednesday, June 23, 2004 | 12:53 AM

in Media

Last week's comments, "Rinse, Lather, Repeat," got picked up by Barron's.

Funny, you never can tell what's gonna grab their attention . . .

Source:
Confirming a Market Turn
Barrons MARKET WATCH TODAY
TUESDAY, JUNE 21, 2004 1:50 p.m. EDT
http://online.wsj.com/barrons/article/0,,SB108568866739923177,00.html

CNNfn going off the air?

Tuesday, June 22, 2004 | 05:24 PM

in Media

cnn_fn_logo

I hear -- from pretty reliable sources -- that the current CNNfn is all but toast. In addition to my well placed source, the NY Post reports that the Cable news network is "tweaking its programming schedule."

Here's the kicker: They are replacing the stock market show with a new program devoted to real estate. Gerri Willis, CNN's personal finance editor and author of "The Smart Money Guide to Real Estate Investing," will host "CNNfn Open House," starting June 28 (noon to 12:30 p.m.)

Perhaps its just me -- but didn't we just complete one of the biggest run ups in the history of U.S. Real Estate? Concurrent with that, didn't interest rates hit 46 year lows, reverse, and are now heading higher as the Fed begins a rate tightening cycle?

Talk about bad timing! -- just in time for the Real Estate Market to top . . .

Sources:
CNNFN'S NEW SKED AXES STOX, ADDS HOME
By TIM ARANGO
NY Post, June 21, 2004
http://www.nypost.com/business/26079.htm

Anoymous

Cash Ain’t Trash (but when will it become so?)

Tuesday, June 22, 2004 | 11:41 AM

in Finance

Despite the continued negative news flows and slacker summer attitudes on trading desks, the markets have been holding up fairly well. The continued suicide bombings in Iraq, the execution of hostages, combining with the inevitably higher interest rates could easily have taken a nasty toll on equities.

Since rallying off of their May 17th lows, the markets have been biding time. They seem almost to be giving their 50-day moving averages a chance to catch up with the indices recent gains. While the digestion of the last rally is ongoing - and a generally healthy process - we wish to note the general attitude amongst both institutions and individual investors has veered towards a previous, less healthy perspective: once again, cash ain’t trash.

We see the manifestations of this sentiment shift in several guises. Trading volume has dropped precipitously at all of the discount shops (Schwab, Ameritrade, E*trade). Although some of that lack of activity may merely be reflecting day trader’s vacations, there must be recognition that buyers’ appetites have become somewhat sated.

Further, some investors are (appropriately, in our opinion) anticipating potential volatility, possibly due to external events. Whether its domestic terror or interruptions in oil supply, some stock buyers have amassed some cash in anticipation of a possible buying opportunity later this summer. This is clearly reflected in the mutual fund flow data. AMG Data reports that equity fund inflows plummeted in May to a mere $334 million, from fund Inflows of $24.5 billion in April and $21.4 billion in March.

The raising of cash is not limited to individuals; The WSJ reported that many fund managers have also raised cash. According to a Merrill Lynch's monthly fund-manager survey, 31% of global asset allocators described themselves as holding more cash than usual. The good news is, we suspect this trend is tailing off. So far, each of the first two weeks of June has seen inflows of about $1.4 billion - far greater than the entire month of equity inflows March.

As fund managers find themselves awash in more and more cash, they must find some place to put it to work. Bond funds have seen substantial outflows, and fixed income is unlikely to be the where performance driven managers - not at least until interest rates are much higher - will go. The Fed has, once again, succeeded in making cash trash. That should be a net positive for stocks over the next few quarters.

Chart of the Week: Real Fed Funds Rate

Tuesday, June 22, 2004 | 11:32 AM

in Finance

“Monetary policy is easy and by one measure has gotten easier,” according to Deutsche Bank. DB notes “Against the backdrop of an accommodative monetary stance, the economy will continue to perform well, especially interest sensitive sectors.”

Real Fed Funds Rate at New Low
real_fed_funds_rate
Source: DB Global Markets Research

"It is no wonder then that interest sensitive spending -- housing construction, building material, furniture and motor vehicles sales -- has been so strong. Low real rates encourage consumers to take on debt. This will continue until interest rates move up substantially from their current levels."

Random Items:
Europe versus the U.S.
Ad glut rocks radio
Antipiracy bill targets technology
Energy Dreams and Energy Realities
Buyback -- or the Bahamas?
Second Generation Traffic Calming

Quote of the Day:
"I think it's wrong that only one company makes the game Monopoly."
-Steven Wright

Battleground States (part 4)

Monday, June 21, 2004 | 11:24 PM

in Politics

wsj_format_logo

More from the WSJ and their excellent election coverage. Their most recent State by State analysis shows the race tightening:

"President Bush continues to gain on John Kerry among likely voters in 16 battleground states, according to the latest Zogby Interactive poll. Mr. Bush now leads in seven states, up from the five states he held two weeks ago.

The leads Messrs. Bush and Kerry hold in 12 of the 16 states are within the margin of error, which varies between +/- 2.5 and +/- 4.5 percentage points. Each candidate leads in two of the four states outside the margin of error. (For analysis of how this could play out in the Electoral College, see: http://online.wsj.com/public/resources/documents/info-battleground04-an0621.html)

The latest poll, conducted June 15-20, puts the president ahead of the Massachusetts senator nationwide. Presuming that all the states go to the current leading candidates and that the other 34 states go as they did in the 2000 election, Mr. Bush would get 285 electoral votes and Mr. Kerry would get 253.

Battleground States Map

Click for Larger Map

Graphic Source: WSJ

The Journal surmises reasons for the incumbent's recent gains:

"Possibly building on Republican support due to improving economic conditions and amid national observances of the death of former President Reagan, Mr. Bush added Florida, Michigan, Nevada and West Virginia to his side of the tally, while Mr. Kerry picked up Arkansas and New Mexico. Mr. Bush now leads in seven of the battleground states, which collectively have 96 electoral votes. Mr. Kerry is ahead in the remaining nine, which have 81 electoral votes.

Ralph Nader made his best showing yet in the Zogby Interactive battleground-state polls, with 4.4% of likely voters in Nevada backing the independent candidate, catapulting Mr. Bush ahead of Mr. Kerry in the state. Mr. Nader's share remained below 2.5% in all other states. Mr. Nader is not officially on the ballot in Nevada."

Source:
WSJ
http://online.wsj.com/public/resources/documents/info-battleground04-print.html