The Big Picture | December 2004

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U.S. Album Sales Slightly Positive for 2004

Friday, December 31, 2004 | 02:47 PM

Nielsen SoundScan reported that, as of last Sunday, unit sales reached 665.5 million for 2004. That represents a modest 1.4% increase over the same period 2003. The industry has one more week of sales left before getting a final tally for the year, the WSJ reported.

This increase reflects, more than anything the industry has done, a generally improving economy, along with a few breakout CDs. Much of the industry, however, remains mird in a creative drought of sorts.

Further, the music industry is not competing well with other digital entertainment media. A survey by the Stanford Institute for the Quantitative Study of Society (reported yesterday in the NYT) noted how the internet was cutting Into TV viewing.

While any sales increase is welcome, the final number will ultimately be a dissapointment after the fast start to the year. The first half of 2004 saw album sales up 8% gains from the prior year.

The WSJ noted that "Music companies have tried to capitalize on the DVD boom, although for the moment, they can't keep pace with movie and television-program sales. Not one of the top 40-selling DVD titles, according to Nielsen VideoScan, is a music title."

Once again, we see a floundering industry unable to make positive moves in the right direction. Oh well, at least the bleeding has stopped.

.
Source:
Sales of U.S. Music Albums Spin Slightly Faster
Ethan Smith
The Wall Street Journal, December 31, 2004; Page A8
http://online.wsj.com/article/0,,SB110445255559113530,00.html

Internet Use Said to Cut Into TV Viewing and Socializing
John Markoff
NYT December 30, 2004
http://www.nytimes.com/2004/12/30/technology/30internet.html

DVDs continue to cannibalize CDs

Thursday, December 30, 2004 | 12:22 PM

in Film | Music

OK, my last rant for the year about the music industry:

Yesterday, we discussed the attempts to wring more dollars out of smaller numbers of music buyers. Today’s rave looks at a new fallacy gaining traction: Decreasing CD sales can be supplemented with increasing music DVD sales.

That gets it exactly backwards; its increasing DVD sales which are c ontributing to decreasing CD sales. Consider this bass ackwards NYT headline: “Music Labels Look to DVD's as Sales of CD's Decline.”

A more accurate header would have read: “Sales of CD's Decline as DVD's Soar.”

We considerd this previously in terms of DVD movies. Lately, we've been noticing DVDs as a music format (concerts/videos) is also kicking CD ass. Its not overstating it to say that DVD music sales have been slowly eating away at the entire CD format.

It's no surprise why: at $15, the CD is a decreasingly attractive value to consumers versus the DVD. One contains 45 minutes of audio; the other 2 plus hours of audio, video, documentaries, interviews and additional content. Which provides a better bang for the increasingly tight consumer dollar?

The music biz marketing wizards need to face facts: CDs are a lousy deal. Indeed, the so-called free DVD given away with a CD purchase is a misnomer; buy the DVD -- the more desired product -- and it comes with a free CD.

As much as they desperately want to blame P2P, the dysfunctional Labels need realize that nearly all of the “old economy” media have been suffering a sales slow down: Newspaper readership is down big; Televised sports programs have seen their audiences slide; Film attendance is soft (revenues are up due to increasing ticket prices); Magazine sales have been lackluster; The Book Industry Study Group reported that sales dropped by 23 million units from 2002 to 2003.

Increased competition from many digital formats -- internet, TiVo, DVD, video games, and digital music -- are competing for scarce consumer time and money. Indeed, today's NYT reported that a recent survey found that "use of the Internet has displaced television watching and a range of other activities. Internet users watch television for one hour and 42 minutes a day, compared with the national average of two hours." Time is hydraulic, the study's author noted. "Time spent on the Internet is time taken away from other activities."

Why is it that only the music industry gets to blame the P2P boogie man for its woes?

.
Source:
Music Labels Look to DVD's as Sales of CD's Decline
Robert Levine
NYT, December 27, 2004
http://www.nytimes.com/2004/12/27/business/media/27dvd.html

Is Hollywood to blame for the music industry's woes?
Meredith Amdur
Variety, March 31, 2004
http://www.corante.com/copyfight/archives/002787.html

Internet Use Said to Cut Into TV Viewing and Socializing
John Markoff
NYT December 30, 2004
http://www.nytimes.com/2004/12/30/technology/30internet.html

Tsunami Resources

Thursday, December 30, 2004 | 10:11 AM

How bad was this quake? US Scientists think it may have made the Earth wobble.

A few resources that might have gotten overlooked regarding the Tsunami and relief efforts:

1) Google set up a page with links to sites set up to provide information and handle donations for victims throughout the region, as did Yahoo's info page, and Amazon's donation page. You can also donate your Airline Mileage to help Tsunami Victims. Lastly, the Tsunami help blog is provides a comprehensive list of ways to help.

2) The Tsunami death toll now exceeds ~~115,000~~ 160,000

Deaths by country:
Indonesia: 79,940
Sri Lanka: 23,015
India: At least 10,000
Thailand: 1,830.
(Thai PM says toll could rise to 3,000 as 4,265 people are still missing).
Myanmar: 90
Malaysia: 66
Maldives: 46 --

3) Several sites have gathered home videos of the Tsunami:

Waxy.org
Punditguy
Austin's Blog
Archive.org

They are truly frightening

4) Before & After Photos:

Khao Lak in Phang-nga province
(Before & After photo side by side)

NYTimes, Interactive
(select "Photos Impact" and then "Before and After" at far right)

Indian Ocean Tsunami Imagery Khaolak, Thailand
(via globalsecurity.org)

Pakarang Cape
Before and After

Blue Village Pakarang Resort
Before and After

Sofitel Magic Lagoon Resort & Spa Khao Lak
Before and After

Tsunami Gallery
(from globalsecurity.org)

More Satellite Images of Tsunami Affected Areas

There's 2 devastating B&A photos posted here:

Before and After Photos

This site has even more Before and After photos

5) Major Natural Disasters (of the past few centuries)

Deaths          Event          Location       Year
3,700,000    Flood          China          1931
300,000       Cyclone       Bangladesh    1970
255,000       Earthquake    China          1976
170,000+    Tsunami       South Asia    2004
143,000       Earthquake    Japan          1923
139,000       Cyclone       Bangladesh    1991
100,000       Tsunami       Japan             1703
70,000       Tsunami       Portugal       1755
50,000       Earthquake    Iran             1990
31,000       Earthquake    Iran             2003

Sources: World Almanac, U.S. Geological Survey, Associated Press
via U.S. News & World Report, January 10, 2005,

6) Tsunami Relief: Charity Efficiency and Transparency Ratings:

Helps provide an overview of how much of your donations actually make it to the victims, using several rating systems.

Doctors w/o Borders, American Red Cross, American Jewish World Service and OxFam were all very highly rated.

Here's where to make online contributions to the top rated charities:

American Red Cross (via Amazon)

American Jewish World Service

Doctors w/o Borders

Oxfam

LASTLY, can't we do better? US ups Aid to victims from 15million to 35 million

How is it that US can find 300+ billion dollars for the War in Iraq, but cannot muster 1% of that amount to help out in SouthEast Asia?

Pardon my pique, but I heard this Karl Rove guy was supposed to be a PR genius -- How did he blow yet another opportunity? Put aside for a minute the simple motivation to do what's right, and look at this the way he looks at everything else -- as a chance to change some views about us. For a billion or so dollars, the Mayberry Machivelli could have reaped a PR windfall for his boy and the US, whose rep in the world has never bneen lower than its been the past few years.

I guess if it don't help your guy elected, it dont matter all that much . . . Oh, well, another missed opportunity, brought to you by the Crawford gang that can't shoot straight -- unless its at Democrats.

UPDATE: 12/31/04 1:31 PM U.S. announces $350 million in tsunami aid

MSNBC:

"The United States will provide $350 million in aid for victims of Asia's devastating tsunami, a government official said Friday -- a ten-fold increase over what it had previously announced and a sum that will significantly boost international funds pledged for relief.

The news will likely silence criticism of the U.S. aid effort that surfaced when Washington announced its initial aid package."

Color me silenced!

UPDATE: 1/3/05 11:31 AM Three U.S. Presidents Urge U.S. Relief Aid

This is a brilliant move -- it still looks like they are playing catch up, but its better than the prior appearance of indifference.

See, Karl, I knew you could do it!

Music Industry Responding (slowly) to Pricing Issues

Wednesday, December 29, 2004 | 10:45 AM

in Finance | Music

Just about a year ago, we discussed the music industry’s intent to “decommoditize their products." The problem with that strategy is that their products are essentially commodities, and should therefore become vulnerable to low cost retailers. That process has actually begun sometime ago, with Wal-Mart and Target responsible for an ever growing percentage of CD sales.

But the industry’s reluctance to actually compete for sales on anything but price -- to refuse to recognize they merely sell a commodity product -- has dampened overall sales. (Basic economics tells us that lower prices = higher sales).

Since then, I’ve become convinced that the lack of competitive pricing -- both within music, as well as vis-a-vis other forms of entertainment -- has been in large part responsible for the declining CD sales. The price fixing scandal gets some credit for this -- though the roots of the problem go much, much deeper than that. The RIAA can blame P2P all they want, but the smart money knows there's more to this story than meets the eye.

So it was with great interest that I read of a new tack the industry is now trying: Offering both “stripped-down or fully loaded” CDs:

“While the major record companies continue to discount new releases or even slash prices to try to counter file-sharing and widespread CD burning, some music executives are quietly trying to expand the top end of the market. The average retail price of an album slid 4 percent in the third quarter to $12.95 - a new low, according to NPD Group, a research company. Yet some labels are pushing tricked-out versions of big titles that carry their highest prices ever.

There's a basic business logic behind the move to test the upper limit, executives say. If labels must cut prices and sacrifice profits on the mass market, they must try to cover the difference by targeting niches of hard core fans who are willing to shoulder higher prices for their favorite acts. “

This makes sense, given a study by the Handleman Company. They discoverd that less than 1/4 of all music buyers are responsible for 62 percent of album sales, buying a CD per month.

To appeal to these hardcores, Labels have begun putting out “Deluxe” editions of CDs:

• Green Day's "American Idiot" can be had for $10 for a "POD" (plain old CD) -- or for 150% more ($25), you get the premuim package, including a 52-page hardcover book.

• For $24, Metallica’s "Some Kind of Monster" includes a band t-shirt.

• Eminem's Encore album will set you back $27, but you get 25 glossy photos plus bonus Internet access to Eminem cellphone ringtones.

• U2's "How to Dismantle an Atomic Bomb" will cost you $10 (or less) for the disc, or $32 for the "collector's edition" including DVD and 50-page hardcover book (Priced inbetween is a CD/DVD w/o book.)

• Celine Dion's "Miracle," is $14, or for CD; For $27, you can get the 60 page Anne Geddes photo;

We previously discussed the dual disc DVD/CD phenomenon. Tomorrow, we’ll take a look at how the CD side of the industry may not realize it yet, but they are in the process of morphing into the DVD industry . . .

Sources:
$10 for a Plain CD or $32 With the Extras
Jeff Leeds
NYT, December 27, 2004
http://www.nytimes.com/2004/12/27/business/media/27music.html

Chart of the Week: Consumer Confidence Spikes

Tuesday, December 28, 2004 | 12:06 PM

in Economy

The Conference Board’s Consumer Confidence Index Rebounds In December

The Conference Board’s Consumer Confidence Index, which had been declining since August, rebounded smartly in December. It now stands at 102.3, up significantly from 92.6 in November. The Present Situation Index also snapped to, up almost 10 to 105.9 from 96.3.

Methinks tis the season to be Jolly: “The continuing economic expansion, combined with job growth, has consumers ending the year on a high note,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “The most significant contributor to the rebound in confidence has been the overall improvement in current conditions over the past twelve months. And consumers’ outlook suggests that the economy will continue to expand in the first half of the new year.”

Source: The Conference Board
.

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Quote of the Day

"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria." -Sir John Templeton

VIX Worries? Not quite . . .

Monday, December 27, 2004 | 08:35 AM

in Markets

The Sunday NYT reveals a common misunderstanding about volatility:

"Feeling relaxed? Evidently, many investors are. An important gauge of stock market volatility has reached its lowest level in about eight years, and that is making some analysts anxious.

The VIX index, a measure of the amount of volatility that options traders expect the Standard & Poor's 500-stock index to experience in the near future, recently fell to its lowest level since 1996, dipping below 12. What makes that cause for concern is that when traders anticipate calm, they almost invariably get something else.

Market volatility is highly correlated with future price movements. As the VIX, known more formally as the Chicago Board Options Exchange S.& P. 500 Volatility Index, moves to extremely low levels, stocks tend to head in the same direction fairly soon. By contrast, high VIX readings tend to occur during market lows - events that typically mark a crescendo of selling and the birth of an advance. The VIX exceeded 40 close to the time of lows in the fall of 1998, the fall of 2002 and just after the Sept. 11, 2001, attacks."

This is a bit of an oversimplification; While a low VIX reflects complacency -- never a good sign for the Bulls -- it is not a surefire way to call a top. What number is too low? 20? 15? 9? As the chart below reveals, the VIX can exist comfortably in the low teens or even single digits while the market still rallies. In the early 90s, the VIX stayed in the single digits.

I use the VIX as a secondary indicator to confirm other signs of excessive Bullishness. Recall back in October 2003, we noted the possibility of a short term correction. But it was based not on a low absolute VIX, but rather on a VIX that had dropped at least 10 points (recently) to below 18. This is a significant difference. (Read the full piece "VIX Foretells Short Term Correction," for more data and details).

In January 2004, I noted a major top was forming in part to the VIX -- but it was merely one of three factors: The low VIX, plus a "stunningly low Bearish sentiment, and a Put/Call ratio, which had dropped to thew lowest levels since 1997.

In October '03, the VIX dipped below 17 -- which led to a short term Bearish call; In October '04, the VIX was at 13, and that led to Bullishness! The point being that its relative, raw numbers provide minimal data, and additional confirming signals are key to have any degree of confidence.

Note that the Times quotes a strategist who also looks at the spread between Treasury bond yields and yields on junk bonds and other low-quality debt. Lately, yield spreads have been at their lowest levels in 14 years. I haven't backtested a Treasury/Junk spread versus VIX, but it may be a worthwhile exercise.

VXO Weekly Chart, 10 years
click for larger graphic

chart courtesy of BigCharts.com

Note that VIX peaks are far more conclusive than lows; Its much easier to spot a bottom -- a selling capitulation -- than a top; You can usually tell when people have puked out all their holdings; Its much more difficult to tell when they run out of purchasing power/interest.

Source:
When Traders Get Comfy, Watch Out
Conrad de Aenlle
NYT, December 26, 2004
http://www.nytimes.com/2004/12/26/business/yourmoney/26mark.html

Ralph's Fearless Forecast

Sunday, December 26, 2004 | 09:11 AM

in Markets

Ralph Acampora is the Chief Technical Strategist for Prudential Equity Group (part of Wachovia). Too many years ago, I took Ralph’s Advanced Technical Analysis class at the New York Institute of Finance. He’s a terrific guy, and I highly recommend his class.

Every year, Ralph puts out his “Fearless Forecast.” For 2005, Ralph is rather Bullish. He’s looking for a cyclical bull market with targets of:

SPX 1450-1475
Nasdaq 2700-2800
DJIA 13,000 - 13,300

All of Wall Street makes year out predictions (present company included), and by definition, they are problematic at best. What I found most impressive in Ralph's Fearless Forecasts for 2005 was buried towards the end. It was his short list of “anticipatory technical indicators that materialize before the cyclical bull comes to an end.” These are Ralph’s signs that can warn you the end is nigh:

NYSE Advance/Decline Line usually peaks several months before the leading averages score their final highs;
The DJ Utility avg usually rolls over 6 months before the other leading averages score their bull market highs;
The number of 52 week new highs will stop expanding as the leading averages push into new high ground;
The relative strength line of value stocks versus growth issues will transition back in favor of value;
The price action on individual stock charts will begin developing top (distribution) patterns;
Noticeable contraction in volume while prices expand;
The Lowry Selling Pressure line trends up for several months.

Good stuff. Ralph's insights are always well worth noting.

A Different Kind of Top 10 Music List For 2004

Friday, December 24, 2004 | 10:51 AM

in Music

It's year's end, and that means list time.

The annoying thing about the ubiquitous year end list -- best Books, best Movies, best Albums -- is that they tend to be compiled by people who read, watch or listen to stuff for a living.

Most of the listed items are nanoseconds old. And while that’s de rigueur for someone who does that professionally, it has little correlation to the lives the rest of us lead. Gotta job, family, obligations? Then you probably don't get to listen to hundreds of new releases each year. Good luck then, making an intelligent top 10 list.

Movies? The days of waiting on line opening night are long since gone for this old man. A majority of the films I ended up renting, buying or pay-per-viewing this year were not 2004 releases. Wanna make a helpful list for me? Tell me the best stuff on HBO next weekend; Knowing 2004's most critically acclaimed Eastern European documentaries is of little use for most people.

OK, rant over. Here's a different kind of top 10 list; these favorite CDs are what actually got listened to in 2004. While a few of these came out this year, that wasn't a requirement. These are what actually spent the most time this year on the iPod or in the CD player of a person with a job and an ever decreasing amount of spare time.

The task was made infinitely easier by iTunes, which shows me the chronological order of when CDs were ripped, and purchases made via ITMS, or downloads via a P2P service, as well as the number of plays each song got. Incidentally, the correlation between my downloaded P2P tunes and subsequent CD purchases is extremely high; I’ll bet others have had similar experiences. Don’t expect an RIAA study looking into that phenomenon anytime soon . . .

Anyway, on to the top 10 list:.

~ ~ ~

Roman Candle Says Pop

Roman Candle’s debut is a joyful assortment of finely crafted pop tunes. If FM Radio didn’t suck, this is the sort of music you would be hearing on it right now. Finely crafted lyrics mated to delightful melodies delivered by a tight power pop five-some in a surprisingly slick production. Like nearly all the discs on this list, this one is really good from start to finish.

Why didn’t you ever hear of these guys? Roman Candle hails from Chapel Hill, North Carolina, and signed with an independent label. No payola, no Clearchannel -- and no radio play.

Roman Candle Says Pop (2002)

Bonus: I discovered Roman Candle through BBC 2’s Bob Harris Check him out.

~ ~ ~

Continue reading "A Different Kind of Top 10 Music List For 2004"

What January effect?

Friday, December 24, 2004 | 08:41 AM

in Markets

From Chart of the Day, comes this explanation of the so-called January effect.

A common topic this time of year is the January effect. Many long-term studies have confirmed that small stocks have consistently outperformed their large stock counterparts in January. However, today's Chart of the Day demonstrates that the January effect may be due for a name change, as small-caps have not been keeping pace over the past decade. What happened? One likely possibility is that the very popularity of this anomaly has changed investor behavior. So if recent trends continue, be prepared for the December / February effect.

Here's their chart:

Notes:
- The Russell 2000 index was used to measure small-cap stocks.
- The S&P 500 was used to measure large-cap stocks.

Source:
Chart of the Day
http://www.chartoftheday.com

Media Appearence: Kudlow & Cramer (12/23/04)

Thursday, December 23, 2004 | 02:28 PM

in Media

A quick heads up:

Me and my big Snoopy Christmas sweater will be appearing on Kudlow & Cramer tonite at 5pm. Once again my wingman will be Wharton Professor Jeremy Siegel.

We should be the first segment at the top of the hour.

JT bypasses the Labels

Thursday, December 23, 2004 | 11:37 AM

in Music

Disintermediation: In economics, the removal of intermediaries in a supply chain.

James Taylor provides a text book example of "disintermediation" in the music industry, with the release of his new album. Following his 2002 album, "October Road," Taylor had fulfilled his contractual obligations to Columbia. He has not since signed to a new label.

Taylor decided to try a few things he hadn't previously done: First, he recorded "James Taylor: A Christmas Album" -- his first holiday recording. Then, he cut a deal to sell it exclusively in Hallmark Cards. Lastly, the price for the disc is a more modest $10.95 -- or only $6.95 with the purchase of three greeting cards. The CD is Hallmark's exclusive this holiday season, and in 2005.

There was no advertising, and almost no press. How did the disc do? James Taylor: A Christmas Album has sold over one million copies -- in less than two months.

That's a home run by any measure.

Here's what the NYT had to say:

In selling the CD, Hallmark is taking a page from Starbucks, which has had tremendous success selling Ray Charles's "Genius Loves Company" and other releases alongside its chai tea lattés and espresso macchiatos.

"Our expectations from the beginning were very high," said Ann Herrick, integrated marketing manager at Hallmark, "but this project ended up exceeding our expectations and we all here are very happy about it."

Industry watchers say that more artists, particularly older acts who are somewhat out of the current music retail scene, will look to outlets like Starbucks or Hallmark for fresh opportunities."

TBA Network, an entertainment-consulting firm, negotiated the deal with Taylor. A similar deal was brokered for Hallmark with Christian music artist Steven Curtis Chapman.

The success of the holiday CD has Hallmark considering expanding its music promotion: "A Valentine's Day album by the country singer Martina McBride is scheduled to hit stores in 2005. And Ms. Herrick added, "We're looking at opening it up to other seasons, not just holidays."

That might not be a particularly welcome development for the major labels; it is, however, good for music fans -- and for a music industry that's becoming increasingly less dependent upon the labels.

Source:
James Taylor's Got a Friend at Hallmark Cards
LOLA OGUNNAIKE
New York Times, December 17, 2004
http://www.nytimes.com/2004/12/17/business/media/17adco.html

Your world with Neil Cavuto: (12/22/04)

Wednesday, December 22, 2004 | 11:25 AM

in Media

A heads up: I'll be appearing on Fox today: Cavuto on Business @ 4:25pm EST.

The topics will be the Federal Reserve and the market, as well as the usual (Retail Sales, Oil, GDP, Jobs and the New Year). Also on will be Bernie Schaeffer of Schaeffer's Investment Research and Scott Bleier of Hybrid Investors.

Oil!

Wednesday, December 22, 2004 | 10:02 AM

in Economy

Some interesting oil discussions:

Curses! Oiled Again

Canadian Energy Viewpoint

Bundle Up. It's Going to Get Colder

Bin Laden Tape Urges Stopping Oil to U.S.

The dollar may be a casualty of U.S. foreign policy

If you follow either the commodity or the equity markets, these are worth reading . . .

Losing Our Intellectual Edge

Wednesday, December 22, 2004 | 06:08 AM

in Economy | Science | War/Defense

We've addressed this several times over the past year: Initially, last January (Is the balance of scientific power shifting?) and then again in October (Economics, Security, and the Decline of the US Creative Class).

Now, the story is on the front page of the NYT: U.S. Slips in Attracting the World's Best Students. Here's an excerpt:

"What we're starting to see in terms of international students now having options outside the U.S. for high-quality education is just the tip of the iceberg," said David G. Payne, an executive director of the Educational Testing Service, which administers several tests taken by foreign students to gain admission to American universities. "Other countries are just starting to expand their capacity for offering graduate education. In the future, foreign students will have far greater opportunities."

Foreign students contribute $13 billion to the American economy annually. But this year brought clear signs that the United States' overwhelming dominance of international higher education may be ending. In July, Mr. Payne briefed the National Academy of Sciences on a sharp plunge in the number of students from India and China who had taken the most recent administration of the Graduate Record Exam, a requirement for applying to most graduate schools; it had dropped by half.

click for larger graphic

chart courtesy of NYT

The Times notes that while "foreign applications to American graduate schools declined 28 percent this year," actual foreign graduate student enrollments dropped 6 percent. Enrollments of all foreign students, in undergraduate, graduate and postdoctoral programs, fell for the first time in three decades in an annual census released this fall.

Where are the students actualy going instead? "University enrollments have been surging in England, Germany and other countries."

I suspect sloppy administration of post 9/11 security rules are in large part to blame.

.
Source:
U.S. Slips in Attracting the World's Best Students
Sam Dillon
NY Times, December 21, 2004
http://www.nytimes.com/2004/12/21/national/21global.html

Graphic
http://www.nytimes.com/imagepages/2004/12/21/national/20041221_GLOBAL.html

Is the balance of scientific power shifting?
http://www.nature.com/cgi-taf/DynaPage.taf?file=/nature/journal/v427/n6971/full/427190a_fs.html

Year-End Checkup for Your Portfolio

Tuesday, December 21, 2004 | 07:43 AM

in Finance

John Dorfman published a must-see year-end portfolio checkup at Bloomberg. Its good, common sense advice for those investors who manage their own portfolios.

Here's John's checklist:

1: Asset allocation.

2: Foreign vs. Domestic

3. Long vs. Short

4: Value vs. Growth

5: Big stocks vs. small.

6: Assess your advisers

7: Tally your turnarounds

8: A tax review

9: Focus on dividends

10: Think about key industries and themes

Check out the full article for the details on each of these topics . . .

Source:
A 10-Point Year-End Checkup for Your Portfolio
John Dorfman
Bloomberg, December 21, 2004
http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_dorfman&sid=aVBbmVitrN0s

Barron's picks up "Grinch"

Tuesday, December 21, 2004 | 06:26 AM

in Media

.
Our comments yesterday on threats to the rally ("Will the Grinch Steal X-Mas?") were picked up Barron's.

Catchy headline aside, its really more about the longer term dangers to an increasingly overbought market . . .

Source:
Will the Grinch Steal Christmas?
Market Watch Today PM
Barron’s, Monday, December 20, 2004 3:02 p.m. EST
http://online.barrons.com/article/SB110355352220804737.html

Will the Grinch Steal X-Mas?

Monday, December 20, 2004 | 01:55 PM

in Markets

With the high spirits and good cheer of the holidays comes the overwhelming temptation to regress to clichés. We have been Bullish since late October - call it nice - and Mr. Market has rewarded that perspective. In the vernacular of the season, what might make our views naughty?

We believe it healthy to ponder what might cause major trends to reverse themselves. In other words, how might the Grinch come to Wall Street?

Here’s my short list:

Oil: In our opinion, crude will be a similar story in 2005 as it was in ’04. Oil bears have used every excuse from an alleged $15 terror premium, to the mild weather, to a slowing (?) Chinese economy. All was to no avail. Despite the Ursa viewpoint, we expect Oil to be above $35 next year, and very likely to stay over $40 - or higher.

Retail: Is the consumer finally showing signs of exhaustion? Holiday retail sales have been disappointing, with traffic and revenue below expectations. At the same time, home refinancings has been slowing down. Coincidence? Hardly. With Luxury goods sellers still strong, its more likely that consumers - at least those below the top tax brackets - have been funding their buying sprees via home equity loans; Expect much less of that in 2005.

Inflation: Firms continue to be squeezed by demand-driven prices of raw materials. Its troublesome that companies find it nearly impossible to pass price increases on to consumers. With nearly all of the easy efficiency gains already achieved, and the pace of productivity improvements slowing, broad pressure on margins remain a potential threat to increased corporate profitability.

Jobs: Continue to be the weakest aspect of the recovery. With the election behind it, the White House has (finally) ratcheted back their expectations for job growth. Without some significant improvement, however, it is hard to imagine the expansion continuing at the same modest pace. Without organic job growth, the expansion will stumble.

FASB: New rules requiring full expensing of options will not take effect until the 1st reporting period after June 15, 2005. How firms respond to this issue may determine the fate of the Nasdaq. Do nothing (fully expense options) and risk watching P/Es skyrocket; Stop issuing them and it becomes harder to recruit top people. That's the choice facing many tech companies.

What’s a profitless firm to do?

These macro concerns for 2005 do not take into account other troublesome issues, such as overly bullish sentiment, an overbought market, and high levels of complacency.

And we’ve been Bullish! Imagine what the Bears must be thinking . . .

Chart of the Week: SP500 Operating Margins Vs. Interest Rates

Monday, December 20, 2004 | 01:36 PM

in Markets

Raymond James’ Jeff Saut writes: “Historically interest rates had very little impact on the operating margins (a/k/a, profit margins) of corporate America. But, as the U.S. economy morphed into a “financed-based” economy, when interest rates declined profit margins expanded. We have argued that this is because more and more corporations are deriving their earnings from the financial side of their businesses.”

SP500 Operating Margins Vs. Interest Rates

Source: Raymond James

“As interest rates rise not only should we experience the historic precedence of a slowing economy and a contraction in price/earnings ratios (P/Es), but also a contraction in profit margins with a concurrent softening in earnings momentum.”

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Quote of the Day:

“A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility.”
-Michael Steinhardt

Data Sources (Free / Cheap)

Sunday, December 19, 2004 | 07:36 AM

in Markets

“Data are the most valuable commodity to any investor. Before anyone can make a statement like "The market went past its 200-day moving average, and this is a bullish sign," one must examine the data and test the statement to see if the results”

.
So says James Altucher, my colleague at RealMoney.com and the author of “Trade Like a Hedge Fund.” James compiled a list of data sources, in a recent column (some of which are reproduced below).

Have at it:

Daily market data

Yahoo! Finance
http://finance.yahoo.com/

Daily open, high, low, close and volume data on any stock in the U.S. Markets

For “slightly cleaner data at a slight expense,” James recommends Qcharts -- which also includes the Tick indicator, and the Arms Index, as well as an indicator that tracks the premium between futures and cash (symbol: $prem).

Futures data
http://www.turtletrader.com/hpd.html

Economic data
the Fred II database
http://research.stlouisfed.org/fred2/

Business cycles:
The National Bureau of Economic Research
http://www.nber.org/cycles.html

Discount rate
ftp://ftp.ny.frb.org/discount/Discount

IPO data
IPO Resources
http://www.iporesources.org
(Maintained by Yale professor Ivo Welch)

Hedge-fund data
CSFB/Tremont index - Hedge fund strategies
http://www.hedgeindex.com

Hedge fund returns
http://www.iasg.com

Cogent Edge is another source of Hedge fund return data, but their registration process is onerous.
http://www.cogenthedge.com

Global Financial Data
spot-price data for commodities
http://www.globalfindata.com

Index changes
Nasdaq 100 changes
http://www.nasdaq.com/reference/nasdaq_100_changes.xls

S&P additions/deletions
http://www2.standardandpoors.com/servlet/Satellite?pagename=sp/Page/IndicesIndexChangesPg&r=3&b=4&s=&ig=&i=
(There’s an interesting study on S&P 500 additions/deletions here)
http://www.cob.vt.edu/finance/quotes/articles/priceresponse.pdf

Russell 2000 additions/deletions
http://www.russell.com/US/Indexes/US/reconstitution/default.asp

Chapter 11 bankruptcy data
BankruptcyData.com
http://www.bankruptcydata.com/researchcenter2.htm

Trading halts
Nasdaq site
http://www.nasdaqtrader.com/asp/TradeHaltShowPage.asp

Annual returns
Dow
http://www.amateurinvestors.com/Weekend_Market_Analysis12_28_02.htm

S&P 500
http://www.aimfunds.com/education/0,1020,-1_4850,00.html

Last, Art Prices
http://web.artprice.com/start.aspx?l=en

Bad Company?

Saturday, December 18, 2004 | 11:32 AM

in Markets

Alan Abelson points to an interesting chart from Trevor Greetham, Merrill Lynch's chief of global asset allocation. It shows the historical correlation going back 15 years or so between insider sells and the markets subsequent performance:

click for larger graphic