The Big Picture | February 2006

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Apple HiFi

Tuesday, February 28, 2006 | 03:48 PM

in Music

I guess I have to hear it before I declare "What's the big deal."

$349:

There's more here:

Sound Design

HiFi

UPDATE March 5, 2006 2:44pm

The LATimes is rather unimpressed.

Their verdict? Buy something else.

Well, It Can Fill a Room With Sound ...
Apple's new iPod Hi-Fi speaker system is tested against three rivals by a panel of trained listeners.
David Colker:Technopolis
LAT, March 5, 2006
http://www.latimes.com/business/la-fi-technopolis5mar05,1,6454922.column?coll=la-utilities-business

Get Darwinian on Your Portfolio!

Tuesday, February 28, 2006 | 11:52 AM

in Economy | Investing | Markets | Technical Analysis | Trading

Of all the many battles on Wall Street, the one that strikes us as peculiarly absurd is the recent sniping between Economists and Technicians. Each of these specialties digests different data, and operates over widely diverse time frames. Dismissing each other’s work as if neither discipline has any value strikes us as exceptionally foolish.

Resolving the dispute is a relatively simple matter of carefully considering timelines and expectations. Technicians tend to respond to shorter term market moves (like today’s!), while Economists ply their trade over much longer time frames. By combining these two dissimilar disciplines, we can develop a view towards both the immediate and distant futures.

Despite the Red on today’s screens, the Technicals favor an upside bias over the next month. We are in the seasonally best period for equities, Indices are near new highs, and despite recent sector rotation, Momentum remains strong. However, the Macro-analysis suggests an eventual slowing of the economy is more than likely. Housing Sales are softening, the Yield Curve is Inverted, and the Consumer is slowly tiring. Inflation, at both the retail and wholesale level -- core and non-core alike, -- is still rearing its ugly head.

In between these two time periods, we see numerous technical warning signs: Low volume on Up days versus heavier volume when the market is down; An increasingly narrow advance, with less issues participating in the gains, and a small number of 52 week high list – despite the indices being at or near multi year highs – all suggest that a high degree of caution is warranted for equity investors.

What's an investor to do?

Darwin’s answer is to Cull the Herd. Now is the time to get Darwinian on your portfolio. The weak, the sick, the lame, the infirm – they will only hinder your portfolio's ability to survive. Your holdings must evolve, your stock selections must prove their adaptability. Its a case of relative strength – which is essentially the Technician's version of Survival of the Fittest.

Any stock you own which has failed to participate in the recent rallies should be aggressively sold. This is both a defensive maneuver, as much as it is a way to raise cash for the inevitable buying opportunity – whenever it may show. My guess (and its only a guess) is September/October.

As this "long in the tooth" cyclical Bull market continues to age gracelessly, your best bet is aggressively shoot those cattle who cannot keep up with the herd. The market is a cattle drive, and for the good of the herd, you must get rid of those who fail to keep up.

Adapt. Evolve. Cull.

If you have a philosophical problem with a Darwinian approach, then consider this a dose of Intelligent Design for your portfolio.

Chart of the Week: Seasonally weak period for Small Cap and Tech

Tuesday, February 28, 2006 | 11:26 AM

in Investing | Markets

March has historically kicked off a 6 week period when small cap and technology stocks tend to lag the broad market. Over the past 25 years, the median of the ratio of the Russell 2000 to the S&P 500 index has seen a decline from March 2nd through April 14th of around 2-1/2 percentage points. Over that same span, the median of the ratio of the Nasdaq to the benchmark measure has fallen by around 2 percentage points.
>

Seasonally weak period for Small Cap and Tech

Source: Mike Panzner, Rabo Securities
>

Explanations vary, but one that makes intuitive sense is that small investors, who have often favor such shares, need to raise cash to pay their taxes ahead of the April 15th filing date.

Random Items:
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Economist Keeps Tabs On Government’s “Creative” Stats

Do Ex-Athletes Make Better Traders?

Increasing New Home Cancellations Concern Homebuilders

Oil’s Wild Cards: Geopolitics and Gasoline

Why Apple bet its future on Intel

How to Suck Up to a Blogger

You Know You’re a Permabull When. . .

Quote of the Day:
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“A statistician is someone who can draw a straight line from an unwarranted assumption to a foregone conclusion” -Anonymous

YAiK (Yet Another iPod Killer)

Tuesday, February 28, 2006 | 09:45 AM

in Technology

Here's the latest in the never ending series of potential iPod killers:

The Samsung Z5

What makes this one significant is that Samsung hired Paul Mercer, 38, a veteran Apple Macintosh software designer who helped design the original iPod four years ago.

Source:
He Helped Build the iPod; Now He Has Built a Rival
JOHN MARKOFF
NYT, February 27, 2006
http://www.nytimes.com/2006/02/27/technology/27mercer.htm

Do Amercians Support a Gas Tax?

Tuesday, February 28, 2006 | 06:45 AM

in Commodities | Consumer Spending | Financial Press | Politics

Here's something that is a bit of a surprise: While most Americans are overwhelmingly opposed to a higher federal gasoline tax, their views change if the tax were to be earmarked for specific ends:

"A significant number would go along with an increase if it reduced global warming or made the United States less dependent on foreign oil, according to the latest New York Times/CBS News poll.

The nationwide telephone poll, conducted Wednesday through Sunday, suggested that a gasoline tax increase that brought measurable results would be acceptable to a majority of Americans.

Neither the Bush administration nor Democratic Party leaders make that distinction. Both are opposed to increasing the gasoline tax as a means of discouraging consumption, although President Bush, in recent speeches, has called for the development of alternative energy to reduce dependence on foreign oil."

This is more than a classic example of how a question is phrased that generates a different answer; This is a polling question addressing a specifically different issue beyond the gas tax question. It is in part a referendum question on faith in Congress on spending and priorities.

Click for larger graphic

Courtesy of NYT
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No suprise that the Dismal set disagree:

"Many mainstream economists believe that a shift that raises the gasoline tax while lowering income-based taxes is the most efficient way to reduce consumption. It might require a $1-a-gallon increase in the tax phased in over five years, said Severin Borenstein, director of an energy institute at the University of California, Berkeley."

Source:
Americans Are Cautiously Open to Gas Tax Rise, Poll Shows
LOUIS UCHITELLE and MEGAN THEE
NYT, February 28, 2006
http://www.nytimes.com/2006/02/28/national/28gas.html

Cuban to The Donald: Blow this for a million dollars

Tuesday, February 28, 2006 | 12:55 AM

in Television

Get your minds out of the gutter, and consider this: Mark Cuban has offered Howie Mandel 1 million dollars (donated to the charity of his choice) if:

"Howie, if you can get Mr Trump to pull a rubber glove completely over his head and blow it up on your show, not only will I watch it, I will donate 1 million dollars to the charity of your choice.

What could be better than that ? Money for a great cause that you love. For the Donald, the thing he loves more than anything, bragging rights. Is there any doubt that by Tuesday afternoon he would be able to say that he was responsible for the most watched television show in the history of TV ?

Is it possible that any human being on the planet would be able to resist watching Donald Trump blow up a rubber glove over his head ? I dont think so. Combatants around the world would lay down their arms and all enjoy a moment of shared laughter."

I hope if I ever become obscenely wealthy that I'd be that kind of billionaire . . .

Home Foreclosure Surge

Monday, February 27, 2006 | 10:38 PM

in Consumer Spending | Data Analysis | Economy | Real Estate

Final post of today's Real Estate marathon:

"LAST WEEK, RealtyTrac published its January U.S. Foreclosure Report. According to the company, the report includes homes in all three phases of foreclosure: pre-foreclosure (notice of default), foreclosure (notice of sale) and real estate owned (properties that have been foreclosed on and repurchased by a bank).

In January, 103,540 homes were in foreclosure, up 27% from 81,290 in December and 45% above last year. January's foreclosure total was the highest level since RealtyTrac began releasing monthly reports in May 2005."

Pretty crazy, right? Well, he's the real shocker: Even though foreclosure activity is accellerating, at 0.7%, its still below the long term trendline of 1%.

"January's 27% increase in foreclosures is consistent with the increasing foreclosure trend seen throughout 2005. In total, nearly 847,000 properties entered foreclosure in 2005, representing 0.7% of total households. This is still below the historical average of approximately 1%, according to RealtyTrac."

What's the basis of this increasing foreclosure trend? Take a wild guess:

"In our opinion, the recent sharp increases seen in foreclosures are indicative of the heightened leverage taken on by home buyers through the past several years of robust price appreciation and record-low interest rates.

In addition, we expect the proliferation of adjustable rate mortgage (ARM) and interest-only mortgage products tied to the short end of the curve to provide an additional headwind as short-term interest rates continue to increase. For 2006 year-to-date, on average, the one-year ARM is 132 basis points higher than last year."

Nothing to see here folks, just move along . . .

Source:
Foreclosure Surge Indicates Home Stretch
Ivy L. Zelman
Credit Suisse First Boston, FEBRUARY 27, 2006 2:56 p.m.
http://online.barrons.com/article/SB114105560291284313.html

Non-Core CPI (known elsewhere as "Prices")

Monday, February 27, 2006 | 06:14 PM

in Inflation

I just read a commentary by RaJa's Jeff Saut, that is dead on target with our prior commentary:

"The call for this week: We don’t believe the geometrically weighted, seasonally adjusted, hedonically priced, owner-equivalent rented, core-CPI numbers; instead, we use the non-core CPI numbers that do not exclude food and energy. And last week the non-core CPI was reported to have increased +0.7% for the month. That is an 8.4% annualized inflation rate, implying that despite all of the Fed’s rate ratchets we may still be in a negative real interest rate environment. If true, the Federal Reserve might continue to raise rates higher than most expect.

We don’t think the equity markets are prepared for such a potential “rate rape” given their 19.3x P/E ratio combined with some of the highest profit margins in history. Since profit margins are probably mean-reverting, we think earnings estimates are overly optimistic. Consequently, we keep hearing the band Chicago Transit Authority echoing down the canyons of Wall Street and the tune is their 1970 hit “Does Anybody Really Know What Time It Is?” So far that question has been followed by the next line from that song, “does anyone really care?!” Clearly we do, which why we remain cautious and continue to invest/trade accordingly."

To put a picture to that, consider these charts: Do they reveal inflationary pressures or not?

Source:
Higher Energy and Non-energy Prices Lift Overall CPI
Asha Bangalore
Northern Trust Global Economic Research
February 22, 2006
http://tinyurl.com/ecy7u

Home Depot CEO: Stunningly Clueless Regarding Employment

Monday, February 27, 2006 | 04:19 PM

in Corporate Management

On CNBC just now, Maria Bartiroma is interviewing Home Depot Chairman & CEO Robert Nardelli, who states that we have "a very good employment picture."

I rarely write stuff like this, but: That reflects a lack of grasp of the reality of what is happening in the labor market economy -- at least when it comes to employment and wages; Frighteningly, stunningly, shockingly incorrect.

Perhaps his view is skewed by his perspective as Chairman/CEO; He owns at least 2.4 million shares, and recently sold a block of about $5m (125,000 shares).

Or, maybe there is a shortage of quality people willing to work at Home Depot -- its a tough job, encompassing customer service, retail sales, expertise in your given area (plumbing, painting, etc.) They have had a terrific number of quarters -- but from HD having a hard time hiring (a guess on my part) to the extrapolation that we have a "very good employment picture" is simply not supported by the macro data.

I like Home Depot, and shop there regularly; Its just that I am amazed when I hear stuff like that out of a major corporate CEO . . . he should fire his writers.

UPDATE: February 27, 2006 4:58pm

Jeff Matthews is far less sanguine than I about Home Depot's CEO.

Disclosure: I have no position in HD or LOW

Greg Ip Discovers Data Manipulation

Monday, February 27, 2006 | 02:45 PM

in Data Analysis | Real Estate

This wasn't supposed to Housing Monday, but that certainly seems to be what is happening -- especially after I saw this blasphemy cross the tape . . .

It seems that Greg Ip, the WSJ's acting Fed pipeline, has discovered that -- shocking! -- data can be slanted and/or manipulated.

However, he manages to find data that understates the strength in the housing market:

"New-home price gains are slowing, but not by as much as you might think. For the past year the growth rate in new-home prices has been artificially depressed by a change in the sample of homes used to calculate the price.

Last year, the median new-home sales price rose 7% from 2004, a considerable deceleration from the 14% gain in 2004 over 2003. The slowdown appeared to gather pace through the year, with December's median price actually down 0.3% from a year earlier.

Then, the January new home sales report released Monday appeared to show a rebound: the median home sold for 7% more than a year earlier. What's going on?"

What makes this so astonishing is how Ip -- the Journal writer with the greatest access to the Fed , and the person that Greenspan used to leak out information/spin to -- has managed to ignore the Fed's reliance on data we know to be widley misrepresentative of reality: The undue emphasis on Core CPI, ignoring the 5 year uptrend in Energy; The Owner's Rental Equivalency versus actual Housing Costs; And (of course), the absurdity that is the Leading Economic Indicators.

Here's the data point which Ip focuses on:

"New-home sale prices are always tricky to analyze because they are heavily influenced by the mix of homes sold: more luxury home sales will tend to bias up the figure, more homes sold in the south or Midwest, where prices are lower, will bias it down.

But in the last year an additional issue has muddied the trend. In January 2005, for the first time since 1985, the Census Bureau updated the sample of local permit offices it checks to track new-home construction and prices. A lot changed between 1985 and 2005. Older, pricier areas became heavily built up and activity declined. In newer, outlying areas, where prices were generally lower, construction picked up. The 2005 sample thus has a larger share of those newer, cheaper areas. Comparing 2005 figures to those in 2004 will give the impression of a slowing in price gains, but that's somewhat artificial.

Michael Carliner, an economist at the National Association of Home Builders, estimates the sample change may have depressed price gains by about five percentage points. He cautions there are so many factors pushing the numbers around it's impossible to be precise. But using that figure suggests gains last year were closer to 12% than the reported 7%, which would put them more in line with the existing home prices and the price index published by the Office of Federal Housing Enterprise Oversight."

You see, the housing market is actually stronger than you have been led to believe. Well, at least the very high end of it is, and that's what is skewing the numbers.

To be fair, Ip does discuss the actual slowing trend in housing:

"That said, Mr. Carliner says it's clear that a slowing is underway, both in the data and in the information he is hearing from member firms. In particular, luxury home sales have slowed notably, so low-end houses are more heavily influencing the mix of sales. "It's not that the same house will cost less but we are selling more at the lower prices." (That should affect the average price more than the median price, however.)

Moreover, the Census Bureau's constant-quality price index of new home sales corroborates the story of slowing gains. That index compares houses with the same characteristics and in the same regions to their equivalent in prior periods, and it shows a 0.3% drop (not annualized) in the fourth quarter from the third. The year to year increase fell to 4.8% from 8.5% in the second quarter."

This will likely be an article in tomorrow's WSJ . . .

UPDATE: February 27, 2006 3:25pm

Part of Bernanke's Princeton speech from this past weekend just ran on CNBC: The clip was his quotw on Core CPI . . .

Source:
Sample Change Distorts New-Home Price Gauge
GREG IP
WSJ, February 27, 2006 12:45 p.m.
http://online.wsj.com/article/SB114106117594684373.html

New Homes Sales: 4th Drop in 6 months

Monday, February 27, 2006 | 12:02 PM

in Fixed Income/Interest Rates | Real Estate

No surprise here:

"New-home sales fell for the fourth time in six months during January, while inventories climbed to another record.

Sales of single-family homes decreased 5.0% to a seasonally adjusted annual rate of 1.233 million, the Commerce Department said Monday. December new-home sales rose 3.8% to a seasonally adjusted annual rate of 1.298 million; originally, December sales were seen at 1.269 million. Sales dropped 7.0% in November, rose 7.7% in October, and sank 2.0% in September and 7.1% in August.

Analysts say the housing sector is cooling after years of record-breaking demand. This view has held despite an earlier report showing January home construction climbed to a 33-year high. The surge in housing starts was attributed to weather -- it was the warmest January on record in the U.S., with an average temperature of 39.5 degrees.

January new-home sales fell 10.8% in the Midwest, 14.9% in the Northeast, and 10.3% in the South. Sales climbed 11.3% in the West."

There were an estimated 528,000 homes for sale at the end of January, which was a record. That represented a 5.2 months' supply at the current sales rate, the highest pace since 5.2 in November 1996. In December, an estimated 515,000 were for sale, a 4.8 months' inventory. An estimated 93,000 homes were actually sold last month, up from 89,000 in December, based on figures not seasonally adjusted."

The key takeaway to me is that Inventory to sales ratio is now at a 9-year high -- 5.2 months while the number of units for sale at a new record. The Affordability Index shows homes are at 15-yr. low.

Calculated Risk has assembled numerous charts (pretty!) covering the subject; If you want to see more, that's your next click.

courtesy of Calculated Risk

Sources:
Sales of New Homes Fell By 5% During January
JEFF BATER
WSJ, February 27, 2006 10:09 a.m.
http://online.wsj.com/article/SB114105101662684236.html

NEW RESIDENTIAL SALES IN JANUARY 2006
FEBRUARY 27, 2006 AT 10:00 A.M.
Manufacturing and Construction Division
http://www.census.gov/const/newressales.pdf

Home Prices Decellerate

Monday, February 27, 2006 | 06:13 AM

in Real Estate

The WSJ's Justin Lahart notes why we saw an increase in New Home Sales last month beyond the weather: Builders are lowering their prices:

"January's warm weather was one reason for the pickup in sales -- but not the only one, according to Oscar Sloterbeck, head of ISI's survey group. Many builders have been throwing in sweeteners, like flat-panel TVs and better floors, to push sales without having to lower prices. Even so, Mr. Sloterbeck believes some builders have lowered prices to bring customers in.

That is in keeping with what was happening in previous months. In December, the average price of a new home was $272,900, according to the Commerce Department. That was 8.9% below September's $299,600 -- the biggest three-month percentage drop on record. The median price (as opposed to the average price) fell by a slightly smaller 7.7% to $221,800. That is an indication that more expensive homes have seen the steepest price declines.

Prices for existing (that is, previously owned) homes, on the other hand, have registered only slight declines. One reason is that builders are much more motivated sellers than the average homeowner is."

The significance of this is greater than mere Real Estate pricing. As we have discussed for oh so long, this appreciation has been the key to ongoing consumer spending:

"But even if prices for existing homes stay put, that may present other problems, says Lehman Brothers economist Joe Abate. Homeowners have used rising home values to fuel their spending, usually extracting money through mortgage refinancing. If home prices aren't rising, that spending spigot could run dry. Moreover, long-term interest rates are expected to rise, which could further crimp the refinancing game."

The impact of falling prices has a end game that is potentially very negative -- I've "war-gamed" various scenarios, and one possible finale is a wave of defaults.

"The big unknown, says Bollinger Capital Management head John Bollinger, is what will recent buyers -- many of whom have put down little or no cash to buy their homes -- do if the real-estate slowdown steepens. They may not be as motivated to hang on to their homes as traditional homeowners, he thinks, and many may end up simply handing lenders their keys."

While that's a real possibility, I'm much less sure than John Bollinger as to it ending that poorly. He's referring to what really is a worst case scenario . . .

Source:
AHEAD OF THE TAPE: Home Woes
JUSTIN LAHART
WSJ, February 27, 2006; Page C1
http://online.wsj.com/article/SB114100487884983888.html

Last SF Pic

Sunday, February 26, 2006 | 10:58 PM

in Weblogs

final shot: Breakfast on Sunday:

we got there about 8:15 and didn't have to wait for a table -- on the way out, it was a zoo . . .

Equity Risk Premium

Sunday, February 26, 2006 | 11:45 AM

in Investing

Why do stocks pay more than bonds? That's the question a NYT column looks at this Sunday. Interestingly, why the risk premium is so high can have implications for the economy:
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"You might think that the nation's high priests of finance would have agreed by now on why stocks have paid much higher returns than bonds over the years.
You'd be wrong. But depending on whose explanation you believe, there are some important implications for the economy's future. The outlook may not be so good, at least not for everyone.

As every first-year finance student knows, there is a not-easily-measurable number called the equity risk premium. Simply put, this premium is the extra return that stocks have to pay, because they're riskier than safe government bonds, in order to attract investors. It's the same reason that individual numbers on a roulette wheel pay more than odds or evens: higher risk, higher return.

For decades, the returns on stocks have usually been much higher, relative to bonds, than risk alone would seem to justify — perhaps as much as six or seven percentage points higher. If risk were the only explanation, the difference would suggest that investors were extremely risk-averse, to the point that they would never leave the house for fear of having to cross the street.

Some economists have suggested that the equity risk premium is reasonable, if you account for very rare but very costly events, like depressions and wars. But there is still much debate, and there are other explanations for the gap in returns."

I suspect its more than just "Risk" that accounts for the premium: Its complexity, its an individual's lack of managerial competance vis a vis their investments. For most investors, Bonds are simply bought and held to maturity. Stocks, on the other hand, require far more oversight.

It is that ease of ownership that leads to increased demand forBonds -- and their relatively lower returns:

"Think about the two types of securities in terms of supply and demand. The market for safe government bonds includes investors who can't buy stocks at all: foreign central banks, other government agencies, some institutional money managers and certain kinds of trusts. Moreover, financial planners may be too eager for their clients to buy safe government bonds. If their paychecks depended solely on whether their clients made or lost money, they might try to avoid losses at all costs.

In other words, it may just be ridiculously easy to raise money for bonds. Or investors' expectations of stock returns may be irrationally low, focused more on crashes than booms. Either way, the equity risk premium wouldn't explain the entire gap in returns. .

We do know, though, that the risk premium must be some part of that gap. According to research by William N. Goetzmann and Robert G. Ibbotson, two finance professors at Yale, that premium has stayed fairly constant over long periods through virtually all of American history. For lack of a better reason, there may just be something special about American capital markets, so that a high equity premium would tend to revert to some sort of long-run average. In other words, the equity premium may be a partial predictor of future stock returns and even the future growth of the economy."

We'll see if that turns out to be true soon enough . . .

Source:
Why Do Stocks Pay So Much More Than Bonds?
Economic View
DANIEL ALTMAN
NYT, February 26, 2006
http://www.nytimes.com/2006/02/26/business/yourmoney/26view.html

Loaded for Bear: Walter Deemer Interview

Sunday, February 26, 2006 | 10:26 AM

in Markets | Psychology/Sentiment | Technical Analysis

We last mentioned Walter Deemer's views on the cyclical bull, secular bear market back in 2004. He was profiled again last week in Barron's.

Here's an excerpt:

You've been pointing to the Nasdaq as the most vulnerable area of the market for a long time. Are you surprised it has held up?

I'm surprised because in a normal four-year cycle -- and I keep going back to the four-year cycle, because it has worked since the end of World War II, and when something works as long as that, you have got to believe in it -- the market goes up for a little more than two years and then goes sideways as it forms a top.

But the point of demarcation in the average comes usually somewhere late in the second or early in the third year, which would have been somewhere in late 2004 or early 2005. Yet the market has just hung in there and hung in there and hung in there. That doesn't mean you can't have a full-fledged four-year cycle decline, because some of them only take three or four months to complete, and that doesn't mean the Nasdaq is still not vulnerable.

What's activity in the Rydex funds pointing to?

At the peak a couple of weeks ago, 37% of Rydex's sector-fund money was in their energy funds, which is a huge, huge number, especially since they only have two energy funds. I'm convinced the Rydex Fund players are doing the same sort of thing that hedge funds are doing. I think a lot of the smaller hedge funds are using the Rydex funds to move in and out of the market, in and out of sectors, and in and out of bearish funds. I'm seeing general complacency.

I should cite another study, too, which is the ISI Group's hedge-fund survey. A couple of weeks ago, their gross exposure hit an all-time high, which means hedge funds were more exposed to the market than they have ever been before -- which possibly can be explained by the lower volatility: It takes more dollars to achieve the same result. But, at the same time, the net exposure was just about at an all-time high. It is a contrary indicator.

The hedge funds are the driving force in the market these days, and they are still most bullish at tops and most bearish at bottoms. The Rydex numbers confirm there is a lot of bullishness, or to put it another way, there is not much active bearishness. People maybe talking bearish, but they don't seem to be acting bearish." (emphasis added).

Source:
Loaded for Bear
Interview With Walter Deemer, Publisher and Principal of Technical Analysis, DTR
SANDRA WARD
Barron's, Monday, February 20, 2006
http://online.barrons.com/article/SB114021824432777477.html

San Fran Saturday

Saturday, February 25, 2006 | 08:09 PM

in Weblogs

De Young Museum in Golden Gate Park:

View from the observation deck

Claus Oldenburg:

Ultimate Tourist Shot:

Gaming the Blog Ecosystem

Saturday, February 25, 2006 | 11:30 AM

in Data Analysis | Weblogs

For quite a while now, Search Engine Optimization geeks spent lots of time trying to game Google's search results. That's no surprise, given the status and influence of Google, and the money at stake in paid search.

More recently, however, I have noticed that a similar attempt has been made to game blog rankings. That's right, some geeks have been applying their considerable programming prowess to making individual blog rankings appear greater than they actually are.

That these gimmicks are even attempted reveals the growing influence of Blogs. And given the sales prices that some legitimately trafficked blog networks have garnered, we are now looking at millions of dollars in potential sales for any of the top "gamed" high ranked blogs.

About 1 in 4 of the top 100 websites ranked by sitemeter are faking it

The most blatant blog rank gaming I have noticed is visible at the Truth Laid Bear, my favorite site for tracking traffic, and one of the best known eco-traffic web pages.

The strategy is quite simple: Group related blogs together, register them all with SiteMeter, which is the basis for traffic stats.

The trick, it seems, is to some how get traffic monitoring sites to count the same stats repeatedly for different sites.

For example, consider these 13 sports (mostly baseball) related sites. Note that all 13 have the precise number of daily hits -- 40,455. Set aside the statistical unliklihood of this occurring, and its apparent that somehow, all 13 sites are trading off of the same traffic data.

Here's the faked misleading traffic data:

28) Athletics Nation :: An Oakland A's Blog 40455 visits/day
29) Red Reporter :: A Cincinnati Reds Blog 40455 visits/day
30) Bruins Nation :: A UCLA Bruins weblog 40455 visits/day
31) Camden Chat :: A Baltimore Orioles Blog 40455 visits/day
32) Royals Review :: A Kansas City Royals Blog 40455 visits/day
33) South Side Sox :: A Chicago White Sox Blog 40455 visits/day
34) Lone Star Ball :: A Texas Rangers Blog 40455 visits/day
35) Let's Go Tribe :: 40455 visits/day
36) Burnt Orange Nation :: A Texas Longhorns Blog 40455 visits/day
37) Sactown Royalty :: A Sacramento Kings Blog 40455 visits/day
38) Pounding The Rock :: A San Antonio Spurs Blog 40455 visits/day
39) Swamp Ball :: An Unofficial Florida Gators Blog 40455 visits/day
40) Over the Monster :: A Boston Red Sox Blog 40455 visits/day

And here is the very different reality of these sites' traffic, according to sitemeter:

28) Athletics Nation 5,939 visits/day
29) Red Reporter 571 visits/day
30) Bruins Nation 780 visits/day
31) Camden Chat 416 visits/day
32) Royals Review 126 visits/day
33) South Side Sox 752 visits/day
34) Lone Star Ball 1,129 visits/day
35) Let's Go Tribe 1,029 visits/day
36) Burnt Orange Nation 726 visits/day
37) Sactown Royalty 134 visits/day
38) Pounding The Rock 63 visits/day
39) Swamp Ball 41,988 visits/day
40) Over the Monster 516 visits/day

I pulled these traffic stats off of Siter meter (located at the bottom of each page) as of February 25, 2006 early am.

Note that only two of the 13 sites of this network garners significant traffic -- Swamp Ball with almost 42k per day, Atheletics Nation gets nearly 6,000 daily hits. The remaining 11 sites range from 63 daily hits to a little over 1,000.

Yet all appear to receive the 42k of the lead site.

While sports sites seem to be the most prevalent of the gamed traffic stats -- see also the four BTF Baseball sites -- its also politcs, tech and culture doing the gaming:

Traffic on these two pages (which are differentsections od Daily KOS) are identical according to site meter; They are feeding off of the same measuring stat:
2) Daily Kos :: Diaries 685115 visits/day
3) Daily Kos: State of the Nation 594115 visits/day

These two sites appear to be identical mirrors:
20) AMERICAblog: Because a great nation deserves the truth 75379 visits/day
21) AMERICAblog: Because a great nation deserves the truth 75379 visits/day

These two are actually only one site; The 2nd one is a long, single post from the 1st; As they are the same site, they both garner the same traffic:
43) Blogcritics.org: Music, Politics, TV, Film, Books, Sports, Gaming, Science, Tec 33150 visits/day
44) Blogcritics.org: A Paradigm Shift of How We Disseminate and Communicate 33150 visits/day

A combination of mirrors and subheaded siters all feed onto the same site meter meaure:
46) RedState - Conservative News and Community 26084 visits/day
47) RedState - Conservative News and Community 25382 visits/day
48) RedState - Conservative News and Community 25382 visits/day
50) RedState.org 23665 visits/day

Some of these look like mirrors, other sub sites, and still others single posts; All run off of the same sitemeter measure:
66) Wizbang: Explosively Unique... 16306 visits/day
67) WizbangTech 16306 visits/day
68) Wizbang Bomb Squad 16306 visits/day
69) Wizbang Pop! 16306 visits/day

These first two are unavailable, and the last two show up under the same site meter as part of "Baseball Think Factory"

78) BTF's Baseball Primer Newsblog 13257 visits/day
79) BTF's Baseball Primer Newsblog 13257 visits/day
80) BTF's Baseball Primer Newsblog 13257 visits/day
81) BTF's Hall of Merit 13257 visits/day

All told, of the top 100 websites as traffic ranked by Truth Laid Bear via sitemeter, 31 are conjoined, and are misrepresented as separate web logs. Of the 31, there are 7 legitimate traffic generators,leaving 24 that are gamed and do not belong in the top 100.

In other words, about 1 in 4 sites in the top 100 are misrepresenting their traffic.

Fixing the cheating should be easy enough: Simply do not allow multiple sites to be listed independently on traffic ranking data pages by the same site meter ranking . . .

UPDATE February 27, 2006 10:14am

Interesting WSJ article covering some very related issues:

Blog measurement is another mess. The latest word from Dave Sifry, CEO of the blog search engine Technorati, is that there are some 28.4 million blogs and the blogosphere is doubling in size every 5.5 months. Eye-popping figures like that have been thrown around a lot recently, but folks making revolutionary claims about blogging won't like other Technorati numbers: Less than half of those blogs are still getting posts three months after their creation, and less than 10% -- just 2.7 million -- are updated at least weekly. That means of Technorati's blogs, more than 90% are either abandoned or updated too rarely to merit the name -- nothing kills reader interest or visits more quickly and thoroughly than a stale blog.

Still, 2.7 million active blogs is impressive. But how should we measure their audience? Technorati does so by looking at incoming links, which is the closest thing the blog world has to an industry standard, but doesn't tell the whole story -- not with search engines and news aggregators shooting blog posts out into the general fray of the Net.

>

UPDATE 2: March 11, 2006 5:05pm

If you can't beat 'em, join 'em: I added some of the sub-categories to the TLB Traffic Ranking Page; No tricks required -- just put in the URL off of the same site meter measure, and voila! We now have spots 87-92

87) The Big Picture 11875 visits/day (929)
88) The Big Picture: Markets 11875 visits/day (27123)
89) The Big Picture: Economy 11875 visits/day (27124)
90) The Big Picture: Music 11875 visits/day (27125)
91) The Big Picture: Film 11875 visits/day (33032)
92) The Big Picture: Web/Tech 11875 visits/day (27126)

At least the traffic is legit !

Blog Epitaphs? Get Me Rewrite!
Rumors of Blogs' Demise Are Exaggerated,
But a Lot Less Obsession Would Be Healthy
Jason Fry
WSJ, February 27, 2006
http://online.wsj.com/article/SB114072068850081570.html

Market Clichés

Saturday, February 25, 2006 | 10:00 AM

in Markets

Late last year, the WSJ's E.S. Browning had a nice column taking apart some of the more common market clichés:

Words to the wise: Buy low, sell high, and don't follow the crowd.

The Street of Dreams (Wall Street) is paved with clichés. Analysts love to write that stocks offer "positive price potential" and are in "sustainable advances." Price targets get "revised upward." Stocks rarely seem to sport negative potential or falling targets.

And yet, some of the clichés can be helpful, if only as red flags. The above phrases scream that the advice being offered can be taken with a grain of salt. And some other old saws actually are rooted in market reality.

Here's Brownings favorites:

Santa Claus Rally
Oddly enough, stocks often rise right after Christmas. In fact, the entire fourth quarter is, on average, the year's strongest.

Sell in May and Go Away
Sounds like nothing but a catchy phrase, but amazingly, it often is good advice. Over history, the market's biggest gains have come from October through April.

Summer Rally
This is talked about almost as much as the Santa Claus rally, but it is a dubious concept.

Beware the Dead-Cat Bounce
Some stocks -- and some entire markets -- are so troubled that they just aren't going to rebound for a while. In such cases, the temporary bounce is a fake, a rally that won't last.

Bulls and Bears Make Money. Pigs Get Slaughtered
Another saying that is cruel to animals, but at least it is self-explanatory. If you get greedy, pushing a bet too far or staying in a risky investment too long, you may suffer.

Don't Fight the Fed
An old rule on Wall Street is that two things drive stocks: Corporate profit and interest rates. When the Federal Reserve is raising interest rates, as it has been for almost 18 months now, it puts a burden on companies and consumers alike.

Don't Fight the Tape
To quote more clichés: Don't fight the trend. Timing is everything. Pick your spots. The trend is your friend.

Stocks Climb a Wall of Worry
Stocks tend to rise when investors are anxious. Stocks top out when people become too optimistic.

Buy to the sound of cannons; sell to the sound of trumpets.
Translation: Buy when people are too pessimistic, sell when they are too optimistic. I actually interpret this as buy the start of a War (i.e, March 2003, or 1991 Gulf I) and sell the end. . .

Don't Catch a Falling Knife
This is the opposite of the "wall of worry" maxim above. Sometimes, when things look bad, they are bad, and it is too soon to buy.

The opposite is: Don't stand in front of a freight train.

The Market is Driven by Fear and Greed
When the stock market is doing well, investors set aside fears and build higher and higher expectations for stocks. They become so greedy that they pay inflated prices, thinking stocks never will fall. Expectations become impossible to meet, and that's when a bear market sets in. As stocks crumble, greed is replaced by fear, driving stocks still lower. Eventually, fears become excessive and stocks have nowhere to go but up.

Buy the Rumor, Sell the News
Stocks often rise on chatter speculating about pending good news, such as a strong corporate profit announcement. When the news actually breaks, short-term traders sell to take gains. This cliché also works in reverse: If bad news is anticipated, you sell the rumor and buy the news.

Never Short a Dull Market
Don't mistake a lack of activity for Bearishness. If a dullmarket won't go down, there is a firm bid underneath -- and thats Bullish.

It's Not a Stock Market; It's a Market of Stocks
Money managers say such things when the overall market is going nowhere.

alternative: This is a stock picker's market

Source:
A Cliché a Day Keeps Wall Street Losses Away
E.S. Browning
THE WALL STREET JOURNAL, December 27, 2005; Page C1
http://online.wsj.com/article/SB113564768089231861.html

Muir Woods

Friday, February 24, 2006 | 10:20 PM

in Weblogs

Its hard to get a sense of the size looking up from ground level of the trees.

So maybe this shot will give somne perspective: That's Mrs. Big Picture, who is a statuesque 5'8", in the lower right hand corner:

Flat Yield Curve!

Friday, February 24, 2006 | 11:45 AM

in Inflation

Mark Thoma asks: When should we worry about the yield curve?

Chart courtesy of Angry Bear

Note that each inversion (spread < 0) preceded a recession.

Here's how falt we are:

FED Funds Rate: 4.5% (overnight)
6 Month CD 4.37%
Five Year Note: 4.54%
Ten Year Note: 4.54%
30 Year Bond: 4.53%

Let me remind you that last year, the S&P500 gained about 4% -- about what you would get from a CD, but with quite a bit more risk.

That factoid is another element why if the market starts to fade, more than a few equity holders will see it as an unpleasant repeat of 2005.

I can imagine that during any "unpleasantness," the so-called weak hands will dominate not only the selling, but the lack of buying interest, too.

Fed: Stagnant Net Worth for Typical US Family

Friday, February 24, 2006 | 09:57 AM

Every 3 years, the Federal Reserve undertakes a massive survey of nearly 5,000 US families. The interview process is comprehensive, covering all manners of financial information -- and its intensive, taking between 80 minutes and 2 hours.

Its the Federal Reserve's Report on U.S. Family Finances, and it quantifies what most people already know: The average family is not making much economic progress:

"After growing rapidly during the boom of the 1990s,