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Blog Spotlight: The Street Light

Tuesday, October 31, 2006 | 07:00 PM

Another edition of our new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked blog that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.

Up next in our Blogger Spotlight:  Kash Mansori teaches economics at Salem College, in North Carolina.  In addition to teaching at small liberal arts colleges, Kash also enjoys research and writing on current topics in finance, macroeconomics, politics, and public policy.  His blog, The Street Light, has a tendency to illustrate his fondness for charts and graphs.   And yes, Kash is this economist's real name.



The_street_light




Today's focus commentary looks at:   The Previous 'Soft Landing'

Has the Fed managed to raise interest rates by exactly enough to bring the US economy down to a "soft landing"? There was substantial disagreement among economists about Friday's GDP report, with some arguing that it was a harbinger of a looming recession, while others argued that it was still consistent with the soft landing scenario, and didn't really contain anything to worry about.


We won't know which camp was closer to the truth for many months. But in the mean time, I can't help but be reminded of the discussions happening among economy-watchers in mid- to late-2000. The situation in 2000 was somewhat similar to today's economy in some ways; in particular, the Fed had been raising interest rates for some time in an attempt to cool the economy and bring down incipient inflation without pushing the economy into a recession, and many observers were of the opinion that they had succeeded. To help refresh your memory, here are some excerpts from the news at the time (sorry, I haven't tracked down links):

August 10, 2000
The Boston Globe
Economy Slowing for 'Soft Landing; Fed Reports Braking in Key Growth Areas: The hard-charging US economy slowed in the late spring and early summer, the Federal Reserve reported yesterday, suggesting a "soft landing" for the 10-year expansion indeed could replace the traditional boom-and-bust dynamic...

September 2, 2000
The Washington Post
Economic Growth Gradually Slowing; Reports May Reduce Chance of Rate Hike: More clearly than ever, three new economic reports out yesterday show the U.S. economy coming in smoothly for a soft landing. A series of increases in short-term interest rates by the Federal Reserve and other forces have combined to slow economic growth just enough to keep inflation largely at bay without significantly raising the risk of a recession.

The reports all pointed in that direction, according to a number of analysts, who also said the way events are unfolding suggests that Fed policymakers won't be raising rates again anytime soon.

September 18, 2000
The Wall Street Journal
Economic Data Continue to Augur Soft Landing:

October 28, 2000
Cleveland Plain Dealer
Economy Cools to Rate Suggesting Soft Landing: The economy shifted into a much lower gear during the summer, registering its slowest speed in more than a year and reflecting a drop in government spending and weaker business investment... "We have downshifted ... but we're not on the brink of a recession," said Paul Kasriel, chief economist for Northern Trust Co. The report, he said, is consistent with the Federal Reserve's desire to bring the high-flying economy down to a more sustainable rate of growth.

October 29, 2000
The Atlanta Journal and Constitution
Stock market fall hurts, but 'soft landing' helps

November 27, 2000
Business Week
This Political Shock Won't Upset the Soft Landing: THE FED SEEMS CONTENT that the slowdown is leading toward the desired soft landing, although policymakers are still not convinced that the threat of rising inflation is abating. After hiking its overnight rate from 4.75% in June, 1999, to 6.5% in May, 2000, the Fed at its Nov. 15 policy meeting continued to leave interest rates unchanged. The Fed admitted that the economy could slow to a pace even below its long-run trend, generally taken to be 3.5% or so. However, it said that the slowdown in demand to date has not been sufficient to alter its view that the risks in the outlook are weighted toward conditions that could generate higher inflation.

...The bottom line is that, yes, the economy is slowing as the Fed's efforts to pull off a soft landing bear fruit. And little indicates that this nation's ongoing political shock will rattle the economy, especially since the fundamentals remain quite sturdy. The Greenspan Fed pulled off a soft landing in 1994, and it will very likely succeed again in 2001 -- regardless of how long it takes to elect a President.

Dec 7th, 2000
The Economist
Slowing down, to what?: The latest economic figures are consistent with a soft landing. As Mr Greenspan made plain in his speech, an economic slowdown is what the Fed has been aiming to achieve by raising interest rates six times in the past 18 months. By creating economic slack, this should stop inflation rising further. And despite the share-price jump this week, recent market edginess will usefully remind investors about risk and so deter reckless investment.

The markets are also right that few economists are actually predicting a hard landing. The average forecast for growth in 2001 by 15 economists polled by The Economist this week was 3.0%.

For reference, we now know that the US economy experienced negative economic growth between July and September of 2000, and officially entered a recession in early 2001.

My point is a relatively simple one: I don't think that we have nearly enough evidence yet to conclude that the Fed has acheived a soft landing for the US economy. Any guesses about how rough the landing will be will thus have to be based on guesses, predictions, and assumptions about how consumers and businesses will behave over the next several months. So I would be hesitant to congratulate the Fed on its successful soft landing until we know (maybe by mid-2007) if the relatively optimistic suppositions about future consumer and business behavior were right.

It's also worth noting that even as late as November 2000, the signals from the Fed and the interpretation of Fed-watchers were that the chances were that the next interest rate move by the Fed would be an increase. Now we know, of course, that they were compelled to decrease interest rates just a few weeks later. So despite the Fed's rhetoric to the contrary, I would still be cautious in believing that the Fed's next move in the current episode will end up being another increase.

Tuesday, October 31, 2006 | 07:00 PM | Permalink | Comments (8) | TrackBack (0)
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Conspiracy Theories?

Tuesday, October 31, 2006 | 03:33 PM

Rev Shark looks askance at the many theories floating around about  Government intervention in the Equity and Energy markets: Debunking Conspiracy Theories:

"With the election just a week off, there is a lot of talk in certain quarters about how the market is being "manipulated" for political gain. The theory is that the Republicans are driving the market up in order to give the impression that economic conditions are good, which would in turn cause voters to support the incumbent party. That certainly explains the market action and has a great appeal to the conspiracy theorists but is it realistic? I have a great aversion to the idea of conspiracies simply because I don't believe that its possible for a large number of politicians and bureaucrats with big egos to keep anything a secret."

The most cogent analysis I have seen about the sudden drop in Energy prices comes via Tim Iacono's  Friends in High Places?  Iacono's argument is backed by the details of how and when the widely followed Goldman Sachs Commodities Index (GSCI)dropped its gasoline exposure in half. What was originally made out to be a minor shift in the types of gasoline blends turned out to be a major reduction in exposure for the GSCI -- and done in a rather surreptitious manner.

Goldman made a little change in their commodities index, and that caused $6 billion in unleaded gasoline futures to be dumped onto the NYMEX. Read it and decide for yourself how "improbable" a manipulation of the energy markets actually is.

Quite frankly, while I detest the intereference in the political process, I must admit to admiring the ingenuity and audacity of Goldman Sachs. As far as I can tell, either it was a brilliant ploy to impact the energy markets two months before elections, or the index is run by a bunch of naive, ham-fisted idiots,  blissfully unaware of what they wrought so close to mid-term elections. So my own answer about energy manipulation turns on the question whether Goldman Sachs is a sharp collection of rocket scientists/traders, or a bunch-o-morons. 

As to manipulations in the equity markets, I am undecided about that. I will note that several people far more experienced than I -- and far less cycnical, too -- have been commenting about the "Preternatural bid underneath." I may have to assemble some of the more cogent commentary along those lines.

Of course, the Fed does control money supply, and while it is understandable their providing additional liquidity during the rate tightening phase (i.e, more money supply as rates go higher) the most recent firehose of cash hitting the past few months since the pause is a bit harder to rationalize . . .

Tuesday, October 31, 2006 | 03:33 PM | Permalink | Comments (53) | TrackBack (0)
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Touchscreen iPod

Tuesday, October 31, 2006 | 11:30 AM

Rumors of a new touchscreen Apple iPod have been around for years: The big issue as to the viability of this as a real product were fingerprints smearing the touchscreen. As hrmpf.com noted:

Apple has previous described new iPod designs (in patent applications) which incorporate a touch sensitive surface into the display. There seems a scepticism on the web about designs becoming reality due to the problems of screen smudging and scratching.


The_new_ipod


Via GMSV, we see new patent app by Apple approaches the issue somewhat differently: Apple may "abandon the iconic wheel that has become virtually synonymous with its popular iPod music players."

Mercury News writes that the company had "previously explored replacing the click wheel with a virtual one as part of a touch-sensitive display. But now Apple appears to be looking at a third option: a touch-sensitive frame surrounding the display. Rather than click a physical button or press a virtual one on the screen, users would touch an area on the frame to operate their iPod."

Here are the details:

"This application has designs for a new iPod/Tablet/Phone (or dare I say it, Newton-like device) which put the touch sensitive areas into the bezel surrounding the iPod’s screen (as well as on the screen and sides of the device). The user interface seems particularly well conceived and relies on on-screen indicators of the control surface’s function. In addition to buttons the surfaces can act as scroll surfaces. The interface works by the user selecting a control to change (in the picture below- position in the song, volume, balance) and then, using the bottom surface to scroll, adjusting the element in real time (Fig. 19).

And the various patent drawing are below:

 

Ipod_demo

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Cody Willard directs us to this Apple Insider piece giving much more fdetails on the Patent App . .  .

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Sources:
Apple describes new interface for iPod
hrmpf on October 26th, 2006
http://hrmpf.com/wordpress/90/apple-describes-new-interface-for-ipod

iPod's click wheel: Has it been framed?
PATENT FILING SHOWS NEW NAVIGATION METHOD
Troy Wolverton
Mercury News
http://www.siliconvalley.com/mld/siliconvalley/15885367.htm

Apple's touch-sensitive iPod ambitions disclosed in filing
AppleInsider, Thursday, October 26, 2006 10:00 AM EST
http://www.appleinsider.com/article.php?id=2177

Tuesday, October 31, 2006 | 11:30 AM | Permalink | Comments (13)
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Market Gains by President/Congressional Party

Tuesday, October 31, 2006 | 06:59 AM

Interesting study by Ned Davis, via Van Kampen Investments of what the market's look like under different party rule.

Rob Schumacher of Van Kampen notes:

"In every presidential election year, voters and investors alike focus on the race for the White House, and rightfully so. You see, as shown in the accompanying chart from Ned Davis Research, the historical data depicts market returns that vary greatly under Republican or Democratic leadership.

The same data also suggest that while presidential races may dominate the statistical landscape, a more interesting interaction between politics, the public and stock prices is likely to take shape. And it has very little to do with who wins or who loses."

I am assuming that while there may be correlation between parties and market performance, there is no specific proof of causation, i.e., these policies cause those returns. My 2nd assumption is that the Federal Reserve Chair is more important than Congres or the Presidency to Markets. And in terms of data sets, 106 years -- ~26 presidential terms -- is a bit light. This might be really interesting after 500 years, though.

Regardless of those reservations, this is quite fascinating:
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Gains (%) for Stocks by Party of the President and Majority Party in Congress
03/04/1901–10/23/2006

 
Political Variable Stocks
(DJIA) 
  Democratic President
7.19%
Republican President 3.85%
Democratic Congress 6.46%
Republican Congress 3.51%
  Dem Pres, Dem Cong
6.53%
   Dem Pres, Rep Cong 9.60%
   Rep Pres, Rep Cong 1.54%
   Rep Pres, Dem Cong 6.37%
All Periods Buy & Hold 5.34%

Sources: van Kampen, Ned Davis Research

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The most interesting aspect of the current research into party control has little to do with which party has Congress or the White House -- its when Congress is in session or not:

"Using historical pricing on the Dow Jones Industrial Average (DJIA), the Standard and Poor’s 500 Stock Index (S&P 500), the Center for Research in Security Prices (CRSP) Equal-Weighted Returns Index and Value-Weighted Returns Index, Ferguson and Witte* find that, “Depending on the index, daily returns when Congress is in session range from 1 to 4 basis points per day. When Congress is out of session returns range from 5 to 15 basis points a day.”

Media spin aside, in a striking conclusion Ferguson and Witte remind their readers that, “Fully 90 percent of the historical capital gains on the DJIA occurred on days when Congress was out of session"

We are tempted to make the tongue-in-cheek observation that when Congress -- of either party -- is in session, it is dangerous to your portfolio's health!

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UPDATE October 31, 2006 10:11 am

And as we have discussed in the past, it is important to consider Multiple Variables in Market Analysis. Who controls the Congress or Presidency is but one issue out of 100's if not 1,000's, and perhaps a minor one at that . . .


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Sources:
For Investors, Elections are Only the Beginning
Rob Schumacher          
Van Kampen Insight Line—October 30, 2006
http://www.vankampen.com/vksite/news/commentary/insightline103006.asp

Gains for Stocks, Industrial Production, Inflation, Bonds and U.S. Dollars ($),
by Party of President and Majority Party in Congress"
Ned Davis Research
Report T_50, 03/04/1901 to 10/23/2006”

Congress and the Stock Market
Michael Ferguson and Hugh Douglas Witte
University of Cincinnati and University of Missouri, March 13, 2006
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=687211

Tuesday, October 31, 2006 | 06:59 AM | Permalink | Comments (30) | TrackBack (1)
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Are You Missing the Real Estate Boom? 2.0

Monday, October 30, 2006 | 03:34 PM

I stumbled across a fascinating new blog: David Lereah Watch.

Here's the description:

"David Lereah is the Chief Economist and Senior VP of the National Association of Realtors (NAR). Mr. Lereah regulary makes statements regarding the housing bubble. The media regulary turns to him for real estate quotes. He is very influential. Mr. Lereah tells half truths and manipulates facts and figures. He cannot be trusted as he is a paid shill."

Geez, its as if people pay attention to what you say and make you accountable.

One of the more interesting things I came across on David Lereah Watch was the new version of his book. You may recall we discussed this last months in Are You Missing the Real Estate Boom?

Turns out we were using the older version of the cover; the new cover is somewhat telling:

Lereahbooks20

Hat tip: David Lereah Watch

 

 

UPDATE:  October 31, 2006 11:29 am

Kevin over at Minyanville imagines what the subsequent title revisions will look like in the future:

2007:  "Why the Real Estate Boom Will Not Bust and How Foreclosures are Technically Part of the Continuing Real Estate Boom, In a Way."

2008:  "Why the Real Estate Boom in Distressed Properties Will Not Bust (except in certain local markets) and How You Can Use Leverage to Profit From It."

2009:  "Why the Phrase "Real Estate Boom" is Often Misunderstood to Mean Higher Prices and How You Can Pray for Them."

2010:  "Why the Real Estate Boom Will Soon Bounce Back and How to Eventually Profit From It."

2011:  "Why Did I Have to Write "The Real Estate Boom Will Not Bust Through the End of the Decade" and How Did I Not Realize How Long A Decade Really Is?"

2012:  "Oh, Dear God, Please, Please Let the Real Estate Boom Bounce Back... and How You Can Profit From It."

2013:  "Please, Please, Just Let the Real Estate Boom Come Back This One Time for This One House and How You Can Break Even From It."

2014:   "Why I Am Willing to Accept a Small Loss of 35% On the Real Estate Boom and No Longer Care About How to Profit From It."

2015:  "Why Can I Maybe Borrow a Couple Dollars Off You Until the Real Estate Bust is Over?"

Too funny -- thanks Kev . . .

Monday, October 30, 2006 | 03:34 PM | Permalink | Comments (31) | TrackBack (1)
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RealMoney free to College students

Monday, October 30, 2006 | 11:37 AM

Attention college students & Professors:

RealMoney is offering you a free subscription through May 31, 2007. The only requirement: You must have an email address that ends in ".edu."

Email collegetour@thestreet.com to start your free subscription.

Or click below

Rm_2


Remember, you must have a Dot EDU email address . . .

Monday, October 30, 2006 | 11:37 AM | Permalink | Comments (14) | TrackBack (0)
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Actual GDP: ~0%

Monday, October 30, 2006 | 06:13 AM

Don't pay attention to the statistically aberrant GDP number reported Friday.

Its actually much worse.

Thanks to a "statistical fluke," GDP was actually less than 1%:

"Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.

The increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said."

What brought this aberrational data point about? The number crunchers in the Commerce Department rely on wholesale prices for light trucks. The 5.5% decrease in SUVs had the effect of making output look stronger -- but only when adjusted for inflation. In reality, these were firesales to move product off the lot.

Consider this related tidbit:  AutoNation, the largest dealership and sellers of new cars in the country, said it expects to cut 2007 purchases from the big 3 by 30%.

And its not just cars: WalMart reported its weakest monthly sales gains since December 2000 -- despite the 30 decrease in gasoline prices since the summer. In the US, Sales rose just 0.5% -- significantly below the 2-to-4% improvement originally forecast for October.

Bottom line: If we have to torture the data to get to just 1.6% GDP, imagine what is actually going on in the economy.

This is the primary reason we have "obsessed" so much on Real Estate. Without the massive contribution of residential housing to the overall economy -- from job creation to transactional business to MEW -- there simply is not a whole lot of growth to be found elsewhere.

Other noteworthy items in the Q3 GDP report:  There was an unexpectedly large accumulation of inventories. This implies manufacturing output will slow further in Q4, as manufacturers trim production this quarter to reduce the increased inventory build up.

Also of note:  The GDP Deflator came in at 1.8%, significantly below the expected 2.8%. When it appears we have less inflation, then output looks greater. The deflator has not been below 2% since Q2 2003. In case you were wondering, the deflator is not ex-energy.

For the econ-wonks out there, the Technical notes are always rich with intrigue, and this report is no different:

For many of the key series used to prepare the advance estimate of GDP, including retail sales, unit automobile and truck sales and inventories, manufacturers' shipments of nondefense capital goods (other than aircraft), manufacturers' inventories of durable goods, federal defense spending, and consumer, producer, and international price indexes, actual data are available for all months of the quarter.   

For the key series shown in this table, actual data for the third month of the quarter usually are not available in time for inclusion in the advance GDP estimate. BEA makes assumptions for the source data that are not yet available; assumptions for September 2006 are shown in the last column of the table.  For most series shown, the data for August are preliminary and subject to further revision. Occasionally, the data for earlier months are also subject to revision."                        

This assumptions/estimates is what typically happens for the first GDP release (remember, the number will get reported 3 times: this Advance GDP, Prelim, and then Final). What this could mean is that by the time the subsequent revisions are completed , we could be showing zero growth.

That's right, 0% GDP is in the range of possible Q3 outcomes (I suspect we will be in 0.5%-1% range)

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The slow-motion slow-down is now in full swing . . .


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UPDATE 2 October 30, 2006 10:24pm

More questions on the deflator; Maybe this will help -- Have a look at the past 5 quarters:

 
  Q3 '05   Q4 '05    Q1 '06   Q2 '06   Q3 '06
3.3 3.3 3.3 3.3 1.6

Something looks a bit funny in that series . . .

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UPDATE October 30, 2006 10:10am

I keep getting emails asking me "What is the GDP Deflator, and why does it matter?"

The short answer is that it is an economic metric that converts output measured at current prices into constant-dollar GDP. The idea is to measure output, not inflation.

For the longer example, lets use an example: Freedonia's biggest product is widgets. In Q1, they sold $100 worth of widgets ; In Q2, they sold $110 worth of widgets, or $10 more.

The trick in calculating Freedonia's GDP is figuring out how much of that  $10 increase is due to increased output, and how much is due to inflation. To oversimplfy, the deflator "deflates" the price increases out of the total, so all that is left is GDP gains. It is the "implicit price deflator for GDP." (Does that clarify this?)


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Sources:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2006
(ADVANCE)
8:30 A.M. EDT, FRIDAY, OCTOBER 27, 2006
http://www.bea.gov/bea/newsrelarchive/2006/gdp306a.pdf

U.S. Statistical Fluke Exaggerated Growth, Will Be Reversed
Carlos Torres
Bloomberg, October 27, 2006 14:41 EDT
http://tinyurl.com/y6mprf

AutoNation to reduce orders 30%
SARAH A. WEBSTER
DETROIT FREE PRESS, October 28, 2006
http://tinyurl.com/ybolqt

Wal-Mart Posts Softest Same-Store Sales Since '00
KRIS HUDSON
WSJ, October 30, 2006; Page A3
http://online.wsj.com/article/SB116203925719006948.html

Monday, October 30, 2006 | 06:13 AM | Permalink | Comments (40) | TrackBack (1)
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Festival of even more Linkage!

Sunday, October 29, 2006 | 05:30 PM

Another week, another milestone:  The Dow added 87 points, or 0.7%, closing up for the week despite Friday's hiccup. Barron's Trader column notes this was the "fifth straight week of gains, as gauged by the Dow and S&P 500, while the Nasdaq Composite rose 0.4%, its fourth weekly gain in the last five, to reach 2350."

The Bulls can point to Earnings, which continued to be excellent, a few notable exceptions aside. Guidance is where the Bears can rest their case.    

No matter: another week pregnant with earnings, and quite a bit of economic data:  NAPM , Construction Spending and ISM mid-week, Productivity and Factory Orders Thursday, then everyone's favorite, Non Farm Payroll (tho Given the massive revisions NFP has seen, perhaps we should be putting less stock in these initial numbers).

That's what's upcoming; Here's what's outgoing: an Autumnal linkfest!

INVESTING

Businessweek looks at sector rotation -- away from higher Beta names, and towards the more defensive issues in A Creeping Caution on Wall Street

• WSJ: Berkshire Might Be a Bargain at $100,000; Also, you can see Warren Buffett speak to a group of MBA sudents at University of Florida;

Uh-Oh: How Good Are Earnings Really?

• The Hedge-Fund legend has some critical words about the industry he helped to create 40 years ago: Ten Questions: Michael Steinhardt;  Speaking of hedge fund legends: Soros, Bacon, Jones Hedge Funds Lag Behind S&P 500

• John Bogle, founder and former CEO of mutual fund house Vanguard Group, advisers investors to "Revise Your Market Expectations"

• The risk of reward: Betting on an increase in market

• The rally from the Summer lows has shifted leadership -- the past few weeks has seen Energy and Materials stock re-assert themselves in:  Two-horned bull?"

Options Scorecard:  An updated look at more than 120 companies that have come under scrutiny for past stock-option grants.

I did not you know this: The Street.com is now rating stocks: TheStreet.com Ratings

• Has the Record Short Interest Prevented any major Correction? 

• Interesting sentiment discussion: Why You must be a Raging Bull AND a Prudent Bear and Pressures on the Dow are Not Sustainable;

• Why Your 'Lizard Brain' Makes You A Bad Investor -- and How to Battle Back (See also You're Just Not Built For It) See also this academic study explaining why sometimes more information often leads to worse investor decisions; The culprit is investor overconfidence; 

• MacroMaven's Stephanie Pomboy discusses "A Yen for Risk"

   


ECONOMY

The Wall of worry continues to build:

• There's no other way to put this:  GDP stinkeroo! (or this or this)

• Treasury Secretary Paulson is hoping the Wealth Effect of Stocks will make up for Real Estate; That's a bad bet;

• The full article is a rather fascinating discussion of today's "lower upper class," which is seething about the ultra-wealthy:  Revolt of the fairly rich

• On the economy, there is a plethora of both Good news and bad news

Pretty mediocre: Wal-Mart's October U.S. Same-Store Sales Rose About 0.5 Percent

• Business Pundit asks entrepreneurs to "Please Stop With Your Chinese Math" ("We only need 3% of the market. . . ")

• A Bloomberg video twofer:

-Tannenbaum of LaSalle Says Consumers Not `Damaged' by Housing      
-Ryding of Bear Stearns Sees `Limited' Effect of Housing Decline (I say they are both wrong)



FEDERAL RESERVE

As expected, the Fed did nothing (and said less):

• WSJ's Greg Ip on Why Fed Might Keep Rates on Hold Longer Today Than It Did in 1995 (If no WSJ, go here)

Seinfeld at the FOMC:  Something about nothing also could describe the meeting of the FOMC. Nothing changed in terms of the target rate for federal funds, which has stood at 5 1/4% since last July.  And the statement:  a lotta yada, yada, yada.

• All this aside, Treasuries saw gains the 2nd Week in a row as Fed Leaves Rate Unchanged      

• Pimco's Paul McCulley always has something interesting in his Global Central Bank Focus


HOUSING

A Closer Look at New Home Sales Data

Barron's Alan Abelson cites research by Merrill Lynch's David Rosenberg regarding the recent "stabilization" in Housing. It turns out that the only thing which is stabilizing is inventory -- but at extremely high levels (If no Barron's go here)

• The Shifting Calculus of Buying a House now favors buyers, as Home Prices Seen Dropping Through 2007

• CNN on the The New Rules of Real Estate

 GMAC feels effect of US housing wobble

• Last week, I mentioned an auction of ~50 prime properties in Florida. Here's how that worked out: 14 of the 51 properties did not receive a bid; see the full Oct 21 Naples Auction Results; Also, check out the auction catalog of properties.

Housing Slump May Pull Down Retail Work

• Derivatives Trades Suggest US Housing Slump Poised to Worsen


Energy/Media/Military

• Thomas Friedman: The First Law of Petropolitics

CNBC.com returns (did you even know it was missing?)

• How Nazi Germany and apartheid South Africa perfected one of the world's most exciting new fuel sources.

•  Two economists at the American Enterprise Institute set up a nifty Web site to determine the future costs of the Iraq war.

• UK brigadier who lead attack against Taliban: Iraq war cost years of progress in Afghanistan;

• October has been grim in Iraq: 98 U.S. GIs killed in Iraq this month

• Conservative pundit George Will on the Questions to Guide an Iraq Exit Policy


Politics

With 10 days to go til the mid-term elections, I decided to break this out from the Military/Media grouping: 

Google Launches Guide to US Congressional Elections

• Does Mr. Market really care if its Republican or  Democrat? (no) And why both parties deserve to lose this election.

Election Update, part 3 Tradesports some changes: up almost 2 points  GOP has a 36.1% chance of retaining control of the House;  GOP odds were up nearly 4 points for retaining control of Senate remains at 73.9%.

• Two interesting (free!) articles from the WSJ: 

-You can look at Campaign Cash Clues to see where the parties are defending or giving up. Biggest surprise:  GOP has stopped investing in Ohio

- Political Polls and Pundits: How Reliable Are Forecasts?    

• There is a surprising re-alignment in the midwest: Moderates in Kansas Decide They're Not in GOP Anymore; WSJ's John Harwood on Why the Center Matters in This Election

File this under Bleecchh:  We are not even through the mid-terms, and already 2008 is looming large: Mining Midterms for Clues to '08 Field; Speaking of which: McCain Tries to Trump Republican Woes, Sets Foundation for a Presidential Run in 2008 (disclosure: I supported McCain in 2000);



Technology & Science

IBM Suing Amazon over Patents

The Boss Puts The iPod to Work

•  No more funny: YouTube Removes all of Comedy Central Clips Due to DMCA   

• New theory on what killed the Dinosaurs: Not meteors, but worms

• Some users are renouncing the social networking sites as just too big in MySpace, ByeSpace?

Did the Viking Mission Miss Mars Life?

•  Circumventing DRM:  Apple's iPod code 'cracked'

 



Music Books Movies TV Fun!

• If you like the prior recommensdations for KT Tunstall or Bittersweet, than have a listen to Feist's Let it die

• I haven't read Bob Woodward's State of Denial, the 3rd part of his Bush at War trilogy. It seems that every other person on my train is carrying the book.

No cash = no inspiration = no rocket sauceJack Black schools all of you on the truth about piracy (save your emails, its a parody). JB & Kyle also have a new movie out: Tenacious D's The Pick of Destiny

• For the math geeks out there:  Finite Simple Group (of Order Two) (cute)

• Sometimes, the Onion is more accurate than the MSM:  Stock Market Invinciple;

• Via NASA, we can see Von Karman Vortices, Aleutian Clouds, Aerial Whirlpools: Earth as Art!

• The Cohiba Behike is world's most expensive cigar: priced at more than $450 each (WSJ -- if you can't afford the sub, you can't afford the cigar!)

How did I miss this: The Simpsons vs Star Trek mash up

That's all from my corner of the North Shore of Long Island, where lots of rain and plenty of fallen leaves combine to make driving treacherous -- and unlike Ice or Snow, ABS won't help if you skid on wet leaves. Drive safe!   

Sunday, October 29, 2006 | 05:30 PM | Permalink | Comments (7) | TrackBack (0)
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Middle Class Squeeze Continues

Sunday, October 29, 2006 | 11:30 AM

I've been discussed the declining middle class for some time now -- see The Disconnect and Economic Classes for a more detailed chat on the subject.

I'll have more on this later  in the week -- but for now, I wanted to throw up some charts up.

I always snicker when I hear a politico scratch their head about why the opinion polls are so negative, despite "good growth and low unemployment."  Aside from the fact those stats are somewhat "gamed," we also know there are additional issues. Consider our modern bad habits -- excess consumption, too much debt, too little security -- of all types. 

Its no wonder much of the middle class is less than enthralled with the present environment:

 

Debt_to_disp_inc

Mid_class_sec

Biz_cycle_compare

Mid_class_ind




Source:

New Study: Middle Class in Turmoil
Economic risks up sharply for most families since 2001 -
September 28, 2006
Christian E. Weller and Eli Staub
http://www.americanprogress.org/pressroom/releases/2006/09/middleclassturmoil.html

Middle Class in Turmoil PDF
http://www.americanprogress.org/issues/2006/09/MidClassReport.pdf

Sunday, October 29, 2006 | 11:30 AM | Permalink | Comments (24) | TrackBack (0)
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Only Human: Passive Still Beats Active Investing

Sunday, October 29, 2006 | 09:18 AM

Yes, it remains true: Indexing is a better strategy than active investing. Passive beats most Humans. Various academic and market studies continue to demonstrate this:

"This year through September, only 28.5 percent of actively managed large-capitalization funds — which try to beat the market through stock selection — were able to outpace the S.& P. 500 index of large-cap stocks, according to a new study by S.& P. In the third quarter alone, it was even worse, with only one in five actively managed large-capitalization funds beating the index.

That isn’t terribly surprising, said Rosanne Pane, mutual fund strategist at S.& P., because active managers tend to have difficulty beating indexes when market leadership changes. And in the third quarter, many stocks that had paced the market for much of this decade began to fall behind. Small-company stocks were finally beaten by shares of big, blue-chip companies; sectors like energy also started to lose ground.

Still, such transitional periods aren’t the only good times for indexing. S.& P. research shows that while active management fared poorly in the third quarter, it has actually been lagging behind the indexes for a considerable period.

Over the five years through the end of the third quarter — a span that included both bull and bear markets — only 29.1 percent of large-cap funds managed to beat the S.& P. 500. What’s more, only 16.4 percent of mid-cap funds beat the S.& P. 400 index of mid-cap stocks, and 19.5 percent of small-cap funds outpaced the S.& P. 600 index of small-company shares. “The long term does seem to favor the indexes,” Ms. Pane said."

Why do investors bother? Aside from the few who are unaware of the research, my guess is many are attracted by the glory of being part of the 65% that manage to beat the market every so many years: 


Beating_spx

Source: Standard & Poor's; Data thru 9/30/06

>

For the rest of the time, we all want to be special -- in the 20-40% or so who do manage to outperform the indices most years.

 Of course, it's likely a different 20-40% each year, and is more likely a function of style or asset class (Emerging market, Small Cap, Value, etc.)

Yes, that's right:  another example of how when your emotional side trumps your rational side, you forfeit gains. Don't be too hard on yourself, you are only Human.

>

>

Source:
If You’re Playing ‘Beat the Benchmark,’ Don’t Expect to Win
PAUL J. LIM
NYT, October 29, 2006
http://www.nytimes.com/2006/10/29/business/yourmoney/29fund.html

Sunday, October 29, 2006 | 09:18 AM | Permalink | Comments (8) | TrackBack (0)
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