The Big Picture | January 2007

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Parsing The Fed

Wednesday, January 31, 2007 | 06:15 PM

in Economy | Federal Reserve | Inflation

The WSJ notes the differences between today's Fed statement and that of December's:

"THE FED'S STATEMENTS reflect how the members of the central bank's Federal Open Market Committee perceive the economy. The slightest changes are scrutinized for clues about where interest rates may be headed. The Jan. 31 statement announced that the Fed was keeping rates steady at 5.25%, its fifth pause in a row after 17 increases in 17 meetings. The Fed's language reflected what it sees as a pickup in the economy, but reiterated that any rate increases will depend on new data."

Click below to see the fully parsed statement:

Sources:

Federal Open Market Committee
January 31, 2007
http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070131/default.htm

Fed Holds Again
PARSING THE FED
Wednesday, Jan. 31, 2007
http://online.wsj.com/public/resources/documents/info-fedparse0701.html

Mac Question

Wednesday, January 31, 2007 | 12:45 PM

in Web/Tech

I have a Dell in the office, and at home, I have a G5 iMac -- ita about 2 years old, and it is the pre-Intel line (Motorola chip), with a 1.5G of ram.

Anytime I "push it" -- run a lot of apps at once, or any video or iTunes music, the internal fan spools up. It sounds like a 747 at JFK waiting for takeoff clearance. (Safari is an entirely different disaster, generating a spinning beach ball whenever I have a few windows open).

Its been like that since day one, and ts beginning to drive me a bit batty . . .

Any ideas about how easy it is to swap this out? Is this an ordeal, or can I do it myself (I've swapped ram and hard drives in the past)

DJIA without a 2% One Day Decline

Wednesday, January 31, 2007 | 10:30 AM

in Investing | Markets | Psychology/Sentiment | Technical Analysis

I have been meaning to post this since December, but never got around to it: We're now at 930 or so trading days.

Courtesy of Birinyi Associates

Busy Day!

Wednesday, January 31, 2007 | 07:30 AM

in Economy

Strap yourselves in: We have quite a busy day ahead:

MBA Purchase Applications
7:00ET

ADP Employment Report
8:15ET

Employment Cost Index
8:30ET

GDP (advance)
8:30ET

Construction Spending
10:00ET

NAPM-Chicago

10:00ET

EIA Petroleum Status Report
10:30ET

FOMC Announcement
2:15ET

Farm Prices
3:00ET

And a slew of earnings today, including Google after the close .

via econoday

Cash No Longer Trash?

Wednesday, January 31, 2007 | 07:13 AM

in Currency | Federal Reserve | Fixed Income/Interest Rates | Psychology/Sentiment

It looks like we are going to get one of those "Sit around and wait for the FOMC" days. While we await the likely "Nothin' Done" verdict, it may be a good time to revisit an overlooked asset class:

Cash.

Currently, you can get near 5% (risk free principle) for cash. For many investors, that is an attractive alternative to risk in equities and long term commitments of bonds.

Note that these rates are not fixed, and may very well be appreciably lower in the event the Fed begins cutting (Best guess, later 2H, most likely). The primary risk of cash is missing the opportunity to lock in a higher rate if that happens. The flipside is CD rates will also go higher if the Fed tightens further.

Today's Journal has an article about the very subject: Interest-Rate Outlook Adds Luster to Cash. Here's a quick excerpt:

"Cash is regaining some of its sparkle. With the Federal Reserve widely expected to leave short-term rates unchanged today -- and well into the future -- many financial planners are recommending that clients put their extra money into short-term securities and high-yielding savings accounts to boost their returns.

That's a shift from last fall, when money managers were moving into longer-term investments to lock in still-favorable yields. Banks, too, are beginning to change course. After trimming yields on cash accounts last fall, some banks are bumping up rates again to lure new deposits.

Earlier this week, for example, HSBC Holdings PLC's online bank unit, HSBC Direct, boosted the promotional rate on its online savings account to 6% on new deposits until the end of April, from 5.05%.

Another advantage of moving to more-liquid investments: Doing so can give you the flexibility to quickly move into higher-yielding securities if and when interest rates start to move higher.

A raft of stronger-than-expected economic data and shifting rate expectations are spurring the move toward cash. Oil and gas prices have retreated, easing concerns over a slowdown in consumer spending. Sales of new homes increased in December for a second consecutive month, raising hopes that the worst of the housing downturn could be coming to an end. Meanwhile, the unemployment rate is still relatively low, and the manufacturing sector is proving to be healthier than expected."

Source:
Interest-Rate Outlook Adds Luster to Cash
With Fed Expected to Sit Tight, Financial Planners Steer
Clients to Short-Term CDs, High-Yield Savings Accounts
JANE J. KIM
WSJ, January 31, 2007; Page D1
http://online.wsj.com/article/SB117020547609893037.html

Is Apple Setting CD Prices?

Tuesday, January 30, 2007 | 07:30 PM

in Digital Media | Music | Web/Tech

Last week, we noted that the Top 5 Amazon Music Sellers Are Under $10. (You can see their Bestsellers here and the sale junk here).

Now, we've long lamented the recording industry's stubborn refusal to be more price competitive with other forms of entertainment has hurt sales. The unit sales of discs have suffered from competition with DVDs, satellite radio, multiplayer games, blogging, and the internet in general.

A friend in the industry agrees that price has become key. He has an important position in the biz, and he anonymously explains what has been motivating these price cuts: Apple iTunes. The 99 cent song and the $10 album is the prime driver of the physical CD price cuts.

Read on:

The biggest thing driving prices to $9.99 is iTunes. Physical retailers are pressuring the labels downward on price (of course, Wal-Mart is the biggest culprit) because they don't want to be undercut by iTunes 9.99 on all single albums. We're rapidly moving to a 9.99 world on the big sellers (the ones stocked in Target and Wal-Mart and Best Buy).

To accomplish this, I am told, particularly on new releases, the labels are doing what they historically did in the physical world and buying into "retail" programs -- in essence, paying for price and positioning or other marketing tools on Amazon by giving them functional breaks. And you'll note that 3 of the four examples you cite are EMI releases (CBR, Norah, Beatles). EMI is in such bad shape, they are doing whatever they can to move stuff. And with Corrine's appearance on Oprah and with Norah out this week, they are pulling out all the stops to make these records big stories (CBR went from 26 to I think 4 on the chart, mostly as a result of Oprah). The hope is that they can then go back up to normal price later with a "must-have" product.

The Shins record is on Sub-Pop so they likely have a lower suggested retail price anyway to begin with (probably $13.98) so it's not really that big a discount for an indie (likely only 10% off normal wholesale to get it down). Now Regina Spektor is a more interesting case. She's basically an unknown artist and they're trying to get some traction by giving the record away (and they're doing this more and more on new/unknown artists). So yes, there is pricing pressure, caused mostly by the success of iTunes and the falling physical sales market. Without iTunes, the downward pressure would be substantially less.

I find it fascinating that all of the other economic competition to CDs we have mentioned -- DVDs, multiplayer games, internet, etc. have been unable to force the industry to lower prices, and so they have lost unit sales. But iTunes, in the industry's own space, couldn't be ignored.

Great stuff, G. Thanks for the insight.

WSJ Video

Tuesday, January 30, 2007 | 02:30 PM

in Digital Media | Financial Press | Markets | Politics | Television

Of all the print media's dabblings with video, I find the WSJ/Barron's has done the best job technologically. The CNBC video feed can be nightmarish in its reliability and bandwidth consumption, Bloomberg uses WMP (blecch), and the NYT seems sometimes flash-based and sometimes WMV.

Whoever selected this system (Bill G.?) did it right. It works technically well -- much better than I've seen the competition do.

As to the question of when the entire model will be profitible, I assume this is a long term bet. Dow Jones, for example, has Marketwatch, Barron's and WSJ video, and they are recording and hosting a lot of video amongst the 3. It is really a bet on the future -- against the cable cos, but in favor of internet properties that are hosting/moving all this video around. The companies in this space are betting that eventually, much of video consumption -- be it on TV or on iPod like devices -- will be Net based.

Days Since a 2% Decline

Tuesday, January 30, 2007 | 09:45 AM

in Investing | Markets | Psychology/Sentiment | Technical Analysis

Instructive chart via Tickersense: It Has Been ~~928~~ 930 days since the S&P 500 had a one-day 2% Decline. They also note that "the Dow Industrials have not had a 2% one-day rally in more than 500 trading days, either.”

Jim Bianco adds: “Not only has the S&P 500 gone almost four years without a 2% down day, it has been seven months since it has corrected 2% at all! This is the second-longest such period in 53 years.”

I frequently compare these markets to the last secular Bear Market, from 1968-1982. Note the cluster of these long no 2% corrections in that period also.

Michael Panzner notes that "while the S&P 500 has not had a one-day sell-off of more than 2% since a 2.49% slide on 5/19/03 (930 calendar days ago), there have been four 2%+ rallies over that period."

Date S&P move
======= ========
6/29/06 +2.16%
6/15/06 +2.12%
10/1/03 +2.23%
6/16/03 +2.24%

These are indeed interesting times . . .

Pundit Pile-on: NAR's David Lerah

Tuesday, January 30, 2007 | 05:30 AM

in Data Analysis | Financial Press | Real Estate

Last week, we noted the absurdity of the housing commentary by the oft hallucinatory David Lereah (Existing Home Sales Are Fantastic!). It was a pundit pile-on: Marketbeat compared Lerah to Baghdad Bob, Minyanville noted "Existing-Home Sales Continuing to Stabilize In Terms of Plummeting."

But you may have missed (it was late in the day) the biggest takedown of the lot: Marketwatch's Rex Nutting went postal on Lereah. Not via clever or snarky language (the way the rest of us hacks did), but with actual data -- and even more damning, with Lerah's own words.

Nutting writes: "Here's what Lereah was saying throughout 2006 and into 2007, and what the market was doing:"

January 2006

Lereah's forecast: "The market is in the process of normalization."

Actual sales: Fourth-quarter sales fell at an annual rate of 12.6% to 6.94 million annualized.

Lereah's post-mortem: "The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead."

April 2006

Lereah's forecast: "Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau."

Actual sales: First-quarter sales fell at an annual rate of 8.6% to 6.79 million.

Lereah's post-mortem: "This is additional evidence that we're experiencing a soft landing."

July 2006
Lereah's forecast: "The market should even out just below present levels."

Actual sales: Second-quarter sales fell at an annual rate of 6% to 6.69 million.

Lereah's post-mortem: "The market is stabilizing."

October 2006

Lereah's forecast: "We expect sales activity to pick up early next year."

Actual sales: Third-quarter sales fell at an annual rate of 22.2% to 6.28 million.

Lereah's post-mortem: "This is likely the trough in sales."

January 2007

Lereah's forecast: "The good news is that the steady improvement in sales will support price appreciation moving forward."

Actual sales: Fourth-quarter sales fell at an annual rate of 2.3% to 6.24 million.

Lereah's post-mortem: "It appears we have established a bottom."

It's not that Lereah is a bad economist; that's not even his job. Rather, his responsibilities are to use the tools of the economic profession, and apply them to shill for the NAR, a trade organization. After all, as Nutting notes, "there are two universal truths at the National Association of Realtors: 1) It's always a good time to buy or sell a home; and 2) We've seen the worst of the housing market correction."

Source:
Realtors' economist stayed sunny all year
Commentary: David Lereah saw bottom in first quarter, second quarter ...
Rex Nutting
MarketWatch, 5:31 PM ET Jan 25, 2007
http://tinyurl.com/2kdog5

Most Popular Finance Blogs

Monday, January 29, 2007 | 02:30 PM

in Financial Press | Weblogs

I noticed earlier this morning that tons-o-traffic were heading this way via Valuewiki. It turns out they did an analysis of the Most Popular Finance Blogs.

We fared pretty well, coming in after Herb and Seeking Alpha. According to Alexa, that makes us the highest trafficked, non MSM, non aggregator blog.

Here's their top 20:

1 blogs.marketwatch.com/greenberg TR: 53,449 (166 links from 63 blogs) A: 577
2 Seekingalpha.com TR: 2,734 (3,859 links from 683 blogs) A: 5161
3 bigpicture.typepad.com/ TR: Unk A: 18,500
4 BloggingStocks.com TR: 595 (55,276 links from 1,558 blogs) A: 18,588
5 www.fatpitchfinancials.com/links/ TR: 18,407 (838 links from 177 blogs) A: 86,000
6 TraderMike.net TR: 6,891 (2,542 links from 377 blogs) A: 96,000
7 247wallst.blogspot.com TR: 19,067 (3,381 links from 170 blogs) A: 100,000
8 www.howardlindzon.com/ TR: Unk A: 151,800
9 investorgeeks.com/ TR: 27,742 (411 links from 118 blogs) A: 210,000
10 tickersense.typepad.com/ TR: 45,277 (563 links from 74 blogs) A: 223,322
11 BillCara.com TR: 15,637 (840 links from 201 blogs) A: 226,231
12 antandsons.com/wordonthestreet.html TR:703,564 (10 links from 5 blogs) A:249,040
13 Footnoted.org TR: 12,952 (792 links from 243 blogs) A: 250,000
14 jeffmatthewsisnotmakingthisup.blogspot.com/ TR: Unk A: 253,941
15 KirkReport.com TR: 105,571 (99 links from 32 blogs) A: 255,763
16 Gannononinvesting.com TR: Unk A: 258,880
17 randomroger.blogspot.com/ TR: 24,590 (891 links from 133 blogs) A: 281,838
18 stockmarketbeat.com/blog1/ TR: 41,307 (2,342 links from 81 blogs) A: 283,368
19 Maoxian.com TR: 29,668 (442 links from 109 blogs) A: 295,000
20 www.crossingwallstreet.com/links.html

This reminds me of a few things I need to do:

• I can't seem to get Technorati's Claim Your Blog feature to work for the Big Picture (it works fine for essays & effluvia);

• I should update the "What's this blog about?" post; I suspect many readers are relatively new here and may need some explnation as to what's this all about.

• Lastly, I need to create a disclosure doc to answer all of the usual questions I seem to get about stock positions, blog payola, editing, posting comments etc.

Thanks Jon and Zac!

Earnings Season Progressing Nicely

Monday, January 29, 2007 | 11:15 AM

in Data Analysis | Earnings | Economy | Investing | Markets

Last week, we looked at how S&P500 companies were doing earnings wise via Birinyi Associates. The numbers were a touch soft (see Earnings Season Getting Underway).

This week teaches us a lesson in the dangers of extrapolation: With 34% of S&P 500 companies reporting, the earnings picture looks much better (versus last week's charts 11%).

The beats and misses are much more in line with the recent SPX earnings history, which has been the bulwark of the Bull's case.
>

Charts courtesy of Birinyi Associates
>

Mike Thomson of Thompson Financial has been the prime proponent of "Its all about earnings;" He has been clearly right so far.

The one dark cloud has been guidance: Its a but softer than it has been recently:

Charts courtesy of Birinyi Associates

This may change further as reports come in; However, 34% is a much more signficant sample than 11%, and strongly implies earning will be consistent with previous quarters.

The Best of all Possible Worlds!

Monday, January 29, 2007 | 08:27 AM

in Federal Reserve | Investing | Markets | Psychology/Sentiment

Peter Boockvar of Miller Tabak writes this morn that "Ahead of the 2 day FOMC meeting beginning tomorrow, the bond market has basically taken out any chance of a 1st half rate cut. Through year end, there is about a 60% chance that the Fed cuts once to 5%."

That makes today a good time to consider this question: Which is better for stocks, falling rates, rising rates, or steady rates?

The answer, according to the Bulls quoted in the popular press, is all three:

As central-bank rate setters prepare for their first meeting of the year this week, investors increasingly are resigned to a longer pause in rate moves than previously expected.

Yet it might be that it is the pause that refreshes. In recent years, the stock market usually has performed well when the Fed declines to move up or down, as it has since last summer.

Some Wall Street forecasters say the Fed could go all year without changing its rate targets, a prospect that contributed to the market's sluggishness last week.

Such predictions run counter to many investors' hopes for a quick rate cut, which would lower borrowing costs and encourage more consumption throughout the U.S. economy, potentially helping corporate profits and thus stocks. (emphasis added)

Was it the Fed not moving rates this Summer that led to the sharp market rally? The massive complexity of the markets are why I never like to pick just one reason for any market behavior (see Single vs. Multiple Variable Analysis in Market Forecasts for more details). However, if gun-to-the-head I had to pick just one factor, it sure wouldn't be the Fed on hold. The GSCI energy exposure cuts, leading to a 30% drop in crude oil, coming on top of a major technically oversold condition in June would be the shortest explanation I could give.

But the FOMC on hold as the primary causation of the rally? pshaw.

The Fed pause is also recently credited with helping the greenback. CNN Money notes that "After taking a beating last year, the dollar has steadied its course and could be poised for a lift as expectations for the Federal Reserve to cut rates fall by the wayside."

One of the themes we have heard relentlessly since the Fed paused was that rate cuts ere imminent. With no cuts on the horizon, that meme has morphed into the economy is strong enough not to require central bank loosening. Look for this to further morph into the net positives of rate hikes later this year: "If anything there is some risk the Fed may raise rates this year, if the current supply of relatively cheap money throughout the global financial system begins to translate into more inflation in the U.S." stated Ethan Harris , chief U.S. economist at Lehman Brothers (today's WSJ).

So there you have it in all of its Panglossian glory: If the Fed cuts rates, its good for stocks. The current rally was caused by the FOMC going on hold. And, more rate hikes are also good for stocks.

Voltaire's Candide had nothing on Wall Street: "All is for the best in the best of all possible worlds."

Sources:
A Long Stretch of Steady Rates
Some Say Fed Could Go All Year Without Changing
Targets – And That May Be Good for Stocks
PETER A. MCKAY
WSJ, January 29, 2007; Page C1
http://online.wsj.com/article/SB117002369139690514.html

Extended Fed pause hopes boost dollar
As expectations for a Fed rate cut ease, greenback
could get a lift. But gains are likely to be limited, analysts say.
Grace Wong
CNNMoney.com, January 25 2007: 12:16 PM EST
http://money.cnn.com/2007/01/25/markets/dollar/index.htm?postversion=2007012512

January Linkfest (1.28.07)

Sunday, January 28, 2007 | 05:30 PM

in Weblogs

Well, that was something. That seemed like the first full week with no holidays in I don't recall how long. Volatility returned with a vengeance, as we saw some sizable rallies and selloffs; The Dow hit yet another all-time high, while the S&P500 hit a 52-week high. Transports went the other way, and Nasdaq continues to look punk. The Dow lost -0.62%, with the SPX down -0.58%. The Nasdaq gave up -0.65%.

Earnings came in pretty good -- but is pretty good good enough? Barron's notes that "the ratio of companies beating numbers to those disappointing is running well below that of recent quarters."

So far, various catalysts are offsetting: rising interest rates, declining earnings, versus falling energy prices, moderating inflation. Its worth noting that this bull market has now run longer than any market in history without at least a 10% correction.

No matter, we's gots some clicking to do: On to the lumber yard!

INVESTING & TRADING

• Earnings Season Gets Underway: So far we've seen less "earnings beats" than in prior quarters since the 2003 lows.

• Transports at Crossroads: The Dow Jones industrial average slid Thursday but even after a 100-plus point drop it is less than 1% below its all-time closing high. That is why it's more concerning to some market watchers that the Dow Jones transportation average, which fell 1.4% Thursday and is now 5.6% below its all-time high set in May (TheStreet.com)

• Big Investors Take On Risk: More institutional investors are targeting emerging real-estate asset classes that typically offer better returns but more risk, according to a new survey. (free WSJ)

• We closely watch Bullish Sentiment and Asset Allocation Surveys. Each shows that investor confidence and asset allocations towards equities are at bullish levels. Although these levels are not at extremes yet, they are above historical means and need to be watched. They are at levels which suggest investor buying power is diminishing.

• New proposals from the SEC would reduce the number of investors eligible to invest in hedge funds by about 88%, to just 1.29% of American households: The New Definition of Rich (Frontline)

• And how do the very rich invest their wealth?: Domestic equities dominate, while alternative investments are falling from favor. (Fortune)

• The problem for investors is that even though stock-picking usually hurts returns, it's extremely interesting and fun: Why the world's greatest stock picker stopped picking stocks, and why you should, too (Slate)

• Goldman Sachs asks: How Solid are the BRICs?

• Stocks surge (there's that word again). But so do gold and oil. Was the death of commodities exaggerated? Commodities' obituary premature? (Marketwatch)

• Jim Welch notes in The Message of the Markets that markets are "frequently wrong." Not only that, but they tend to be wrong at the owrst possible moment: The Infallibility of Markets

• Risky countries, safe companies: New ways to invest in developing nations. (Canada.com)

• Mike Santoli does yeoman's work in video interviewing all of the members of Barron's Roundtable, including Meryl Witmer, Mark Faber, Fred Hickey, Abbie Joseph Cohen, and all the rest. (Barron's) (free)

• New ETF's Get Short & Ultra Short (Video) (TheStreet.com)

• Since the beginning of December, Treasury note yields have soared as expectations of easing by the Federal Reserve have faded. As yields approached 5% last week, stocks hit a speed bump with the Dow Industrials suffering its biggest hit in two months on Thursday: Stocks Yield to Bonds' Slide (Barron's)

• Doug Cliggott of Dover Discusses U.S. Economy, Value of Drug Stocks (Video) (Bloomberg)

• Buy' ratings become scarcer as U.S. stocks rise: Industry analysts are becoming increasingly cautious on U.S. stocks as the market advances, rather than jumping on the bandwagon as they did during the 1990s Internet bubble. (Bloomberg)

• WallStrip gets noticed by BusinessWeek (Stock Tips For Generation YouTube); Lindsay and her video crew takes to the street. Hilarity ensues.

ECONOMY

The Wall of worry continues to build:

• How does the BLS data compare with Your personal inflation rate? Substitutions and Hedonic Adjustments lead to underreported inflation.

• Time magazine asks the Global Question: Who Needs the U.S.?

• Caroline Baum says "There are reasons to be skeptical about strong fourth-quarter growth and circumspect about the idea that the housing bubble has deflated without any generalized economic or financial distress." Fourth-Quarter Economic Figures Don't Add Up. (Bloomberg)

• Hugh Moore of Guerite Advisors looks at Real Consumption versus NAHB Sentiment

• Falling Bonds, Rising Yields Bond prices in the US, Europe and Japan have been sliding since December. At 4.11%, European 10-year government bond yields are at the highest level since 7/6/06, while at 4.88%, US bond yields are at their highest level since 8/15/06.

• Euro Central Bank's Trichet to Examine M3 Data `Very Carefully': The ECB will raise the benchmark 3.5 percent interest rate in March, which would be the seventh increase since the end of 2005, partly to slow the flow of liquidity. The ECB yesterday said M3 growth, its preferred measure of money supply, surged 9.7 percent in December, more than double the rate it says risks fueling inflation. (Bloomberg)

HOUSING

Housing headlines sounded better, but are really still way below normal:

• Pile on! The NAR's oft hallunicatory Chief Economist, David Lereah, was pilloried by pundits for his rosy assesment of Housing. The WSJ likened him to Baghdad Bob, while MV used the headline ""Existing-Home Sales Continuing to Stabilize In Terms of Plummeting" I, of course, was far more reserved, noting only that Existing Home Sales Are Fantastic!

A free WSJ 3fer:

• Monthly New-Home Sales Rise, But Year Is Worst Since 1990 The number of homes sold rose 4.8% in December but demand for the whole year logged its biggest drop in 16 years. The median price for a new home rose to $235,000 last month from $232,200 in November but was lower than the year-earlier level of $238,600.

• Drop in Existing-Home Sales For 2006 Is Sharpest in 24 Years Resales fell 0.8% in December, capping off a year that marked the biggest decline since 1982. Sales for all of 2006 dropped by 8.4% from 2005.

• Housing Glut Gives Buyers Upper Hand: Amid a continuing oversupply of homes for sale in most of the country, consumers looking for a house should have plenty of choices and lots of bargaining power in the spring selling season -- typically the busiest time of the year. Plus, use an interactive chart to view housing data from across the U.S.

• It turns out that Sales of new one-family houses in December 2006 were statistically no different than zero: Dissecting New Home Sales Data

• U.K. House Prices Rise to Record on Supply Shortage -- that's the key difference between the US and UK: Great Britain is an island, and they have run out of land.

• The latest Real Estate Scam? "Cash back at closing; Buy a new house, live rent free for 2 years!" See this Craig's List posting for Phoenix

• Home Inventories Rise, Prices Fall: The quarterly survey of housing conditions in 28 major metropolitan areas by The Wall Street Journal (free) showed that the inventory of unsold homes at the end of 2006 was up substantially in nearly all of them from a year earlier.

• I'll have a lot more on the Foreclosure issue soon, but menawhile, they continue to rise:

Tremors at the Door (NYT)

Banks Move Earlier To Curb Foreclosures (WSJ)

• Real Estate Speculators have become Accidental landlords

Sentiment/Psychology

• Whitney Tilson on Applying Behavioral Finance to Value Investing

• A Personality Questionnaire for Traders

• Do you have a trader's brain for next bear market?

War/Media/Politics

• The WSJ notes that fallout from the war in Iraq, which already has weakened President Bush among the general public and in Congress, now is causing problems with the group that has been his mainstay: social and economic conservatives Bush's Conservative Base Frets, Key Issues Are Losing Focus (free)

• Tag Cloud for 2007 State of the Union

• State of the Union: Barron's video on the SOTU and the markets; The SOTU Address and the Return of Big Government

• Attacking Iran: The market impact of a surprise Israeli strike on its nuclear facilities (pdf)

• Rumors circulating that Dick Cheney will step down as VP, allowing Condi Rice to take over -- grooming her for a Presidential run (I don't buy it)

• FCC to Feel Unfamiliar Heat From Democrats

• How to Take the New York Times Private: If it's a bad time to run a publicly held media company, perhaps it's a good time to run a privately held one. Should the Times take itself private? And how could it do so?
Technology & Science

• The mating of Technology and Porn were column topics in both the WSJ and the NYT this week:
- The XXX Factor: Blu-ray or HD DVD?
- In Raw World of Sex Movies, High Definition Could Be a View Too Real
• These futuristic projects promise to make the world greener, while making entrepreneurs some green: 8 technologies to save the world

• Prizes for Solutions to Problems Play Valuable Role in Innovation

• Remapping the Universe: How multi-touch driven computer screen will change the way we work (Video)

• Eric Savitz looks at Microsoft's earnings, and asks "What’s Going On With Xbox?

• Science news asks: Does sprawl make people fat? Could smart urban design keep people fit and trim?

• The state of technology: John Dvorak's tech forecast for 2007

• Look to Mars for the truth on global warming

Music Books Movies TV Fun!

• I asked readers the question "What are the must own DVDs for home theater enthusiasts?" Many of the suggestions were quite astounding: DVD Question (comments still open for more suggestions)

• Prices drive sales: Not surprisingly, the Top 5 Amazon Music Sellers Are All Under $10

• Henry Blodget (yes, THAT Henry Blodget) has a new book out: The Wall Street Self-defense Manual: A Consumer's Guide to Intelligent Investing. And, the reviews are surprsingly good (Henry Blodget, Big Pal of the Little Investor?)• Norah Jones has a new album, Not Too Late, coming out this week. You can stream the first single here, or watch a video here.

• Ricky Gervais Meets Larry David (The last 3 minutes are NSFW) Parts II-V are posted (utterly hysterical)

• Good frickin' idea: Never give an iguana Viagra (I beg you, don't watch the accompanying video)

• 20 Greatest Guitar Solos Ever, With Videos

• Fun with XML: Pictaps is a web-toy that invites you to draw a stick-figure, and then creates a delightful, gigantic animation of your figure, multiplied into a cast of thousands, doing a joyful, Busby Berkeley show-number!

• I cannot imagine the patience it takes to create Stop Motion Animation: My Animated World

That's all from the cold, icy snowy NorthEast. Memento is queued up in DVD, and 3 weeks worth of 24 awaits on the TiVo. Stay warm!

Do you have a Trader's Brain?

Sunday, January 28, 2007 | 08:09 AM

in Investing | Markets | Psychology/Sentiment | Trading

With recent reports of the resurrection of day trading, we thought it timely to look at this 10-question quiz, created by Marketwatch's Paul Farrell, asking "Do you have a trader's brain?"

Give yourself 10 points for every one of the statements you agree with:

1. I have lots of time to track the market and trade

Folks, this is a time-consuming job. Many hours daily. Do you really have an hour or more to waste every day listening to cable hucksters? To learn some esoteric market timing systems? Track market data? Engage in active trading?

2. I am very disciplined under pressure

"Market timing works and it works well for people who actually practice it as a discipline," says money manager Paul Merriman. "In theory, every investor is capable of following the discipline of timing. But not everybody has the right emotional makeup to do timing right. In real life, most people who try are ultimately unsuccessful."

Inside, gamblers feel like losers, addicted to losing.

3. Markets are volatile, but I can handle uncertainty

Winning traders have the iron discipline to stick with their technical timing system no matter how volatile and how unpredictable the external world gets.

4. Breaking news doesn't distract me
As Jack Schwager put it is his classic, "New Market Wizards:" "By the time a story is making the cover of the national periodicals, the trend is probably near the end." Bottom line: You're always getting the story too late.

5. Yes, it's OK if I lose money

Most investors hate to lose, and behavioral-finance research tells us this fear is so strong due to our own fragile egos.

Traders see a different world; for them it's OK to occasionally lose money. The world's unpredictable, the trading game's risky, you win some, lose some. But long experience and discipline gives them an edge: They know they'll win more than they lose.

6. I can even handle losing streaks

Can your ego handle a sustained losing streak? Even if you are flawless and make no mistakes, conditions can and will change and you will hit a bad streak. No trading system is perfect; They deal with risks and probabilities.

7. I never buy high nor sell low

A Morningstar study tells us emotions not reason control us: We invariably buy at the top, sell out at the bottom. Greed triggers a buying frenzy near the top of a bull run, late in the cycle. Then fear triggers panic selling at the bottom.

8. I can make quick decisions, with no regrets

Successful trading demands quick, confident decision-making. Most people have difficulty making decisions, especially with real cash on the line. Mistakes, regrets, negative results will haunt you, causing fatal second gussing.

9. No, I'm not overly optimistic nor in denial
Behavioral-finance studies indicate that 88% of investors have an "optimism bias." Overconfidence leads to bad investment decisions and losses.

10. I can live comfortably on $50,000 a year
For the vast majority of Traders, its not a big money-maker. Full-time day-traders rarely make more than $100,000 a year, averaging under $50,000.

Add up you score, if you have less than 80 points, Farrell's advice is: Forget market timing and never become a day-trader.

Behavioral-finance experts at the University of California Davis studied 66,400 investors. The most-active traders averaged 11.4% versus 18.5% for the passive investors.

Good stuff -- thanks Paul!

>

Sources:
Déjà vu! '90s day-trading mania is back!
Ten-question test: Do you have a trader's brain for next bear market?
Paul B. Farrell
MarketWatch, 6:48 PM ET Jan 22, 2007
http://tinyurl.com/3czazj

Back on the trading scene
Walter Hamilton
L.A. Times, January 16, 2007
http://tinyurl.com/2j88te

Ricky Gervais Meets . . .

Saturday, January 27, 2007 | 05:30 PM

in Digital Media | Television

I spent the entire afternoon watching these hysterical interviews by RIcky Gervais:

After the DVD discussion this week, this stuff was hysterical . . .

Dissecting New Home Sales Data

Saturday, January 27, 2007 | 08:03 AM

in Data Analysis | Psychology/Sentiment | Real Estate

It seems that everytime we get a major economic release, there is almost an instantaneous headline and commentary generated. This often causes me to say to myself "Hey, thats bigger/smaller/stronger/weaker than I was expecting."

Then I go to the original source of the data (BLS, Commerce Dept, CBO, FRB, etc.) and find out that headlines were woefully wrong, and the data is in actuality inopposite situated.

Perfect example: Yesterday's New Home Data. Commerce released the New Homes Sales numbers, which were dutifully reported Friday thusly:

"Sales last month rose 4.8 percent, after a 7.4 percent rise in November. Those two increases, however, were not enough to salvage the full year, which had sales of 1.06 million units, down 17.3 percent from 2005. That was the biggest decline since 1990, when sales fell 17.8 percent."

How reliable are those numbers, according to the Commerce Department itself?

Let's start with sales of new one-family houses in December 2006: They were reported as 4.8% above the November rate.

In reality, the mathematical change was statistically no different than zero.

Why? Margin of error. It was ±12.2% -- much higher than the reported gains. This means the actual increase or decrease in new home sales (according to the commerce department itself) was in a range ging from as low as -7.4% to as high as +17%.

Same with the year over year decline: December 2006 was 11.0% percent below December 2005 numbers -- but it was ±11.7% . This represents a range of -22.7%, to plus +0.7%. And that's before we even get to the now well documented cancellation issue, which according to the major builders themselves, excessively high cancellation rates may be overstating new sales by as much as 30%.

Statistical meaning: If you read the Commerce Department footnote, you are advised: "If a data range contains zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease." I doubt very many media sources want to report month after month that "reported changes in new home sales are statistically meaningless." Thus, tools such as myself are forced to plow into boring government reports, reading footnotes when I would much rather be whining about other things. Such is the life of a curmudgeon.

There was one statistically significant number released yesterday: Sales for the full year: 1,061,000 new homes were sold in 2006, and that is a 17.3% decrease (±3.4%) below the 2005 figure of 1,283,000.

This means the range of new home sales for all of 2006, according to Commerce, was as good as -13.9%, or as bad as -20.7%.

Now those are some statistically significant numbers . . .

Sources:
NEW RESIDENTIAL SALES IN DECEMBER 2006
JANUARY 26, 2007 AT 10:00 A.M. ESTU.S.
Census Bureau, Commerce Department,
Department of Housing and Urban Development
http://www.census.gov/const/newressales.pdf
http://www.census.gov/newhomesales

Durable Goods, Housing Deliver Signs of Strength
MICHAEL CORKERY and MARK WHITEHOUSE
January 27, 2007; Page A3
http://online.wsj.com/article/SB116981819353189003.html

Jack Johnson - Better Together (live)

Friday, January 26, 2007 | 07:30 PM

in Digital Media | Music

I've mentioned Jack Johnson here quite a few times (our 2004 year end list, and again in 2005).

He's got a mellow acoustic vibe that makes sense, considering he's a Hawaiian surfer dude/singer song writer.

Its perfect chill out music for a Friday evening. This is a live version of Better Together, off of In Between Dreams.

Better Together (live)

There's a full run of videos here . . .