The Big Picture | May 2007

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Some More Housing Charts

Thursday, May 31, 2007 | 11:27 AM

in Economy | Markets | Real Estate | Technical Analysis

On Tuesday, we told the Housing story using mostly words. Today, we'll go with an only-pictures review:

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More Mortgage resets are coming:

Chart via At These Levels

Median Period (Months) Completion to Sale

Last three charts via Northern Trust
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Funny thing: The charts tell pretty much the same story the words did: The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.

Sources:
The Forgotten Resets
At These Levels, Friday, May 11. 2007
http://www.attheselevels.com/archives/678-The-Forgotten-Resets.html

All Indicators Point to Continued Weakness in Market for Existing Homes
Asha Bangalore
Northern Trust, May 25, 2007

April New Home Sales – One-Off Fire Sale!
Asha Bangalore
Northern Trust, May 24, 2007

Q1 Case-Shiller Home Price Index
Asha Bangalore
Northern Trust, May 29, 2007

Gates & Jobs Video

Thursday, May 31, 2007 | 08:54 AM

in Corporate Management | Digital Media | Web/Tech

I seem to be focusing on Media today, so as a follow up to yesterday's post on Gates & Jobs, here are some very amusing video clips from their interviews.

The rest of the session can be seen at the All Things Digital:

The complete Steve Jobs and Bill Gates interview videos:

Steve Jobs and Bill Gates Prologue
Steve Jobs and Bill Gates Part 1
Steve Jobs and Bill Gates Part 2
Steve Jobs and Bill Gates Part 3
Steve Jobs and Bill Gates Part 4
Steve Jobs and Bill Gates Part 5
Steve Jobs and Bill Gates Part 6
Steve Jobs and Bill Gates Part 7
Steve Jobs and Bill Gates Highlight Reel

Who the @#$%! does Jim Cramer think he is?

Thursday, May 31, 2007 | 06:44 AM

in Corporate Management | Financial Press | Media

I love the cover of this week's New York Magazine: Who the @#$%! does Jim Cramer think he is?

You will never read a more self-deprecating article from a living author in your life:

"God knows why, but there seems to be a market for this kind of idiocy. In that first year, the ratings took off; the network put the show in not one, not two, but three time slots; I made the cover of Business Week; and less than a year later, I was improbably filling college halls with cheering student fans (for some reason, college kids are an especially eager audience for my show). But sometimes it feels like for every person who likes what I do, there are a dozen who hate me for it. Mad Money has spawned legions of haters, people who write about the show and my character in really negative, sometimes pretty nasty ways. These people accuse me of being a clown or an idiot. Usually, I agree with them. When people ask for my autograph, I instantly hate myself. Half the time I don’t believe I even deserve a television show, and the other half I spend believing that no one is more deserving of a show. Slap me and I’ll change my mind like Faye Dunaway in Chinatown. People also accuse me of being irresponsible or giving bad advice. I don’t agree with that. Some of them have even questioned my integrity recently. That I find absurd.

As a 52-year-old father of two, a suburbanite, and a guy whose only big interests are stocks and sports, I find it incredible that I could be popular at all, let alone controversial. It is a mystery to me that I am so loved and hated at the same time, although I’m pretty sure writing an entire story focused on myself, like I’m doing right now, can only push more people into the hate column. When I wrote my first book, Confessions of a Street Addict, a disgruntled former employee came out with his own book about me at roughly the same time. I can’t remember who, but one of the funniest reviewers asked why the heck there was even one book out about Jim Cramer, let alone two! I’m not usually one to go in for humility, but this is the kind of question I find myself asking a lot lately. Don’t get me wrong: I love doing my show and consider it a success, but compare the numbers with the rest of cable news and you can see that there aren’t really that many people watching. And yet it feels like there are as many stories written about me as there are about a guy like Bill O’Reilly, who is much more controversial than I am, talks about more important things, and has a much bigger audience. Maybe it just feels this way to me because so many of the stories written about me are negative (and I’m the one noticing), but it seems as if I get a disproportionate amount of media coverage."

The entire article is worth a read . . .

DISCLOSURE: I am a contributor to TheStreet.com

Source:
Cramer vs Cramer
James J. Cramer
New York, June 4, 2007
http://nymag.com/news/features/32382/

Media Appearance: Kudlow & Company (5/30/07)

Wednesday, May 30, 2007 | 04:00 PM

in Media

>
Its the regular appearance on Kudlow tonite: We will be covering Executive Pay, the correction in Shanghai, today's reversal in the markets and new highs on the SPX, and the FOMC minutes.

On board are Joe Moglia of Ameritrade, major Bear Gary Shilling, and Wendell Perkins of Johnson Family of Funds.

You know my view on most of the items, except Executive Pay.

There are three problems that seem to dog most of the egregious CEO COmpensation cases: 1) Full Disclosure in advance; 2) Board of Directors with conflicts of interests; 3) Failure to represent the Shareholder's interests.

As long as the Board does its job, is conflict free, and the pay packages get disclosed in advance, the Shareholders should be protected.

When those elements are missing -- when there are conflicts of interest, a failure to disclose, and/or a Board not protecting S/Hs -- that's you get the more abusive situations we have witnessed . . .

Steve Jobs & Bill Gates at All Things Digital

Wednesday, May 30, 2007 | 01:50 PM

in Corporate Management | Digital Media | Web/Tech

This year's All Things Digital has a rare joint appearance of Steve Jobs & Bill Gates.

Check out this classic magazine cover from Fortune Magazine, August 1991:

Are Hedge Funds Ruining Traditional Sentiment Readings?

Wednesday, May 30, 2007 | 09:00 AM

in Markets | Psychology/Sentiment | Short Selling | Technical Analysis

I love when two articles covering the exact same topic reach directly opposed conclusions.

Typically, its not a case that one is wrong and one is right. More often, when this sort of thing happens, its because one reporter is writing the mainstream or traditional viewpoint, while the other is exploring something new.

The journalistic yin and yang this morning is on a subject we have written about frequently: Short Interest on the Nasdaq and NYSE. Bloomberg and the WSJ each have quite different takes on the subject.

Bloomberg's coverage was straightforward -- and decidely bullish:

"Ultimately you have to cover the short positions and that tends to create more of a buying frenzy,'' said Andy Engel, co- manager of the Leuthold Core Investment Fund, which has outperformed 99 percent of similar funds over the past five years...

James Paulsen, who oversees $175 billion at Wells Capital Management in Minneapolis, expects the S&P 500 to reach 1650 this year, partly because investors betting on declines aren't acknowledging that stocks are cheaper relative to earnings than in 2000 when the Internet bubble popped.

Shares of companies in the S&P 500 trade at an average 17.8 times earnings, compared with 32.8 times at the end of the last bull market, according to data compiled by Bloomberg...

"The last time we were here there was bloody optimism everywhere and enthusiasm about the future, and everything was going to go up,'' said Paulsen, chief investment strategist at Minneapolis-based Wells. "Today it couldn't be any more opposite. It's a pretty good environment."

Compare that with the WSJ's Ahead of the Tape column. It takes a decidely more nuanced view on whether or not this contrary indicator still works the way it used to:

So-called contrarians typically see such bearishness as a reason to buy. The idea is that when investors are down on stocks, expectations are so low that the slightest inkling of good news can send prices higher. In contrast, when investors get too bullish, stocks get priced for perfection, and when perfection doesn't come, stocks decline.

But with hedge funds cutting a much bigger swath in the market, today's high level of short interest doesn't represent the bearishness that it did in the past. Many hedge funds engage in a strategy of offsetting the purchase of shares in one company by shorting another, betting that it will perform worse than the stock of the company that they own. Then there is the booming deals market, which drives merger arbitrage, where investors buy shares of companies set to be acquired and short the acquirers.

Because this short-selling doesn't represent real bearishness, says Bollinger Capital Management President John Bollinger, short interest no longer says much about what the mood of the market is. "Hedge fund activity has destroyed the usefulness of the numbers," he says.

Fascinating stuff!

Sources:
Short Story: Bearish Bets Lose Bullish Bias
JUSTIN LAHART
AHEAD OF THE TAPE
WSJ, May 30, 2007
http://online.wsj.com/article/SB118048148598217838.html

Short Sales Break Record on NYSE; Market Bulls Get More Bullish
Daniel Hauck and Michael Tsang
Bloomberg, May 29 2007
http://www.bloomberg.com/apps/news?pid=20601109&sid=ahMn3AUnD_CY&

China & The Mother of all Double Tops?

Wednesday, May 30, 2007 | 06:17 AM

in Investing | Markets | Politics | Psychology/Sentiment | Trading

Shanghai was down 6.5% this morning.

The alleged cause was news that Chinese officials were raising the tax on stock transactions from 0.1% to 0.3%. They have been trying to reduce the speculative bubble there, but to no avail. (Stocks in China are limited to 10% daily movement).

The Shanghai Composite hit 4334.92, its highest level ever. YTD, its up 62%, and since mid-2005, the index has gained 328%.

Marketwatch reports that "Outside of China, global markets declined on Wednesday, but not precipitously - the Nikkei 225 closed with a 0.5% loss in Tokyo, and the FTSE 100 declined 1.1% in London."

What will be interesting today is whether or not it sticks. Here in the US, markets have up until very recently, been clawing back from any negative opening. Its only over the past two weeks that we have seen tired trading, with an inability to sustain a strong open.

The failure of the SPX at the prior highs -- 1527 on closing basis -- and an inability to make a new high has some technicians wondering if we are looking at the mother of all double tops. (I have no opinion on this).

Whether the straight up market is merely tired, or overdue for some sort of pullback, or if this is the start of something else is unknown for now.

Futures are in the red, with the Dow down 70, the Nasdaq off 10, and the S&P500 off 7.5

Today's trading will be quite interesting to say the least.

Battle at Kruger: Lions, Buffalo, Crocodile

Tuesday, May 29, 2007 | 05:30 PM

in Digital Media | Science | Television

One of the fascinating things about YouTube is that it grants you access to video you would never have come across on your own. There simply never was a mechanism for finding and viewing clips of this sort before.

"Media," tracing its way back to the Gutenberg Printing Press, started out broadcasting as a priviledged few-to-few. The rise of the Mass Media in the 19th (Print) and 20th (Electronic) centuries turned media into a few-to-many communication form.

Today, media is many-to-many.

Which leads me to this video clip from the South African jungle. It is utterly fascinating -- I can guarantee you've never seen anything like this before. Perhaps there are some lessons in it for life.

Via Investment Post Cards

Housing Freefall Continues Unabated

Tuesday, May 29, 2007 | 10:30 AM

in Data Analysis | Economy | Real Estate

A few items on the Housing front worth reviewing this morning -- two data based, the other two are more of a media/anecdotal set of examples.

First, the Case-Shiller Home Price Indices shows negative annual returns in the U.S. National Home Price Index, the 10-City Composite and the 20-City Composite, as well as 13 of the 20 metro area indices.

As the chart above shows, the annual returns of the U.S. National Home Price Index was down 0.7% from Q4 2006 and down 1.4% from Q1 2006. This is only the second time in the quarterly national index’s history that the annual growth rate has fallen into negative territory. The first time was in the period between 1990 and 1991, as depicted in the graph above.

Shiller made the following comments:

“The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the U.S. residential real estate market. The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.”

The second data point worth reviewing is the Existing Home Sales (released on Friday). The WSJ reported that "Sales of existing homes slipped in April to their slowest pace since June 2003, and a rising inventory of unsold properties appeared to set the stage for weaker prices."

The sales rate in April was down 10.7% year over year.

Existing inventory jumped yet again -- rising 10.4% to 4.2 million homes. At current selling rates, this is an 8.4 months supply (up from 7.4 months in March).

The number of unsold properties relative to sales hit a 15-year high.

So I think we can say that the bottom-calling/stabilization nonsense we heard from such housing experts as Treasury Secretary Hank Paulson were premature.

Third, we had heard repeatedly since from other "experts" from the NAR, and elsewhere that the Spring selling season was where we would see price firming and sales increases.

That turned out to be an over optimistic -- i.e., wrong -- expectation. An article in this past Sunday New York Times noted how simply horrific the Spring selling season has been:

"It's spring, the traditional time for hope and growth in residential real estate sales. But beyond the borders of New York City, there are indications that a wintry chill besets the market in much of the region.

On Long Island and in Connecticut, brokers report the inventory of unsold homes continues to build, while the number of buyers is reduced by new lending restrictions.

In New Jersey, the market seems to have slowed from March to April — just when things would ordinarily be revving up. The number of sales contracts signed in April declined in 20 of 22 counties monitored by the Otteau Valuation Group, which does market analysis for brokers. Even in Hudson County, which encompasses such sought-after riverfront towns as Hoboken and Jersey City, sales volume declined 21 percent."

Pretty amazing. Despite all fo the obvious data, the bottom calling conmtinues unabated. I wonder if Tres. Secy Paulson got an early look at the New Home Sales data, was unaware of how volatile and flawed it actually is, and made his "call" expecting to look smart. (See this, this and this).

If you want to know what the builders themselves have to say, go to this article from Bloomberg today:

"New home construction in the U.S. may take until 2011 to return to last year's level, said David Seiders, chief economist for the National Association of Home Builders in Washington.

Monthly construction starts would need to jump by 21 percent to reach Seiders's benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.

"We've fallen way below trend because we soared way above trend during boom times,'' Seiders said in an interview. "The upswing will be relatively slow, unlike earlier cycles.''

The inventory of unsold homes is the largest since the Washington-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors' group. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009."

The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.

Sources:
Spring Brings No Signs of Warming in Home Prices
May 29, 2007 09:00 AM EST PDF
http://www2.standardandpoors.com/spf/pdf/index/052907_homeprice.pdf

Home Prices Could Soften as Sales Decline
SUDEEP REDDY
WSJ, May 26, 2007; Page A3
http://online.wsj.com/article/SB118010161739814689.html

It’s Spring. Somebody Tell the Buyers.
ANTOINETTE MARTIN
NYT, May 27, 2007
http://www.nytimes.com/2007/05/27/realestate/27njzo.html

Home Construction Bust May Last Until 2011, U.S. Builders Say
Bob Ivry and Brian Louis
Bloomberg, May 29, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKQoeHb1MraI&

Real & Private Fixed Investment

Tuesday, May 29, 2007 | 07:09 AM

in Data Analysis | Economy | Federal Reserve

A nice pair of charts from the St. Louis Fed explains part of our fears for a contraction in the coming quarters. Note the shaded gray areas are prior recessions.

Private Fixed Investment

Note that both of these charts goe negative (as the top one did sometime ago) prior to any recessions.

Real Nonresidential Investment

The bright spots? The above chart has not yet slipped into the Red zone.

Also positive (albeit somewhat anecdotal) approach is this academic analysis below:

Academic studies* have shown that a spike in the number of stories appearing each month in the printed editions of the New York Times and Wall Street Journal that mention "recession" runs somewhat ahead of the actual economic contraction.

The rationale for this indicator is that periods of below-trend growth of sales, production, employment, and profits spur an increased awareness of the possibility of a recession developing. This awareness shows up as recession chatter in the financial press.

There are a few things to notice in the chart: First, “recession” stories seem to exhibit normal business cycle characteristics; the number of stories rises during periods of slow growth and recession and remains low during periods of economic expansion. Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply—which suggests that this indicator might be useful in helping identify troughs,
though perhaps less so for peaks . . . Finally, despite a noticeable jump in the number of
“recession stories” in the Wall Street Journal in March 2007, both series remain at levels consistent with economic expansion.

Fascinating stuff . . .

Sources:
Recession Rumblings
Kevin L. Kliesen
Federal Reserve Bank of St. Louis
May 2007
http://research.stlouisfed.org/publications/net/20070501/netpub.pdf

* Academic studies:
“Is a Recession Imminent?”
John Fernald and Bharat Trehan,
Federal Reserve Bank of San Francisco Economic Letter,
Number 2006-32, 11/24/06.

“Identifying Business Cycle Turning Points in Real Time”
Marcelle Chauvet and Jeremy M. Piger,
Federal Reserve Bank of St. Louis Review,
March/April 2003, 85(2), pp. 47-61.

Inflation, circa 1957

Monday, May 28, 2007 | 02:30 PM

in Inflation

This has been circulating via email. The following were some comments made in the year 1957:

(1) "I'll tell you one thing, if things keep going the way they are, its going to be impossible to buy a weeks groceries for $20.00."

(2) "Have you seen the new cars coming out next year? It won't be long when $5,000 will only buy a used one."

(3) "If cigarettes keep going up in price, I'm going to quit. A quarter a pack is ridiculous."

(4) "Did you hear the post office is thinking about charging a dime just to mail a letter?"

(5) "If they raise the minimum wage to $1, nobody will be able to hire outside help at the store."

(6) "When I first started driving, who would have thought gas would someday cost 29 cents a gallon? Guess we'd be better off leaving the car in the garage."

(7) "Kids today are impossible. Those ducktail hair cuts make it impossible to stay groomed. Next thing you know, boys will be wearing their hair as long as the girls;"

(8) "I'm afraid to send my kids to the movies any more. Ever since they let Clark Gable get by with saying damn in "Gone With The Wind", it seems every new movie has either hell or damn in it."

(9) "Did you see where some baseball player just signed a contract for $75,000 a year just to play ball? It wouldn't surprise me if someday that they will be making more than the President."

(10) "I never thought I'd see the day all our kitchen appliances would be electric. They are even making electric typewriters now"

(11) "It's too bad things are so tough nowadays. I see where a few married women are having to work to make ends meet."

(12) "It won't be long before young couples are going to have to hire someone to watch their kids so they can both work."

(13) "I'm just afraid the Volkswagen car is going to open the door to a whole lot of foreign business."

(14) "Thank goodness I won't live to see the day when the Government takes half our income in taxes. I sometimes wonder if we are electing the best people to Congress."

(15) "The drive-in restaurant is convenient in nice weather, but I seriously doubt they will ever catch on."

(16) "I guess taking a vacation is out of the question now days. It costs nearly $15.00 a night to stay in a hotel."

(17) "No one can afford to be sick any more, $35.00 a day in the hospital is too rich for my blood."

Amusing . . .

Google Dashboard

Monday, May 28, 2007 | 09:33 AM

in Web/Tech | Weblogs

I've been playing with Google Dashboard for awhile now -- its a pretty cool source of blog site data.

Its a nice collection of statistics -- Pageviews, Traffic Sources Overview, Map Overlay -- all well displayed and organized.

Gee, these Google guys are going places . . .

Traffic Sources Overview

Pageviews

Map Overlay

Memorial Day Weekend Linkfest, Part II

Sunday, May 27, 2007 | 06:30 PM

in Weblogs

Yesterday, we looked at the week that was. This morning we preview the week that will be:

Traders returning from the weekend will slowly ease back into the swing of things. The week starts slowly, but its backloaded with data. On Wednesday, the last Fed meeting minutes get released. Thursday sees the revised Q1 GDP; the initial growth data was 1.3% (annualized), but even that punk number may turn out to be too optimistic. Consensus has been lowered to 0.7%. The silver lining is so poor a growth rate could revise hopes of a Fed rate cut sooner rather than later.

Friday is chock full of data: Personal income and spending gets reported, as does the PCE Deflator -- a key Fed inflation indicator. Also on Friday: ISM, University of Michigan's consumer sentiment, and May car and light-truck sales.

But the main economic event for the week is the May Non-Farm Payroll and unemployment data, via the Bureau of Labored Statistics. Consensus is for 140,000 new jobs, and unemployment rate is expected to remain unchanged at 4.5%.

A slew of retailers are scheduled to report this week also: Costco, Tiffany, Sears Holdings all release quarterly earnings data. Also on the earnings calendar: New Wal-Mart partner Dell reports fiscal Q1 earnings Thursday.

For you techno-heads, the Wall Street Journal's 5th "D: All Things Digital" conference is this week. There are a bevy of tech heavyweights scheduled to present, but headline event is a rare joint interview with Microsoft Chairman Bill Gates and Apple CEO Steve Jobs.

The the largest mainland Chinese IPO is scheduled for Friday -- solar-power company LDK Solar Co. Ltd. It launches on the New York Stock Exchange Friday, and is expected to raise nearly half a billion dollars. The WSJ noted that the last Chinese solar company, China Sunergy, "soared 51% on its first day of trading on the Nasdaq Stock Market earlier this month, making it the best debut by a Chinese IPO in the U.S. this year."

Warm up that mouse wrist -- its clicking time -- Here's our look ahead at the coming week:

INVESTING & TRADING

• Skeptical Investors May Help Fuel Rally: Most chartists are familiar with trends, volume and momentum. Sentiment, or how people in the market think, is usually given short shrift simply because the data are not readily available to most investors. But sentiment analysis is a key piece of the technical puzzle. It tells us when the majority of investors are thinking alike and in the words of Humphrey Neill, author of The Art of Contrary Thinking, "When everyone thinks alike, everyone is likely to be wrong." (Barron's)

• Relative Short Interest/Total Market Float: You need more than high short interest to bet on a longer lasting market correction.

• A Business 2.0 Two-fer:

The Top 25 fastest growing tech firms
Top 25 tech stock returns

• The Psychology of Trading Professor Andrew Lo (MIT)

• Gold tells a sad story of asset deflation in the future: Gold is telling a different tale than the equity markets, but the equity markets have hundreds of billions of private equity dollars (in the US), and a huge, though less quantifiable, pot of domestic savings (in China) to propel them beyond sensible levels. Gold is telling us that there is more asset price deflation ahead of us in the US, principally through a housing market that will be weaker for longer, and a commodities price peak later this year. (FT)

• How Much Do Interest Rates Affect the Fair Value of Stocks?

• Why Japan Hasn't Joined the Global Celebration: Japan's economy and corporations are enjoying the most stable period of growth they have had for decades. So why is Tokyo's stock market performing so poorly compared with others? Since the beginning of this year, the Nikkei Stock Average of 225 companies -- which rose 0.14% or 25.07 points to 17705.12 yesterday -- is up less than 3%, compared with nearly 9% for the Dow Jones Industrial Average. Most other stock markets also are doing better than Tokyo. The DAX index in Germany is up 17%. The Shanghai Composite Index has shot up 56%. (Wall Street Journal)

• The US Dollar may be setting up for a counter-cyclical snapback: Dollar Rebound?

• How to Hire Brokers Abroad: It's getting easier for you to open a brokerage account -- in Botswana. And not just there, but also in many bigger and more important markets, ranging from London and Hong Kong to Auckland, New Zealand, and Cairo, Egypt. Around the world, local banks and brokerages have been rolling out online services that let Americans and international individual investors open accounts to buy and sell foreign stocks directly. Their goal is to cash in on the booming interest world-wide in investing in foreign countries. (free Wall Street Journal)

• Citibank Annual Strategic Investor Conference (May 18 2007)

ECONOMY

The Wall of worry continues to build:

• WSJ looks askance at BLS data: Job Market's Strength May Have Been Overstated (if no WSJ, go here)

• Floyd Norris of the New York Times counsels Wait a Few Months Before You Believe the Numbers: It is the newest economic statistics that usually get all the attention as investors and analysts try to gauge the health of the economy. But sometimes the statistics that take the longest to arrive can provide the most important information, particularly when they point to inflection points in the economy. So it may be with jobs data that the Bureau of Labor Statistics released this month for the third quarter of 2006. The new data calls into question the previous conclusion that employment grew at a strong rate in late 2006.

• Is U.S. Ceding 'Master of the Universe' Status?: China is trying to slow its breakneck pace of economic growth. The U.S. could use a little of what China has too much of. Are the two countries working at cross purposes? The notion of a global growth cycle, with countries taking their cues from the U.S., is being challenged as Asia's developing economies continue to boom amid a slowdown in the U.S. In this new age of globalization, synchronicity is out, decoupling is in. Yes, China and India are growing in ways that may be independent of the business cycle. (Bloomberg)

• A stretched credit cycle, a more savage downturn: High finance has never been more sophisticated. Bankers have never been more clever. Yet in the US subprime lending boom, banks fell over themselves to advance 100 per cent loan-to-value mortgages to out-of-pocket deadbeats. According to industry folklore, even an insolvent arsonist was given accommodation. Lending standards to private equity are collapsing just as risks rise and returns are being competed away. (FT)

• Fed Plans to Revise Credit Card Rules: Credit card companies would have to disclose interest rates and fees in clearer, easier-to-understand language under proposed new consumer-protection rules that could take effect by year-end. The proposed rules, which the Federal Reserve Board unveiled yesterday after a 2 1/2 -year study, would be most significant change to the nation's truth-in-lending regulations in 26 years. (Washington Post)

• How Worrisome Is a Negative Saving Rate? (NY Federal Reserve)

• Consumers pinched by rising gas prices: The usually unflappable U.S. consumer is being pinched by high gasoline prices, and that's likely to slow economic growth this summer, economists say. Average retail gas prices jumped by 12 cents to a record $3.26 a gallon last week, the Energy Department reported Monday. Gas prices are up nearly 50% since late January, one of the largest sustained increases ever recorded by the government. Over the past two decades, gasoline price spikes have proved to be relatively temporary, so consumers didn't really change their behavior by cutting back their discretionary spending in other areas. By the time consumers got around to changing their behavior, prices had fallen back. This time, it could be different. (Marketwatch)

HOUSING

• The US Mortgage Market - Overexposed and Overrated

• Home auctioneers are back in action: A sign of the distressed real estate market and growing volume of foreclosures, the auction of 92 homes, condominiums and apartment buildings in Los Angeles, Orange and Ventura counties was the kind of event not seen in the Southland for more than a decade. In fact, the company that staged the auction — Real Estate Disposition Corp. of Irvine — came out of hibernation to do it, said its chairman, Rob Friedman. A sister firm, LandAuction.com, conducts sales of land, but, Friedman said, Real Estate Disposition last conducted big home auctions during the real estate bust of the early to mid-1990s. (L.A.Times)

• Are NYC apartments messing with inflation measures? See OER, CPI and the Fed: A Strange Love Story and OER / CPI and New York Rentals

• How Some Agents Tout 'Green' In Seeking an Edge With Buyers: Some real-estate brokers are beginning to tout their environment-friendly credentials to get an edge in a slowing housing market. But the brokers are discovering that selling green is harder than talking about it. Living in homes boasting solar panels and other energy-saving additions is becoming more mainstream, but brokers must still convince developers and buyers that green features are worth the added cost. And even if clients are eager to buy, there is a shortage of properties offering the features. (Real Estate Journal)

MUSIC BOOKS MOVIES TV FUN!

• Weekend Jazz: Oscar Peterson: After recording and performing for over half a century, Oscar may be the most recorded piano players of all time. His stunningly complex yet elegant and soulful playing worked equally well on ballads, uptempo numbers as well as blues. Check him out.

• The Larry Sanders Show could very well be the best television comedy of all time, edging out Seinfeld (and blowing past I Love Lucy, The Honeymooners, The Simpsons, The Office, the Dick Van Dyke Show, MASH, and the Mary Tyler Moore Show).

• On a related note, Dick Cavett on What does it take to be a comedy writer?

• Steven Wright twitter page

• Interesting concept for a new book: The Cult of the Amateur: How today's Internet is killing our culture

That's all from an overcast Sunday morning out in the Hamptons. Even if it doesn't burn off, I am loaded for entertainment this weekend. Don't forget the SPF 15 -- you can get burned even when its cloudy!

Updated FDA Food Pyramid

Sunday, May 27, 2007 | 07:52 AM

in Politics | Psychology/Sentiment | Trading

Scary But True:

Memorial Day Weekend Linkfest

Saturday, May 26, 2007 | 06:30 PM

in Weblogs

It was a wild and wooly week, partially rescued by Friday's snapback from Thursday's weakness.

The Dow fell 0.4% on the week, while the S&P 500 gave up 0.5%, unable to notch a new record on a closing basis.The Nasdaq lost but a single point (0.05%) for the week. The big loser was the Russell 2000 index of small cap stocks, falling 0.8%. Gold gave up a percent, while Crude rallied 0.4%.

Barron's Trader column points out that "while the market's uptrend remains unscathed, its quality has deteriorated. The swath of stocks broaching new peaks has narrowed. The Dow transportation average has been sluggish while brokerage stocks have struggled. The S&P 500 is running 9% ahead of its 200-day moving average, a chasm that has preceded prior pauses."

Get your suntan lotion out, its a special Memorial Day weekend edition of the linkfest:

INVESTING & TRADING

• Front page WSJ article: Why Market Optimists Say This Bull Has Legs discusses a "Decade of gains fed by global growth; In the past, these sorts of articles have often marked intermediate tops.

• Treasury 10-Year Yield Rises to Almost Four-Month High on Fed: Treasury 10-year note yields rose to the highest level since January as traders reduced the odds of an interest rate cut by the Federal Reserve this year. The 10-year note's yield was higher than that of the two- year security for the first time in three weeks on signs of resilience in the U.S. economy. Richmond Fed President Jeffrey Lacker said yesterday it's the central bank's responsibility to curb inflation and it would be a mistake to rely on slower growth to stem price increases. (Bloomberg)

• There were so many China links this week, we had to give them their own page. We've Gone China Crazy!

• ‘The Apprentice: Omaha Edition,’ Starring Warren Buffett: Then I found out that the 76-year-old Mr. Buffett had asked for applications from people wanting to become his successor. Many hundreds applied. So at the annual shareholders’ meeting in Omaha this month, he announced his new search strategy: rather than decide from old-style résumés and interviews, he planned to choose three or four top candidates and then give each $5 billion or so to manage and see how they do. The winner gets the job. When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior. (New York Times)

• Thematic ETF Exposure: Agriculture and Nuclear

• Why Smart People are No Better Off Financially

• And since its Memorial Day Weekend, Hedge Fund King Nabs $19.95M Hamptons Palace

ECONOMY

The Wall of worry continues to build:

• Barron's asks, Is NFP Employment Data overstating Job Creation? (If no Barron's, go here)

• Greenspan can't stop blabbing: The former Federal Reserve Board chief, for 16 years the epitome of economic discretion, offering only mumbled (and sometimes jumbled) assurances to weighty questions about market bubbles and global financial risk, is suddenly shouting from the rooftops. It seems that a week can't go by without Greenspan issuing some dire warning about the markets or global economy, typically sending stocks into a brief tailspin until investors remember that he's not the Fed chief anymore. Unlike the mythical Cassandra, doomed to have nobody believe her predictions, people actually believe Greenspan. (Marketwatch)

• April Same-Store Sales Roundup

• U.S. Economy's Mixed Vital Signs Flummox Experts: U.S. economic growth has slowed to a crawl; the stock market is soaring. Housing is in a recession; construction employment has yet to show any effect. Employment growth is decelerating; weekly jobless claims have tumbled in the last month. That's just a short list of the U.S. economy's conflicting vital signs, serving to keep forecasters off balance and Federal Reserve policy makers at bay. (Bloomberg)

• Demand and Costs Rise for Best Cuts: At $42, a nicely charred 16-ounce slab of prime boneless strip loin might not seem like much of a bargain now, but it could soon. Over the past two months or so the cost of producing beef and the demand for it have risen so much that prices are soaring and the supply of top quality beef has dropped. Customers at steakhouses and markets will see the effects in coming weeks if they haven’t already. (New York Times)

• Pirates and Sanctions: (NYT)

HOUSING

• New Home Sales Up (but beware double digit monthly gains) and Another Look at New Home Sales

• As Condos Rise in Florida, Investors Try to Flee: As dozens of condominium towers conceived during Florida’s real estate boom near completion, investors who snatched up units in the preconstruction phase in hopes of turning a quick profit are increasingly trying to break contracts, even walking away from fat deposits. “Motivated” sellers are flooding online forums like Craigslist with advertisements for condo units still months or years from being finished. And lawyers have been inundated with calls from people hoping to avoid closing on units they bought during the speculative craze of 2004 and 2005. (New York Times)

WAR/MEDIA/POLITICS/ENERGY

• Not Enough Pain from $3 Gas: Gasoline prices have surged more than 20 cents in recent weeks to a record nationwide average of $3.10 per gallon, surpassing the previous record of $3.07 per gallon set in September, 2005, according to the Energy Information Administration. As gas prices rise, owner loyalty in the large pickup and midsize and large utility vehicle segments drops, according to data gathered between February and April of this year by Power Information Network (PIN), an affiliate of J.D. Power & Associates. (Businessweek)

• Congress Fails Economics 101, passes bill to allow USA to sue OPEC. Seriously. You couldn't make this stuff up if you tried.

• World's First Air-Powered Car: Zero Emissions by Next Summer: India’s largest automaker is set to start producing the world’s first commercial air-powered vehicle. The Air Car, developed by ex-Formula One engineer Guy Nègre for Luxembourg-based MDI, uses compressed air, as opposed to the gas-and-oxygen explosions of internal-combustion models, to push its engine’s pistons. Some 6000 zero-emissions Air Cars are scheduled to hit Indian streets in August of 2008.

TECHNOLOGY & SCIENCE

• You Can't Trust Reviews From PC World and MacWorld Ouch!

• Tired of all the fawning media coverage of Google? Try this Bob Cringely piece: The Final Days of Google

• The man who owns the Internet: Kevin Ham is the most powerful dotcom mogul you've never heard of, reports Business 2.0 Magazine. Here's how the master of Web domains built a $300 million empire.

• New search functions includes photos, blogs, video, music.

• Bill Gates: Futurist?

• Google HotTrends 100

Despite the 90 degree weather in NYC yesterday, the beaches were windy and cold in the Hamptons -- so don't feel you missed much if you were stuck on your trading desk. Weather forcast is mixed, so I am loaded up with books (Pop!, Black Swan, New Ideas from Dead CEOs) and DVDs (Larry Sanders Show, The Departed, Stranger Than Fiction, Smokin' Aces, Music & Lyrics, Night in the Museum)

Enjoy your weekend!

Business Employment Dynamics & NFP

Saturday, May 26, 2007 | 08:44 AM

in Data Analysis | Economy | Employment | Psychology/Sentiment

On Thursday, we discussed another employment measure, assembled from the quarterly census of state unemployment insurance records.

This measure is discussed in much greater detail this week in the Liscio Report, via Barron's Alan Abelson:

"UNLESS THE WORLD IMPLODES BEFORE THEN, this Friday the Bureau of Labor Statistics is slated to release May's employment report. As the big day approaches, Wall Street, as it always does, will indulge in an orgy of guesswork as to what the numbers will be. That this is destined to prove an exercise in futility will not deter for a moment the participants from repeating it a month hence.

Actually, these cockeyed Nostradamuses are more deserving of sympathy than contempt. For apart from their own fallibility -- which, since so many are card-carrying economists, is considerable -- their prophecies are prey to the even more considerable whims, quirks and fantasies of Uncle Sam's data assemblers.

Just how much such idiosyncracies distort the actual count of the gainfully employed and, by extension, of those out of work, is hard to pin down to the last decimal. But that it can be huge is evident in another report issued last week by that same Bureau of Labor Statistics (which might better be called the Bureau of Labored Statistics). It's called Business Employment Dynamics, and we'd been in blissful ignorance of its existence until enlightened by that diligent duo, Philippa Dunne and Doug Henwood, responsible for the Liscio Report.

As Philippa and Doug explain, this series reports detailed gross job gains and losses in the private sector based on nearly complete coverage "of the employment universe provided by the unemployment insurance system." More painstaking than the familiar monthly surveys of employment, the tally is published with a lag of several quarters; the one released earlier this month, for example, was for the third quarter of 2006. What it showed, though, was eye-opening.

Thus, compared with a gain for the quarter of 442,000 jobs reported in the so-called establishment survey, the Business Employment Dynamics, or BED, reckoning was a scant 19,000 additions. In manufacturing, the 9,000 jobs lost according to the payroll figures balloon into a loss of 95,000 jobs in the BED data; the improbable 20,000 additions in construction (think: housing) turns into a loss of 77,000 by BED's measure; the 507,000 gain in private services shrinks to 108,00. And so it goes. Or, more accurately, so goes the job mirage.

One likely culprit, Philippa and Doug suggest, is that curious concoction known as the "birth/death" model used by the Bureau of Labor Statistics to estimate the gains/losses in jobs from the launching and demise of businesses. Thanks to this voodoo calculation, 156,000 were added in last year's third quarter and a hefty 388,000 in the opening four months of this year. Nice going, indeed, considering that first-quarter GDP growth probably, when the dust clears, will have fallen below 1%, and April was a punk month.

All of which, among other things, solves a puzzle that seems to have bothered quite a few people: namely, how can the economy be running out of steam when there's relatively little unemployment? The answer, pure and simple, is that there are significantly fewer folks working and significantly more folks out of a job than the official payroll numbers would have you believe. The next time someone assures you that the employment picture is bright, make sure he smiles when he says that. (emphasis added)

As we have laboriously argued over the past few years, this has not been a great post-recession cycle for private sector job creation. It has been a boom time, however, for creative accounting in government measurements.

The bottom line: New job creation has been mediocre, and wildly overstated by BLS since changes made to measuring jobs in 2001.

Source:
Swarm of Analysts
ALAN ABELSON
UP AND DOWN WALL STREET
Barron's MONDAY, MAY 28, 2007
http://online.barrons.com/article/SB118011972095514924.html

We've Gone China Crazy

Saturday, May 26, 2007 | 05:30 AM

in Weblogs

I don't know if I will have room for all these China stories (George!) in this weekend's linkfest. On the likely chance I don't, here's a broad overview of many interesating articles about the fastest rising global economic power:

CHINA

• China's unbalanced economy: In any ordinary economy, a triple-barrelled announcement of the kind issued by China's central bank on Friday evening might have made more of an impression. With an eye to today's top-level US-China meeting in Washington, the People's Bank of China tightened lending and eased controls on its currency, policy prescriptions that touch all their host's concerns about Beijing's seemingly unstoppable export-driven economy. (FT)

•