What a strange week this was -- markets, data, conference calls -- were all over the place.
Since its a holiday weekend, let's just cut right to the chase: The week's biggest winners were the most speculative: Emerging Market Stocks, and Russell 2000 small caps, up 6.4% and 4.2% respectively.
Nasdaq gained 2.1%, almost all of it Friday. The big end of week rally took the S&P500 (+1.1%) and the Dow Industrials (+0.8%) into positive territory for the week.
Gold also gained, grabbing 2.3%, while Crude Oil tacked on 1.9% and the dollar was unchanged. Even REITs were up 1.4%.
The big Rally was tied to Quadruple Witching Expiry, which can wreaks havoc with volatility. The bias remains to the upside, as traders look to finish up the year in the green.
Barron's Trader column observes:
"In some ways, it's a testament to the market's strength that stocks have held up with gains for the year in the face of tens of billions of subprime-related write-downs revealed in recent months. The write-downs are big and bad, but by admitting the problems, the banks at least help the market start to quantify the risk, notes Leo Grohowski, Mellon Wealth Management's chief investment officer.
The more worrisome issue is that financial institutions don't have a lot of confidence in each other, because they too don't know the full extent of their fellow bankers' exposure. A big write-down theoretically should wipe the slate clean, but trust is much harder to reconjure."
We have a light week coming up: Monday is Christmas Eve, and its a half day for all markets. Everything except movie theaters and Chinese Restaurants are closed Tuesday. On Thursday, we'll get Durable Goods Orders, Jobless Claims, and Consumer Confidence. Friday is New Home Sales.
Today we have an extra-large, shopping delayed, double-sized linkfest. Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• Money Pros Still Optimistic About Stocks: The credit crunch and slowing economic growth have done little to dim money managers' outlook on U.S. stocks, according to a survey to be released today. More than one-third of managers responding believe U.S. stocks are undervalued, up from 28% in the third quarter, according to the latest quarterly Investment Manager Outlook survey by Russell Investments. More than three-quarters expect the U.S. market to rise in 2008, and 30% think it will gain more than 10%. A year ago, 86% thought U.S. stocks would rise in the year ahead. (WSJ)
• For the companies located in Silicon Valley, It Was a Very Good Year: You see, for all the alarmist chatter, tech turned out to be an island of calm in 2007. Through Thursday, the Nasdaq Composite was up 9.3% and the Morgan Stanley tech index has risen 10.2%, compared with gains of 3% for the S&P 500 and 6.3% for the Dow. According to Morningstar, the average tech mutual fund is up 13.5%. Weirdly, tech has become a place of refuge. But the best returns for tech investors involved playing the right themes and avoiding some spectacular land mines. (Barron's)
• After last years awful market forecast, I was thrilled to get an email from Businessweek telling me I won the contest. Then the market spoke up: From Worst to First" Business Week Forecast 2007
• Yield-oriented investors can find a growing number of opportunities in the preferred stock of Fannie Mae, Freddie Mac and Washington Mutual. (Barron's)
• More magazine cover fun: Contrarians Beware: Putin May Mark the Top of Emerging Markets: The Russian president clearly won't be running an online retailer when his term is up next year, but he will remain as the power behind the throne as prime minister. Putin also shares with Amazon.com's chief executive the distinction of being named a Time magazine Person of the Year. That just may have implications for investors. Paul Macrae Montgomery, who publishes the insightful Universal Economics newsletter, has found after studying Time covers going back to the 1920s that the newsweekly usually catches trends in their waning months. A few months later, the trend reverses with remarkable regularity, he adds.
• Blaming the Fed for the Sub-Prime Mortgage Crisis: “Hindsight is always 20-20, but it’s clear the Fed should have acted earlier. Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay.”
• Wall Street's Next Crisis: Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property. (Portfolio)
• Barclays is now the first big plaintiff against the major Wall Street brokerage houses. The United Kingdom bank was burned this summer when they lent $400 million to the firm's funds, whose collapse wiped out $1.6 billion in capital. Barclay's is essentially claiming fraud, that Bear misled it about the performance of the highly leveraged funds at the time they were collapsing, and Bear was out raising lines of credit and seeking loans to shore the funds up: Let the litigation begin!
• Investing: The Net Wisdom of Peers: Increasingly disenchanted with professional advisers, investors are finding sound advice and improved returns with the help of online communities (BusinessWeek)
• Insurer Woes Put Munis in Bargain Bin: Bad news about bond insurers in recent days sent mutual-fund managers racing into the market -- scooping up insured municipal bonds at a steal.Individual investors, too, might want to follow suit. But only if they can stomach some surprising chaos in this traditionally sleepy corner of the market.In recent months, bond insurers -- which guarantee the principal and interest payments on various types of debt -- have gotten clobbered amid uncertainty about some messy types of mortgage securities they have backed. The situation is raising questions about whether the insurers are financially strong enough to cover any potential losses. (Wall Street Journal)
• The beer crisis: Just as the festive season gets going, drinkers in America are finding their favourite beer suddenly more expensive or even—horrors!—not available at all. Hit by price increases and shortages, many breweries, particularly the small “craft brewers” and the even smaller microbreweries, are being forced to raise prices, make do with modified recipes or shut off the spigots altogether.The humble hop, the plant that gives beer its distinctive flavour, is the main problem. Many farmers in the Pacific north-west, where America's hop production is concentrated, have turned to more profitable lines—especially corn, which can be made into ethanol. The decrease in hop production, put at some 50% over the past decade, has sent prices through the roof. (Economist)
• The Peachfuzz Billionaires: The myth of the peachfuzz billionaire has emerged. This new Horatio Alger typically launches his first start-up in middle school, and somewhere between the campus computer-science lab and a move to Palo Alto hacks up a Web site where users provide fun or useful content. The operation grows, "Sorcerer's Apprentice" style, and soon the budding teeny-mogul's beaming mug is on the cover of BusinessWeek (like Digg's Kevin Rose) or the front page of The New York Times (like Slide's Max Levchin). Not just the business plans, but the fashion preferences and dating habits of this cohort are followed voraciously in tech mags and blogs, in some geeky update of Tiger Beat. (Newsweek)
• SEC launches Web tool to compare executive pay: The Securities and Exchange Commission on Friday gave investors an easier way to compare executive compensation at 500 U.S. companies with an online, interactive tool. The online tool includes direct links to full proxy statements, including footnotes and the companies' explanation of their compensation decisions. The site -- sec.gov/xbrl -- also lets users compare pay data by industry, executive type and size of company, among other specifications. (Reuters)
The Wall of worry continues to build:
• Fed to Curb Risky Lending (7 years too late) "The Federal Reserve, acknowledging that home mortgage lenders aggressively sold deceptive loans to borrowers who had little chance of repaying them, proposed a broad set of restrictions Tuesday on exotic mortgages and high-cost loans for people with weak credit."
• Unpaid credit cards bedevil Americans Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy. (Associated Press)
• M1 Money Supply Growth? Its Much Worse Than That! Why focus on M1 (cash) growth -- all the Fed action is in M2 and especially M3 -- repos, coupon passes, eurodollars, and bond purchases. But actual printed currency? Don't make me laugh!
• Recession odds:
- Leading Economic Indicators Index Fall Again
- Merrill Lynch New recession probabilities: Anywhere from 50% to 100% (PDF)
- Pimco boss says US in recession
- Northern Trust's model puts the recession odds at 65.5%
• Is there a Shotgun/Rifle Economic Indicator? Dan Gross thinks there may be: HUNTING SHOPS ARE HAVING A BUM YEAR. UH-OH.
• Inflation: Hot and Getting Hotter: On a year-over-year basis, the headline rate accelerated to 4.3% from a 3.5% rate in October. The core rate was up 2.3% from 2.2%, and above the Fed's implicit 2% ceiling for inflation. The stronger than expected data will be a major concern for Treasuries and restrict the Fed's willingness to loosen, notes S&P Economics.
• FedEx Is Optimistic Despite Profit Decline: FedEx reported its biggest quarterly profit decline in three years, but predicted the economy won't slow further in 2008. The early results reflect concerns among transportation companies that higher gasoline prices, the credit-market crisis and other economic woes would restrain consumer spending and result in a dismal peak-shipping period. FedEx is considered a barometer of the global economy. It is the world's largest air-cargo carrier by volume and flies or drives an average of more than six million packages a day. (Wall Street Journal)
• Part of an interesting series at the Google campus: Paul Krugman discusses sub-prime and the economy
• James Surowiecki 's A Buyer’s Christmas: The Christmas shopping season can account for as much as forty per cent of a retail store’s annual revenue and as much as three-quarters of its annual profit. So you might think that this would be a great time of year to be in the retail business. Instead, it’s a desperate one. The markdowns that are supposed to come after Christmas have already begun. Internet mailboxes are flooded with offers of free shipping and huge discounts. Sales forecasts are gloomy, and weaker players have been weeded out—CompUSA has said that it will be closing in January. (New Yorker)
• Best Buy Lifts Outlook as Profit Jump Defies Retail Softness: In a sign that the housing slump isn't affecting all retailers, Best Buy Co. reported fiscal third-quarter profit that soared 52% on strong sales, and the consumer-electronics retailer raised its fiscal-year expectations. The Richfield, Minn., retailer said it has accelerated store openings and is still gaining market share despite a challenging macroeconomic environment. The quarterly results underscore the mixed showing among retailers this holiday season: Sales at warehouse clubs and some retailers of teen apparel and consumer electronics have been higher while those chains closely tied to the housing market and women's clothing are struggling. (Wall Street Journal)
• Retail Sales Softer (Ignore the Surveys)
• U.S. Retailers Post Smallest Sales Gain in Two Months: Retailers in the U.S., mired in the worst holiday season since 2002, posted their smallest weekly sales gain in two months as discounts failed to entice consumers faced with $3-a-gallon gasoline. Sales at stores open more than a year increased 2.1 percent in the week through Dec. 15, the International Council of Shopping Centers and UBS Securities LLC said today in a joint statement. December sales at stores open more than 12 months may grow 1.5 percent from a year earlier, the group said, matching an earlier forecast. (Bloomberg)
• How Snafus Can Upend A Mortgage: Having buyer's remorse about a mortgage? It can pay to scrutinize the fine print. Amid the housing-market turmoil, homeowners have been increasingly turning to a little-known process for renegotiating or exiting a loan. Even seemingly minor paperwork slipups can be enough to get a "rescission" (basically, a loan cancellation) based on the Truth in Lending Act, a federal law requiring disclosure of a loan's key terms. Under a rescission, while a homeowner still owes the principal, the lender won't be able to foreclose. Plus, all loan-related fees and interest that were paid are subtracted from the principal, which can mean substantial savings for the borrower. After a rescission, the borrower must pay off the loan, typically with a new mortgage, or sell the house. (WSJ)
• Default Lines: The New Math Of Credit Scores The company that cooks up credit scores for millions of Americans is changing its recipe -- and that could affect how easily you get credit in the future.Fair Isaac Corp., maker of the popular FICO credit score used by most lenders, says its new scoring model will do a better job predicting the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders. Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%. (Wall Street Journal)
• A Complete Subprime User's Guide, 2007 Edition: For those who may have missed the subprime press coverage or been too intimidated by the acronyms to dive in, herewith is a user's guide to the subprime year of 2007 (Bloomberg)
• Foreclosure Activity May Have Peaked: Foreclosure filings for November surged 68% from a year ago but dropped 10% from October, another sign that foreclosure activity overall may have peaked for the year, a foreclosure-listing service said.RealtyTrac Inc. Chief Executive James J. Saccacio said that November's 10% drop from October was the first double-digit monthly decrease observed since April 2006.The sequential decline "could indicate that foreclosure activity has topped out for the year, but the true test of whether this ceiling will hold will come at the beginning of next year -- when we anticipate that a seasonal surge in foreclosure filings and another possible wave of resetting mortgages could place further pressure on the housing market," Mr. Saccacio said. (Real Estate Journal)
• Shiller: Mr. Worst-case scenario "From 1890 through 1990, the return on residential real estate was just about zero after inflation."
• Now, Even Borrowers With Good Credit Pose Risks: Because of lax lending standards in the past few years, many homeowners never amassed much equity in their homes. Sizable down payments became a rarity, as many buyers borrowed close to 100% of the purchase price through a blend of first mortgages and home-equity lines of credit. Others kept refinancing their mortgages as property prices climbed, taking on bigger loans and draining the equity value of their homes. (Wall Street Journal)
• Sales of New Houses in U.S. Probably Fell: Sales of new homes in the U.S. fell in November, signaling no end to the housing recession that threatens to stall economic growth, economists said before a report this week.Purchases fell to an annual pace of 718,000 from 728,000 in October, according to the median forecast of economists surveyed by Bloomberg News. The 716,000 pace reached in September was the lowest since 1996.The real-estate slump, already the deepest in 16 years, shows no sign of abating as discounts fail to lure buyers and inventories swell. The risk that the slowdown will spread through the entire economy is prompting business to rein in orders for new equipment, a separate report may also show. (Bloomberg)
• Price Indexes Will Map Out Spread of 'Negative Equity': First American CoreLogic, a housing- and mortgage-data supplier in Santa Ana, Calif., calculated that nearly 7% of 32 million U.S. households studied as of December 2006 owed more than their homes were worth, based on computer estimates of the property values. The homes studied had mortgages originated in 2004 through 2006, around the peak in the housing market. Since the end of 2006, U.S. home prices on average have fallen nearly 5%, said Mark Fleming, chief economist at the firm. That suggests that about 11% of the homes studied now would have negative equity. An additional 5% or so probably have equity of less than 5%. That doesn't leave much cushion at a time when prices are still falling and most economists don't expect the market to hit bottom for at least another year. (Wall Street Journal)
• Who has the oil? A global map with the size of each country reflecting the relative size of its OIL RESERVES.
• Why Vote When You Can Bet? SLATE'S GUIDE TO ALL THE POLITICAL MARKETS The idea behind political prediction markets is simple. Lots of people wager on the outcome of political campaigns: Who's going to be the Democratic presidential nominee? Will the Republicans take back the House? And when the votes are counted, the winning bettors collect. The thrill of prediction markets for political junkies is that they harness "the wisdom of crowds." A single person's bet on an election outcome isn't very good, but thousands of bets, with real stakes, are more likely to predict the correct result than even the best pundit. The Iowa Electronic Markets, the big daddy of the political prediction markets, is consistently better at forecasting winners than pre-election polls.
• Japanese employees are working themselves to death: Karoshi—death by overwork— official cause of death in Japan. (Economist)
• Is Huckabee the new Buchanan? New York Mag finds an early predecessor to Mike Huckabee in Pat Buchanan: Both experienced a "rapid rise" after being written off, and both owe this surge to their "organic, potent connection to the Christian right" and "populist economic thrust."
• Interview: Tom Curley, CEO, Associated Press; Portals, Local Content—‘The Mother of all Battles’
• Jim Cramer: Mad No More? After years of manic rants and crazy antics on live TV, you might think Jim Cramer's shock value has worn off. How about this for a new surprise? Jim Cramer, sober-minded personal finance guru. (Business Week)
TECHNOLOGY & SCIENCE
• WHY LAST YEAR'S TECH GADGETS MAKE THIS YEAR'S BEST GIFTS (Slate) See also Today’s HDTV, or Next Year’s? (NYT)
• Baseball Stats and Freakonomics Wannabes . . . Two college professors argue in a study (More Juice, Less Punch) that Steroids, Human Growth Hormone and the like do not have a net benefit to major league players. Unfortuantely, their stat work was pretty shabby, so I had to take the two profs to school (here).
• CDs Are Dying. Are DVDs Next? Bernstein Research notes today that through early December, DVD sales were down 4.1% for the year, including a 2.1% decline in the fourth quarter, citing data from Nielsen VideoScan. This would be the first down year in the short history of the DVD. (Tech Trader Daily)
• Whales Evolved From Tiny Deerlike Mammals, Study Says:The nearest ancestors of Earth's largest-ever animals were tiny deerlike creatures that jumped into rivers to flee prehistoric predators, a new study suggests. These semiaquatic, raccoon-size mammals dubbed Indohyus lived in southern Asia some 48 million years ago. (National Geographic)
• Geochemists Chart Carbon-Dioxide Levels At 650,000-Year High Global concentrations of CO2 in 2006, not surprisingly then, reached the highest level since the record-keeping began in 1958, the World Meteorological Organization recently announced in its annual greenhouse-gas bulletin. Based on samples from 40 countries, the level of carbon dioxide in the air reached 381.2 parts per million, up fractionally from 2005 -- concentrations not seen in 650,000 years, scientists said. (free Wall Street Journal)
• Spy planes to recharge by clinging to power lines (New Scientist)
• Ambiguity Promotes Liking (NYT)
MUSIC BOOKS MOVIES TV FUN!
• Stairway To Heaven - The Beatnix: What might "Stairway to Heaven" have sounded like if it had been recorded for the Beatles' A Hard Day's Night instead of Led Zeppelin's IV? Like this, we guess. In the above video, Australia's premiere Beatles cover band the Beatnix remake Led Zep's all-time greatest song about stairways in the style of the Fab Four's early hits.
• Freakonomics Film in Development: America's leading documentary makers are collaborating on a film version of the hugely popular economics tome Freakonomics. Written by Steven D. Levitt and Stephen J. Dubner, the book takes everyday situations and analyzes them using economic theories, and has already sold more than three million copies worldwide.
Make the most of your last holiday shopping weekend beforre Christmas!
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I didnt think the real estate market has such an influence on the general market.
Posted by: Broker Price Opinion | Dec 23, 2007 6:05:43 PM
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