Return of the Linkfest !
The parade of bad news was virtually non-stop. For those traders who think this is a contrary indicator and are wading in buying, best of luck (sold to you).
I will tell you that negative sentiment has reached pretty high levels. Not extreme, but definitely high. By most traditional measures (put/call ratio, fund manager % cash, oversold oscillator, sentiment surveys), we've reached a degree of pervasive gloom from whence we often see the makings of a bounce form. However, my guess is it will be just a bounce, as equities still have more work to do on the downside. At this point, a retest of the January lows is highly likely.
By the numbers, it was nearly all losses: Except for Crude oil (+3.3%) everything else was in the red. REITs lost another 2.1%; over the past year, they have dropped 22%. The Nasdaq and the S&P500 gave up 2.6 and 2.8% respectively, while the Dow fell 3%. Even Investment grade bonds lost 1.2% on the week.
With the Q1 not over, the major indexes are off rather significantly year-to-date: The Dow is down over 10%, the S&P500 has lost almost 12%, and the Nasdaq has dropped almost 17%.
Barron's Trader column noted:
Faced with mounting evidence of an economy in decline and lenders in recoil, stocks fell to their lowest level in more than 18 months and now stand on the brink of a bear market. That there was bad news was hardly surprising by now. But the extent of disappointing developments still spooked investors hoping that bad news was already factored into stock prices...
How much of the recession is now priced into stocks? By the time employers are slashing jobs, a recession usually is well under way. Since 1960, the S&P 500 has fallen by an average 7.8% in the three months leading up to back-to-back monthly job cuts. But six months later, the S&P 500 was higher five out of seven times for an average gain of 9.4%, according to Bespoke.
How long we stay mired in this recession will, of course, depend on the rehabilitation of debt and housing markets.
Looking ahead, the coming week is light on economic releases: We get Same Store
Sales on Tuesday, while Thursday is the Commerce Dept's Retail Sales
data (consensus = 0.2%).
Plenty of retailers reporting earnings this week also. Tuesday is J. Crew(JCG), Wednesday is American Eagle (AEO), Dillard's (DDS), and Men's Wearhouse (MW); Thursday we learn what the profits look like at Williams-Sonoma (WSM) and Aeropostale (ARO); On Friday, Liz Claiborne (LIZ) and Ann Taylor(ANN). To borrow a line from the Men's Warehouse advertising, "You're not gonna like the way these look."
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• Jobs Data Suggest U.S. Is in Recession: U.S. employers shed 63,000 jobs last month, the most in five years, reinforcing a widening view that the U.S. is falling into recession. Among economists and politicians, the debate is shifting to how deep the downturn will be and how to ease it. The jobs dropoff came after the nation lost 22,000 jobs in January, the Labor Department said. In the past, such back-to-back monthly employment declines have occurred only around recessions. (Wall Street Journal)
• Why Washington’s rescue cannot end crisis story All crises are different. But many have shared common features. They begin with capital inflows from foreigners seduced by tales of an economic El Dorado. This generates low real interest rates and a widening current account deficit. Domestic borrowing and spending surge, particularly investment in property. Asset prices soar, borrowing increases and the capital inflow grows. Finally, the bubble bursts, capital floods out and the banking system, burdened with mountains of bad debt, implodes. (FT)
• What Buffett's Been Buying: Asked about the stock market on CNBC last week, Buffett said: "Stocks are not cheap. As a group, they're not at some bubble price. But they go to extremes every now and then and when they do go to extremes you have to be prepared to act." In the same interview, Buffett said he sees increasingly attractive opportunities in the bond market. With the S&P 500 down 11% this year, it's a good bet that he's been buying more stocks. Most of Berkshire's equity activity is reported in quarterly filings with the Securities and Exchange Commission, including fourth-quarter information reported in mid-February. The annual report, published this month, gives a detailed look at Berkshire's equity holdings, balance sheet and investment activity. (Barron's)
• America's Most Admired Companies The New No. 1 = Apple, 2. Berkshire Hathaway, 3. GE, 4. Google, 5. Toyota, 6. Starbucks, 7. FedEx, 8. Procter & Gamble, 9. Johnson & Johnson, 10. Goldman Sachs (Fortune)
• Chinese Initial Public Offering Indicator: The IPO indicator is a market-capitalization-weighted performance measure based on IPOs of Chinese companies. Updated monthly, the indicator tracks the performance of A and B shares listed on the Shanghai and Shenzhen stock exchanges and H shares listed on the Hong Kong Stock Exchange (Milken Institute)
• Hard Assets an Easy Call? In January 1980, inflation was 13.9%, according to the U.S. Bureau of Labor Statistics. Today, inflation stands at 4.3%. "I would say we haven't seen the high for gold just yet," says Bart Melek, Global Commodity Strategist, BMO Capital Markets, in part because "inflation today is nowhere near as high as inflation during that period" and investors will pile into gold if the inflation picture worsens. (WSJ)
• I had an interesting discussion about the challenges of combining quantitative filters with fundamental and technical overlays: The Disciplined Investor Podcast
• The Market is Cheap: There are plenty of great stocks firmly entrenched in strong uptrends, and there’s no shortage of stocks making new 52-week highs. Here’s where the cheap part comes into play. First, excluding Financials, I looked at the median projected quarter-over-same-quarter-a-year-ago period for companies in the S&P 500, and found that the estimated growth rate was 9.4%. Even with the Financials included, it was still 7.7%. (Zachs) BR adds: Just be careful with analyses that lean too heavily on future growth or earnings estimates.
• FBI Investigates Countrywide The Federal Bureau of Investigation is probing subprime lender Countrywide Financial Corp. for possible securities fraud, according to law-enforcement officials and finance-industry executives. The inquiry involves whether company officials made misrepresentations about the company's financial position and the quality of its mortgage loans in securities filings, four people with knowledge of the matter said. It is at an early stage, they emphasized. (WSJ) if no WSJ, go here
• Has this been "The John McCain Market Selloff"
• A How-To Guide For Now-Popular Municipal Bonds: Not all municipal bonds are created equal. "General-obligation" munis are backed by full faith and credit, and taxation powers, of the issuing state or town. "Revenue" bonds are often riskier: They may be financed by the cash flows of a single car park, or golf course, or toll road. If those cash flows dry up, your interest payments could be vulnerable. (WSJ)
• Dollar Falls to Record Against Euro on Fed Rate-Cut Speculation The dollar traded near a record low against the euro after the yield advantage on two-year German government debt over Treasuries widened to the most in more than five years. (Bloomberg)
• Goldman, Lehman May Not Have Dodged Credit Crisis: Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis. The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments. (Bloomberg)
• Quiz: How Well Do You Know...The Tech Bubble? (WSJ)
• Mergers in a Time of Bears: Most mergers fail. If that’s not a bona fide fact, plenty of smart people think it is. McKinsey & Company says it’s true. Harvard, too. Booz Allen Hamilton, KPMG, A. T. Kearney — the list goes on. If a deal enriches an acquirer’s shareholders, the statistics say, it is probably an accident. But a new study puts a twist on the conventional wisdom. It’s not that all deals fail. It’s just that timing appears to be everything. Deals made at the very beginning of a merger cycle regularly succeed. It’s the rest that fall flat. (NYT)
• Barron's cover story: Is Fannie Mae Toast? It's perhaps the cruelest of ironies that in the U.S. housing market's greatest hour of need, the major entity created during the Depression to bring liquidity to housing, Fannie Mae, may itself soon be in need of bailout.
• Herb Greenberg spotlights SVB Asset Management, who have warning corporate clients as far back as 2004 to steer clear of auction-rates: Meet the Auction-Rate Cassandra (WSJ/Marketwatch)
• Did Mark-to-Market Accounting Create the Credit Bubble? (Naked Capitalism)
• Many Roads Lead to Value Says David J. Williams, Manager of Excelsior Value & Restructuring Fund: DAVID J. WILLIAMS IS ONE VALUE INVESTOR WHO DOESN'T mince words. Lead manager of the Excelsior Value & Restructuring Fund (ticker: UMBIX), he looks for cheap stocks; takes a long-term view, as evidenced by the fund's most recent annual turnover of a puny 13%, and isn't afraid to admit when he's made a mistake. And he likes being a contrarian -- the sort who buys shares of struggling companies like CIT Group, and hangs on to promising turnarounds like J.C. Penney, even when others are quick to flee on bad news. (Barron's)
• The Current Financial Challenges: Policy and Regulatory Implications Timothy Geithner, President and Chief Executive Officer, NY Fed
The Wall of worry grows ever higher:
• Downturn Tests the Fed’s Ability to Avert a Crisis: In the last seven months, policy makers have cut interest rates, injected money into the banking system and approved a fiscal stimulus package in an effort to keep the economy from slipping into a recession. Often, the moves seemed to work at first, only to be overtaken by more bad news. The failure of any of the usual fiscal and monetary policy tools so far raises questions about what the Federal Reserve and federal government can do in the near term to counter the forces that have battered housing prices and pushed down the stock market and are now causing a hiring slowdown. (New York Times)
• US Fed releases $200bn as credit crisis hits new depths: The global credit crisis plunged to new depths yesterday as persistent fears over the collapse of a large financial institution caused funding markets to dry up and forced the US Federal Reserve to make available up to $200 billion (£99.3 billion) of emergency financing.The Fed said that a “rapid deterioration” in the credit markets in recent days had prompted it to begin a series of fresh cash injections in an effort to shore up the balance sheets of America’s stricken banks. Unemployment also shot up in the US last month, adding to the gloom. US stocks tumbled, dragging the Dow Jones industrial average down 138.40 points to 11.902.00. Treasury prices jumped and the dollar fell to record lows. (London Times)
• Filings for Bankruptcy Up 18% in February: Americans filed for bankruptcy in growing numbers in February, buckling under the combined weight of rising energy prices, a weakening housing market and sky-high personal debts. An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier, according to Automated Access to Court Electronic Records, a bankruptcy data and management company. (NYT)
• How's the economy in your hometown? On the campaign trail and in homes across the USA, the debate is underway about whether the U.S. economy in 2008 will see its first downturn in seven years. Despite the recent onslaught of negative news, it remains unclear whether the current state of affairs meets the economists' definition of a recession: a widespread decline in economic activity lasting more than just a few months. As in politics, all economics is local. (USA Today)
• Unemployed, and Skewing the Picture Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.” (New York Times)
• Articles like these are never encouraging: How to Keep Your Job in a Slowdown (US News)
• In Europe, Central Banking Is Different: The contrasting ways Mr. Bernanke and Mr. Trichet responded to the crisis in the markets reflect something more than the differing economic and financial conditions in the United States and Europe. At a more fundamental level, they reflect surprisingly different views of how each economy responds to the underlying forces affecting growth and inflation . . . The European bank, by contrast, is skeptical of the notion that inflation automatically falls when growth cools, and it has a mandate, inherited from the German central bank, to keep prices stable above all else. So the view from the European bank’s sleek silvery headquarters here is very different from the Fed’s perspective in Washington, whatever market participants may think about the inevitability of lower European interest rates. (NYT) See also Who Are the Socialists: FOMC vs ECB ?
• HOME ECONOMICS: Our veneration of homeowning has blinded us to the fact that, along with the benefits, it has some very real costs—costs that only get bigger as the ranks of homeowners swell. The housing boom undoubtedly helped the economy’s growth rate and made lots of first-time home buyers happy. Unfortunately, it may also end up prolonging and deepening the current downturn. (New Yorker)
• Major US homes lender near bankruptcy: Thornburg, the American mortgage lender, was teetering on the brink of bankruptcy last night as a key creditor demanded that it liquidate assets after failing to put up $28 million (£13.9 million) in extra collateral.Thornburg’s escalating credit crisis coincided with new data showing that foreclosures on American properties hit a record in the fourth quarter of 2007. (Times London)
• Some Borrowers Rescued: Mortgage companies have helped more than one million cash-strapped borrowers stay in their homes since the summer, new industry data show.Even so, the number of homes subject to foreclosure is rising, and the percentage of borrowers who had good credit when they took out their loan and are now seeking help is growing. (WSJ)
• Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report. (Bloomberg)
• Some Homeowners Hit New Snag in Refinancing: In the latest sign of how the credit crunch is hurting even borrowers with good credit, some home-equity lenders are starting to slam the door on homeowners who want to refinance their primary mortgages.In some cases, homeowners who in the past would have been easily approved for a mortgage refinancing are finding that they can't get their home-equity lender to give the go-ahead, which is required to complete the transaction. Others are being told by their home-equity lender that they need to reduce the size of their loan or line of credit. (Real Estate Journal)
• Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish: Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities. (Bloomberg)
• FHA May Be Tonic for What Ails the Housing Market: The Federal Housing Administration, a relic of the Great Depression that dwindled to near irrelevance in recent years, is suddenly emerging as the centerpiece of government efforts to prop up the housing market. Home loans insured by the FHA have become the cheapest and, in many cases, the only alternative for borrowers who can make only a small down payment. The agency is rapidly gaining market share as government-sponsored mortgage investors Fannie Mae and Freddie Mac, stung by combined losses of about $9 billion in last year's second half, back away from credit risks by adding fees and demanding higher down payments. (Free WSJ)
• Bush says feds can open mail without warrant: President Bush quietly has claimed sweeping new powers to open Americans' mail without a judge's warrant. Bush asserted the new authority Dec. 20 after signing legislation that overhauls some postal regulations. He then issued a "signing statement" that declared his right to open mail under emergency conditions, contrary to existing law and contradicting the bill he had just signed, according to experts who have reviewed it. A White House spokeswoman disputed claims that the move gives Bush any new powers, saying the Constitution allows such searches. (New York Daily News)
• Get ready for oil at $150 Why is it different now from the 1979 rollover in demand, when at similar levels of economic impact, oil demand fell 20% in four years? There are two interesting complexities: asymmetric elasticity -- substitution from power and industry has already been done and cannot be replicated."This is why demand has, and will, continue despite the high price, unlike in 1979 when fuel-switching took place then prices dropped dramatically. Then there is "reverse elasticity." (Financial Post)
• New Media blog: The NY Sun
TECHNOLOGY & SCIENCE
• The trouble with Steve Jobs: What he's accomplished in the past decade has not just restored Jobs to the Silicon Valley pantheon but elevated him to the status of superstar. On the brink of bankruptcy when he returned, Apple now has a market value of $108 billion - more than Merck, McDonald's, or Goldman Sachs; $1,000 invested in Apple shares on the day Jobs took over is worth about $36,000 today. And it isn't just Apple and its investors that have benefited from Jobs' executive skill. Pixar, where he served simultaneously as CEO, has come to dominate the animation business, churning out megahits like "Finding Nemo" and "The Incredibles" that prompted Disney (DIS, Fortune 500) to buy the company in 2006 for $7.5 billion. Jobs now owns 7.3% of Disney, worth $4.6 billion, in addition to Apple stock worth $682 million. (Fortune)
• Wanted: Einstein Jr: Something seems wrong with the laws of physics. Spacecraft are not behaving in the way that they should (Economist)
• Here's the best news you will see on this page: Alcohol 'quickly' cuts heart risk: New moderate drinkers were 38% less likely to develop heart disease than those who stayed tee-total, a four-year study involving 7,500 people found.
• Startup Makes Cheap Solar Film Cells ... With an Inkjet Printer: This year could bring the Silicon Valley-funded renaissance in solar power we've all been waiting for. First, San Jose-based Nanosolar began delivering its affordable thin-film solar coating, followed by a construction boom in American solar thermal power plants—essentially the reflective equivalent of geothermal power. Now, for the first time, the solar cell revolution is arriving by droplet. Konarka Technologies, the Massachusetts-based company said this week that it has successfully manufactured those thin solar cells using an inkjet printer. In addition to decreasing production costs because it relies on existing inkjet technology, the printable Power Plastic cells can be applied to a range of small-scale, highly variable power opportunities, from indoor sensors to small RFID installations. (Popular Mechanics)
• 140-year-old math problem solved by researcher: A problem which has defeated mathematicians for almost 140 years has been solved by a researcher at Imperial College London.
• Series of blunders turned the plastic bag into global villain: Scientists and environmentalists have attacked a global campaign to ban plastic bags which they say is based on flawed science and exaggerated claims.The widely stated accusation that the bags kill 100,000 animals and a million seabirds every year are false, experts have told The Times. They pose only a minimal threat to most marine species, including seals, whales, dolphins and seabirds (London Times)
• Tapping Your TiVo's Hidden Talents: TiVo has a few tricks up its sleeve that might surprise longtime users and new owners alike. This column includes just a handful of those tricks and highlights some features that may make TiVo more useful. These tips are for everyday users, not serious hackers, and many others exist. (WSJ)
• Using The High-Definition DVD Format On Your PC: Now that the war between HD-DVD and Blu-ray is over and PC makers are adding Blu-ray as a regular option with new systems, people are asking: What's the big win with Blu-ray? (Information Week)
• 10 Cubicles that are Cooler than Yours (and 1 that isn’t)
MUSIC BOOKS MOVIES TV FUN!
• The next book in my queue is Dick Arms' Stop and Make Money: How To Profit in the Stock Market Using Volume and Stop Orders Dick is a well respected stock market technician, and he looks to shed some light ion various methods of protecting profits and minimizing losses
• Teenagers Shun CDs: You knew music sales were bad, but I bet you didn't realize just how bad they are
• VIDEO: Hey, a good AOL commercial . . .
• Teller survives zombie uprising with conjuring and sniper rifle: You remember Dawn Of The Dead? Did you ever wonder how that horrifying turn of events would effect Las Vegas? What about specifically Teller, of Penn and Teller? Well wonder no longer, the silent partner is here to tell the sad, sad tale. It alone is our favorite video uploaded in the past 24 hours.
That's all from a very busy media weekend in my neck of the woods . . .
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The market clearly doesn't know what to do. Futures are barely down so far tonight as if this crisis is just going to be like the savings and loan scandle. I beg to differ.
How this turns out is going to be determined by whether we have inflation moving higher or deflation.
I am in the deflation camp. If that's true and metal prices fall to 33% of current value; metals and mining stocks will plunge.
If we have inflation prices will get so high the economy will die an even quicker death than it already is.
There's no way to win this without a significant correction over a period of time.
Posted by: John Borchers | Mar 9, 2008 8:09:43 PM
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