The Big Picture

What Is Yahoo Actually Worth, Part II ?

Tuesday, May 13, 2008 | 03:30 PM

A few weekends ago, I asked the following questions:

- What are Yahoo (YHOO) shares actually worth? Both now, and 3-5 years from now?
- When Yahoo's stock gets whacked due to Mr. Softee's walkaway, does this create an opportunity?Indeed, if Microsoft (MSFT) believed Yahoo was worth $33, wouldn't that imply the company has a value above the January 31 pre-bid price of $19 ?
- The key is whether there are any other bidders lurking put there.

Well, via CNBC, the latest rumor broke today about another bidder-- Carl Icahn -- as much as 50 million shares. Its helped rallied the markets nicely off the lows (other than that, there's not a whole lot else going on)

Paul is having none of it, and instead suggests a Yahoo-Build-A-Rumor sort of thing . . .

UPDATE: March 13, 2008 4:54pm

WSJ is now reporting this as true: Icahn Enters Microsoft-Yahoo Fray:

Billionaire investor Carl Icahn has amassed a stake in Yahoo Inc. and is leaning toward launching a proxy contest to unseat at least part of Yahoo's board, according to one person familiar with the situation.

Mr. Icahn bought roughly 50 million Yahoo shares since Microsoft Corp. on May 3 withdrew its unsolicited offer to buy Yahoo, the person said. Mr. Icahn is expected to decide Wednesday whether to launch a proxy contest -- a Yahoo deadline for board nominations looms Thursday -- and he currently has no assurances from Microsoft it would reconsider a Yahoo purchase. The person said that Mr. Icahn was unsure whether he would nominate a full or partial slate of candidates to try to replace Yahoo's 10-person board. A shareholder vote on any such nominees would take place at Yahoo's annual shareholder meeting on July 3.

Previously:
What Is Yahoo Actually Worth ? (May 4, 2008)
http://bigpicture.typepad.com/comments/2008/05/what-is-yahoo-a.html

Was a Private Equity Bid for Yahoo Thwarted by Microsoft ? (February 11, 2008)
http://bigpicture.typepad.com/comments/2008/02/private-equity.html

Markets: As Good With Elections As They Are With The Economy

Tuesday, May 13, 2008 | 02:30 PM

in Markets | Politics | Psychology/Sentiment

>

"What you're doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the 'wisdom of crowds' and other things, but a lot of that is just hype."

-California Institute of Technology economist Charles Plott
>

Interesting piece in the WSJ on prediction markets and politics, Traders' Calls Just as Bad On Elections. (I may have mentioned something about this in the past).

"John McCain's presidential campaign is doomed -- at least, if you still believe what political futures markets indicate. At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain's Republican Party gets a 41% chance of winning the popular vote for the White House.

Then again, six months ago, the Iowa markets gave Barack Obama less than a 30% chance of winning the Democratic nomination. Academic studies suggest these markets are more reliable than opinion polls, but that might be giving the markets too much credit.

Intrade futures had John Kerry beating President Bush well into the evening of Election Day 2004. They also said there was a good chance Mr. Obama would top Hillary Clinton in January's New Hampshire primary, which she won."

The article details many of my favorite quibbles: thinly traded, plagued by bad information, skewed participation, bubbles, head-fakes and manipulation.

What did it reflect when all those people bought all those Hillary Clinton and Rudy Giuliani presidential futures when each was a front runner? Somehow, the phrase "Wisdom of Crowds" just doesn't seem to capture the full essence of that . . .

Previously:
Iowa and Prediction Markets, January 24, 2004 http://bigpicture.typepad.com/comments/2004/01/iowa_and_predec.html

Why Prediction Markets Fail January 11, 2008 http://bigpicture.typepad.com/comments/2008/01/prediction-mark.html

Misunderstanding Prediction Market Failures February 14, 2007 http://bigpicture.typepad.com/comments/2007/02/misunderstandin.html

Source:
Traders' Calls Just as Bad On Elections
MARK GONGLOFF
WSJ, May 13, 2008; Page C1
http://online.wsj.com/article/SB121063385437486555.html

Ben Bernanke, Improvisor

Monday, May 12, 2008 | 08:03 PM

in Credit | Federal Reserve | Inflation | Markets

A must read piece is in the upcoming June 2008 Bloomberg Markets Magazine titled: The Improviser

"Ben Bernanke, the consensus-building academic who toiled in Alan Greenspan's shadow, is emerging as the most powerful--and inventive--Federal Reserve chairman in the 95-year history of the central bank. Paul Volcker says he's overreaching . . .

From Bernanke's standpoint, there are two major lessons to be learned from the Fed's reaction to the market crash of 1929 that are relevant today. The first is that the Fed should lower rates, not raise them, in the face of an economic contraction. The second is that the Fed must pay careful attention to the health of financial institutions, as lending plays a big role in economic growth.

In July 1928, when financial markets were still booming, the Fed raised its benchmark interest rates to 5 percent, the highest since 1921, effectively cutting the money supply, in order to reduce what it saw as excess speculation on Wall Street. It did so even though there were no signs of inflation, Bernanke said at the conference honoring Friedman. In October 1931, after the market crashed and GDP had begun to nosedive, the Fed raised rates again to prevent the dollar from falling in international markets. That made it harder for companies and individuals to borrow even as the economy was contracting 30 percent and deflation was setting in. A series of bank failures further reduced credit throughout the economy."

Go read the full piece now . . .

Source:
The Improviser
Steve Matthews
Bloomberg Markets Magazine June 2008
http://www.bloomberg.com/news/marketsmag/mm_0608_story2.html

Lowest NYSE Volume of the Year

Monday, May 12, 2008 | 05:01 PM

in Markets | Technical Analysis | Trading

Peter Boockvar notes:

Today's consolidated volume for NYSE names was a low for the year to date.

Helene Meisler notes:

It's a bear market -- and these low volume rallies are typical of short covering. (unless you believe all those dark pools are swallowing all the volume!).

As long as there are shorts in the market we will get rallies; Once the shorts cover we get a decline like last week.

Doug Kass goes even further:

I am starting to scale into shorts now.
My favorite? PowerShares QQQ (QQQQ).
My catalysts? The VIX and volume.

That's our surprising data point of the day.

Disconnect

Tuesday, May 06, 2008 | 07:04 AM

in Credit | Finance | Markets | Psychology/Sentiment

Today, we are going to go to Bill King, a long time observer of the stock markets. Bill writes the daily “Independent View of the News”, for institutional clients (you can contact him here).

This morning, he wryly observes:

"Despite the braying about the credit crisis being over, the economy about to rebound and stocks entering a new bull market, the fundamentals not only remain crappy, they are worsening.

Months ago, Goldman’s CFO said there was a historic disconnect between the stock market and the credit market. But that’s not the entire story. There is also a historic disconnect between L’Affaire Bear and the credit markets and the economy.

Because the US financial system did not implode when Bear was rescued, people assume all is well in the credit markets and financial system. This is a gross miscalculation. The Fed proved this last Friday when it expanded its record credit-creation gimmicks and loosed collateral standards to a new all-time low.

Bloomberg: The Federal Reserve said the proportion of U.S. banks making it tougher for companies and consumers to borrow approached a record in the past three months as the credit crunch deepened. A net 70 percent of banks increased loan rates over their cost of funds for commercial and industrial borrowing, according to the central bank's quarterly survey of senior loan officers released today in Washington. That compares with 45 percent in the January survey, the Fed said.

As we stated several missives ago, there is no way the US economy, which has never been more dependent on debt to generate GDP, can flourish without an enormous amount of debt creation. If debt is now being curtailed or rationed, there can be only one direction for the US economy.

Morgan Stanley economist Richard Brenner: DISCONNECT - The economic fallout begins: Financial turmoil peaked six weeks ago, but the economic downturn is only beginning. It’s still a recession, in our view, and that’s no longer in the price. Indeed, reflecting higher energy quotes and slipping growth abroad, we see weaker US growth over the next few quarters than we did a month ago

The Times of London: After the crunch, a crisis in banking confidence Credit risk – that of borrowers not repaying loans – was cited as the next-biggest risk after liquidity. Consumer indebtedness was also a worry. A senior banker in an American bank said: “Consumers are in worse shape than most observers appreciate … their failure rate will look like a tsunami to those lollygagging on the financial beaches.”

Bill adds a pretty astute trading call each day: Example:

Today – Traders will play for a Turnaround Tuesday to the upside. But S&Ps must hold 1400; oil and commodity must behave and FNM (-.64 exp) cannot issue a disturbing report…There is no economic news or impact events to worry about.

Great stuff -- thanks Bill.

Sources:
The King Report
M. Ramsey King Securities, Inc.
Bill King
Tuesday May 6, 2008 – Issue 3869
http://www.mramseyking.com/index.html

Fed Survey Shows More U.S. Banks Tighten Loan Terms
Scott Lanman
Bloomberg, May 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=a45nIbT1eKLo&

After the crunch, a crisis in banking confidence
Patrick Hosking
Times Online, May 6, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3876856.ece

Raiding the 401(k)

Monday, May 05, 2008 | 05:30 PM

in Economy | Investing | Markets | Psychology/Sentiment

Wow, I found this shocking:

"Borrowing from retirement plans is surging.

At the end of last year, 18% of workers had loans outstanding from their plans, up from 11% in 2006, according to a survey of 2,011 full-time employees released in February by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV's Transamerica Life Insurance Co.

With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits . . .

Last year, 52% of workers with annual incomes of $50,000 to $100,000 said they planned to rely primarily on 401(k) plans and IRAs to pay for living expenses in retirement, up from 46% in 2006, according to the Transamerica survey. The percentage counting on Social Security also increased, to 19% from 13%, while those counting on a company-funded pension plan dropped to 11% from 18%."

Sounds bullish to me . . .

Source:
Raiding the 401(k) Nest Egg
JENNIFER LEVITZ
WSJ, May 5, 2008; Page R1
http://online.wsj.com/article/SB120994246231866045.html

Oil > $120

Monday, May 05, 2008 | 11:36 AM

in Energy | Markets | Technical Analysis

While some traders feared that the dissolution of Yahoo would impact the market negatively, it appears that the $4 pop in Crude is the bigger issue.

This morning Crude Oil broke over $120, to set a new record, as reported by Briefing.com and Bloomberg COMDX ("Crude moves above the $120 level, now up $3.74 to $120.06").

>
Crude Oil June 2008

Source Bar Charts

You can get the most recent futures data via bar charts (including intraday prices)

Barron's Panic Euphoria Model

Thursday, May 01, 2008 | 07:30 PM

in Markets | Psychology/Sentiment

We have previously looked at the Smith Barney Panic / Euphoria gauge that runs in Barron's each week, wondering about its make up. A commenter asked earlier today about this, so I pulled an old chart along with the latest version.

What was the basis of the supposed deep panic in May 2005:

May 15 2005

Here we are in May 2008, and we are now racing thru neutral and heading towards Euporhia.

April 28, 2008

Any thoughts on this? What say ye?

Previously:
The Storm Before the Rally? (May 2005)
http://online.barrons.com/article/SB111602789595333463.html

Bear Markets Seduce Investors

Tuesday, April 29, 2008 | 07:22 AM

in Markets | Psychology/Sentiment | Technical Analysis | Valuation

One of the astute comments recently from Paul Desmond of Lowry's was that "Bear markets seduce investors to keep buying stocks."

Most investors do not study market history, but if they did, they would learn that the financial wreckage of the great crash of 1929 was not from that year, but rather, the bottom fishing in 1931 and 1932 ~~and 1933~~. Bottom fishing is the killer.

Consider this discussion of similar bottom fishing, only this time, in a specific sector: Financials:

The credit crunch, despite the strenuous exertions of Bernanke & Co, shows little sign of easing, much less ending. Yet, financial shares have risen from the grave and are enjoying a dandy whirl. As Stephanie Pomboy, the perspicacious proprietor of MacroMavens, points out, this pop amid dauntingly ugly corporate reports by the banks and the rest of the financial gang is something we've seen before, and often.

"Since the wheels first started falling off last summer," she relates, "the financials have posted no fewer than 12 rallies of 5% or more.... It bears note that none of these stints, separate or combined, have precluded the financial sector from shedding 28% over the stretch."

Maybe 13 will prove the lucky number. Stephanie, though, sounds more than a bit skeptical, and so are we. At some point, we suspect, investors are going to sober up and stop popping the cork to celebrate the latest lender to take a multibillion-dollar bath.

Amazing -- 12 rallies of 5%+, and the sector is down 28% from when the Fed began cutting.

S&P500 Financial Sector

Source:
Great Expectations
ALAN ABELSON
MONDAY, APRIL 28, 2008
UP AND DOWN WALL STREET
http://online.barrons.com/article/SB120916362804146087.html

Professional Money Managers Are Bullish

Monday, April 28, 2008 | 06:54 AM

in Economy | Markets | Psychology/Sentiment | Valuation

Barron's does a regular "Big Money poll" with domestic portfolio managers. Their most recent survey is the cover story for this week's mag.

What's the state of the professional fund manager's psyche? Bullish!

Consider these numbers:

50% consider themselves "Bullish (43%) or Very Bullish (7%)"
12% consider themselves "Bearish (12%) or Very Bearish (0%)"
38% consider themselves "Neutral"

Most pros are "looking over the valley" to an economic recovery: 74% believe the US is in a recession, but only 32% believe this will lead to a world wide recession.

As to the state of the stock market, according to the managers, it is cheap: 55% believe it is undervalued, while only 10% think it is overvalued (35% chose fairly valued).

The greatest risks to equities was surprising: It was not, according to the managers, disappointing earnings (10%) or higher interest rates (9%) or a recession (6%) or even hedge funds (6%) -- rather, it was continued credit market dysfunction (56%).

Lastly, 87% plan on being buyers of equities over the next 3 - 6 months; Only 13% said they expect to be sellers. Most are exposed to large cap (64%) versus midcaps (19%) and small caps (15%).

Here's a quick excerpt:

"JUST AS MOST MANAGERS are sanguine about stocks, they're optimistic about the U.S. economy's growth potential later this year.

Like legendary investor Warren Buffett, nearly three-fourths of our respondents think that we're already in a recession, even if the official numbers won't provide confirmation for months. Asked to predict the change in gross domestic product this year and next, the managers offered growth forecasts of 1.16% in 2008 and 2.11% in '09.

Nearly 68% of poll participants are quick to dismiss the notion that a U.S. recession would drag down the rest of the world. "Slowdown from a torrid pace? Yes. Recession? No," quipped one investment pro, while another noted that "the infrastructure build-out around the world should maintain a certain non-recessionary level of growth."

Others don't buy the notion of a neat "decoupling." "The U.S. economy is 27% of global GDP," wrote one manager. "It would be next to impossible for developing economies, which represent another 29% of global GDP, to overcome a slowdown in the U.S. and Europe."

The one thing that would make the survey much more valuable would be the history of the survey results. Plot that against the SPX for a few decades, and you might have a very useful tool for sentiment analysis.

~~~

One small caveat -- most survey respondents are liars: 74% claim to be beating the S&P500. An alternative explanation is that primarily the outperformers responded to the survey.

click for larger graphic

Table courtesy of Barron's

Source:
Back in the Pool
JACK WILLOUGHBY
BARRON'S, APRIL 28, 2008
http://online.barrons.com/article/SB120916344041346031.html

Schwab: We Don't Need Your Stinkin' Analysts

Monday, April 21, 2008 | 07:30 PM

in Earnings | Markets | Psychology/Sentiment | Valuation

Charles Schwab is raises an interesting issue regarding analysts:

"When Wall Street's almost 1,800 equity analysts figured U.S. earnings growth for the third quarter of 2007, they were 8.2 percentage points too high. Forecasts for the fourth quarter were wrong, too, overestimating profits by 33.5 percentage points, the biggest miss ever.

It's no wonder investors don't trust analysts, says Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., which oversees $1.4 trillion for clients. Merrill Lynch & Co., Bank of America Corp. and the rest of the securities industry aren't losing credibility because of anything sinister. The problem is they didn't get their math right after credit markets froze nine months ago.

As Alcoa Inc. kicks off first-quarter earnings season [Monday], analysts say 2008 will be the best year ever for U.S. profits, data compiled by Bloomberg show. Earnings for companies in the Standard & Poor's 500 Index will rise 10.7 percent, even after Federal Reserve Chairman Ben S. Bernanke acknowledged that the economy may fall into a recession and banks reported $232 billion of writedowns and losses, the forecasts show. . .

The S&P 500 dropped almost 10 percent in the first quarter, the worst start to a year since 2001, as increasing unemployment, record mortgage delinquencies and a retreat in consumer confidence signaled that the economy is falling into a recession. Even with the decline, analysts' recommendations to "buy'' or "hold'' U.S. shares climbed to 94.5 percent, the highest rate in more than five years."

There's an old Wall Street expression about analysts: You don't need them in a bull market, and you don't want them in a Bear market. The latter half of that expression is usually because of the earnings downgrades adding to stock price action weakness.

Question: What will happen to equity prices if and when analyst downgrades start coming ?

~~~

What say ye?

Source:
Schwab Asks Who Needs Analysts After Biggest Flub
Michael Tsang and Eric Martin
Bloomberg, April 7 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aafbjqdWG7pQ

Are Markets Leading or Lagging Indicators ?

Saturday, April 19, 2008 | 08:35 AM

Everyone "knows" that markets are leading -- not lagging -- indicators.

But are they really? It always gets stated so unequivocally that price contains information -- and I do not disagree with that belief.

However, I am not so sure it contains all the specific information that is often claimed. Indeed, we see short term market action used to bolster arguments in a terribly one-sided fashion all the time. When it goes this way, it is significant and meaningful; When it goes that way, well, not so much. It is a thesis applied inconsistently at best.

So are markets truly leading indicators?

I have a nuanced theory, and it goes something like this: There are so many varied inputs into equity markets -- sentiment, trend, liquidity, momentum, valuation -- anyone of which can be dominant at any given moment. Merely assuming markets are giving you a 6 month heads up into the future, based on recent action, is often unwarranted. There are simply too many examples where market prices are shown to be, oh, let's be generous and call it subject to misinterpretation.

Equity markets can and do provide some insight -- but they require careful interpretation, avoidance of broad generalities and oversimplifications. Unfortunately, that is often the stock in trade of many financial television shows and their T-head guests.

Let's take a look at some recent market action, and see what it might or might not be forecasting:

As the table above shows, this week saw US indices up between 4-5%. Many Bulls have seized on this as proof that the recession is now over, or will be soon enough. All clear! Its safe to get back in the water.

On the other side of the world, China's stock market has been cut in half over the past six months. Are their markets forecasting, as some Bears proclaim, that a worldwide economic slowdown is occurring?

Aren't these two beliefs rather inconsistent?

One of my favorite historical examples are the stocks of the Homebuilders. On their long, 75% decline, each and every rally attempt was seized on by housing bulls (usually parroting something Cramer said), proclaimed the bounce as proof positive that the Housing bottom was now in.

That turned out to be a very expensive misinterpretation of markets as a leading indicator.

Let's go back to the turn of the century: In late 2000, markets rallied right into the start of the recession; they sold off right into its end in October 2002 -- just as the recovery was beginning.

Here's one last chart, via Portfolio's Zubin Jelveh. Note that Consumer spending, GDP and Employment all peaked long before the October 2007 market highs.
>

Business Cycle Leads Equities

courtesy of Portfolio

So, are markets leading or lagging Indicators ?

My answer is that they can be both. But getting the correct interpretation involves careful review of the charts, sentiment reads, liquidity, momentum, market internals, and other data.

Insightful interpretation often yields clues, but is fraught with the possibility of error.

Previously:
The John McCain Market Selloff
http://bigpicture.typepad.com/comments/2008/03/the-john-mccain.html

Sources:
China Stocks, Once Frothy, Fall by Half In Six Months
JAMES T. AREDDY in Shanghai, CRAIG KARMIN in New York
WSJ, April 19, 2008
http://online.wsj.com/article/SB120856528917628111.html

Chart of the Day: The Business Cycle in Action
Zubin Jelveh
Portfolio, Mar 7 2008 12:59pm
http://www.portfolio.com/views/blogs/odd-numbers/2008/03/07/chart-of-the-day-the-business-cycle-in-action

Related:
Bloomberg TV has a special "China Focus Week” starting Monday, April 20th

Fear of Missing A Rally

Friday, April 18, 2008 | 02:15 PM

A friend who is a fund manager asked me the following question today: What's the greater fear, missing a rally, or owning equities that go down?

Today's rip-roarin expiration day market rally might help answer that question. The fear of missing the rally certainly appears to be the much greater sin -- at least to most professional managers today.

Now consider this interesting variation (This one should definitely get the attention of trend followers).

John Roque -- the very smart technical analyst for Natixis Bleichroeder -- John relates how he continues to hear on CNBC and from clients that “financials are cheap…we’re doing selective buying.” Or, “We’re buying financials down here. They’ve been destroyed.” Or, “The financials are raising capital and getting the deals done. The worst is over. We’re buying some good ones.”

Now, compare that attitude with typical investor interest/sentiment about oil, food commodities, or natural resource stocks. Extended! Overbought! Driven by speculation!

So if you are looking for a true contrary trade, which do you choose:

- The one in a long-term uptrend with no sign of any technical weakness, widely disbelieved the whole way up?

- Or, do you go for the relentlessly beat up, long term down trend -- the one if you are buying here, you are merely guessing the worst is over.

Thanks to John Roque of Natixis Bleichroeder, here's the relative Market Cap of S&P Energy versus S&P Financials:

courtesy of Natixis Bleichroeder

Bear Market Rally

Wednesday, April 16, 2008 | 02:30 PM

in Markets | Psychology/Sentiment | Trading

Per our prior discussion, several people asked for samples of the cover your shorts, long trade commentary. Note: The emphasis was that this was just a short term trade, and that a lower low is eventually out there.

Starting next month, all of the RR&A stuff will end up on the Fusion site.

Here's two recent comments:

BEAR MARKET RALLY
Tuesday, April 01, 2008 | 04:52 PM
http://bigpicture.typepad.com/comments/2008/04/bear-market-ral.html

Batten Down the Hatches!
Friday, February 29, 2008 | 03:48 PM
http://bigpicture.typepad.com/comments/2008/02/batten-down-the.html

Time for the Bounce
Wednesday, January 23, 2008 | 03:14 PM
http://bigpicture.typepad.com/comments/2008/01/time-for-the-bo.html

Note we discussed the January 23rd Time for the Bounce call both here and on CNBC.

The UnTradeables

Wednesday, April 09, 2008 | 07:00 PM

in Credit | Derivatives | Markets | Trading

There is an elephant in the room that I haven't yet seen discussed: The UnTradeables.

In our discussion last week on SFAS 157, there was a subtext not articulated: The broad category of items that are actually too illiquid to trade. These include "one offs" such as Dry Cleaning stores, non-chain restaurants, Mom & Pop shops.

They are untradeable because the amount of research into each item, relative to their market cap/size, makes it too inefficient. No one will spend $100k for the due diligence on a $200k store.

For a while, Pez candy dispensers were an UnTradeable -- until eBay created a market where these can be effectively bought and sold. However, the total value of all the Pez dispensers in the world wasn't measured in the trillions, or even 100s of billions. Even tho they are relatively illiquid, their small capitalization makes it viable. And don't forget, there is no leverage involved in any of the eBay items. Hence, no margin calls.

Now consider the size of the derivative marketplace based upon mortgages: Everything from RMBS to CDOs to CDC. It runs into the trillions.

If they cannot be effectively priced, are these products essentially untradeable?

Consider these factors:

• The price relative to the requisite cost of research/due diligence;

• The size of the market relative to the overall regular and ongoing demand for that investment product;

• The buyers and sellers with an expertise and knowledge of this paper.

This may be the crux of the issue with subprime/derivative problem: The paper is, or at least should be, Untradeable . . .

~~~

What say ye?

How Cheap Are Stocks ?

Wednesday, April 09, 2008 | 07:07 AM

in Earnings | Economy | Markets | Trading | Valuation

One of our intermediate concerns about equities involves valuations. While we recently made a short term buy call, that is merely a trade that could possibly run for a couple of weeks or months -- but not much longer. That call certainly wasn't made because stocks are such screaming bargains.

As to valuations: Its hard to really say that stocks are cheap here. At best, I believe we can argue that -- assuming that historically high earnings do not fade -- that stocks are not terribly expensive. But that is very different than saying they are cheap.

Have a look at this lovely table from Dow Jones Market Data Center:
>

Stocks Are Not Cheap

You can also see the Yields On Dow Stocks here (Thanks, Tim!)

These are not the sorts of valuations you find at the end of Bear markets. And, James Montier points out a factoid that makes the above even worse: Analysts lag reality. James adds the damning observation that "They only change their minds when there is irrefutable proof they were wrong, and then only change their minds very slowly."

Have a look at his chart below: It is a linear time trend out of operating earnings and the analyst forecasts of those earnings (so the chart simply plots deviations from trend in $ per share terms).

>

As the red line in the chart shows, the earnings recession is just now beginning. But as the black line reveals, analysts have yet to lower their earnings numbers. Montier notes that the downgrading of estimates has been highly constrained to the financials (and to a lesser extent the consumer sector in the US for 2007).

Roughly speaking US earnings ex financials have been revised down by 1.5% compared to nearer 4% for the market as a whole.

Thus, our contention that markets have only priced in a short, shallow recession . . .

Source:
Asleep at the wheel, or, How I learned to stop worrying and love the bomb
James Montier
Apr 07 2008, 02:52 PM
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/04/07/asleep-at-the-wheel-or-how-i-learned-to-stop-worrying-and-love-the-bomb.aspx

Related:
Schwab Asks Who Needs Analysts After Biggest Flub
Michael Tsang and Eric Martin
Bloomberg, April 7 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=anstoKu002tE&

Giving Away Content

Monday, April 07, 2008 | 07:00 PM

in Markets | Weblogs

I have been wrestling with an issue for some time now, and I am unsure of the best solution. Perhaps you fine folks can provide some insight.

About a year ago -- and, after considerable reluctance -- I allowed Seeking Alpha to reproduce my content on their site. In theory, it cost me nothing, and (in theory) would generate some traffic. Others apparently felt the same way, as SA went from aggregating a few blogs to dozens, if not 100s.

The only requirement I gave them was "no changing headlines, no deleting expletives, no pulling links, no editing at all;" It was all or nothing, fill or kill "

After that edict was violated for the 3rd time -- with an embarrassingly shitty headline of someone else's authorship -- I pulled my feed.

I am now trying to decide what to do with them going forward. Quite bluntly, I am unsure of the benefits derived. Perhaps some traffic, perhaps a link or two, but other than that . . .

The downside?

1. My friends in Marketing call the reposting a "Dilution of Brand."

2. Duplicative content weakens a site's GoogleScore (hence, there is a real cost to my magic GoogleRank when letting anyone else take content, authorized or not);

3. I do not have the time to patrol their comments for the usual trolls and asshats;

They have built up a nice business on the labor of other bloggers. According to 24/7 Wall Street, In February, Seeking Alpha had 797,000 unique visitors, and about three million total pages viewed (about double our stats).

I have a few options: I can kill the feed entirely, shift it to the Fusion IQ Blog, limit it to one post/day or X/week, or come up with some other arrangement.

But I am not sure what the ideal situation is.

~~~

What say ye?

UPDATE April 8, 2008 5:24 am

Wow, 120 responses, and nary a positive one in the lot. Pretty astonishing. Andy emails me that last month, Bill Rempel came to very similar conclusions . . .

For the sake of looking at both sides, can anyone suggest a reason(s) for staying with SA?

Quote of the Day: Pundits

Friday, April 04, 2008 | 01:15 PM

in Economy | Financial Press | Markets

My friend Helene (a well regarded technician) had an interesting quote yesterday on pundits:

Clearly, the recession that hasn't begun yet is over. At least, that's what all the folks who never saw the recession coming, then decided we were going to have one, and who now say it's over, believe. I know because I heard them say so on TV, time and again.

-Helene Meisler

>
Nicely stated, Helene. The only thing you may have missed is that therecessionthathasn'tbegunyetisover is already priced into the market.

You may now return to your originally scheduled inanity . . .

Source:
The Case for Higher Interest Rates
Helene Meisler
RealMoney.com 4/3/2008 8:37 AM EDT
http://www.thestreet.com/p/_rms/rmoney/technicalanalysis/10410487.html

FT: John Authers on Correlation Across Markets

Friday, April 04, 2008 | 03:00 AM

in Investing | Markets

Equity Fund Flows, Market Correlation, Yen, and Euro

click for video:

Source:
Short View
FT, March 27, 2008
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=697966559&fromSearch=n

Quote of the Day: Uptick Rule

Thursday, April 03, 2008 | 02:15 PM

in Markets | Taxes and Policy | Trading

Straight dope:

"To suggest that the removal of this rule is causing the markets to go down is to loudly announce 'I don't understand the credit crisis, and I am incapable of ever understanding it.'"

-Jim Bianco, WSJ

The article specifically mentioned Mario Gabelli, Martin J. Whitman, and Jim Cramer as opposing the elimination of the Uptick rule.

Source:
Blame Game: The 'Uptick' Rule Debate
GREGORY ZUCKERMAN
WSJ, April 1, 2008
http://online.wsj.com/article/SB120701263355579045.html

Jubak on the Paulson Plan

Wednesday, April 02, 2008 | 03:00 AM

in Markets | Taxes and Policy

Jim Jubak calls the Reform plan rally proof that there is nothing to it, other than business as usual.

click for video

Reform plan rally, no fix

via MSN Money

Meta Recursive April Fool's

Tuesday, April 01, 2008 | 08:51 PM

in Markets | Psychology/Sentiment

Okay, this is now getting downright silly. Let's clear this up, before it gets further out of hand:

Last night, I set to post my April Fool's gag -- about Google's new search engine that allows you to search one day into the future. It was cute, but tame, and as the comments reveal, caught a few people off guard.

Then this morning, I saw Doug Kass' April Fool's piece, announcing his conversion to the uber-bullish camp. It was obviously a joke, punctuated with an "I have decided to convert my dedicated short funds into long-only partnerships. April Fool's Day!"

Dougie's commentary was very cute, if perhaps obvious: A well know Bear flips Bullish.

After mulling it over for a few nano-seconds, and seeing the soaring futures, I decided to have a little fun with Doug: What if the market actually mistook his joke for real, and the market rallied on the faux news? Thus was born a meta April Fool's joke, about another April Fool's joke.

It was a parody about another parody, using the conceit that the first parody was to be treated as if it were believed by others as real.

A few people in the financial media got it right away -- especially those who were mentioned by name. Dave Callaway of Marketwatch, and David Gaffen of the WSJ knew they hadn't written any such articles. They swatted a way a few media calls about this.

Other sites were not so quick to dismiss the joke, and reported on it as if it were a straight piece of blogger induced news.

If there is any good news in this, the mainstream press were savvy/cynical enough to not buy into this goof; other sites were perhaps less grizzled.

~~~

For the record, this was a goof.

Doesn't anyone recognize an April fool's joke when they see one anymore ?

Sources:

deleted to protect the gullible, which is a word that surprisingly, is not in the dictionary. Look it up, you'll see...

BEAR MARKET RALLY

Tuesday, April 01, 2008 | 04:52 PM

in Economy | Markets | Psychology/Sentiment | RR&A

NOTE: This Market Commentary alert was originally emailed to subscribers at Ritholtz Research & Analytics on Tues 4/1/2008 after the market close

This is posted here not as investing advice, but rather as an example of a trading call for potential subscribers.

>>>

Markets staged a mighty rally today -- the type of rally that is typical in Bear markets. In normal, healthy markets, 400 point days are simply not necessary. They tend to take place in an environment of negative sentiment, risk aversion, and short selling.

Today’s Q2 starter was a similar affair.

However, overall volume was heavy and the up down volume was nearly 10 to one. This suggests that today's move will have some legs, and we looked at this present surge as a typical oversold rally that should run anywhere from two to eight weeks.

While this move began from a condition of deep negativity. This has quickly been replaced by an excess of speculative optimism. The clas