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Read it Here First II: The Productivity Paradox
Stephen S. Roach, chief economist for Morgan Stanley, has an op-ed in Sunday's N.Y. Times: The Productivity Paradox.
If that title sounds vaguely familiar, it may be because of something published here 6 months ago: The New "Productivity Paradox".
Although the language is quite different -- Roach is rather erudite and has an academic tone -- the concepts discussed are somewhat similar. I'm glad to see the meme we first launched into the world June 19th is finding greater resonance.
Source:
The Productivity Paradox
By Stephen S. Roach
NYT, November 30, 2003
http://nytimes.com/2003/11/30/opinion/30ROAC.html
Sunday, November 30, 2003 | 10:36 PM | Permalink
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Rookies manning the terminals!
Hope you had a Happy Turkey day; While I'm off in Chicago stuffing myself, I thought you might like to see what today looks like historically.
The day after Bird-day is often a winning one in the markets. My best guess is that the senior guys take the day off, leaving newbies and young'uns at the keyboards.
Here's a graphic representation of holiday market performance:
Source: VTO Report
pointer via Paul Kedrosky
Friday, November 28, 2003 | 06:00 AM | Permalink
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A touching holiday tale
Be sure to check out our charming holiday tale, the "Mensa Society Rejects," over at Essays and Effluvia.
Thursday, November 27, 2003 | 06:00 AM | Permalink
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Corporate Death Penalty
The first corporate casualty -- as in death -- appeared in the expanding mutual fund scandal. It was reported yesterday that Eliot Spitzer and the SEC "filed charges yesterday against the Security Trust Company, which processes fund trades, and three of its former executives. The Office of the Comptroller of Currency said it would force the company to be dissolved by March 31. The soon to be deceased company brokered deals between large hedge fund to make improper trades of the mutual fund firms.
"The company is history," Mr. Spitzer said."
This came about after Spitzer -- that's NY Attorney General Eliot Spitzer, if you're Nasty -- had warned the U.S. Senate that the mutual fund industry was in danger. The "punishments could be devastating."
Spitzer used language some considered combatitive and incendiary -- not me, but some. Spitzer testified that a "criminal conviction could be a "death penalty" for a brokerage company. He added "No company should be considered too big to fail."
The only reason Merrill Lynch was allowed to survive was that it employed so many people in the NY area. I suspect Spitzer didn't want to be responsible for putting all those people out of work; It was economics, not politics, because you just KNOW those Merrill employees ain't voting for him anyway. Killing Merrill would have been a devastating blow to the NY and NYC economies. That's right, Spitzer has the power to whack the entire NY economy. Such is the nature of the vaccuum left by the S.E.C., which the NYAG is more than amply filling. Instead, there was that small matter of a $1.4 billion settlement. Give the guy credit, for a lawyer, he certainly can add.
Still, that kind of strong talk has plenty of people scared, as well they should be. If I was Dick Strong, or Pilgrim or Baxter, I'd be hunting around for some serious legal talent about now.
"Some people on Wall Street are starting to worry about the possible repercussions of a rush to prosecute the people who manage $7 trillion of investors' savings." I would suggest that these people are worrying about the wrong things. They should think about putting the fire out before they start choosing new wall paper.
The Times also quoted former S.E.C. chairman Arthur Levitt:
"Although Mr. Spitzer's more aggressive stance and tone may seem improper to some regulators in Washington, it reflects the sinking attitudes of investors. "This kind of extreme language often brings about a reaction, but I haven't seen that reaction kick in yet because the public disgust is still running its course," Mr. Levitt said. "There are some dangers in what he's doing because he can overplay his hand," he added. "But right now the public is so disgusted with the business community that they want to see heads roll, they want to hear intemperate conversation and they want to see people go to jail."
I would submit that its more dangerous to allow these theives to operate unchecked. The bigger danger is for investors to feel the entire system is utterly corrupt beyond all repair. THAT would be devastating.
Source:
A Man of His Word
By Patrick Mcgeehan
NYT, November 26, 2003
http://www.nytimes.com/2003/11/26/business/26place.html
Banking Regulators Shut Down Security Trust Company
By Diana B. Henriques
NYT November 25, 2003
http://www.nytimes.com/2003/11/25/business/25CND-FUND.html
Wednesday, November 26, 2003 | 05:59 PM | Permalink
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Is the Fed playing a game of chicken?
I don't know if they are, but CNN/Money seems to think so:
"With stronger-than-expected numbers coming in almost daily and the Fed sitting on its hands, some observers say the central bank is playing chicken with the economy, creating the risk of unnecessarily painful interest-rate hikes down the road. But some other analysts see plenty of potential trouble spots for the economy and say the chances are small that the Federal Reserve will let inflation get out of control."Is the Fed lying? "So far, the Treasury market apparently believes the Fed's story that the economy needs to grow at a robust pace for a while before the central bankers can stop worrying about a possible, dangerous drop in prices, which would hurt corporate profits and economic growth.
But some economists don't buy it, believing the Fed is manipulating the bond market to keep long-term interest rates low. Though the Fed's main policy tool is a short-term overnight bank lending rate, it also can affect longer-term rates -- as was made painfully clear this summer, when some Fed bungling momentarily sent long-term rates soaring."
This strikes me as a bit chicken little: The long term, 20 year trend in interest rates and inflation has been downwards; Deflationary forces from overseas (China & India) are pressuring prices lower; Huge productivity increases constantly pressure the cost of goods and services lower in the U.S.
I see little danger of inflation, and or more concerned about the economy faltering by mid-2004 -- a situation I presently see as a 40% possibility. Hence, the longer they leave rates low, the better.
Source:
The Fed's game of chicken
By Mark Gongloff, CNN/Money Staff Writer
November 25, 2003: 5:45 PM EST
http://money.cnn.com/2003/11/25/news/economy/fed_chicken/index.htm
Wednesday, November 26, 2003 | 12:00 PM | Permalink
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GDP Is Revised Up
Company Profits Soared By 30% In 3rd Quarter: "The economic recovery has picked up momentum, boosting the bottom lines of a wide range of U.S. corporations. The Commerce Department reported that profits at American companies rose 30% in the third quarter, compared with a year earlier. That was the largest year-over-year growth in profits in 19 years and was enough to lift the annual pace of profits above $1 trillion for the first time in history."
Biggest Gain in Two Decades Came as GDP Is Revised Up;
Red-Hot Pace Seen Cooling
"The corporate profit figures were part of a broader report on economic output, or gross domestic product. The government revised up its estimate of the annual rate of third-quarter GDP to 8.2% from the previously reported annual pace of 7.2%. The revision in GDP -- the total value of the nation's goods and services -- occurred largely because companies didn't reduce inventories as aggressively as previously thought in the face of booming consumer demand. Less inventory reduction meant companies had to produce more goods to keep up with demand.
Source:
Company Profits Soared By 30% In 3rd Quarter
By Jon E. Hilsenrath
Wall Street Journal, November 26, 2003
http://online.wsj.com/article/0,,SB106976683161752300,00.html
Tuesday, November 25, 2003 | 11:39 PM | Permalink
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Holiday Discounts
One last follow up to the "Will they or won't they" discount discussion:
* French Connection (FCUK)
30% off
December 14-15
http://www.frenchconnection-usa.com/usa/bulk/0312/index3.html
* J. Crew
$30 off $100 purchase and $50 off $150 purchase
through 12/15
http://www.jcrew.com/content/email/F02/1210/cs.jhtml
* Steve Madden
30% off online only
12/13 - 12/16
http://www.stevemadden.com/
* Nine West
50% off select styles and $10 off purchase of $75 or more
through 12/31
http://www.niest.com/email/special2.html?ep_tag=50SALE
* Kenneth Cole
40% off
Dec 13 - 15
http://yen.nysportbike.com/misc/kencole.gif
* 1 800 Flowers
15% off through next year Internet only
http://yen.nysportbike.com/misc/flowers.txt
* Popcorn Factory
15% off through next year
http://yen.nysportbike.com/misc/popcorn.html
* Shelli Segal
Laundry 30% off Dec 13 - 15 (in store only, SoHo & Costa Mesa)
http://yen.nysportbike.com/misc/shellisegal.doc
* Bath & Body Works
free spa foot cream with $10 purchase. Through 12/21.
http://yen.nysportbike.com/misc/bathbody.html
* Jimmi Choo
30% off shoes
on Dec 15th and off boots Dec 27th. (Might be NYC only - unsure).
http://yen.nysportbike.com/misc/jimmi.html
* Ann Taylor
$20 off purchases of $125, $60 off purchases of $250 or more
12/8 - 12/11
http://yen.nysportbike.com/misc/anntaylor1.pdf
* Ann Taylor Loft
$15 off $50 or more, $30 off $100
12/8 - 12/11
http://yen.nysportbike.com/misc/anntaylor2.pdf
* Ann Taylor Factory Store
$10 off $75 or more, $20 off $150 or more 12/7 - 12/11
http://yen.nysportbike.com/misc/anntaylor3.pdf
* Footlocker
30% off
Dec 5-Dec 8
http://ww2.footlocker.com/2002/fl1203a/
* Club Monaco
30% off
Dec 6-8
http://www.clubmonaco.com/events/120302/CSN_Email_US.htm
* Diesel
20% off from
11/27 - 12/24
http://www.diesel.com/propaganda/eggcellent/usa/voucher.html
* Gap, Old Navy, Banana Republic
20-30% off
12/2-12/8 (dates for Old Navy, click for other dates)
http://yen.nysportbike.com/misc/gap.txt
* Gap
15% off
through 12/9
http://yen.nysportbike.com/misc/gap.doc
* Sephora
20% off
through 12/3
http://yen.nysportbike.com/misc/sephora.txt online
* Liz Clairborne
30% off
12/9 - 12/13 (Store list here http://yen.nysportbike.com/misc/storelist.doc)
http://yen.nysportbike.com/misc/liz.pdf
* J Crew
30% off sweaters
12/3 - 12/9
http://yen.nysportbike.com/misc/jcrew.doc
* Brooks Brothers
15% (25% with BB card) off
Dec. 5 only
http://yen.nysportbike.com/misc/brooksbro.html
Tuesday, November 25, 2003 | 05:19 PM | Permalink
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Congress cuts S.E.C. budget
"Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself:"
Despite the ever widening scandals, the yawning chasm between NYAG Eliot Spitzer's effectiveness and that of the underfunded, understaffed, and moraleless S.E.C., our brain trust in Washington has decided to cut funding for enforcement:
"WASHINGTON -- House and Senate Republicans, negotiating an $821 billion-plus year-end spending package, have taken a decidedly pro-business slant to help pick up conservative support after Thanksgiving, when the leadership hopes to win final passage . . .And amid the growing mutual-fund scandal, the Securities and Exchange Commission, which enjoys bipartisan support, will lose a third of the $96 million budget increase it expected until recently. The decision surprised Sen. Paul Sarbanes (D., Md.), who sponsored corporate-reform legislation in the last Congress that committed the body to a steady increase in funds for the SEC. "Once you push back, you lose the momentum," Mr. Sarbanes said."
Seriously, how unconscionably clueless do you need to be to think the S.E.C. is overfunded? It's simply frightening that we are governed by these clueless morons (of both parties).
I am now officially depressed.
Source:
Omnibus Spending Plan Packs Business Perks
House and Senate Leaders Seek Conservative Support For $821 Billion Package
By David Rogers
Wall Street Journal, November 24, 2003
http://online.wsj.com/article/0,,SB106963342827726900,00.html
Alarms Sounded On Cost of GOP Bills
Lawmakers Increase Spending to Win Votes
By Jonathan Weisman
Washington Post Staff Writer, November 24, 2003; Page A01
http://www.washingtonpost.com/ac2/wp-dyn/A8763-2003Nov23?language=printer
Mark Twain
http://www.twainquotes.com/index.html
Monday, November 24, 2003 | 07:01 PM | Permalink
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Catalyst Week!
With two consecutive down weeks behind us, and a long holiday weekend ahead, the market will be seeking fresh catalysts to drive the trading action. GDP is released on Tuesday, and then a long slew of economic reports are concentrated on Wednesday morn. All of these can move the markets, and as such are at the top of our watch list.
By Friday, the rookies will be manning the terminals, as Wall Street fields a skeletal staff. Expect the volume to decrease as the week progresses. The lower volume – and less experienced traders – is what makes the holiday markets relatively easy to push around – especially this Friday. It is part of the reason why seasonal patterns near Thanksgiving have been mostly positive (see chart nearby).
In addition to seasonality patterns, we continue to watch other factors very closely, especially for their impact on Sentiment: Mutual Fund Scandals, Oil Price rises, Dollar declines, and the ever present threat of domestic Terrorism.
The near oversold conditions mentioned here last week did not reach dramatic levels. As such, market buys at the present levels have a higher degree of risk than when we see more oversold conditions. The dip-buyers have become so prevalent that the markets may not be able to reach the extremely oversold conditions so conducive to high probability trades on the long side. That’s also what’s contributing to a lack of a 5% pullback mentioned last week.
Seasonality suggests not only the above-mentioned Thanksgiving pattern, but the year-end rally as well. Starting near the middle of the December, the markets tend to gain steam as last minute contributions to retirement accounts get put to work. Tax selling sets up the January effect: Previously dumped small caps get re-purchased once the 30 day “wash rule” period has elapsed.
The action of the markets the past 2 weeks has been intriguing relative to the prior 6 months. Notably absent from the fray have been the short sellers: Their spasmodic and panicky covering is part of what fueled at least some of the previous rallies. Despite the recent market weakness, there has not been much in the way of “piling on” by the aggressive shorts. Whether this means they been scared out of the market is not certain, but it certainly is worth watching.
Maintain long positions, as we continue to watch market internals for changes in tone; A 5% pullback would be our excuse to become more aggressive buyers.
Monday, November 24, 2003 | 12:06 PM | Permalink
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Chart of the Week: Day Before/After Holidays
The periods around certain holidays have some historical seasonality worth paying attention to: In particular, Thanksgiving, Christmas and New Years seem to have a very positive correlation.
The Day Before/After Holidays (2/8/71 to 11/21/03)
Source: VTO Report
The trading session following Turkey day has seen the Dow up 9 of the past 10 years (Don’t get too excited, as the prior 10 years saw only 4 of 10 up days). Regardless, barring extraneous events, the odds favor this Friday being a day in the green.
Random Items:
States Finally Emerging From Red Ink
As winter nears, worry over energy costs
Strategist weighs in on big indexes
What PC buyers want
No One Can Save Wall Street's Lower Class
The New Rules of Storage
Quote of the Day
“The dimmed outlines of phenomenal things all merge into one another unless we put on the focusing-glass of theory, and screw it up sometimes to one pitch of definition and sometimes to another, so as to see down into different depths through the great millstone of the world.”
-James Clerk Maxwell
Monday, November 24, 2003 | 12:04 PM | Permalink
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