The Big Picture

« March 2005 | Main | May 2005 »

A few items worth reviewing

Saturday, April 30, 2005 | 09:16 AM

in Commodities | Economy | Markets | Weblogs

Its a rainy day here in the NorthEast, so for those of you who remain tethered to your computers over the weekend awaiting a change in weather, here are a few things worth exploring:

• Oil has obviously been roiling the markets, and its worth peering deeper into its relationship with the economy. Here's a wrap of recent posts, comments, charts and resources on the slippery black stuff. Most valuable post: The Oil Research Resources.

• I've gotten requests for some of my favorite market related blogs and resources. Instead of writing them all up. I put together a "meta page" of my favorite sources of other sources: The Meta-meta page. There are few guarantees on Wall Street, but here's one: I personally guarantee you will find something in this collection that will become utterly invaluable to you. And, you will be dumbfounded that all this is available for absolutely free.

• Please bear with a little shameless self-promotion: The Apprenticed Investor series has developed into a fascinating area of discussion. The idea is to go beyond mere stock selection, to get at the investor behaviors that cost you money or missed opportunities. This probe into a variety of overlooked subject matters in investing has definitely struck a nerve. The feedback has been unlike anything else I've ever done on the site. Please check it out.

• A fascinating study was out this week, revealing that most Americans have a "poor grasp of economics. Go figure: Can't invest, don't know understand economics, and nisunderstands the concept of risk management. Is it much of a surprise that plans to privitize social security -- which looked like a slam dunk post-election -- are in trouble?

• Lastly, a little goofy fun: A friend directed me to "Vintage Stock Market Predictor Computer" up for sale on eBay. Its the very same one mentioned in Alan Abelson's Up And Down Wall Street column in Barron's this weekend. Good luck finding one for yourself (I ain't selling mine).

Meta Meta-Market Resources

Saturday, April 30, 2005 | 06:51 AM

in Markets | Weblogs

I use a few resources that are edited collections of other market resources. These web postings' reason for existence is to refer to other related data sources. I call them Meta-pages (Meta-filter, Meta-Index, etc.)

We're going to out Meta them all: This page will reference all the meta pages I regularly use that refer to other sources: Its a Meta page of Meta-Pages: A Meta-Meta Market Resource Page.

Be forewarned: Anyone of these links contains enough other links that you can get lost in them for hours. The particularly egregious sinkholds are labelled a such.

Let's get started:

>
• The Stock Market, Economics and VC Blog Resource Page http://www.seekingalpha.com/2005/03/the_finance_blo.html

Contains a "categorized list of the best stock market, economics and venture capital blogs," along with a description of each. A great place to start learning more about market related blogs.

>

• The Market Resource Page
http://www.etfinvestor.com/2005/04/the_market_reso.html

This collection of mostly larger size firm's research and commentary. Before you discount this as too mainstream, the list is heavy with contrarians and atypical, outside the box strategists. Yes, there are entries form well know sources like Warren Buffett (Berkshire), Piper Jaffray (China tech), Dow Jones (Fund Stats) -- but there are plenty of odd ducks whose off-center perspectives have put together an enviable and track record, including:

Grantham, Mayo, Van Otterloo & Co. LLC (GMO)
Paul Kasriel The Northern Trust Company
Legg Mason's Bill Miller
Oakmark's Bill Nygren
Pimco's Bill Gross
Raymond James' Jeffrey Saut
Morgan Stanley's Steve Roach
Definitely check it out.

>
• econRT.com
http://www.economicsroundtable.com/index.php/rt/opinions/76

The Economics Roundtable is a headline metapage of recent posts from a few dozen economic related blogs. Its a great meta-source to see whats blossoming in the world of Dismal Science bloggings. It is global in scope, and covers authors from yours truly to Larry Kudlow to everyone else in between. Its another giant time sinkhole.

>

• HedgedFund.org
http://www.hedgedfund.org/hedge_fund_links.htm

More than just Hedge Fund related links (but there are a ton of them, too) its a monster linkfest: News links are broken down into several categories: Global, US and Financial. There are pointers to pages on the Economy, Market and Political Sentiment, general Trading/Research, on Stock-specific Research, as well as Trade Journals/Publications.

HedgedFund.org is another enormous timehole, but you I guarantee you will find lots of resources of value.

>

• Ed Yardeni
http://www.yardeni.com/

Formerly of Prudential, now with Oak Associates, Mr.Y2k himself (he was wildly wrong about the century rollover) has an interesting page of data tools, charts, economic calendars, commentaries, and other market related items. Even tho Doc Yardeni has been way too bullish throughout the downturn, his perspectives are always interesting and well thought out (if not quite prescient). I like to be challenged in my thinking, and Yardeni does just that. A bit more geek/tech oriented than the rest of the items mentioned here, its worth exploring.
>

• RGE Monitor (Roubini Global Economics)
http://www.stern.nyu.edu/globalmacro/

A daily digest of blog postings (ranked somehow) and a list of top readings from the business press and academia make this site a deep and broad selection of economic related issues.

OK! That's all I have for this morning. Given everything I referenced above, you should have enough sources for reference data, commentary and resources to keep you busy for the next 2 years . . .

Understanding the Post-Bubble Economy

Friday, April 29, 2005 | 06:45 PM

in Economy | Markets

"Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."

-- John Maynard Keynes, Tract on Monetary Reform

Overview:

- Economists and fundamental analysts often miss cycle turns.
- There's always another recession -- and expansion -- coming (eventually).
- Learn to separate hand-wringing permabears from credible commentators.

If you have been listening to the financial press recently, you might be shocked (shocked!) to learn that inflation has been increasing and the economy is slowing.

You don't say?

Of course, readers aren't just now discovering that this economy has been suffering from inflationary pressures for more than two years, as a chart of the CRB shows.

It's the same with GDP. Follow the numbers: The third-quarter 2003 number was 7.8% (originally reported as almost 9%), the next quarter's was 4.2% (originally 6%+) and 2004's quarterly data came in at 4.5%, 3.3%, 4.0% and 3.8%.

This week, we learned the first quarter of 2005's number of 3.1% was way below consensus expectations. While some will tell you that 3%+ GDP growth is pretty decent, it's the trend of waning momentum that is the issue. An early mentor of mine used to admonish traders to not look at the photo, but to watch the full movie instead.

So much for the idea of kinda-sorta-eventually-efficient markets hypothesis.

Slowing GDP and rising inflation have been discussed on this site for over a year now. The investing issue with macroeconomic concerns is not the actual data, but how -- and when -- that data affects psychology. It's a question of timing. The commentators who are first now discovering weak GDP and inflationary pressures are not much help to you once the ocean is flat again.

Continue reading "Understanding the Post-Bubble Economy"

New Column up at Real Money (04/29/05)

Friday, April 29, 2005 | 06:37 PM

in Economy

RealMoney

.
My latest Real Money column, "Understanding the Post-Bubble Economy" is up. The column contains several themes which readers of the Big Picture will recognize, covering issues from Wages and Consumer Spending to How the Fed has allowed Inflation to paint it into a corner to the importance of Understanding The “Kitchen Sink Economy."

Here's an excerpt:

"Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." -- John Maynard Keynes, Tract on Monetary Reform

If you have been listening to the financial press recently, you might be shocked (shocked!) to learn that inflation has been increasing and the economy is slowing.

You don't say?

Of course, readers aren't just now discovering that this economy has been suffering from inflationary pressures for more than two years, as a chart of the CRB shows. It's the same with GDP. Follow the numbers: The third-quarter 2003 number was 7.8% (originally reported as almost 9%), the next quarter's was 4.2% (originally 6%+) and 2004's quarterly data came in at 4.5%, 3.3%, 4.0% and 3.8%.

This week, we learned the first quarter of 2005's number of 3.1% was way below consensus expectations. While some will tell you that 3%+ GDP growth is pretty decent, it's the trend of waning momentum that is the issue. An early mentor of mine used to admonish traders to not look at the photo, but to watch the full movie instead.

So much for the idea of kinda-sorta-eventually-efficient markets hypothesis.

Slowing GDP and rising inflation have been discussed on this site for over a year now. The investing issue with macroeconomic concerns is not the actual data, but how -- and when -- that data affects psychology. It's a question of timing. The commentators who are first now discovering weak GDP and inflationary pressures are not much help to you once the ocean is flat again.

Source:
Understanding the Post-Bubble Economy
RealMoney.com
4/29/2005 3:30 PM EDT
http://www.thestreet.com/p/_rms/rmoney/barryritholtz/10220919.html

Most Have Poor Grasp of Economics

Friday, April 29, 2005 | 11:33 AM

in Economy

We previously looked at the question of Why You Suck at Investing. Our concerns were of physiological and emotional aspects, rather than purely knowldge based.

But it turns out thats a problem also: A Harris Interactive survey suggested that the typical American does not know enough about economics to prosper in a self directed retirement system.

The public's understanding of economics is bad -- even worse than the economists' understanding of economics:

• fewer than 40 percent of American adults have ever tried to live on a budget;
• large numbers of Americans cannot tell the difference between a stock and a bond;
• only 18 percent of Americans know at what age they will be eligible to retire with full benefits;
• half of American adults did not know that if they kept cash, they were at greater risk of losing ground to inflation than if they invested it elsewhere.

Here's an excerpt from the NYT:

"Given recent signs that inflation might be increasing, this [survey] is quite a frightening finding," said Alan B. Krueger, an economics professor at Princeton University who served as chief economist for the National Council on Economic Education, a business group that commissioned the survey.

The survey of 3,512 adults and 2,242 high school students also suggested that the intense attention Americans have paid to the pronouncements of the Federal Reserve chairman, Alan Greenspan, in the last few years had done little to help people grasp the role of interest rates. One-third of adults were unable to explain how falling interest rates would affect business.

Other analysts said they thought that the findings added to a growing body of evidence that the typical American is poorly equipped to take advantage of what proponents call the ownership society: a future in which individuals are free to invest their own retirement money, rather than having to accept the returns offered by the Social Security program or a group retirement program at work, like a pension plan. Many surveys have shown the public has doubts about the Social Security program, with young people, in particular, confident that they could do better by investing on their own.

Ahh, the classic investor foible of over-confidence. There have been far too many studies to waste much time on this, other than to once again, direct your attention to Thomas Gilovich's "How We Know What Isn't So."

Source:
Survey Finds Many Have Poor Grasp of Basic Economics
By MARY WILLIAMS WALSH
April 27, 2005
http://www.nytimes.com/2005/04/27/business/27survey.html

Economists react to GDP

Thursday, April 28, 2005 | 06:05 PM

in Economy

wsj_format_logo

>

We once again rely on the very excellent Online WSJ for a quick mind meld with the Dismal Scientists re: GDP. Once again, the under was the way to bet!

Economists React
April 28, 2005 12:55 p.m.

The Commerce Department reported Thursday that U.S. gross domestic product expanded at a 3.1% annual rate in the first quarter of 2005, beneath the expectations of forecasters and the weakest showing for growth in two years. Data within the report suggested that high oil prices were proving to be a strain on consumer and business spending, and that core inflation pressures were beginning to accelerate. Here's a sampling of what some economists on Wall Street and elsewhere had to say about the numbers:

* * *

In any normal expansion, you have strong, moderate and weak quarters and this one was not even a weak one. So don't panic. Consumer spending held up in spite of a slowdown in motor vehicle purchases. That was expected after we had a huge jump in sales in December. … Inflation is slowly but steadily accelerating and there is little reason to think it will ease anytime soon. Indeed, the only thing keeping it down is quality changes in durable goods.

-- Joel L. Naroff, Naroff Economic Advisors

~~~~

Conventional wisdom on this number is that real GDP growth is slowing, which could lead the Fed to pause at some point. However, our theme remains that monetary policy is very accommodative, which we see fueling higher inflation and a wider trade gap. There is plenty of private nominal demand growth with C + I rising at 7.7% in the first quarter. However, between this number and the bottom line of 3.1% real GDP growth, we have rising inflation and surging imports. We do not expect the Fed to pause and speeches like [Fed Governor Donald] Kohn's on imbalances suggest to us the Fed is paying attention to these themes.

-- John Ryding, Conrad DeQuadros, Elena Volovelsky, of Bear Stearns

~~~~

Business capital spending growth slowed markedly and, with the slump in capital goods orders late in the quarter, may portend an earlier and more abrupt slowdown than we had reckoned on. With both inventories and the trade balance fairly close to our guesses, we can make no presumption about the direction of future revisions to Q1 growth.

-- David H. Resler and Gerald Zukowski, Nomura Securities International

~~~~

The Fed faces a Hobson's choice: reigning in inflation or tolerating unacceptable levels of unemployment. Higher prices for imported oil are weighing down consumer spending, and the growing trade deficit is discouraging business investment. Recent retail sales and durable goods orders confirm these trends. Paying so much for gas, consumers can no longer hold up the economy, and the anticipated boom in business investment is not materializing to pick up the slack.

-- Peter Morici, Robert H.Smith School of Business, University of Maryland

~~~~

Q1's sharp jump in inventories sets the stage for a correction in the pace of stockbuilding in Q2. We look for inventories to subtract measurably from Q2 growth, although much of the drag will be offset by lower imports (Import growth tends to be particularly sensitive to inventory accumulation).
-- Bethany B. Baldino, J.P. Morgan Chase

If we need to understand what's happening to the economy right now, next week's employment report is a much bigger deal. We got the expected number today for weekly initial unemployment claims and that suggests that whatever is going on with GDP, the job market is not falling apart. Consumer spending was weaker than expected, but for me the real surprise is how strong spending has remained in the face of higher gas prices. The $50 it now takes to fill the SUV is money that isn't available to spend at Burger King or Wal-Mart.
-- Bill Cheney, John Hancock Financial Services

Source:
Economists React
April 28, 2005 12:55 p.m
http://online.wsj.com/article/0,,SB111469678298719525,00.html

Avoid Market Volatility with a Vintage Stock Market Machine Predictor Computer

Thursday, April 28, 2005 | 10:59 AM

in Investing | Markets | Media

Yes folks, you too can avoid days like Tuesday and Wednesday (and today!), if only you had a Vintage Stock Market Machine Predictor Ticker Compute r -- (and you know there's no way I am giving up mine!)

Well, unfortunately, you missed the opportunity, because it was up for sale on eBay, item number: 5574815810, but was sold for $167.50 as of Apr-26-05 13:05:44 PDT

Here's the description:

Up for bid is a stock market indicator that tells when stocks should be bought or sold based on market conditions. This would be a great gift for anyone in the stock market business. A bit of old history right here. This is a vintage piece which is evident by the Dow dial only going up to 2000! The face of the unit is in great condition. There are no major dents, dings, scratches or anything else that I could on the face or the dials. The device is enclosed in a wooden case on five sides. I wasn't able to get the device out of the wood box, to exam it further. There are special screws that keep it in place. The wood, I believe is walnut and it's in good condition. There are light scratches on it and it could use a good oiling Only the top left and righthand corners have minor dents/bruisings. You might be able to see them in the photo. All the lights, buttons and meter work just fine on this machine. The rotary switches turn smoothly on some knobs, and are tougher to turn on others. The DOW dial is frozen in place, however. It would need to be broken free or replaced for it to operate smoothly. I don't have the owner's manual and don't know how to operate it.

The knobs and buttons are marked as follows:

Rotary Dials: Dow from 0 to 2000, Stock Price from 0 to 100, "A" from 0 to 200, "B" from 0 to 240, "C" from 0 to 100.

Red Button(L) = "Push to Read", Red button(R) = "Push to Reset", Left light between red buttons = "Sell Only", Right button between red buttons = "Buy Only",

Flip Switches: Market Trends = Up or Down, Stock Price = 1000 or 100, Range = "C".

I think its a goof -- but apparently it was sold on eBay.

Source:
eBay
Item # 5574815810
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=5574815810

>
UPDATE: May 2, 2005 7:47am

Barron's picked up this goofy little commentary -- Alan Abelson no less!

Demonizing Santa Claus
http://online.barrons.com/article/SB111481127270021070.html

I am greatly humbled . . .

GDP: el stinkeroo!

Thursday, April 28, 2005 | 09:15 AM

in Economy | Markets

Guess what? The Dismal set overshot again:

via WSJ: "The U.S. economy expanded at the slowest pace in two years in the first quarter, as high energy prices helped put a damper on spending by consumers and businesses and forced the already huge trade deficit to widen."

This was the economy's most sluggish showing since the first quarter of 2003, when economic activity expanded at a 1.9% clip. That suggests the stimulus from 2003 is fading.

"Surging prices for crude oil and gasoline helped to damp both consumer and business spending. Consumer spending, which accounts for more than two-thirds of all U.S. economic activity, rose 3.5%, lower than the 4.2% gain seen in the fourth quarter. Business investment increased 4.7% after rising 14.5% in the fourth quarter, and spending on equipment and software recorded its weakest showing in two years.

The slowdown in spending was largely expected after a weak reading on March retail sales and a 2.8% slide in demand for big-ticket manufactured goods. In Thursday's report, demand for durable goods was flat after rising 3.9% in the first quarter."

Here's 15 year chart showing year-over-year GDP -- topping and sliding.

click for larger chart

Source: Briefing.com, WSJ

Even worse than the slow growth is the additional prcie inflation: "Chain-weighted GDP price index) a very broad measure of economy-wide inflation) increased at a robust 3.3% rate. According to the WSJ, that's the fastest rise since an identical jump in the Q1 2001. (Last qaurter was a slower 2.3%).

Of course, none of this bodes well for the longer term macro-economic environment.

UPDATE: April 28, 2005 2:36pm

Some more good charts here

>

Sources:
High Energy Prices Place Curb on Economic Growth
U.S. GDP Expanded at 3.1% Rate in 1st Quarter; Spending Cools Off
WALL STREET JOURNAL ONLINE, April 28, 2005 9:52 a.m.
http://online.wsj.com/article/0,,SB111469118040019450,00.html

Durable Goods: Bleech

Thursday, April 28, 2005 | 06:55 AM

in Economy

Overlooked in yesterday's Oil-a-palooza was March's data on Durable Goods. To say the least, the number stunk the joint up. I expect there is a ways to go before we are in danger of a recession --like 12 to 18 months, this number merely confirms our prior expectations of fading stimulus in the post-bubble environment.

This is the 3rd month in a row Durable-Goods Orders declined; Add to that the ongoing softening of LEI data. Soft patch? Puh-leeze. My working assumption is that anyone spouting that nonsense has a soft patch of skull, covering an even softer patch of gray matter.

The chart is rather revealing:

click for larger chart

Source: Briefing.com, WSJ

Allow me to take this moment to trash some of my fellow pundits, commentators, and Wall Street colleagues. I've been reading (mostly from the Bulls) an unholy assortment of laments about this data. They have used it as an excuse to ratchet down GDP numbers, SPX expectations and other data points.

While we should always welcome signs of flexibility and the willingness to admit error (a relative rarity on Wall Street), lets also recognize that advice telling someone to close the barn door after the horse runs away is really not worth all that much.

The prior expectations for GDP numbers (out at 8:30 today) and Personal Income and Spending (tomorrow) reveals a fundamental lack of understanding of where we are in the cycle. Telling us about it afterwards is pretty pointless from an investment perspective. And you can see how much less than worthless -- i.e., costly -- it has been to remain fully invested. Funny, the underlying economic weakness was visible to anyone who was willing to drill down and do the heavy lifting. Its only now being revealed to the headline reading public (oh, and that's another wonderful investment strategy -- wait til the news is headline material!)

You know my views on NFP, GDP and Income for some time now.These are the sorts of data points which strategists and economists should be looking to before they are released . . .

Here's the data overview from the WSJ:

Highlights

March durable goods orders -2.8%, -1.0% ex-transportation.

Feb revised to a -0.2% decline from 0.5% gain to leave only declines in 2005 to date.

Key Factors

Final Q1 GDP input prior to release and will force strong downward revisions to business investment.

The strong 2005 declines and run off of the strong 6% year ago gain sliced annual growth to -3% yoy from 11% yoy in Jan.

Y-o-y capital goods (and ex-defense, ex-def/aircraft) are also lower than a year ago. Ex-transportation at 3.4%.

March non-defense capital goods orders dover -6.2%, ex-def/aircraft fell -4.7%. Transportation orders plunged -7.8%.

The severe decline and downward revisions removes the shine from 2005 business investment as ...

strong profits and large corporate cash flows continue to support business investment after the tax related downturn.

Sources:
March Data Show Big Drop in Orders Of Durable Goods
Michael Schroeder
The Wall Street Journal, April 28, 2005; Page A2
http://online.wsj.com/article/0,,SB111460455435918206,00.html

Petroleum Day Wrap Up

Wednesday, April 27, 2005 | 08:14 PM

in Commodities | Markets

Its been sometime since our last Oil overview (All about Oil, October 2004). Lets wrap up Oil Wednesday (Alternate title: We've Gone Oil Crazy!) with an overview of today's info:

All about Oil (XOI chart)
Curious as to how oil companies have done over the past 2 years?
Answer: Spectacular

China's Syndrome? (commodity demand)
Much of the rise in Oil -- as well as other commodities traces back to China. The people blaming terror premiums and speculators know not what they say

Oil Demand versus Capacity
As Demand has grown, Capacity (Supply) has remained the same. Thats the textbook formula for higher prices

Oil's Lesser Role? Its all Relative
Its not the 1970s. But Oil is still a huge part of our economy

Wal-Mart versus Oil Prices
As Oil reached multi-year highs, Wal-Mart's stock has tumbled to multi-year lows. That's no coincidence

China's Thirst for Oil (and Cancer treatments)
An enormous thirst for cheap oil (especially dirty diesel) in what is rapidly becoming the world's most polluted nation will create a Bull market for cancer treatments

Capital Spectator & Christian Science Monitor
A very good blog dedicated to economics of oil; Also, several Christian Science Monitor articles that are quite insightful

The Strategic Petroleum Reserve
Its gonna get topped off this Summer (so what?)

Oil Research Resources
If you want to do further research, here's a good starting point