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Media Appearance: Kudlow & Company (1/31/06)

Tuesday, January 31, 2006 | 03:45 PM
in Media


Tonight's media appearance will be Kudlow & Company. I will be on from 5:20 to 6:00 pm, along with Cult of the Man Cow President Noah Blackstein, John Rutledge, and Gene Henssler. I imagine the Fed Meeting and statement will be discussed extensively.

Also appearing:  Washington Post columnist E.J. Dionne and politico Terry Jeffrey discussing the SOTU address.

I rarely do the political thing (I'm an Independent), but here's my overview:

• The President has little budgetary room -- and even less political capital -- for any grand projects;  If he can extend his tax cuts, it would be a big victory;

• I would love to see some sort of a capital gains tax cut for the development of alternative energies; Sending lots of $$$ to the Middle East  works against our National Security interests;

• Bush's re-election was not a mandate, but (IMO) a decision by the electorate not to change horses or riders during a War; It also speaks to his challenger's relative lack of appeal;

• Ironically, the President gave nearly that exact same advice to Hammas:  Not a mandate, but a repudiation of your opposition;

• He is almost -- but not quite -- a lame duck;

• There is a small but increasing chance the GOP will lose control of one house  of Congress.

As far as the market is concerned, we have seen much better performance under a mixed government than with single party rule.

When Republican President Reagan was forced to deal with Democratic House Speaker Tip O'Neill, and when Democratic President Clinton had to deal with Republican House Speaker Newt Gingrinch, it forced all involved towards the Center -- where Mr. Market likes them.

In each of these instances of divided government, Markets did well. Why? When politicos grit their teeth and learn to work together, good things happen. Each side cuts the other's desires by claiming fiscal prudence: Taxes get cut, spending gets cut, budgets get balanced, good things happen.

The one divided government caveat: just about all of the 4 terms of the Reagan and Clinton divided government market gains came during the 1982 - 2000 Bull run.

Tuesday, January 31, 2006 | 03:45 PM | Permalink | Comments (11) | TrackBack (0)
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Tuesday, January 31, 2006 | 03:18 PM

The online WSJ writes:

THE FED'S STATEMENTS reflect how the members of the central bank's Federal Open Market Committee perceive the economy. The slightest changes are scrutinized for clues about where interest rates may be headed. With Greenspan stepping down and Bernanke set to replace him, January's statement will be read particularly closely.

The Jan. 31 statement announced that the Fed was raising its key short-term interest rate by one-quarter point to 4.5%, its 14th increase in a row. In a sign that rate increases may be nearing an end, the Fed also removed the word "measured," which had come to signal steady quarter-point increases ahead. Below is a look at differences between the January statement and the December one.


Click for larger graphic

courtesy of WSJ


One More for the Road
WSJ, Jan. 31, 2006

Tuesday, January 31, 2006 | 03:18 PM | Permalink | Comments (3) | TrackBack (0)
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Media Center's Next Gen Remote?

Tuesday, January 31, 2006 | 01:30 PM

While we lounge around waiting for the inevitable -- no, not death, I refer to the Fed hike -- take a gander at this:

How cool looking is this piece of home theatre erotica?


"The SimpleRemote incorporates features like Wi-Fi connectivity, a 2.2-inch quarter VGA color screen, and support for Universal Plug and Play (UPnP) devices, to create a remarkably powerful and easy-to-use control center for digital homes. The reference design is capable of controlling multiple rooms full of devices and automatically discovering networked webcams or Wi-Fi-connected digital cameras as they're connected to a home network.

The SimpleRemote also works with UPnP streaming media devices in a unique manner. Using the remote's Wi-Fi connection and color screen, a user can preview photos or video files stored on networked PCs on the remote before displaying them on TV through a the streaming media bridge."


Reviews are here, and the full specs can be found at their website.

I want one!

Tuesday, January 31, 2006 | 01:30 PM | Permalink | Comments (5) | TrackBack (0)
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New Column: Myths of the Greenspan Era

Tuesday, January 31, 2006 | 11:32 AM

RealMoneyMy new column is posted at TheStreet.com, titled Myths of the Greenspan Era. Its a modest look at some of the economic urban legends that have sprung up around Easy Al.

Based on yesterday's Free Lunch discussion, it includes additional charts and data. Its also much less critical than our analysis back in 2004.

Here's an excerpt: 

"Myth 1: Greenspan Whipped Inflation: This is by far the most pervasive fallacy of the era. It has added to the Maestro's legend -- undeservedly so, in my opinion. This is probably the myth that's easiest to disprove.

Numerous factors have led to low inflation over the past few decades; none of them have much to do with Greenspan.

To understand where you are, you must consider how you got here. And when it comes to whipping inflation, it all begins with Chairman Paul Volcker.

As the chart of long-term interest rates reveals, inflation was spiking in the late 1970s. The oil embargo of the early '70s started an inflationary spiral that threatened the entire economy. Growth was anemic, and Japan was a growing threat to the industrial heartland. A post-Watergate and post-Vietnam malaise hung over everything. It was not a particularly joyous period in the U.S. When Volcker was appointed Fed chairman, inflation was in the double digits, and growth was stagnant. That combination came to be known as "stagflation."

Fed Chair Volcker aggressively changed the way the Fed attacked inflation. He forced some unpleasant but necessary monetary medicine down the gullet of the American economy.

No helicopter drops for Volcker: The first thing he did was idle the Treasury Department's printing press. By limiting the growth of money supply -- and abandoning interest rate targeting -- he made it clear that no matter how painful in the short term, he was going to get runaway prices under control. Inflation, which had peaked at 13.5% in 1981, was down to 3.2% by 1983. The U.S. has been enjoying the fruits of his labor ever since."

Its on the free Street.com site. Go forth and read!.


Myths of the Greenspan Era
RealMoney.com, 1/31/2006 11:08 AM EST

Tuesday, January 31, 2006 | 11:32 AM | Permalink | Comments (6) | TrackBack (0)
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Will Pixar Bring Magic Back to the Magic Kingdom?

Tuesday, January 31, 2006 | 05:30 AM
in Film

If you missed it on Sunday, there was a terrific article on the very different way Pixar does Business in the NYT:

"Since 1995, with the release of "Toy Story," Pixar's films have reinvented the art of animation, won 19 Academy Awards and grossed more than $3 billion at the box office. But the secret to the success of Pixar Animation Studios is its utterly distinctive approach to the workplace. The company doesn't just make films that perform better than standard fare. It also makes its films differently — and, in the process, defies many familiar, and dysfunctional, industry conventions. Pixar has become the envy of Hollywood because it never went Hollywood.

More than a few business pundits have drawn parallels between the flat, decentralized "corporation of the future" and the ad-hoc collection of actors, producers and technicians that come together around a film and disband once it is finished. In the Hollywood model, the energy and investment revolves around the big idea — the script — and the fine print of the deal. Highly talented people agree to terms, do their jobs, and move on to the next project. The model allows for maximum flexibility, to be sure, but it inspires minimum loyalty and endless jockeying for advantage.

Turn that model on its head and you get the Pixar version: a tightknit company of long-term collaborators who stick together, learn from one another and strive to improve with every production. Consider the case of Brad Bird, writer and director of "The Incredibles," who spent the first decades of his career shuttling around the business as an ever-promising, never-quite-recognized animator. (He worked on "The Simpsons" and directed one feature, the critically acclaimed but commercial dud, "Iron Giant.") When Pixar recruited him, Mr. Bird went to work immediately on "The Incredibles," which went on to win two Academy Awards and a nomination for best original screenplay."

Given that most mergers are unsuccessful -- at least when measured by how much value they create for shareholders -- the big question is not whether Disney can integrate Pixar into their corporate culture, but vice-versa:  Can Disney adapt Pixar's looser style and methods to their other creative departments; can they port that formula within the company?

There are definitely risks: The upside is bringing some magic back to the Magic Kingdom; the downside is killing a terrific franchise.



How Pixar Adds a New School of Thought to Disney
NYT, January 29, 2006

Tuesday, January 31, 2006 | 05:30 AM | Permalink | Comments (7) | TrackBack (0)
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It's (Still) a Small (Cap) World

Monday, January 30, 2006 | 06:30 PM

I was just clicking around on WSJ On Line, when I came across a great new page of resources:
Markets Data Index. Tons of good stuff, charts, resources.

I randomly click on one page -- and found this chart on market capitalization: "Small caps, stocks with market capitalizations of less than $1.5 billion, offer investors a chance to outperform the broad market, but are prone to price swings."

Weekly Market Screen
click for larger chart:


Source: WSJ

In the Long Term Small-cap stocks vs. large-cap stocks in good market times and bad. One size usually dominates at any given time.


Weekly Market Screen
WSJ, January 29, 2006

Monday, January 30, 2006 | 06:30 PM | Permalink | Comments (4) | TrackBack (0)
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Free Lunch: Myths of the Greenspan Era

Monday, January 30, 2006 | 03:30 PM

Federal Reserve Chairman Greenspan’s imminent retirement has become the largest love-fest since Woodstock. Alas, we cannot avoid adding to the chatter. Besides, how many Fed Chairs will retire in our lifetimes? Perhaps we can act as a counter-ballast to all the accolades and bon mots. Now would be as good a time as any to discuss some of the myths and misunderstandings of the Alan Greenspan era:

Myth 1 Greenspan whipped inflation: This is the most pervasive-yet-easiest to disprove Fed Chair legend. As the nearby chart of long term interest rates reveals, inflation spiked in the late 1970s. Paul Volcker became Fed Chair during that period of ugly stagflation. He aggressively changed the way the Fed attacked inflation, and the U.S. has been enjoying the fruits of his labor ever since.

Myth 2 Greenspan’s flexibility met all challenges: Flexible? Hardly. The Fed Chair’s response to every challenge has been the same: inject more liquidity into the system. That’s why Money Supply has risen so dramatically over the past 18 years (M3 included), and why rates are down to unnaturally low levels. To be considered flexible, you would need more than one move in your bag of economic tricks.

Myth 3 The Plunge Protection Team: After the 1987 crash, traders claimed the market “mysteriously” managed to stop its sickening fall. While others have laid this myth to rest previously, let’s go right to the source of this one. The Dow had dropped from 2,400 to almost 2,200 on Friday, and then plummeted to almost 1,600 on Black Monday. A 33% peak-to-trough drop is no sign of an invisible hand: That’s a massive, capitulatory distribution which exhausts sellers. That correction brought out bottom-fishing fools and heroes alike – no Plunge Protection Team necessary.

Myth 4 The Greenspan Put: While the concept of the “Put” is alive and well, I do recall a recent 78% plunge in the Nasdaq. As of Big Al’s 2nd to last day as Chairman, the Nasdaq was still down close to 60%. If that’s the kind of capital destruction that exists with the “Put,” its really not worth all that much. Indeed, the brutal crash makes it kinda hard to argue that the Put is – or ever was – alive and well.

Myth 5 Greenspan as Economic Sage: We laid this fable to rest in 2004 (Ignore the Cheerleader-in-Chief).

One has to wonder why so many acolytes believe you can get something for nothing. Yet Greenspan’s legacy is based on the Free Lunch: easy money, and lots of it. Yet I recall the very first lesson in Economics: “There is no Free Lunch.”

Much of the Greenspan myth is actually the result of his fortuitous timing: He started his gig as head honcho 5 years into the biggest Bull Market in history, and even before the crash, his reputation had been cemented.

Despite the saying, people still confuse a bull market with genius.

Monday, January 30, 2006 | 03:30 PM | Permalink | Comments (16) | TrackBack (1)
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Chart of the Week: 10 year Treasury 1974-2006

Monday, January 30, 2006 | 02:10 PM

Greenspan garners all the credit for the low interest rates of the past 20 years. We believe the chart below proves otherwise. The Oil shock in the 1st half of the 1970s gave way to inflation shock of the 2nd half.


10 year Treasury 1974-2006, Constant Maturity

Source: RCP, Economagic


When Volcker was appointed Fed Chair, inflation was in the double digits and growth was stagnant. He forced unpleasant medicine down the gullet of the American economy, limiting the growth of the money supply and abandoning interest rate targeting. Inflation, which had peaked at 13.5% in 1981, was down to 3.2 percent by 1983.



Random Items:

Americans Say Economy Is Getting Worse

The Reform of October 1979: How It Happened and Why

Technical Evidence Builds That We're Near a Top

Media Lesson: How the not to cover the economy


Ignorance is the opposite of bliss

Partisans Adept at Ignoring Facts, Study Finds


Quote of the Day: 

“A wise observer of the economic scene once commented that ‘what can be left to later, usually is – and then, alas, it's too late.’”

-Paul Volcker, Federal Reserve Chairman, 1979-87

Monday, January 30, 2006 | 02:10 PM | Permalink | Comments (7) | TrackBack (0)
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The Real Estate Soufflé

Monday, January 30, 2006 | 05:15 AM

We have a decidely nuanced view of Real Estate: While not neccessarily a bubble, it has been the prime driver of the economy since rates were slashed to half century lows 3 years ago.   

Our expectation for the slow motion slow down rests on Real Estate cooling (which its been doing since August), home construction and sales slipping, and prices slowly sliding. That may stop the Fed from tightening appreciably further (2 and through?). Mortgage rates staying below 6.5% allows Real Estate to maintain a moderate level of activity -- but one that is obviously way off its prior white hot pace.

I suspect this could happen more slowly than those who think Real Estate is a full blown bubble ready to pop. Indeed, one of the comments in "Top Ticking Real Estate is Different Than Stocks" notes that:

"Last weekend I first heard the term "real estate soufflé" proposed on the radio to replace the term "real estate bubble." Even when the soufflé falls as it comes out of the oven, it doesn't pop like a bubble."

That seems to make a lot of sense to me. Its consistent with last month's final Home Sales slipping to to a minus 0.3%, from a prior 3 month average gain of 4.6%. While down on a month to month basis,  the absolute levels still remain historically high. Mortgage Rates have been bouncing between 6 and 6.25% -- still historically cheap.

Barron's Alan Abelson is even more Bearish than I on the prospects for Housing & Real Estate:

"On that score, our conviction has been mightily strengthened by clear signs that the great housing boom is rolling over. Exhibit A is last month's steep drop in the sales of existing houses -- 5.7%, to be precise. Yes, we're well aware that the Commerce Department reported that sales of new single-family homes rose 2.9% in December. But the figures don't jibe with the rather downbeat findings of the housing industry. And as to which we find more credible -- Uncle Sam's or the builders themselves -- it's no contest."

Merrill Lynch's David Rosenberg has become a regular in his column. His views on the end of the housing boom, and its impact on the macro economy are also pretty bearish:

"To that astute economic observer David Rosenberg of Merrill Lynch, the startling collapse of sales of existing single-family homes in the October-December span -- they fell at a 36% annual rate -- is persuasive proof that the bull market in housing has metamorphosed into a bear market.

What marked the extended and powerful cycle, he reminds us, is that it was built on cheap credit and incredibly relaxed loan standards. Some 43% of first-time buyers, David recounts, put zero money down on their home purchases last year; by contrast, two years earlier, 28% bought a house with no down payment. Well over a quarter of the mortgages in '05 were of the dicey "buy now, pay later" variety. Not exactly sturdy underpinnings for a boom, especially with credit likely to get increasingly less cheap and the regulators fretting over lending standards.

The backlog of unsold inventories in the resale housing market last month shot up 26% above the December '04 level to a 5.1 months' supply; that compares with the low of 3.8 months in January of last year. Inventory of new homes stands at its highest level in nine years. The overhang of unsold units in the condo market constitutes a formidable 6.2 months' supply. And pricing is beginning to reflect the inventory bulge: December's median price of $211,000 for an existing home was virtually unchanged from last spring and down 4% from the August peak."

There's little there I disagree with; If anything, we only differ on how long this will take. I have no clue, but I suspect it will be a more gradual process than many expect.

"For the economy, David asserts, the end of the housing boom could be a serious drag on economic growth. Considerably more serious, we might interject, than most of the sunshine gang, whether in Wall Street or D.C., care to admit. In the past three years, the surge in housing prices, he calculates, accounted for nearly 40% of the expansion in household spending via home equity cash-outs. Merely stagnant home prices, by his reckonings, would shave a full percentage point off consumer spending growth in the coming year. An outright decline obviously would have that much more of an impact.

Just the direct effects of the raging bull market in housing, he figures, chipped in 25% of the overall growth in GDP since 2003. The real-estate boom, he goes on, was responsible for a cool 20% of the rise in total retail sales, while enlarging the nation's payrolls by around a million jobs.

As David wonders, "So who picks up the baton now that the housing parade is over?" Who, indeed?""

The sunshine crowd will tell you that Business is ready to pick up the baton; they certainly sang that from on high after Q3 GDP showed a big uptick in Corporate Capex. Of course, they have been saying that for years now. And as Q4 GDP has revealed, Q3 capex is looking more and more like an outlier . . .


Barron's MONDAY, JANUARY 30, 2006   

Monday, January 30, 2006 | 05:15 AM | Permalink | Comments (24) | TrackBack (1)
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Weekend Linkfest!

Sunday, January 29, 2006 | 06:00 PM

Thanks for all the nice feedback, after last week's linkfest was put up at TheStreet.com.

The most common emailed question: Where do you find all these links?  Well, during the course of a week's worth of research, I see tons of great stuff. I cull my favorites articles and columns, saving them and voila! Weekend Linkfest.

Let's get down to it:

• Barron's Alan Abelson notes that the speculative juices are running hot (if no Barron's, go here);

Awful. That's the only word for Q4 GDP (prelim), as Government spending plunged, the Consumer throttled back, Businesses failed to pick up the slack, Inflation accelerated and Imports (mostly energy) surged. There will be 2 more GDP releases -- a revised and final -- and I expect the data may creep up some.

Tony Crescenzi did a nice job explaining the Causes of GDP Miss and Implications, and the WSJ's always fine online version gathered lots of economist GDP musings. (If no WSJ, go here);

• Good discussion on The Perils of Forecasting; (You already know my views on the subject);

• Is New York City a microcosm of the US? I never thought so, but "Priced out of Brooklyn" implies otherwise. There are surprising similarities between the wealth disparities of Manhattan versus the Outer Boroughs, and the rest of the nation's economic class distinctions;

• Demand for Durables Goods rose 1.3%, but Furniture sales took a big hit;

• Despite the strong week, be aware of the The December Low Indicator's track record; It's pretty damned good -- and that's bad for the Bulls;

• Jim Rogers in BW on Investing in a Material World;

• I was almost a guest on The Daily Show. Almost (so close!).

• Speaking of TV:  Rumors abound of a Jim Cramer Wall Street Reality Show

• We know about The Five Dumbest Things on Wall Street This Week -- How about Business 2.0's 101 dumbest moments in Business ?   

• Forget the Cult of the Bear for a minute, and consider The Cult of Ferrari;

• Enron is proof positive that Markets can be Astonishingly Inefficient;

• IBD looks at how Home Equity Extraction in Q3 Fueled a Shopping Spree;

• The NYT asks "Is the Fourth Year a Charm for the Bull Market?" This is a surprisingly  oversimplified single variable market prediction. Simple and understandable are good, but I find that over the long run, oversimplification is a misleading and money losing approach;

• Oil Charts galore:

-Crude Production by Country

-Oil and the Markets

-Oil Futures and Trading

In a Ruined Country: The Atlantic argues Yasir Arafat destroyed Palestine;

• The Associated Press totally blew a story on Digital Music; If you are going to merely repeat industry press releases, why should anyone take you seriously?   

•  Former Treasury Secretary and now Citibank Director Robert Rubin on why "We Must Change Policy Direction;"

• There is no indicator more worthless than the Conference Board's LEIs;

• Is there a potential Liquidity Fire Trap?   

• An Interesting blog: sound money tips;

• Speaking of Blogs: Here's Forbe's look at the Best of the Web, including lots of blogs;

• Fun with Lists:

- 10 tips to being a better wine buyer

- 50 Books for Thinking About the Future Human Condition

- How to eat Sushi

• Lastly, some pop culture mash up that is simply too funny: A Fan-produced video of William Shatner's version Lucy in the Sky with Diamonds

That's all from NY, where its a gorgeous, sunny, 50 plus degree day -- and yet Oil remains over $65 a barrell -- what happens when it becomes seasonably cold?

Get outside, and enjoy the day! (Don't worry, you can finish the linkfest tomorrow -- its supposed  to rain!)

Sunday, January 29, 2006 | 06:00 PM | Permalink | Comments (2) | TrackBack (0)
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