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Volatility History

Wednesday, May 31, 2006 | 05:15 PM

in Data Analysis | Psychology/Sentiment | Technical Analysis

Via Mike Panzner, comes this brief history of big one day VIX spikes:

The Volatility Index, or VIX, closed at 18.66, for a gain of 4.40 points, or 30.86%. Though impressive, it is hardly a record. In fact, it doesn’t even figure in the top five moves going back to 1990.

Over the 16-year period, eight trading sessions have had larger point and percentage rises than the current one (5/30/06).

The biggest one-day gain took place on September 17, 2001, when the “fear gauge,” as it is sometimes known, finished up 9.92 points, or 31.16%. (This was the day the market re-opened post 9/11).

The largest single-session percentage increase occurred on November 15, 1991, when the VIX jumped by 51.72% (7.22 points).

Still, by the time the unraveling of the many excesses of the past decade reaches a crescendo, I expect we will see these extremes beat handily.

Here are the top 10 moves, sorted by percent in descending order:

Date	Closeing Price	Change	% Change
15-Nov-91	21.18	7.22	51.72%
23-Jul-90	23.68	8.05	51.50%
4-Feb-94	15.25	4.50	41.86%
3-Aug-90	28.74	8.31	40.68%
27-Oct-97	31.12	7.95	34.31%
19-Aug-91	21.19	5.18	32.35%
22-Jun-90	19.36	4.64	31.52%
17-Sep-01	41.76	9.92	31.16%
30-May-06	18.66	4.40	30.86%
16-Feb-93	15.76	3.38	27.30%

Thanks, Mike!

Apprenticed Investor: 10 Lessons Learned in the Selloff

Wednesday, May 31, 2006 | 09:45 AM

The latest "Apprentice Investor" column is up at TheStreet.com: 10 Lessons Learned in the Selloff.

The column takes a look a what investors and traders can take away from the big whackage in May 2006. I point out in times like these, investors may find it instructive to step back and see the bigger picture. Sell-offs and portfolio damage such as the recent market shellacking don't have to be all bad. There are lessons to be learned.

What follows are the top 10 lessons astute investors might have picked up -- or at least may have been reminded of -- during the May 2006 selloff.

What are the 10 things? Here's the list:

1) 'Cheap Stocks' Can Always Get Cheaper

2) Macro Issues Matter

3) Oversold Markets Can Become More Oversold

4) Support & Resistance Don't Always Hold

5) Investors Have Short Memories

6) A Major Shift Is a Subtle Process

7) Stop Losses Are Lifesavers

8) Money Management Is Crucial

9) When Your Timing Is Off, Step Away

10) Smart People Do Dumb Things

Be sure to check out the column for the full explanation of each of these items; its posted on The Street.com (free).

Prior "Apprentice Investor" columns can be found here.

Source:
10 Lessons Learned in the Selloff
RealMoney.com
5/30/2006 10:16 AM EDT
http://www.thestreet.com/_tscs/university/personalfinance/10288510.html

Recent Housing Data: Charts & Analysis

Wednesday, May 31, 2006 | 06:24 AM

in Economy | Federal Reserve | Investing | Real Estate

It has long been our view that Real Estate is the prime driver of this economy, and its eventual cooling will be a major crimp in GDP, durable goods, and consumer spending.

4 Charts from Northern Trust are worth looking at to show how far along that process actually is:

Median Home Sale Price
Mortgages Apps
New Home Inventory
Single Family Home Sales

Here's each chart with my annotations:

Median Home Sale Price: Putting aside for the moment the issue of "median" (it gets skewed when too many high end or entry level houses are the dominant movers) the chart shows rapid decelleration of price gains. I expect to see more of this over the next few quarters, as Sellers and Buyers engage in a stare down, as Sellers continue to gradually lose pricing power.

New Home Inventory: What can you say about this? Builders have created huge inventory. Its no surprise that the enormo increase in Supply has impacted prices (Demand). On this 45 year chart, the recent rise (since 2003) is historic!

Single Family Home Sales: The long uptrend in Sales has broken; I do not know how far it retraces, but I imagine it will continue to do so as mortgage rates tick higher or the economy cools (or both).

Mortgages Apps: Another long uptrend broken; Same story as above: Higher rates mean less sales and refinacing. The one mortgage bright spot I see is the refinancing of ARMs into fixed rate loans.

All charts courtesy of Northern Trust

Sources:
Housing Market Is Cooling Down, No Doubts About It
Asha Bangalore
Northern Trust, May 25, 2006
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/
econ_research/0605/document/dd052506.pdf

New Home Sales - Headline Is Deceptive, Momentum Is Weak
Asha Bangalore
Northern Trust, May 24, 2006
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/
econ_research/0605/document/dd052406.pdf

Blame the Fed?

Tuesday, May 30, 2006 | 06:30 PM

in Federal Reserve | Investing | Markets | Psychology/Sentiment | Trading

As you might have suspected, I disagree with those who are blaiming today's whackage on the Fed; In particular, Michael Moskow's interview with CNBC's Steve Liesman.

Bob Marcin, whose views I always respect (tho don't necessarily agree with) blames Moskow as to the causes of the selloff.

"In my opinion part of the market's decline is due to the Michael Moskow CNBC interview this morning. I think the Fed and Mr. Moskow just don't get it.

They continue to press the rate hike story. It's a mistake. The real estate market is in disarray. Consumption is slowing. And much more slowdown is baked in the cake.

And this glorious morn, we get to listen to Moskow pitch his "personal" inflation target of 1-2%. Well, that's absurd.

Just 2 years ago, Easy Al took rates to zero because the PCE was at 1%. How can the deflationary depression scenario come out at 1% inflation, and an FOMC member have the same rate in his normal target range? You can't, period.

If 1% gets us a Fed panic, I humbly suggest taking the range to 2-3%, with the midpoint being the real target. Then, the pause option becomes much more viable now.

I am on the record calling 1% Feds fund a mistake. I want to be there for this call. I think a second half material slowdown is a done deal. Give me a 6% Fed funds this year and I promise you a recession next."

Then why the sell off?

There has been an ongoing technical decay in the markets for sometime now, and that's a reflection of all these seperate elements. The Fed is merely one (amongst many) issues weighing on equities. I would place a heavier emphasis on the emerging markets meltdown, the commodity correction, the dollar's slippage, WalMart's numbers showing high energy prices biting consumers, GM's downgrade, and the general real estate/housing slowdown, on top of all the cyclical factors we have mentioned.

But since the Fed is the topic at hand, recall how we got much of this reflation/inflation: It was that very same 1% that lit the fire the Fed is now trying to contain.

Consider the ~~Hobson's choice~~ dilemma all Fed Chiefs must face: On the one hand, if they overtighten, they will force the economy to slow too much, and risk a recession. On the other hand, if inflation gets away from them, it can become a runaway wildfire. They have a very hard time playing catch-up, given the self-reinforcing tendency of inflation to feed on itself. So they end up forcing an even more severe recession.

I think the US economy is resiliant and multi-faceted -- and the Fed knows this. Historically, we have shown the ability to bounce back from all kinds of problems. The Fed knows this also.

This pair of choices is why, IMO, the Fed tends to overtighten. The always rebounds from a recession, and relatively quickly, also. On the other hand, 1970s-style inflation haunts the dreams of all economists and especially those who sit on the Fed. I suspect soft landings are mere serendipity, and not the result of brilliant Fed policy.

Given this choice, it's not too hard to see why the Fed is likely to over-tighten. Of they are wrong, we get a mild recession, which we always bounce back from. Let inflation get away from the Fed, and (shudder) it gets ugly.

Hence, they do what must be done to keep inflation well contained . . .

Will Cheap Stocks Get Cheaper?

Tuesday, May 30, 2006 | 11:46 AM

in Data Analysis | Earnings | Investing | Markets | Trading

Yesterday, we looked at a discussion showing that stocks are relatively cheap.

However, that doesn't mean they cannot get even cheaper; Today, we go to Scott Frew of Rockingham Capital Partners, who looks at that exact issue, and considers where stocks could go:

"Markets around the world rallied last week; this should not have been unexpected, given the length and severity of the recent decline. But I wouldn’t take yesterday’s action as a signal that it’s safe to get back in the water, and in the event that the rally continues for another week or two, I’ll use it as an opportunity to raise cash by selling more speculative holdings, and incrementally adding to short positions.

Pervasively bullish investors and commentators have puzzled over the market’s decline, searching to explain the seemingly inexplicable. They view the market as genuinely cheap, and the economy as sound and strong. One can always torture statistics (comparing forward operating earnings to trailing GAAP earnings, and the like) to make markets look cheap. But by the methodologies that have most consistently predicted future returns, Tobin’s Q and some version of a cyclically adjusted (adjusted to reflect the fact that earnings are enormously cyclical and mean-reverting) P/E, stocks are anything but cheap. The chart below is taken from Robert Shiller’s website, and uses trailing ten year earnings in order to adjust for the fact that we are, at the moment, in a period of unusually high earnings. As you can see, the market only looks cheap when compared to the previous peaks in 1929 and 2000. This does not bode well for future returns.

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Trailing 10 Year Earnings
click for larger graph

Source: Prof Robert Shiller, Yale

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To my view, the big issue is not why the market has fallen over the last several weeks, but rather how it has managed to stay as elevated as it is for as long as it has. The answers, I think, are threefold, all related, and all emanating from reason number one—the liquidity that has flooded the markets lo these many years, and particularly at every moment that has hinted at the possibility of severe dislocations.

Reason number two relates to the intense competitive pressures in the world of institutional investing. I know I’ve stayed longer in my small fund than I’ve wanted to be, feeling the need to squeeze every last basis point of return out of this dying bull, and the pressure only increases as funds get bigger. Witness that Iraq—Iraq!—was able to sell bonds at a 9% yield, and that even with the problems in stock markets around the world over the last several weeks, the junk bond market barely budged—spreads remain at record lows.

Lastly, the market is dominated these days by what I like to think of as “bull market babies”, which is to say people who have only invested since the early 1980s, and therefore have only known a world of falling interest rates and rising stock prices. The tumult the markets have experienced since that time have hardly been insignificant, but they’ve been swallowed up and overwhelmed by the larger secular trends toward lower interest rates and gushing liquidity. Investors have developed a touching faith in the ability of the central banks, magician-like, to pull one chestnut after another out of the fire—moral hazard reigns, and with it a hugely complacent view of risk.

But the world is changing, and our economy is not on sound footing. Bill Gross recently reported the comments of Charles Gave, who’s the opposite of a perma-bear, at Pimco’s just-concluded Secular Forum. “An economy dependent on asset appreciation which in turn is dependent on low yields, is more vulnerable than one based on income. … Gave then went further to suggest that changes in any one of the following five areas have historically had long-term influences on asset prices: 1) monetary policy, 2) protectionism, 3) taxes, 4) regulation, and 5) war.”

I’d say that all five of these forces are at least “in play”, to use Gross’ delicate phrase. The Gaves are also fond of noting that economic changes happen first at the periphery, moving from there to the center. The crashes in the Middle Eastern stock exchanges, and in Iceland, were indeed peripheral. The dislocations over the last several weeks in larger emerging markets, Russia, Brazil, and others, as well as in the commodity markets, move things closer to the center. (Let me note here that stock market bulls these days harp continually about the bubble in the commodity markets. Stephanie Pomboy noted in her most recent weekly missive that the CRB is up 44% since the beginning of 2003; the S&P is up 39% over the same period, excluding dividends. While there’s certainly been speculative activity in some of the commodities, I’m not certain those results are quite of the magnitude of Nasdaq 5000.)

The emerging markets sure seem like canaries in the coal mine to me. As John Hussman said in a recent commentary, expensive markets alongside rising interest rates is not a combination that, on average, has produced favorable stock market returns in the past. Dennis Gartman is fond of paraphrasing or quoting Grantland Rice to similar effect: The fight is not always to the strong, nor the race to the swift, but that is the way to bet.

As I said at the outset, rallies seem like great selling opportunities at the moment. I’m betting that our markets follow the lead of Iceland, Saudi Arabia, Turkey, Brazil and Russia. And that when the Fed comes again to our rescue, we discover to our dismay that when Mr. Greenspan went home, he took his famous put with him.

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Scott Frew is a general partner with Rockingham Capital Partners, a Long/Short Global Equity fund. Send him email here.

Download Arbitrage with eMusic

Tuesday, May 30, 2006 | 10:30 AM

in Markets | Music | Trading

Here's a new market, via digital audio insider, I'll bet those underperforming Arb Hedge Funds have yet to discover: Arbing MP3s from eMusic to ITMS buyers:

"In theory, a 40-downloads-a-month eMusic subscriber is paying just under 25 cents a track, so selling one of those downloads to a non-subscriber for 75 cents yields a healthy return. For the buyer, it's cheaper than a single download from iTunes, plus the eMusic download is an mp3 that can be played on virtually any portable player, with no DRM to hamper the file. And you can get your eMusic cost-per-track down to around 22 cents by opting for a 90-a-month plan or pre-paying for a year with eMusic."

Voila! Free money for the arbs!

Source:
Download Arbitrage with eMusic
digital audio insider
Monday, May 15, 2006
http://digitalaudioinsider.blogspot.com/2006/05/download-arbitrage-with-emusic.html

Wal-Mart and the Buck

Tuesday, May 30, 2006 | 07:23 AM

Today looks to be a bumpy, with futures deep in the red as European stocks took a header on "a weaker dollar and prospects for higher interest rates."

In the U.S., Wal-Mart's same-store sales for the month of May came in at the bottom end of its range -- a 2.3% increase, with high gasoline and utility prices getting the blame.

We have previously discussed the "bifurcated nature" if this recovery cycle (more on this in the near future) -- but it is apparent that high gas prices are having more impact in some consumer asegments than others.

Over the weekend, the NYT had a column Gas Prices Aren’t Deterring Summer Travelers. That suggests that some strata of consumers are not yet feeling a significant pinch from $3.50 gasoline. To Upper Middle income and higher, its a minor annoyance. As we noted last year, to those in the lower economic strata -- thats Wal-Mart's key demographic -- there is more pain felt, and a lowered ability to substitute other products or juggle finances around. There is also a "more pronounced pay cycle." The WSJ describes this as customers who "appear to be living paycheck to paycheck and clustering their spending around paydays on the first and 15th of the month."

The Journal further observed that:

"Wal-Mart, of Bentonville, Ark., previously forecast an increase in same-store sales -- or sales at stores open at least a year -- of 2% to 4% for May. For the fiscal first quarter ended April 30, the retailer had reported early success in several campaigns to bolster its operations, such as cutting inventory costs and reining in labor costs, but its executives warned that they noticed early signs that soaring gasoline prices were hindering sales."

This has been a long time in the making. Since last Summer, there were early warning signs -- but many economists denied the potential slowing of the American consumer.

Without a drop in fuel prices, I expect to see more pressure on low income consumers as the year progresses. And depending upon rates and the real estate market, this slowdown will move further up the economic scale, and begin to slow down the middle class. Plasma screen sales? I suspect they may begin to slow sometime over the next few quarters.

Of course, none of this matters, because there is no inflation in the core rate . . .

Sources:
Wal-Mart Sees Tepid Rise in Sales
By KRIS HUDSON
May 30, 2006; Page B4
http://online.wsj.com/article/SB114876995753065238.html

European Stocks Fall, Led by BMW, Diageo, Financials, Utilities
Alexis Xydias
Bloomberg, May 30 2006
http://quote.bloomberg.com/apps/news?pid=
10000006&sid=aLEE1y9b8Rag&refer=home

How Cheap is the Market?

Monday, May 29, 2006 | 04:30 PM

This is the first part of a two part series asking the question, "How cheap is the market right now?" (part II is here).

The answer might surprise you. It certainly raises some very interesting questions as to what cheap is, the importance of having a long term perspective. It also begs the question of how much patience long term investors have when it comes to thinking about various metrics.

The question itself involves a combination of data analysis and opinion. To fully explore this issue, we will listen to two different perspectives on the subject: One says the S&P500 is cheap, the other asks, how much cheaper might it get?

For part one, we go to Eddy Elfenbein of Crossing Wall Street: Eddy observes "S&P 500 is now trading at just under 16 times trailing operating earnings. The P/E ratio hasn't been this low since October 1995." Note that he references actual trailing earnings. This is more accurate than using forward forecasts, which tend to be very wrong at key turning points.

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SPX 500 Trailing Earnings at 10 Year Low
click for larger chart

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Eddie also notes that "What was unusual about the rally that began in March 2003 is that it came well after the bottom in earnings."

Note, however, the P/E continues to decline, even as the market rallies. This is consistent with my own views of P/E multiple compression (see this 50 year P/E chart).

Tomorrow, we hear from a hedge fund manager who will point out what this means historically.

Source:
The S&P 500's P/E Ratio is at a 10-Year Low
Eddy Elfenbein
Crossing Wall Street, May 26, 2006
http://www.crossingwallstreet.com/archives/2006/05/the_sp_500s_pe.html

Massive Memorial Day Weekend Linkfest

Monday, May 29, 2006 | 05:33 AM

in Weblogs

Good holiday weekend! Its been the first positive week in a while, and the action saw the YTD performance of the SPX (briefly) joining the Nasdaq as negative for the year. (The Nazz is now down slightly YTD).

Why the markets caved this month looks to be more than a mere case of seasonal affection disorder, and we will delve into a variety of possible causes this morn. But since its the official kickoff of Summer, we range far and wide to bring you all manner of sources on all kind sof topics. Bring the laptop with wireless internet access to the beach, and go at it -- we got ourselves a monster linkfest!

Its a 3-day weekend, and the official start of Summer, so of course we have lots of picks for you to click:

• Barron's ask's "What's the bigger Bubble: S&P500 or CRB? The answer may surprise you (If no Barron's, go here)

• This month, commodities got whacked, while emerging markets melted down. So why did these markets tank? Quite a few theories abound:
- Japan Sank the Market

- Inflation

- Chinese Bank IPOs

- Hedge funds (a new "contagion" or Reshaping Global Investment?)

- Complacency

- Overseas Correction was due

- Its just a Commodities Correction (says Commodities Trends)

- No, its just an Equities Correction (says Merrill's Bob Doll)
Pick your favorite, theory, mixing and matching is not only allowed, its encouraged!

• My favorite pick as most ironic explanation dates from January 2004: The Great Humiliator. The Bull won't be over, wrote Ken Fisher, until the Bears throw in the towel. Merrill's Richard Bernstein and Morgan Stanley's Stephan Roach -- both excellent strategists with a very Bearish tilt -- did just that early May, just in time for the global whackage.

SPEAKING OF CONTRARY INDICATORS: Just before the selloff, the WSJ front page trumpeted "Behind Surging Stock Market: Old-Fashioned Economic Boom" (if no WSJ, go here). Was it a coincidence that just before the rally, we saw these two headline: Bears on Street Ask 'How Far?' Amid Pullback (if no WSJ, go here) and this: Bulls Retreat Worldwide as May Rally Turns to Rout.

We all know Market Timing can be a cruel mistress, but . . . man, whatta bitch.

• Let's not just point fingers at Macro Strategists or Journalists -- Forbes asks the question "How good are fundie analysts at forecasting earnings?" As it turns out, not very.

• Fed Chair Bernanke sent a letter to Jim Saxton, Chair, JEC. In it he (shudder), said that CPI Overstates Inflation (Puh-Leeze!)

• Incidentally, anyone else notice the brief Yield Curve Inversion this week?

• I agree with Alan Farley: We could see a rally this summer up to the old highs, then its Cue The Fat Lady;

• What have corporate executives learned from Enron? Apparently, not a hell of a lot. Dan Gross reminds us that Fannie Mae, RefCo blow up, and the Options Backdating scandal are all post Sarbanes Oxely: Lay and Skilling Aren't the Only Guilty Ones.

• The comparisons with this market and the 1987 Crash do not hold up particularly well.

• The cover of this week's Economist refers not to the US Equity markets, but instead to the Housing/Real Estate market; This makes it less of a buy signal for stocks.

• John Hussman notes the Textbook Warnings: "Market risk tends to be unusually rewarding when market valuations are low and interest rates are falling . . . Similarly, market risk tends to be poorly rewarded when market valuations are rich and interest rates are rising"

• Stock Futures & Options magazine offeres this primer on how to use trends to time entries: Trading with the Trend: It’s as Easy as ABC

• The other bad comparison is 1995. I bring in a guest blogger for Dear God, Please stop talking about 1994-95

• If you trade for a living, you probably will go through 3 Phases of Trading Business Maturity;

• What happens when a Lawyer tries to auction his future Social Security benefits on eBay? GOING ONCE, TWICE

• Back in January, I advised readers to Buy Volatility. I expect there to be another good entry point for VIX calls sometime next month (readers are advised that these are European style options, and expire on Tuesdays); Meanwhile, heres a broad overview of VIX commentary:
Time To Buy Volatility, Sell Stocks (Forbes)

The Calm Before The Storm (investors insight)

Low Volatility pointing to some “Big Moves” in Investment Markets (PDF)

So much Inflation data, so little time:

• William R White, head of Monetary and Economic Department Bank for International Settlements, asks is Is price stability enough? (PDF of working paper) John Mauldin has more on this)

• Its not quite here yet: Stagflation; Its the same old dilemma All Fed Chairman Face.

• WWGD? (What Would Greenspan Do?)

• The shills and montebanks are coming out in force on Owners' Equivalent Rent and Inflation

• And in case you missed it the first time, Bernanke says Price indexes overstate inflation.

• Meanwhile former Chair of the CEA Greg Mankiw is blogging

• Last week's Indonesia quake toll has passes 2,700

• Good Question: Why is GM’s stock rallying to a six-month high?

• Interesting Real Estate and Housing developments:

We see the continued decelleration, with a 7.3% decline last month. Northern Trust had some excellent charts on Housing Market Cool Down, and New Home Sales.

Particularly hurt: Florida Home flippers' investments flop as Housing prices in S. Fla. remain in a rut.

Barron's cover story is on housing inventory, The Big Glut (free to Marketwatch readers)

These 16 Real Estate Web sites that can save you time and money.

• Energy and Commodity news has kept us busy also:

What has been driving Gold prices? A shift in global distribution of holders; CNN/Money looks at how hedge funds, traders, and Big Oil are really driving gas prices.

What is Commodities "Backwardation?"

You can check out spot prices on energy markets via Bloomberg and EIA/National Energy Information Center;

Meanwhile, Gas Prices Aren’t Deterring Summer Travelers.

• Since no one has whined to loudly about our POLITICAL links, here's some more:

-This was a surprise: Intelligence Czar Can Waive SEC Rules

- Amusing equal opportunity takedown of both political parties Walt Handelsman: No place like home (flash cartoon)

-Murray Wass discusses a Rove-Novak Telephone, and what it means to the Plame Leak Investigators

- My friend in the Nassau Conservative Party is "off the reservation" when it comes to the President. This apparently, is part of a national trend, according to the author of How Big Government Republicans Hijacked the Conservative Cause in Bush's Base Betrayal.

- I was surprised by the Conservative base abandoning the President, thinking the drop was more likely to be due to (Liberal and Moderate) Republicans. That seems to be happening, according to Gallup reports showing a Large Drop in Support for Bush.

-The Roper Center at UConn looks at Presidential approval ratings going back to Roosevelt.

- A reader sends in this chart, looking at Presidential Approval Ratings and net midterm congressional seat gains/losses. Since the 1970s, there is a very strong correlation between a President's approval rating and how well his party does in the midterms

- Meanwhile, regardless of your politics, this is a great list: The 50 greatest Conservative rock songs via National Review.

- From Polling Report comes this surprising collection of polls on Religion

- Are Wars actually cyclical? Interesting graphic history

- The Washington Post has a big overview on The Threat of Climate Change

- And because we are equal opportunity offenders, Howard Dean reassures Democrats: ‘WE WILL FIND A WAY TO SCREW THIS UP’

So much Tech news this week, its hard to know where to begin:

• 10 fast-growing tech companies

• Bob Cringely in a two parter, noted Google Doesn't Have to Try Nearly as Hard as Microsoft; (Part I is Why Microsoft Is Headed Down and Google Is Headed Up)

• Two consecutive weeks with a Paul Kedrosky link: Fire Steve Ballmer Now; Also, see this on The geek who took on Microsoft

• As Mister Softee slips further behind, Apple continues to push the envelope: This is so %^$%# awesome: Nike + Apple = Cool Gadgets

• MP3 Newswire points out there are actually other MP3 players: iPod Killers for Summer 2006

• Funny Da Vinci Code Apple parody/mashup

• Global Language Mapping

• 25 Things I Learned on Google Trends

• How insane is this: Nuclear weapon PC case mod

• Via Clicked, comes three cool links:
- Why do people contribute? What makes people spend their free time contributing to group sites? Who are these people, and do they already exist or can they be made?

- The BBC offers a slide show of a new dam in China, telling the story pretty well for only ten photos.

- "I've heard rumors about a pilot who demonstrated that you can pour a drink in the cockpit while doing a barrel roll and not spill a drop." Scroll ahead to 2:09.

• This weekend kicks off the Summer movie season, and there's lots of good stuff out there worth reading.
CNN Money looks at Future of Hollywood

The WSJ breaks the Box-Office Code (free) Also, in films, Love Is Now a Four-Letter Word (WSJ sub)

Fortune says, John Lasseter is Pixar's magic man

On the small screen, after a slow start, the Sopranos has started getting interesting again (A pool cue? Ouch!).

The Office is one of the few recent British sitcom transplants that works well in the US (see the definitive guide to the original on BBC). Its a car wreck, in a Curb Your Enthusiasm kinda way. If you are not yet a fan, there is a marathon this Thursday of 4 Office episodes on NBC. Catch Steve Carrell is all his annoying brilliance.

Also worth watching (now in reruns): Extras. Ricky Gervais -- co-creator and lead in the original The Office -- creates and stars in this dark satire about acting. There's only 6 episodes out so far. You must catch Kate Winslet, outfitted in a Nun's Habit, trying to teach Ashley Jensen how to indulge her new boyfriends phone-sex fetish. Hysterical!

• Some interesting Music links

Blender, whose lists usually blow, has more hits than misses with their 50 Worst Things Ever to Happen to Music. They get off on the wrong foot by naming with number 50, naming Sgt. Pepper’s Lonely Hearts Club Band malignant. (Imbeciles).

Stereophile Magazine has an interesting piece on XMSR this month: All of XM's Trials; I have a good quote in it, based on this post Will XMSR Customer Complaints Kill its Stock? The answer, unfortunately, turned out to be yes, as the stock is down 61% over the past year.

Listening wise, I've been enjoying a gew things: I've never been the biggest Miles Davis fan, but I really am enjoying this 4 disc set : The Blue Note & Capitol Years. If you like Trip-Hop/Acid Jazz,check out the better cuts on The Rebirth of Cool or Jazzmatazz

And I am stricken with how fabulous the sound quality is on the Sarah McLachlan Storytellers DVD.

One of my favorite unknown bands, Roman Candle, has a new disc coming out next month: The Wee Hours Revue; You probably never heard their outstanding debut album, Says Pop. "a joyful assortment of finely crafted rock, country, and pop tunes." If FM Radio didn't suck so bad, this is the sort of music you would be hearing more of. Finely crafted lyrics mated to delightful melodies delivered by a tight five-some. Its a great beach listen, too.

• In lthe world of iterature this week:

Working on the "Great American Novel" over the weekend? Lifehacker points to the freeware program yWriter that helps budding fiction writers "break each novel into chapters, break each chapter into one or more scenes, and give each scene a goal, some conflict and an outcome."

A study by lulu finds the Life-Expectancy of Bestsellers Plummets.

But the book I am mot excited about is by Legg Mason's Strategist, Michael J. Mauboussin: More Than You Know: Finding Financial Wisdom in Unconventional Place. To get a flavor of what his work is like, read "What Have You Learned in the Last Seconds (pdf)

In case it rains over the long holiday weekend where you are, here are a few amusing items to keep you out of trouble:

• Hilarity ensues: I love most of the stuff this Google search finds

• Deal Breaker cracked me up on Thursday with this headline: Impending Enron Verdict Slays Everyone At CNBC

• 10 Steps You Can Take To Guarantee Failure

• Will Ferrell Bloopers

• Is this a real product? The Egg McMuffin Machine

• People sending you email junk? Send them here: Thanks No

• A series of car crashes captured by security camera in a tunnel in Russia -- be sure to see the two trucks at the end.

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Yield Curve Inversion

Sunday, May 28, 2006 | 08:59 AM

in Economy | Federal Reserve | Fixed Income/Interest Rates | Technical Analysis

Fed_yield Anyone else notice the brief Yield Curve Inversion this week? The 10-year yield slipped below Fed Funds rate for first time since the last recession.

Chris Isidore of CNN Money has the details:

"The inversion early Wednesday was different than the inversion that occurred late last year and early this year, when the 10-year Treasury yield fell below the yield on shorter-term Treasury securities.

Wednesday's inversion came as the 10-year yield fell briefly below the fed funds rate, the Fed's short-term rate target, currently 5 percent. It was the first time that's happened since April 2001, the last time the country was in a recession.

The 10-year yield dipped briefly below the fed funds rate Wednesday morning after a report showed a big drop in demand in April for cars, refrigerators and other big-ticket items known as durable goods.

But when a report on new home sales came in above forecasts 90 minutes later, the 10-year Treasury yield edged back above the 5 percent level."

I continue to believe an economic slowdown is in the offing as stimulus fades, and the pig moves through the python. Recession odds for 2007 keep increasing. This despite what Ben "CPI overstates Inflation" Bernanke has said:

"But in recent comments, Fed Chairman Ben Bernanke repeated the view expressed by his predecessor Alan Greenspan that an inverted yield curve is no longer a good indicator of a recession ahead.

"In previous episodes when an inverted yield curve was followed by recession, the level of interest rates was quite high, consistent with considerable financial restraint," Bernanke said in a speech in March. "This time, both short- and long-term interest rates -- in nominal and real terms -- are relatively low by historical standards."

Keep in mind that inversions are not binary -- i.e., inversion or not. The depth and duration of an inversion are significant and contain information. The inversion this past Wednesday was "short-lived and relatively narrow. Some of the pre-recession inversions in the past were far more pronounced." Compare this with prior inversions:

"For example the gap between the 10-year yield and the fed funds rate were inverted for nearly 11 months and the gap reached 1.5 percentage points in January 2001, just before the Fed started cutting rates.

The recession that started in late 2000 lasted until the fall of 2001.

Still, an inverted yield curve is not something that can be ignored, the experts said.

"I think it would be healthy to be concerned, given the track record of the curve being a warning sign," said Schlesinger. "It's important not to be trapped by past patterns. But it (the inverted yield curve) does raise a question about how far the Fed has to tighten."

Source:
Yields throw the Fed a curve
Chris Isidore
CNNMoney.com, May 24, 2006: 3:35 PM EDT
http://money.cnn.com/2006/05/24/news/economy/fed_yield_curve/index.htm