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How I Spent My Summer Vacation

While I'm stuck in eastbound Hamptons traffic, you can enjoy this from The Office.

Enjoy your long weekend !

Friday, August 31, 2007 | 06:30 PM | Permalink | Comments (7) | TrackBack (0)
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78 Years Ago Today: The New Yorker

I was kicking around the New Yorker cartoon bank when I stumbled across this interesting New Yorker August 31, 1929 cover print by Theodore G. Haupt (98 78 years ago today!)

After an amazing five-year run that saw the Dow Jones Industrial Average (DJIA) increase in value fivefold -- far more than the run from 2003 til now -- prices peaked at 381.17 on September 3, 1929, about the time when this cover came out:

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Remember, the real mayhem wasn't until a few months later -- Black Thursday, the initial crash was on  October 24th, 1929, and Black Tuesday was 5 days later -- October 29th, 1929.

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UPDATE:  August September 1, 2007 7:55am

Doh! So much for 14 years of applied mathematics!

I blame fat thumbs on that one -- either that, or smoking way too much dope in college . . .

~~~

UPDATE:  September 2, 2007 7:15am

Oh, and speaking of innumeracy . . .

Friday, August 31, 2007 | 02:30 PM | Permalink | Comments (28) | TrackBack (0)
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Major Policy Shift -- or Politics as Usual?

Over the past few weeks, market's have been rather volatile, swinging wildly between triple digit gains and losses, closing at the highs and lows of the day. The sub-prime debacle, the credit crunch, the liquidity situation -- all turn out to be pressuring markets. The ongoing fear is that there are more bodies that will be floating up to the surface, and this will eventually crimp the economy.

This entire week has been a grand lead up to Federal Reserve Chairmen Ben Bernanke's major address on Housing woes at 10:00am.

Then, something rather intriguing occurred. Sometime last night, the White House announced that the President will deliver a speech -- at 11:00 am today.

I found that rather curious.

The WSJ reported that the key provision of the policy initiative as an "administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers."

Schaeffers Research notes:

"Traders seem to have packed away concerns regarding a speech by Federal Reserve Chairman Ben Bernanke, focusing instead on aid for subprime lenders being hinted at by the Bush administration. According to The Wall Street Journal, about an hour after Bernanke's speech, Bush is expected to announce plans for a change in the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. The change would allow 80,000 more homeowners in 2008 to receive federally insured mortgages on top of the 160,000 projected to use the insurance, the Journal reported."
-Bush Trumps Bernanke, Futures Surge Higher.

80,000 homeowners? That's a drop in the bucket of the millions of resetting sub-prime ARM mortgages. Very very small impact, at least as far as housing is concerned.

Still, I find this whole thing terribly interesting. A very minor policy change at the margins, but one with timing that is utterly exquisite. The President's speech:

• Immediately diverts attention from Fed Chair Ben Bernanke's speech;

• Comes right before a 3 day weekend;

• Is on the last day of the month;

• Is on the last day of the fiscal year many financial firms.

It just strikes me as . . . peculiar. Remember, White House chief of staff Andrew Card famously stated: "From a marketing point of view, you don't introduce new products in August." That's as true about wars as it is about major economic rescue plans.

And, we have seen more and more commentary like yesterday's WSJ piece (Bernanke Breaks Greenspan Mold) suggesting that Ben Bernanke understands Moral Hazard, and won't rescue reckless speculators from themselves, at every other taxpayer's expense.

How have these speculators impacted both the Housing and Credit Markets? As the front page of today's WSJ notes, Investors Default On Outsize Share Of Home Loans:

"Investors played a big role in pumping up home prices during the housing boom. Now, they account for an outsize proportion of loan defaults, mortgage bankers and builders say.

A survey by the Mortgage Bankers Association found that mortgages on properties that aren't occupied by the owner -- mostly investment homes -- account for between 21% and 32% of the defaults on prime-quality home loans in Arizona, California, Florida and Nevada, states where overdue payments are mounting fast . . .

The four states were among the favorites of speculators during the housing boom. When the market was hot, many speculators bought homes hoping to flip them for a quick profit. But now that home prices have turned lower, that strategy is backfiring.

As a result, some investors have "simply walked away from their mortgages," said Doug Duncan, chief economist of the MBA, echoing recent comments from executives of Countrywide Financial Corp., the nation's largest mortgage lender."

Will we also be bailing out these speculators, too?

A hedge fund manager friend noted: "I don't see anything in Bush's plan that will change the insolvency of the home-buyer. The "system" is illiquid (and that "problem" was addressed by the central banks two weeks ago), but the "borrowers" are insolvent. Nothing I've seen yet changes that fact. Nothing. Besides, has this Administration, which doesn't believe in government programs, ever done anything bureaucratically well...?"

That's a point well taken.

Let's return to the timing: If you were introducing a major economic policy initiative that was going to address a major issue -- wouldn't you wait until Tuesday? Its only 4 days away. This is a huge vacation week, many people aren't around, and all they will hear is that the President did something.    

I normally stick to mathematical analysis, preferring numbers to instinct, data to politics. But todays "news" struck me as an exquisitely timed, very clever PR stunt. Not to be cycnical, but this appears to be much more politics than policy, and a lifeline to the big investment banks on the last day the month and (some  of their) fiscal years. I suspect hank Paulson had a major hand in the timing.

But a fix for what ails the system? Not even remotely close. That's a function of time and quite a bit of creative destruction. As we noted on Monday, "Capitalism without financial failure is not capitalism at all. . . .    

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Sources:
Opening View: Bush Trumps Bernanke, Futures Surge Higher
Bush administration to bail out subprime;
Joseph Hargett
Schaeffers Research, 8/31/2007 7:58 AM ET    http://www.schaeffersresearch.com/commentary/observations.aspx?ID=20137

Bush Moves to Aid Homeowners
DEBORAH SOLOMON
WSJ, August 31, 2007; Page A4
http://online.wsj.com/article/SB118851742988914064.html

Bernanke Breaks Greenspan Mold
Managing Crisis, Fed Chief Dulls Notion That Turmoil In Market Leads to Rate Cut
GREG IP
WSJ, August 30, 2007; Page A3
http://online.wsj.com/article/SB118841384006012433.html

Investors Default On Outsize Share Of Home Loans
MICHAEL CORKERY and JAMES R. HAGERTY
WSJ, August 31, 2007; Page A1
http://online.wsj.com/article/SB118851838516214091.html

Friday, August 31, 2007 | 09:23 AM | Permalink | Comments (103) | TrackBack (1)
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Yahoo! Message Boards

To you folks wondering whether that was really me who posted on a certain small cap, streaming media company at Yahoo's stock message boards: There is a both a long and short answer.

The short answer is yes.

The longer answer is a bit more complicated:

A very good friend of mine from grad school ("J") was a fairly big wig at Yahoo! When his stock vested in 1999 (25% up front, 3% per month for the next 3 years), he asked me for advice. The stock was near $200, and I told him to sell it -- every share he possibly could, as soon as it vested. For the most part, he followed that advice. He did pretty well for himself. J is now the President/COO of another dot com that is privately held, whose service is used by many branded consumer product companies. I suspect they will eventually be bought by another firm much larger than them.

The 2nd factor about the Yahoo message boards has to do with Iomega (IOM). That board was a huge lesson in just how bad Wall Street Research actually can be. It showed how individuals working together via the internet were able to outfox the pros. That, and its one of the few stocks I ever top ticked when liquidating a large position (that's another war story best saved for another time). 

Because of J, and IOM, I have always had a special place in my heart for Yahoo!, and the way those message boards were way back in the innocent mid-1990s. 

Then the touts, shorts, and spammers took over -- and that was all she wrote . . .

~~~

Back to my post: it was a sincere expression of my disappointment on how they have allowed what was a big asset of theirs to fall into disrepair.

Don't worry: I have no plans on posting anything else anytime soon . . .

Friday, August 31, 2007 | 06:00 AM | Permalink | Comments (13)
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Eric Bolling Bolts CNBC's Fast Money for Fox?

I've been hearing rumors that Eric Bolling has left Fast Money for Fox. That has now been confirmed.

That's really too bad. First, the show had a good chemistry between all the participants, including Bolling. Second, Dylan Ratigan is a pleasure to work with, as is the show's producer, John. 

TV Newser reported that Bolling showed up on FNC's Your World with Neil Cavuto on Monday.

Additionally, Bolling's bio on CNBC.com has been taken down...

Thursday, August 30, 2007 | 02:30 PM | Permalink | Comments (100) | TrackBack (3)
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ISI's Ed Hyman: Slowing, but "No Recession" Forecast

Paul points us to this Bloomberg interview with ISI economist Ed Hyman. Funny, we were just discussing Ed in the office yesterday. He sees the economy slowing, but does not forecast a recession; Hyman also expects the Fed to eventually take rates down to 4%.

That is not quite our forecast. We see the economy continuing to slow, and a better than even money chance that we slip into a recession (How mild or strong is anyone's guess).

However, given Hyman's historical track record -- he's been the #1 ranked economist by Institutional Investor for the past 23 years -- he is not a guy you really want to bet against.

click for video

Thursday, August 30, 2007 | 11:45 AM | Permalink | Comments (37) | TrackBack (0)
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Forex Trading Show

Exciting news!   

I am one of the Keynote speakers at the Forex Trading Expo in Las Vegas on September 15 and 16 at the Mandalay Bay Resort and Casino.

I have never been to one of these, so I am excited to see what they are all about. A few people I have spoken with about these shows -- Tobin Smith, John Mauldin, Paul Kedrosky (who has a tech conference in NY on January) and others were all very positive.

Here is the official blurb:

"One weekend in September can greatly accelerate your learning curve and give you the skills and knowledge you need to make consistently profitable trading decisions. On September 15-16, 2007 in Las Vegas, the Forex Trading Expo will once again bring together thousands of the most dedicated traders in the country to learn what works for successful currency speculators."

Note that the focus is on Currency Trading. I plan to discuss some of the psychological aspects  of Trading and variant perception . . .

Should be cool -- believe it or not, I have never been to Las Vegas! 

Thursday, August 30, 2007 | 10:00 AM | Permalink | Comments (20) | TrackBack (0)
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A Historical Perspective of Recent Bear Markets

Via Jim Stack's Investech, comes this interesting view of how prior Bear Markets compare relative to the most recent 9% correction.

Jim does something a bit different -- he depicts these prior Bear Makets starting from the most recent July 19 highs:

"Shown on this page are some the most significant bear markets of the past 40 years.  In historical terms, they range from the brief and mild (1990) to the long and severe (1973-74 and 2000-02)

As you step through each, try to imagine what it would be like riding the market down – where the DJIA would be by  year-end, and how your strategy might be affected if/when the DJIA broke 10,000.  This will help you understand your own tolerance for risk in the current market climate, and what each would look like if it started at DJIA 14,000 on July 19, 2007"

Click for larger charts

Now consider that since that July 19 peak of just over 14,000, the Dow has yet to breach even 13,000 to close with a downside move of 10% (thanks to all who pointed out that my original comment was incorrect).

What is so fascinating to me, given the relative mildness of this pullback, is how much noise we have heard from the crowd -- Sturm und Drang -- as if this was Def Con 1. I like the way Dan Gross describes it, calling out the "motley collection of gazillionaires, conservatives, and industrialists begging the Fed to cut interest rates."

Thanks, Jim -- great stuff.

Thursday, August 30, 2007 | 08:39 AM | Permalink | Comments (40) | TrackBack (0)
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Overcompression

Music sucks today.

Not the bands -- theres lots of great stuff out there, its just much harder to given the death of radio. 

No, we are talking about the quality of recorded music. Its bad, and getting worse.  And, we have proof of exactly how bad it sucks: Overcompression

As reported by Institute of Electrical and Electronics Engineers (IEEE), recored music has increasingly grown louder, at the expense of dynamic range -- the differences between the softest and loudest portions of any recorded music sample.   

IEEE reports on "the smoking gun of the loudness war is the difference between the waveforms of songs 20 years ago and now."   Below you can see two examples:

A waveform from the late 80s / early 90s:

A waveform from now:

For those people interested in this sort of thing, there is a full article on this: The Future of Music. See also  The CD Turns 25).

UPDATE: December 28, 2007 9:27 AM

See this new article:

The Death of High Fidelity
In the age of MP3s, sound quality is worse than ever
ROBERT LEVINE
Rolling Stone, Dec 26, 2007 1:27 PM
http://www.rollingstone.com/news/story/17777619/the_death_of_high_fidelity

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Source:
The Future of Music
Suhas Sreedhar      
August 2007
http://spectrum.ieee.org/aug07/5429

Wednesday, August 29, 2007 | 09:00 PM | Permalink | Comments (40) | TrackBack (0)
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Blogrunner

Interesting form of combined media/blog outlet: Blogrunner.

Essentially, it lists top stories by topic (Politics, Business, Media, Technology, Economy, Law, Science, Health, Movies, Books, Religion, Entertainment, etc.)

Blogrunner then excerpts and links blog posts that comment on those stories.

Kinda like Google News, only annotated via blogs .  . .

Wednesday, August 29, 2007 | 03:15 PM | Permalink | Comments (10) | TrackBack (0)
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