Volatility Linkfest: Week-in-Preview

Sunday, August 12, 2007 | 06:30 PM

Yesterday, we looked at the week that was. Today, we preview the coming week.

Calendar_812 We have a moderate calendar of economic releases this week: Retail Sales are on Monday, and Same Store chain stores are Tuesday (no one is expecting great numbers). Inflation data gets revealed this week, with Producer Prices on Tuesday, followed by Wednesday's Consumer Price Index. The Fed hopes the cooling economy is also cooling inflation pressures. Thursday we hear about Housing Starts, and Friday is U. Michigan's Consumer Sentiment. If data continues to come in softer than expected, we will start to hear the drumbeats agitating for a rate cut. (Cue Aretha Franklin's Fontella Bass' Rescue Me!)

We are pretty far along the second quarter's earnings calendar, but there are still a few releases scheduled for this week: We start the week with a pair of public hedge funds: Monday is Blackstone Group, which broke its IPO price nearly from the 1st day of trading. Tuesday is and Fortress Investment Group, which has hardly fared much better. Now when these guys tell companies about the pains of being public, they can do so from personal experience (rather than just making a sales pitch).

No one is expecting much from Home Depot on Tuesday, (despite all the money I've thrown at them this month!). Look for a lot of questions about their rapidly diminishing stock buyback. Wal-Mart also reports Tuesday, and we will find how much margin their price cutting has sacrificed on the alter of market share. Other retailers reporting include Macy's on Wednesday, and Nordstroms, Kohl's (KSS) and JCPenney (JCP) on Thursday. Perhaps these retailers can provide some insight into how the credit crunch and cooled housing market has impacted the consumer.

On a related note, Fannie Mae's (FNM) report on Thursday may shed some light onto how the credit collapse is impacting mortgages (more on this below).

A handful of tech frms report this week: Applied Materials (AMAT) reports Tuesday, and Salesforce.com releases earnings data on Wednesday. On Thursday, we hear from Dow component Hewlett-Packard (HPQ), along with Autodesk (ADSK) and BEA Systems (BEAS).

Congress is on recess this week, so at least that source of mischief is out of the way.

Yesterday, I promised some more upbeat articles mixed in amongst the dour reportage: We retort, you decry: Its linkfest time.


S&P 500 Looks On Cheap Side Amid Turmoil:  Looking to take advantage of all the market turmoil? For ordinary investors with strong nerves, there could be an opportunity here -- in big, blue-chip companies.The large-cap stocks in the Standard & Poor's 500-stock index aren't dirt cheap. But thanks to their tepid returns since March 2000, and the market pounding of recent weeks, their valuations are pretty attractive. (Wall Street Journal)

• Every crisis has a silver lining, in the lessons it imparts to those who look for them:  Advice for Rich Uncles and Others . . .   

Is New York the Next Detroit? A world-beating made-in-the-U.S.A. industry, long insulated from foreign competition, dominates global markets and cheerily doles out stratospheric wages and benefits. As it begins to lose market share, executives write off international competition as a low-quality nuisance. When the foreign ripple becomes a wave, corporate chieftains look to the government for help and blame regulations and plaintiffs' lawyers for their woes, rather than confront their own untenable cost structure. Detroit and the auto industry, circa 1985? Yes. But it also sounds an awful lot like New York and Wall Street, circa 2007. (Newsweek) 

Russell's still going strong at 83: Richard Russell, editor of Dow Theory Letters since 1958, and the current "Dean" of Dow Theory, says there is good news: No Dow Theory Sell signal. The bad news? He says he's "worried." (MarketWatch)

How Volatile Can Volatility Get? You know options trading's either getting tougher or easier when talk of the "volatility of volatility" rises to the forefront of the market.Traders normally try to keep their views about volatility to themselves. But now, a number of traders are hinting that they see the sharp action ebbing.Since Friday, August 3, the Chicago Board Options Exchange's Market Volatility Index, or VIX, is up 90% from its level 50 days ago. In the past 17 years, Bespoke Investment Group said there have only been six other periods when VIX made such a large move over such a short span. (Barron's)   

The Strong Case for Tech: Marketwatch's John Shinal wryly notes that  "Google, Cisco don't collateralize loans"  Shinal advises "Hold your Google, Cisco Systems and other tech issues. If you've got strong nerves, you may even consider buying them."

Hey, maybe it ain't so bad here: U.K.'s Subprime Crisis May Be Worse Than U.S.'s: We are now all familiar with the damage that can be done to financial markets by a subprime lending crisis. Global equity markets have taken a battering recently because of concerns about U.S. home mortgages.So which country is next?The U.K. has had a property bubble every bit as crazy as the U.S.'s. Valuations were stretched, and lending criteria loosened. And now arrears are starting to rocket, even while the economy remains healthy.Not only does the U.K. face its own subprime crisis, it could be far worse than in the U.S. (Bloomberg)

The Insiders Aren’t So Bearish, After All: The sharp stock market decline that began in late July is more likely to be a minor downturn in a continuing bull market than the beginning of a major bear market. That, at least, is the conclusion of an extensive analysis of corporate insiders’ trading behavior. Insiders are a corporation’s officers, directors and largest shareholders. It stands to reason that they know more about their companies’ prospects than the rest of us do, and many investors pay close attention to whether that group is buying more than it is selling, or vice versa. Insiders are required to report purchases or sales of shares of their companies’ stock immediately to the Securities and Exchange Commission. (New York Times)

Understanding Credit's Alphabet Soup

General Motors Says It Could Lead Electric Car Race: General Motors Corp. has signed an agreement with a battery maker that could propel it ahead of Toyota Motor Corp. in the race to bring plug-in hybrid and electric cars to market, a top company official said Thursday. A123 Systems Inc., based in Watertown, Mass., already produces millions of nanophosphate lithium-ion batteries for use in cordless power tools, and it plans to apply the technology to automobiles. GM Vice Chairman Bob Lutz said the deal, coupled with a published report that Toyota Motor Corp. would delay launches of lithium-ion battery powered hybrids for up to two years, could give GM the lead in bringing the new clean technology to market.   (AP)

 AAAH August. The month of quiet workplaces, languorous beach days and mayhem in financial markets. As stock and bond markets around the world continued their roller-coaster ride last week, exhausted traders found themselves wondering: What is it about August that brings so many financial storms? The Bears of August (New York Times)

New Asian Contagion Risk -- This Time From U.S.: It has to be one of the biggest ironies in global finance. Ten years ago, it was contagion from Asia imperiling the global economy. For months after Thailand devalued its currency in July 1997, U.S. officials reassured markets that Asia's woes were containable. Once the Dow Jones Industrial Average began plunging several hundred points in a day, investors knew better. (Bloomberg)

• What do Golf and Trading have in common? You'd be surprised: Golf/Trading Quotes

Our man Jim Cramer goes toe to toe with Stephan Colbert



The Wall of worry continues to build:

• Many financial market participants are clamoring for the Federal Reserve to cut interest rates to provide liquidity to markets, but some veteran Fed watchers question how effective a rate cut would be. How effective would Fed rate cut be?  (MarketWatch) see also Helicopter Drop?

• What is the biggest economic problem facing the nation? Too many Bears on TV. (And, this absurd column only took 2nd place in our most ridiculous Op-Ed of the week contest)

Are We at The Peak of a Minsky Credit Cycle?

New Orleans 2007: The slow road back Fortune, Money Magazine and Fortune Small Business look into why progress is so slow and show how businesses and former residents are coping.   

China threatens 'nuclear option' of dollar sales



Mortgage meltdown contagion:  The outlook for the housing market looks even bleaker than it did a week ago. Last Friday we reported that foreclosures were skyrocketing, home prices falling and recovery forecasts were being scaled back. And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy. (CNN Money)

Six Questions Consumers Are Asking About The Mortgage Market: Here are some of the mortgage questions on consumers' minds these days, based on interviews with industry professionals, and postings on Web logs and online discussions. (CNN)

Why the Blowup May Get Worse: The real question is how, and whether, the damage from the subprime mortgage meltdown can be contained. The good news is that the positives of a strong global economy should mute the repercussions from this financial debacle. The bad news is that mortgage crisis still is in its early innings.  (Barron's)

In a Credit Crisis, Large Mortgages Grow Costly: At the heart of the contagion problem is the combination of complexity and leverage. The securities that financed the rapid expansion of mortgage lending were hard to understand, and some of those who owned them had borrowed so much that even a small drop in value put pressure on them to raise cash. (New York Times)



•  How the ‘Good War’ in Afghanistan Went Bad:  Two years after the Taliban fell to an American-led coalition, a group of NATO ambassadors landed in Kabul, Afghanistan, to survey what appeared to be a triumph — a fresh start for a country ripped apart by years of war with the Soviets and brutal repression by religious extremists. With a senior American diplomat, R. Nicholas Burns, leading the way, they thundered around the country in Black Hawk helicopters, with little fear for their safety. They strolled quiet streets in Kandahar and sipped tea with tribal leaders. At a briefing from the United States Central Command, they were told that the Taliban were now a “spent force.” (New York Times)

Internet News Audience Highly Critical of News Organizations: The American public continues to fault news organizations for a number of perceived failures, with solid majorities criticizing them for political bias, inaccuracy and failing to acknowledge mistakes. But some of the harshest indictments of the press now come from the growing segment that relies on the internet as its main source for national and international news.  (Pew Research Center)

What New Yorkers know about Rudy Giuliani that Everyone Else Should, too: When I travel around the US, on occasion people will ask me how Rudy Giuliani was as a NYC mayor. They are stunned to learn where his polling numbers were late in his 2nd term. Then came 9/11. . . (See also: Romney Wins Iowa Straw Poll by a Sizable Margin).

• Will solving our energy problems generate technologies and companies you can invest in?It Takes Deep Pockets (New York Times Plenty of big ideas are out there to address the issue, and some may even lead to substantial enterprises much as our military needs have.


Who owns what, Web 2.0 version

Lexus, Buick Tie For Most Dependable: General Motors (GM) has had enormous difficulty coming up with a marketing idea to wrap around its Buick brand, changing ad strategies five times in six years. For the next year, though, the automaker can claim "most dependable brand in America," according to J.D. Power & Associates. (BusinessWeek)

The Perseids are coming!   Spectacular meteor showers all this week 

Google Key to Latest iTunes Challenge: Add gBox Inc. to the growing list of online music services hoping to chip away at iTunes's dominance.The Cupertino, Calif., startup was forced out of a stealth mode when Universal Music Group announced late Thursday it would test sales of some digital music without the customary copy-protection technology. Under the program, gBox will get referrals through ads Universal will buy through search leader Google Inc., gBox Chief Executive Tammy Artim said Friday. (AP)

Odd story of the week: West Nile Threat Rises in California as Pools Lure Mosquitoes: The 9,000 unsold houses sitting empty in Northern California's Sacramento and Yolo counties aren't just a headache for owners: They're a threat to public health. The danger is in their yards, where deserted swimming pools, spas and ponds provide prime breeding grounds for mosquitoes. That heightens the risk of West Nile virus, which mosquitoes get from birds and pass to people, said David Brown, general manager of the Sacramento-Yolo Mosquito and Vector Control District. (Bloomberg)

• Hyperbole or Fact?: Plastic bags are killing us   

TiVo's Ultimate DVR Redux: (Video)

ONLINE CLOTHING SALES SURPASS COMPUTERS Total Online Sales Expected to Hit $259 Billion in 2007 (Shop.org)

• Strange legal twist: So what if the owner of Facebook stole the idea? “The general rule is that ideas are free unless strapped down by contract or patent.” In practice, a great idea is owned by whoever expresses that idea most successfully.


• I just started A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation. Talk about a timely book release!

Things Fall Apart, but Some Big Old Things Don’t   

Five Days, 4000 Miles: Racing Through the West In the 187-MPH Audi R8; Companies at the very top of the automotive pecking order -- Aston Martin, Ferrari and Lamborghini, primarily -- don't routinely make cars available for review. These are exclusive brands that sell limited numbers of high-performance vehicles at prices starting in the low six figures and soaring into if-you-have-to-ask territory. Presumably they're going to sell just as many (only several thousand a year) regardless of media attention. But Volkswagen AG's Audi isn't a high-end car company. It's a mass-market luxury brand that's attempting a true, limited-production exotic car. (Video here)

Back to the Future Hoverboard...Almost


The weather in the NorthEast appears to be even more spectacular than yesterday. Its a top down, wind in your hair kind of day. See you on the beach!


Got a comment, suggestion, link idea? Or do you just have something on your mind? The linkfest loves to get email!  If you've got something to say, then by all means please do.

Sunday, August 12, 2007 | 06:30 PM | Permalink | Comments (7) | TrackBack (1)
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» Explaining the Global Credit Crunch from TRANSPARENT REAL ESTATE (www.TransparentRE.com)
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Tracked on Oct 20, 2007 2:47:04 PM


Check out Ben Stein's piece, "Chicken Little's Brethren, on the Trading Floor" in the Sunday NY Times about the incredible overreaction going on in the markets the last few weeks. Here's how he tallies up the damage:

"The total mortgage market in the United States is roughly $10.4 trillion. Of that, a little over 13 percent, or about $1.35 trillion, is subprime — certainly a large sum. Of this, nearly 14 percent is delinquent, meaning late in payment or in foreclosure. Of this amount, about 5 percent is actually in foreclosure, or about $67 billion. Of this amount, according to my friends in real estate, at least about half will be recovered in foreclosure. So now we are down to losses of about $33 billion to $34 billion.... by the metrics of a large economy, it is nothing. The total wealth of the United States is about $70 trillion. The value of the stocks listed in the United States is very roughly $15 trillion to $20 trillion..."

In other words, we're making a big fuss over a measly $34 million! This is the ultimate reductionist argument. It's like saying 9/11 was about the loss of 16 city blocks of real estate.

Posted by: speedlet | Aug 12, 2007 8:49:24 PM

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