Autumn Linkfest: Week in Preview

Sunday, September 30, 2007 | 06:30 PM

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

With the Quarter now over, investors will be looking for any signs as to how Q4 will unfold. We are in the middle of the earnings warning period, so specific stocks -- as opposed to the entire market -- can get volatile. Pay close attention to what we hear from retailers (mediocre), finance firms (lots of unanswered questions) and technology (surprisingly strong numbers).

Barrons_econ This week will also see a smattering of earnings reports: Palm (PALM), Research in Motion (RIMM), Walgreens (WAG), Marriott (MAR), and Pepsi Bottling Group (PBC). Across the pond, my very favorite necktie designer, Ted Baker plc, reports on Thursday.

In terms of economic data, we are backloaded this week. The mack daddy of data points, NonFarm Payrolls, will be released on Friday (consensus = 115,000 new jobs). Was last month's negative NFP data an aberration, or a sign of things to come? Perhaps Friday's release will shed some light on the subject.  Other employment related data this week includes a preview of NFP via the ADP Employment Report, along with the Challenger Job-Cut Report Wednesday. On Thursday, we hear Jobless Claims, as well as the Monster Employment Index.

But its not just a week of employment data: On Monday, the ISM Mfg Index is released (ISM Non-Mfg Survey is on Wednesday). Tuesday is Same Store Store Sales and the Pending Home Sales Index. Other Central bankers weight in on Thursday, when the BOE and the ECB both announce any rate changes. Factory Orders are also released on Thursday, with Consumer Credit coming out later on Friday.

The other key factor investors should pay attention to is the credit crunch, and if its eased up very much. That will in turn could impact share buybacks and private equity LBOs.

It is also another week of Fedspeak, with speeches or Q&A from Dallas Federal Reserve Bank President Richard Fisher (2X), Federal Reserve Governors Frederic Mishkin, Donald Kohn and Kevin Warsh (all FOMC voting members) throughout the week.

Where to begin this week: The Dow within 1% of its all time highs? The Dollar near its all time lows? (Don't we have a strong dollar policy?) Retail Sales? Bonds? Housing?

Let's get it on!:


Rate Cuts: Cheer or Jeer? The idea that interest-rate cuts are good for stocks is viewed as such an absolute truth on Wall Street that it isn't even a matter of debate. But the reality is a bit more complicated. Investors cheered when the Federal Reserve surprised the market last week with a larger-than-anticipated half-point rate cut. Academics applauded, too, because it gave them another piece of information that can be used to study the relationship between stocks and central-bank policy. (Wall Street Journal)

Goldman Sachs tiptoeing into the bear camp? Goldman Sachs has abandoned its ultra-bullish view of the world economy, warning of a likely recession in Japan and mounting risks that US property slump could spread to parts of Europe. In a new report, "The Global Economy Hits a Crunch", the US investment bank said it was no longer sure that Asia and Europe would be able to pick up the growth baton as America stumbled. It fears that turmoil is spreading beyond the debt markets to the factory floor. (Telegraph)    

The Mind and the Moment: Consider this mental state: Acceptance of what has happened combined with confidence about what will happen. That's the fascinating lessons on "conserving concentration" from tennis great Roger Federer that is very applicable to investors and traders. (Tennis World)

US dollar slide: The Financial Times asks: Can sentiment get any worse? As the dollar flirts with all-time lows on a trade-weighted basis, the smell of approaching capitulation is in the air. The bears have plenty of fodder. A need to rebalance the huge current account deficit has provided a solid long-term case for dollar weakness. The prop of higher-yielding dollars has been eroded by rising interest rates abroad and now pummelled by the Federal Reserve’s half-point cut. See also Robert Reich's Who Gets Hurt When the Dollar Slides? and NYT's As the Dollar Falls, New Doors Open to Currency Bets      

How often do you see me post anything nice about Mister Softee? Microsoft gets its game on: Microsoft scored a huge victory with the release of its Halo 3 video game. The final installment of Microsoft's wildly popular Xbox 360 first-person shooter trilogy attracted casual and hard-core gamers to midnight release parties across the country and set one-day sales records. In the 24 hours that followed, sales of the game set the all-time record for most revenue earned in a single day by any entertainment property. Microsoft said the game netted $170 million in sales in the United States in its first day. If true, that would top previous records set by the motion pictures Spider Man 3 and Harry Potter and the Deathly Hallows. (C/Net

An Early Look At Tax Brackets For Next Year: Most people will get a modest dose of tax relief next year. But high-income taxpayers are likely to receive a bigger portion. Each year, the government is required to adjust many tax-related numbers, including income thresholds, to reflect inflation. For example, in most cases, the top federal rate of 35% won't kick in unless taxable income received in 2008 exceeds $357,700, up from a threshold of $349,700 for 2007. Upper-income taxpayers will benefit not only from these changes -- which mean that more income will be taxed at lower rates -- but also from other inflation adjustments that will enable them to keep more of their itemized deductions and personal-exemption amounts. (Wall Street Journal)

Markets never spot the black swan   

Ethanol’s Boom Stalling as Glut Depresses Price: The ethanol boom of recent years — which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America — may be fading. Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace. The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the last few weeks.  (New York Times)

 • Morgan Stanley's new man in Asia, Stephan Roach, discusses currencies in the New York Times: "Currencies are first and foremost relative prices — in essence, they are measures of the intrinsic value of one economy versus another. On that basis, the world has had no compunction in writing down the value of the United States over the past several years. The dollar, relative to the currencies of most of America’s trading partners, is off about 20 percent from its early 2002 peak. Recently it has hit new lows against the euro and a high-flying Canadian currency, likely a harbinger of more weakness to come . . ." Save the Day

The New $5 Bill (US Mint)

Getting Ready for the Roof to Fall  with mortgage defaults climbing and home sales falling, the plot line of this drama is becoming clear. But Gundlach says there are still several acts to come -- and that the curtain may not come down until the close of this decade. He sees U.S. home prices dropping an average of 12% to 15% annually from the highs achieved last year and not reaching their eventual trough until late 2008, at the earliest. And they may not start recovering until 2010 or 2011, inflicting, in the meantime, real damage on the economy. (Barron's)

Credit Crunch – The New Diet Snack for Financial Markets   


The Wall of worry continues to build:

How Economy Could Survive Oil At $100 a Barrel: The world economy has managed, with some indigestion, to swallow the rise of oil prices past $80 a barrel. How well could it survive $100 a barrel? The answer is quite well -- so long as several conditions still hold true. The price rise would probably have to be gradual. Inflation couldn't get so bad as to force big interest-rate hikes. Oil-rich nations would need to pump their profits back into U.S. and European economies. All of this has happened so far. The happy confluence may continue, though fears remain strong that high energy prices will tip the U.S. into recession. (Wall Street Journal)

A Handy Translation Book: When the Fed says X, they really mean Y

There's No Inflation (If You Ignore Facts): Imagine that a cardiologist told you that aside from the irregular heartbeat, the stratospheric cholesterol count and a little blockage in your aorta, your core heart functions are just fine . . . (Newsweek)

New Concern: Business Spending Orders for durable goods such as computers and machinery tumbled in August, raising concerns that business spending may slow.The Commerce Department said orders for durable goods, which are items designed to last three years or more, fell 4.9% last month. Analysts had expected orders to decline, considering July's especially strong 6.1% gain. (Wall Street Journal)

Mortgage Withdrawals Driving UK Consumer Spending, Also

Ahead of the (yield) curve: Little noticed in the wake of the Federal Reserve's rate cuts one week ago is how much steeper the yield curve has become. That usually would be taken to mean that the risk of a recession has lessened. I think it is significant that it hasn't received more attention. The yield curve, of course, refers to the difference between shorter-term and longer-term interest rates. Normally, shorter-term rates are lower. Now and then, however, the situation becomes reversed; on these relatively rare occasions, the yield curve is said to be "inverted."  (Marketwatch)

• Argmax: Middle class squeeze see also Consumer Confidence Slumps, Home Sales Decline

September Unemployment Data Will Likely Shape Next Fed Move: With the economy under recession watch, Friday's coming report on September employment may give the strongest signal yet about whether the U.S. is headed for a painful contraction or a soft landing. The August report, which showed that monthly payrolls fell for the first time in four years, fueled recession fears and paved the way for an aggressive action by the Federal Reserve, which cut its target for the benchmark federal-funds rate by a half-percentage point. But some economists argue that technical problems bedeviled the August data and that September's tally will show a healthy jobs gain. Others aren't so sanguine. Either way, the September employment data should help clear up the confusion -- and provide a clue about the Fed's likely next move. (Wall Street Journal)


Continuation of Negative Annual Returns in Housing   

Foreclosures drag down home sales: The explosion in home foreclosures and a tightening in mortgage lending dragged down real estate prices in Massachusetts in August, a real estate research and publishing firm reported yesterday. Warren Group in Boston said median single-family home prices last month fell 4.9 percent, to $314,000, from August 2006 - the 16th consecutive month in which prices have declined. The number of sales in the period fell by 1.5 percent. (Boston Globe)  see also Foreclosure Pickings Are Plentiful but Not Easy

Wheeee! New Homes Sales, Prices in Freefall  See also Why Investors May Want To Shun Builders (WSJ)

Freddie Mac chief warns of recession: The US economy faces a 40 to 45 per cent risk of recession induced by the housing market downturn, the chief executive of Freddie Mac warned on Thursday as data showed sales of new homes hit a seven-year low in August. Richard Syron, chief executive of the government-sponsored mortgage company, said the credit squeeze had left some parts of the US housing market “literally frozen”. This was a “substantial depressive to the overall economy”. He forecast the Federal Reserve would make another “material” cut in interest rates. (FT)

National Association of Realtors (NAR) on "Temporary" Housing Problems but see Investors See Four Years’ Worth of Housing Slump      

Can These Mortgages Be Saved? Lenders, government officials and loan servicers, who take in borrowers’ monthly mortgage payments, contend that troubled borrowers everywhere are being helped to stay in their homes by those overseeing their loans. But neither data nor anecdotal evidence supports this view. A recent survey of 16 top subprime loan servicers by Moody’s Investors Service found that for the first six months of 2007, an average of only 1 percent of loans experiencing an interest rate adjustment, or reset, had been modified. (New York Times)

Is Florida Over? (Let's hope so!)  For almost a century, Florida has been a magnet for mobile Americans. The state's plentiful sunshine and open space has attracted "snowbirds" fleeing winter, retirees living out the last chapter of their lives and down-on-their-luck workers in search of jobs. A steady flow of newcomers has kept the state's population growing faster than the nation's, often much faster, since the 1920s. But for Americans on the move, Florida has become a less-appealing destination. Moving company Atlas Van Lines brought 6,700 families into Florida last year and took 8,000 out, the first time it has moved more out than in. The number of people from other states who switch to a Florida driver's license is down more than 8% from last year. And the state's crowded schools actually lost students last year, prompting many counties to cut back on their construction schedule and, in some cases, look to close schools. While foreigners continue to arrive at a rate of about 100,000 year, migration from inside the country is slowing. (Wall Street Journal)


• The Guardian puts up online 15 great interviewss of the 20th Century, including Richard Nixon, John Lennon, Marlon Brando, F Scott Fitzgerald, Margaret Thatche, Malcolm X and Adolf Hitler.

Openmoko: Worthy open source iPhone competitor? The Economist and eWeek have all the details.

Google Earth Forces the Navy to Do Some Remodeling: The Naval Base Coronado near San Diego has gone unnoticed since it's groundbreaking in 1967. Then Google Earth had to come in and ruin everything. The satellite mapping site revealed to the public that, from the air, the structure was shaped like a swastika (oops!). Turns out that the Navy knew about this all along, but since the airspace over the Navy yard is restricted they thought no one would ever notice. Well, the Anti-Defamation League did . . . (Wired)   

Why it's really alright to be left-handed! 

National Geographic's Week in Photos

Why Living a Life of Gratitude Can Make You Happy



• The new Springsteen disc, Magic, gets released this week. I like the first single, Radio Nowhere. The New York Times, via a huge Arts & Leisure article, likes it alot: "There is a brightness of sound and a lightness of touch that are not quite like anything else Mr. Springsteen has done recently." 30 second audio clips of all songs are included. Also of interest: Who’ll be the next Springsteen? 

Has the new James T. Kirk been cast for Star Trek XI?   

• I had no idea that Dice Stacking was such an art

Mesmerizing video of basketball dribbling drills (via kottke)


If anyone saw the new release Blade Runner: Final Cut, please tell me what you thought!


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, September 30, 2007 | 06:30 PM | Permalink | Comments (3) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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The NYTimes "Can These Mortgages Be Saved" article was a long one, but the final graf alone was worth the price of admission. Everything you need to know about the current state of the U.S. economy in one neat little anecdote:

"Such efforts (contacting appropriate staff at CFC to try and negotiate loan workouts) may soon become more difficult. At an investor conference on Sept. 18, Angelo R. Mozilo, Countrywide’s chief executive, said the company would be hiring more staff members to do home-retention and loss-mitigation work. Those employees, however, will be based in India."

Posted by: Ant | Sep 30, 2007 10:41:37 PM

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