• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

Las Vegas Linkfest: Week-in-Preview

Yesterday we reviewed the week that was; This morning, we preview the week that is yet to be:

While there's lots going on in the coming week, all eyes will be on the FOMC meeting Tuesday. According to Barron's Econoday, the Fed Fund Futures are pricing in a "42 percent probability for a 25 basis point cut versus 58 percent for a 50 basis point cut from the current target of 5-1/4 percent, based on fed funds futures close on September 14."

I find that quite aggressive. Given what we know of Ben Bernanke (he's no "Easy Al"), plus the recent spike in oil and soft commodity prices, AND the weak US dollar, my bet is more for a 1/4 point cut than a half. And, that is likely fully priced in already.

My pal Paul Kedrosky points out that since the last rate cutting cycle began in August 2001, equities are now 50% higher. However, once the rate cutting began, Markets had to first lose ~35% prior to the positive effects of cheaper money being felt. This eventually led to the big rally. Those are the vagaries of fear and greed in the markets.

In addition to the FOMC meeting, there are a slew of brokerage earnings due, several economic reports, and, as if you haven't heard enough from him lately, Fed Chair Ben Bernanke testifies in Congress -- not because he likes answering really inane questions from not-very-bright legislators, but because its in his job description. (Ben: Can't I just send an intern? Alan: No, you have to go yourself).

Also, there's quite a few important economically sensitive earnings reports on tap. The brokers start us up (see link below), with Lehman Brothers on Tuesday, Morgan Stanley Wednesday, and Goldman Sachs and Bear Stearns reporting Thursday. Given the outsized representation of Finance in the S&P500, these reports have the potential to roil markets.

Other earnings reports worth considering: FedEx reports Q1 earnings Thursday (see link below), and may give insight into the wider economy. Best Buy and Circuit City Stores report Q2 earnings on Tuesday and Thursday respectively. With Home equity loans slipping lower, Plasma and home theater sales may have suffered.

A few big Tech reports also: Adobe Systems releases Q3 earnings Monday, and Oracle gives Q1 results after the close Thursday.

With CPI and PPI inflation data scheduled this week, the WSJ notes that:

"Kroger reports fiscal second-quarter profits on Tuesday, and Wall Street will be watching closely to see how ethanol-fueled surges in food prices have affected sales and profits at the Cincinnati-based grocery giant.

Investors will also be watching to see how the food companies are handling the continued surge in commodity prices when ConAgra Foods and General Mills report their quarterly earnings next week."

Lastly, Countrywide CEO Angelo Mozilo is presenting at the Bank of America 2007 investment conference in San Francisco Tuesday. He will be singing a few of the same old songs, then finishing with some fancy footwork, tap dancing around both Countrywide's lending foul ups and his own simultaneous, massive insider stock selling. (Hey, at least he's not hiding under his desk).

Plenty of economic data to chew over this week: On Tuesday, we get Producer Prices in the morning, and the FOMC statement at 2:15 ET.  Wednesday releases include Consumer Prices and Housing Starts. Thursday is(are?) Leading Indicators. Remember, Friday is a Quadruple Witching option expiration, so anything can (and will) happen between now and then. (Repeat after me: Volatility is my friend).

I'm still in Las Vegas -- I'm giving the keynote speech on Variant Perception and Contrary Investing at the Forex Currency show -- and time's awastin. Let's get busy:
   

INVESTING & TRADING

• What to Own if Economy Turns Sour: Concern about a recession seems to have swelled in recent days with each speech made by a Federal Reserve official enumerating signs of economic weakness. Their aim may be to telegraph the Fed’s intention to cut interest rates next week in a pre-emptive strike against a recession, but if you doubt that one can be staved off, there are steps you can take to inoculate your portfolio. (New York Times)

• Where markets head now, according to Merrill Lynch's Rich Bernstein: Merrill Lynch's Richard Bernstein is one of the few investment strategists on Wall Street whose writings are worth paying close attention to. Back in January, for example, he wrote this about how financial markets would eventually be shaken from their complacency: We view financial risk much like popcorn popping in a microwave. Until the first kernel pops, one tends to believe that nothing is happening. The initial pop seems like a random event until a second occurs. A third. A fourth. Then the popping goes wild. (Time)

• The Greening of Hype: How solar panels generate more free publicity than clean electricity for businesses. For companies large and small, going green is now a surefire way to cut through the clutter. A recent issue of the New York Times travel section included a brief article—complete with Web address—describing in loving detail the features of the Proximity Hotel, a green inn in Greensboro, N.C. Some hot hotels feature roofs with happening pool scenes. The Proximity's roof features solar panels and a vegetable garden. (Slate)

• REITs, Down Sharply, May Be a Good Buy: After seven consecutive years of extraordinary gains, REITs are posting negative returns. Equity REITs, which own commercial property and constitute the bulk of the market, had slid 7.73 percent, on average, from the start of the year through Thursday (though they have been improving of late), according to the National Association of Real Estate Investment Trusts. Losses for mortgage REITs, which originate loans and invest in mortgage-backed securities, were a staggering 43.62 percent on average in that period, the association said. This year’s slump has been attributed in part to profit taking (in 2006 alone, REITs returned 34.4 percent, on average, versus 15.8 percent for the Standard & Poor’s 500 stock index), as well as the frenzy over subprime mortgage defaults. But some analysts think that the decline has been too severe and that many REITs are poised for a comeback. Even as the market was swooning, Standard & Poor’s issued a report this summer offering a positive outlook for many property groups, including the industrial, office, retail and specialized REITs like lodging, self-storage and timber. (New York Times)

• The Hunt for Black October: With the anniversary of the worst one-day decline in U.S. stock market history approaching, Matthew Rees sets out to find its cause. And determine whether it can happen again"  "For the preceding seven weeks, the stock market had been skidding. Now, on this sunny Monday, it was on the verge of total collapse. When the day was over, the Dow Jones Industrial Average had lost more than 500 points, or 22.6 percent of its value—the equivalent of a drop of about 3000 points today. A half-trillion dollars in wealth disappeared overnight—equivalent at the time to the entire gross domestic product of France. On the heels of the decline, a recession was considered a near certainty and a depression a distinct possibility. After all, on the worst previous day, October 28, 1929, the market had dropped just 13 percent. Now, 58 years later, a New York bar was serving a mixed drink of dark rum and black Sambuca called “Black Monday,” the same term applied to the previous crash."  (American.com)

• US Dollar Cracks Long Term Support, But . . .

• Trading Nonfarm Payroll Charts: Technicians assume that markets move in trends and that once a trend begins, it remains in force until enough indicators prove that it has reversed. Trends, of course, can range from intraday trends to secular trends extending over several decades. Obviously it's not possible to apply intraday analysis to economic data, because most of this information is published on a monthly basis. (RealMoney) if no RM, then go here;

• Investors Await the Numbers: It's going to be bad. The question on every trader's lips: just how bad? Tuesday, the same day Wall Street is hoping the Federal Reserve will cut rates, brokerage house Lehman Brothers Holdings Inc. will kick off the third-quarter earnings season for the major investment banks. Lehman will be followed by Morgan Stanley, Bear Stearns Cos. and Goldman Sachs Group Inc. later in the week. (WSJ) see also Analysts Slashing Financial Sector Estimates

• Yahoo's Cautious Course: Investors who have grown impatient with Yahoo Inc. may have to wait awhile longer to see any pop in its stock.The Internet company replaced its chief executive in June and this summer kicked off a strategic review to better position it for a changing online-advertising market and compete with the likes of Google Inc.  Now, partway through Yahoo's strategic soul-searching, people familiar with the matter say a major overhaul appears unlikely. (WSJ)  see also Yahoo Buys BuzzTracker

• Wall Street Credit Costs Soar on Spread to U.S. Rates: Wall Street is getting no benefit from the biggest bond market rally in five years. Bond buyers view the nation's largest securities firms as no safer than taking a flier on subprime mortgages. That's a nightmare scenario for the industry's chief executive officers, who relied on cheap financing for leveraged buyouts, real estate lending and proprietary trading to produce record profits -- and paychecks of $40 million or more for themselves. (Bloomberg)       

• A Secret Time Bomb Made of Gold: A little-known fountain of free money called the "gold carry trade" is in danger of drying up. And if it does, then markets from gold to bonds and even stocks can be in for a wild ride. Before even explaining what the gold carry trade entails, let me first say that its demise has been forecast for nearly a decade. In researching this topic, I found articles as far back as 1998 looking for an explosion in gold prices and commensurate damage to other markets, if not the economy. In other words, this is a story that is as old as Methuselah. But with a sinking dollar, soaring commodities, and several diverse technical conditions on the charts, the dynamics are coming together to make the end of the gold carry trade a lot closer to reality than ever before. (Barron's)

• On Money, Risk and the Brain Kellogg School of Management, Northwestern University (PDF)

---

ECONOMY

The Wall of worry continues to build:

• When Larry Kudlow upped his possibility of a recession to 50%, you knew for certain that Goldilocks was "Officially Dead"   

• Will Holiday Tidings Bring Cheer? FedEx May Deliver an Early Clue: Optimism about consumer spending will be tested in the coming week, when FedEx Corp. -- a dependable gauge of holiday spending -- reports fiscal first-quarter results. The package-delivery company will be pressed for evidence that the shipping surge, in preparation for the holidays, has finally begun and will lift sagging freight-industry volumes. Yet analysts expect FedEx to notch a mere 1.3% gain in per-share net income from a year earlier for the quarter ended Aug. 31 when the company reports on Thursday, according to Thomson Financial. Average daily volume for air and ground deliveries in the U.S. will gain a modest 3.2%, the weakest in seven quarters, predicts analyst Edward Wolfe of Bear, Stearns & Co. He says package growth from outside the U.S., where Asia is the biggest source of manufactured goods shipped to American consumers, will slow to 3.5%, from 6% a year earlier. (WSJ) See also Economy Seems Less Resilient

• Gregory Mankiw's Answer to Global Warming: A New Tax: The idea of using taxes to fix problems, rather than merely raise government revenue, has a long history. The British economist Arthur Pigou advocated such corrective taxes to deal with pollution in the early 20th century. In his honor, economics textbooks now call them “Pigovian taxes.” (New York Times)

• It's the Minus Sign on Jobs That's the Stigma: In reality, there isn't a heck of a lot of difference statistically between a monthly job increase of 50,000 and 150,000 in a workforce of 153 million. Or between a decline of 50,000 and a similar increase. It's the sign that matters. When job growth ebbs, even if it's by 4,000 as it did in August, we all catch our breaths -- especially when the decline is a surprise. (Bloomberg)

• BERNANKE'S BIG TEST IS ABOUT TO BEGIN  (The Capital Spectator)

• Britain's Coming Credit Crisis: Britain might take a major hit if the credit crisis pinches as much as some predict. Could any country be more exposed to the current credit crunch than the U.S.? You bet, and that place is Britain. Unlike most of its European neighbors, Britain shares many of America's financial traits-and problems. Access to cheap credit has fueled a decade of unprecedented growth, with home prices tripling over the past decade, a faster rise than in the U.S. Consumer spending has skyrocketed, now making up roughly two-thirds of the country's total outlays. And the overall economy in Britain is more dependent on financial services than it is in the States. Add it all up, and "Britain is likely to suffer more severely than the U.S." (Spiegel) 

---

HOUSING

• Real Estate Inventory Still Building 

• Martha Stewart homes are good sellers: All across the country, home builders are gasping for air as sales plunge, inventories rise and profits disappear. But in one small corner of the housing market, the sales picture is a little brighter: There is steady demand for houses designed in part by Martha Stewart and built by Los Angeles-based KB Home. (Daily Herald)  see also Martha + KB

• For Sale:  795 FIFTH AVENUE COOP (THE PENTHOUSE AT THE PIERRE)  The price: a very reasonable $70,000,000, plus maintenance (only $38,720 per month)

•  Mortgage brokers say 57% of customers couldn't refi.   

• Modified mortgages: Lenders talking, then balking: Congress, banking regulators and President Bush all are promoting a potential way for subprime borrowers to avert foreclosure. Called loan modification or loan workout, it means changing a mortgage's terms to make the payments more affordable. Mortgage lenders have publicly embraced the concept, saying they care about "home ownership preservation" and will work to prevent foreclosures. A "loan mod" might involve freezing the interest of an adjustable-rate mortgage, for example - perhaps setting payments at 8 percent instead of letting them soar to 11 percent. But consumer advocates say it appears that few modifications are actually occurring, and lenders refuse to provide any data to show how common the practice is.  (San Francisco Chronicle)

• U.S. mortgage rates drop below year-ago levels: Mortgage rates fell this week, bringing some rates down to levels lower than they were a year ago, Freddie Mac said on Thursday. "Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level," said Frank Nothaft, Freddie Mac vice president and chief economist, in a news release. "The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home."  (MarketWatch) but Mortgage brokers say 57% of customers couldn't refi.   

• Navigating a Path Through a Turbulent Housing Market: IF you’re considering wading into the housing market as a buyer, seller or borrower, be prepared for choppy water and even an occasional rogue wave. Summer may be just about over, but hurricane season, at least in housing, continues. Home prices are falling. Some lenders are going out of business. Others are phasing out certain loans, including so-called subprime and no-documentation mortgages, making financing tougher to get. And over the last six months, mortgage rates have risen, especially on the big loans that are popular in costly cities like New York and San Francisco. On top of that, the Mortgage Bankers Association announced earlier this month that, in the second quarter of this year, a rising number of borrowers had fallen so far behind in their payments that they were entering foreclosure. The number of people entering foreclosure has been rising since the first quarter of last year, according to the association. (New York Times)

---

TECHNOLOGY & SCIENCE

• The iPhone Unfettered (BusinessWeek)   

• Most Science Studies Appear to Be Tainted By Sloppy Analysis: We all make mistakes and, if you believe medical scholar John Ioannidis, scientists make more than their fair share. By his calculations, most published research findings are wrong. Dr. Ioannidis is an epidemiologist who studies research methods at the University of Ioannina School of Medicine in Greece and Tufts University in Medford, Mass. In a series of influential analytical reports, he has documented how, in thousands of peer-reviewed research papers published every year, there may be so much less than meets the eye. These flawed findings, for the most part, stem not from fraud or formal misconduct, but from more mundane misbehavior: miscalculation, poor study design or self-serving data analysis. (WSJ)

• Pondering a New PC: My, how things have changed 

• Persistence of Myths Could Alter Public Policy Approach: The conventional response to myths and urban legends is to counter bad information with accurate information. But the new psychological studies show that denials and clarifications, for all their intuitive appeal, can paradoxically contribute to the resiliency of popular myths. This phenomenon may help explain why large numbers of Americans incorrectly think that Saddam Hussein was directly involved in planning the Sept 11, 2001, terrorist attacks, and that most of the Sept. 11 hijackers were Iraqi. While these beliefs likely arose because Bush administration officials have repeatedly tried to connect Iraq with Sept. 11, the experiments suggest that intelligence reports and other efforts to debunk this account may in fact help keep it alive. (Washington Post) see also 9/11 Linked To Iraq, In Politics if Not in Fact

• Timeline of the most important inventions (Wikipedia)

• Underwater Archeology: 7 Submerged Wonders of the World

 

---

MUSIC BOOKS MOVIES TV FUN!

• After yesterday's Greenspan discussion, several readers directed me to an article and related political/economics book I hadn't heard about before. The article is titled Feast of the Wingnuts: How economic crackpots devoured American politics. The book is The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics by Jonathan Chait, and is excerpted here.

• Al Qaeda Also Fed Up With Ground Zero Construction Delays (The Onion)

• How to Get the Most Out of Your Books

• 7 amazing holes

That's all from the mathematically challenged mountain desert of Las Vegas, where most people seem to only be able to do the math of the all-you-can-eat buffett, but not at the gaming tables. (Holy cow, I thought I was a fat slob!).

~~~

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 16, 2007 | 06:30 PM | Permalink | Comments (18) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Comments

I am very disappointed that nobody wants to play my game. I thought it was a very interesting and taunt psychological challenge that would get at least some attention. I was wrong apparently. Seems that most that come here have a lot of mouth and no DO. In case I'm wrong, here's the deal again:

I've added a 4th choice for a means of receiving a potential total Governor's pardon for our death row inmate.

Here are the first 3 and I've introduced the final and 4th choice below:

1)- So far he's cooked if the 10-Y-T closes at or above 5.250 (and not 5.248!). Otherwise he can keep shaving.

He can elect to switch into:

2)- His money market mutual fund ever breaking the buck, even for o-n-e day... If it does, he fries... otherwise, keeps shaving.

3)- 90-day T-Bills stay above 2.500 he's saved - if they close at or under 2.500, he fries... and now we're adding number:

4)- If the Fed cuts FF on or before 9/18, he's forever pardoned... and if they hold, he fries.

Which one would you pick?... All you Big Picsylvanians, what about all of you? I've heard a lot of mouth, but so far not much prediction.

You gotta think number 4 is lookin' good for the inmate, huh?... That the one to go with?... Just think... in just a few days you could walk, and give Mishkin a little knowing wink.

Come on. We don't have all day. Take your pick.

Any of you game? Take a pick.. be a man... (or woman -- don't send me nasty comments).

Posted by: Eclectic | Sep 16, 2007 7:11:14 PM