Despite free-falling energy prices and favorable economic news, markets could not string together much progress this week. The Dow Industrials and the Standard & Poor’s 500 were flat for the
week; But a string of earnings disappointments from big tech names weighed down the tech-heavy Nasdaq, which gave up 2.1%, to 2451.
University of Michigan consumer-sentiment reading jumped to its highest level in three years. PPI and CPI were confusing, and Housing data was mixed at best. Oh, and Ben Bernanke said we need to get our collective acts together.
Its about that time . . .
INVESTING & TRADING
• Getting Picky on Tech: Is Sector a Bargain or a Trap? The tech sector remains plagued by tepid corporate spending. Goldman Sachs and Forrester Research, among others, have issued surveys recently showing that CIOs, the corporate gatekeepers of tech purchases, are feeling gloomy about their budgets this year — they will likely reduce spending from 2006 levels. Forrester notes global information-technology spending will grow 5% this year, down from 8% in both 2005 and 2006, making it the lowest growth rate since 2003. (Also, IBM Shares Decline as Hardware Sales Add to Concerns)
And Herb Greenberg weighs in on Tech also too: How Expensing for Options Throws Analysts Off Course (WSJ)
• The Return of the Day Trader: Although day trading activity doesn’t resemble the frenzy of the late 1990s, it is heating up again as rising stock prices renew interest (L.A. Times)
• Who Is Hurt By Oil’s Fall?
(WSJ) Oil companies that have generated the most enthusiasm during the past
two years, such as those based in the Canadian oil-sands region, like
Suncor Energy Inc. and Western Oil Sands, could be at risk.
• Is Yahoo! an acquisition target? (Video)
• Defense Reloads (WSJ): Defense contractors have enjoyed surging profits in recent years as the government spent heavily to fight wars in Iraq and Afghanistan and combat terrorism in other parts of the world. Recently, some investors have worried that ballooning federal deficits could bring the flush times to an end. The latest Pentagon plans suggest that the long-expected spending plateau is still another year away.
• Market Performance relative to "Earnings Season" over the past 17 quarters. Its quite surprising how much this matters
• Earlier this week, we recommended two drug stocks as part of a defensive investment in an underloved sector ( Email me for the report). This week in Barron’s, Mike Santoli tips the sector, while Motley Fool picks Pfizer as The Best Drug Stock for 2007
• Hussman: Overvalued, overbought, and overbullish
• Companies are rushing to pay top dollar to put their names on new stadiums and arenas. Three deals in the New York area alone have been announced in the past few months with the sponsorship dollars totaling nearly $1 billion. And potentially the biggest deal, naming rights for the new shared home of New York’s Giants and Jets football teams, is yet to come: A stadium naming bubble?
• Chet Currier says Strange Things Happen in the Era of Small Returns
• A Financial Times twofer
The unease bubbling in today’s brave new financial world: "I don’t think there has ever been a time in history when such a large proportion of the riskiest credit assets have been owned by such financially weak institutions . . . with very limited capacity to withstand adverse credit events and market downturns."
Should Atlas still shrug? The threat that lurks behind the growth of complex derivative and debt deals.
The Wall of worry continues to build:
• The Sordid Truth About Inflation — The Bank of England raised rates to 5.25% — inflation in the UK is admitted as rising, yet inflation in the US is
declining. This is simply false: "It’s comparing apples to oranges. The UK doesn’t engage in the plethora of ‘hedonic’ adjustments that pervert US CPI, and the UK uses real home prices plus mortgage rates to determine housing inflation.” In other words, inflation is rising in both locales, only its reported differently.
• Are Economic Gains Just Hot Air? The economy has benefited from warm weather. Energy prices have tumbled on reduced demand, ground-breaking on new homes increased in November and December. Fewer construction workers are losing their jobs. While some of the boost from the weather is real, much of it is economic activity that’s just been borrowed from the spring months: The Economy is stronger, but is it just the weather? and
• I have no idea why this got so popular — its just a cool little graphic, but it got picked up by everyone from DIgg to Reddit to who knows what. Countries GDP as US States
• The NYT’s David Leonhardt on What $1.2 Trillion Can Buy
• Workers’ Ire Mounts, Share of GDP Shrinks During a Profit Boom; Also, Upper Class: Why the Rich Are Heading Back to School WSJ (free)
Housing remains the Achilles heel of the economy. The data and news flow is mixed to poor:
• The high end of the market wasn’t immune, as evidenced by the
lackluster sales of the homes highlighted in the Weekend Journal’s "House of the Week."
GIven the free advertising, you would have thought that of the 46
houses featured between October 2005 and September 2006, more than 18
would have sold (14 closed, 4 in contract). Most moved at steep
discounts — an average of 16% below the asking price published in the WSJ; (free Real Estate Journal)
• Recent News About Housing. Score: 3 Good Ones Versus 19 Bad Ones
• Which naturally leads us to: Homeowners With New Exotic Loans Aren’t Always Aware Of the Risk Involved: Mortgage-Trapped
• Condo prices reveal housing trends: Look at the same building six or eight months after the first sales were made — the prices then will be a pretty good indicator of what’s going on. The reason: It’s an apples-to-apples comparison. With condos, there’s, "no adding floor space or big improvements — if you see a price change, it’s usually pure appreciation – or depreciation. Condo prices dropped more steeply than single family homes — 2.1% with 46% of markets showed declines — much worse that single-family house stats. See also Buyers Scarce, Many Condos Are for Rent
Lots of Fed speak this week, and commentary also:
• Fed Chair Ben Bernanke kicked up storm this week:
-Bernanke Raises Prospect of ‘Debt Spiral’ (Greg Ip, WSJ)
-Fed Chief Warns That Entitlement Growth Could Harm Economy (NYT)
-Fed chief says U.S. on crash course
-Did Someone Say Personal Savings Accounts? (Kudlow)
-Aging Boomers Are the "Calm Before The Storm"
• "The risk that core inflation surges again, or does not subside as
desired, clearly remains the predominant macroeconomic policy risk" Fed’s Lacker: Inflation is top threat. See also Fed Officials Say Inflation Is Key Risk as Economy Gathers Pace
• FOMC member battle (Video):
• The value of doing nothing: One of the most profound lessons is that you don’t always have
to be doing something in your portfolio in order to make money. Indeed,
constant fine-tuning is done more for psychological reasons
than rational investment purposes
• BORROWING LARGE — Just call them the "leveraged elite": The rich, in short, have joined the great American borrowing binge. Just as the rich control a disproportionate share of national wealth, they also account for a disproportionate share of debt. The richest 1% now hold 7% of the nation’s debt, with a total of $650 billion in borrowings, up from 5% in 1998. Debt for this group grew faster than for any other group in the Fed survey. Total debt held by the top 1% increased 150% between 1998 and 2004, compared with growth of about 100% for those in the 50th-to-90th percentile wealth range.
• Are you suffering from affluenza?: "affluenza" – a depressive middle-class sickness brought on by social and material envy; "Nearly all of us want bigger and better," he says. "Houses, breast implants, penis extensions, televisions, cars. We define our lives through earnings, possessions, appearances, celebrity, and it’s making us more miserable than ever before. The bad news is that a quarter of British people have been mentally ill in the last 12 months and another quarter have been on the verge. The good news is that it doesn’t have to be that way." It leads to a consumptive lifestyle of Earn more, spend more, want more (I’m guilty of this, especially with cars and timepieces);
• High Prices Prod Developed World To Curb Oil Use: "Fresh data from the International Energy Agency show oil consumption in the 30 member countries of the Organization for Economic Cooperation and Development fell 0.6% in 2006. Though the decline appears small, it marks the first annual drop in more than 20 years among the OECD countries, which drain close to 60% of the 84.4 million barrels of oil used globally each day. Industrialized nations’ demand tiptoed into negative territory in 2002, but the dip was so slight that it registered as flat." (WSJ)
• Thomas Friedman is calling is for a Green "New Deal"
• Eagles of IEA Says: Oil Supply ‘Tightening’ Even as Demand Falls (Video)
• Jim Rogers Likes Agricultural Commodities, Cotton, Sugar (Video)
• The 3 Keys to the State of the Union Speech: Energy, Immigration and Iran
• Mistakes Were Made?’ Euphemisms Were Employed Politicians are notorious for saying
one thing when they mean something else, for couching outcomes
in the best possible light to deflect attention from their own
failures. Some have perfected dissemblance to such a fine art that
the average person may need a political dictionary to understand
what our elected representatives and other public figures are
saying. (Caroline Baum, Bloomberg)
Technology & Science
• How Yahoo Blew It: "Instead of buying Google for $5B, Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel’s decision to opt for this plan B was a fateful one. It was a smart play — but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It’s these ads that are the source of Google’s riches and the basis for its expanding power." Ouch.
See also Yahoo! Sharpens Research Edge
• (lets hope this is true): Cheap, safe drug kills most cancers
• Damned with faint praise: Walt Mossberg sez Vista, the Windows XP successor, doesn’t break new ground on ease of use, but it’s the best Windows yet: Worthy, Largely Unexciting; The NYT has a good slide show on the new MS Office
• Doug Kass asks some valid questions about the iPhone; I agree with his comments about speculative excesses, don’t overlook the fact that in addition to expanding into phones, they also created a new Ultra Luxe
category of iPods: the touchscreen iPod. By the end of this year, we
can expect Apple to have a non PC line of products will span nearly
every price point from $50 to $600. see also: iPhone Fans and Foes Clash OnlineHow Apple kept its iPhone secrets and
• It ain’t 1999: Tech Start-Ups Have Money to Burn, But Choose
to Live Thriftly;
• Hacking TiVo: 23 Tips to Turbocharge Your DVR
• How Thinking Can Change the Brain: Neuroscientists explain that mental experiences reflect chemical and electrical changes in the brain. When electrical impulses zip through our visual cortex, for instance, we see; when neurochemicals course through the limbic system we feel. But the Dalai Lama wondered if it might work the other way around? That is, in addition to the brain giving rise to thoughts and hopes and beliefs and emotions that add up to this thing we call the mind, maybe the mind also acts back on the brain to cause physical changes in the very matter that created it. If so, then pure thought would change the brain’s activity, its circuits or even its structure.
Music Books Movies TV Fun!
• The Dave Brubeck Quartet: Terrific Jazz to relax to after a hectic week like this. Check out a few of the videos and songs here.
• Idiocracy is now out on DVD; the film was barely released in theaters by 20th Century Fox, and conspiracy theories abound (one thesis: the hilarious sendup of Fox News in the movie). "Like "Borat’s" dark twin, "Idiocracy" indicts American culture with a combination of scathing humor and barely concealed rage, as Judge projects what the country will look like 500 years from now." The bottom line: "the film is just too savage in its brutal skewering of modern society for mass consumption."
• Two new books that look interesting this week:
- In Spite of the Gods: The Strange Rise of Modern India: "All eyes are on China as it races to become the world’s next great power. Smart bettors would be wise to put some money on India to get there first." (reviewed here)
- The Utility of Force: The Art of War in the Modern World. It looks at why the strongest armies may lose the newest wars. "Modern armies and their civilian masters are ill suited to win these new-style conflicts, largely because they fail to recognize that the old conceptual model of all-out industrial war between nation states has evolved into political struggles in which combatants do not wear uniforms, mingle with the people and battle as much for hearts and minds as for outright victory on the battlefield. (reviewed here)
• Movie Star Memoribilia (Video)
• Hmmm, Meth Coffee
• Ducati, BMW show off new Bikes (Video)
• 20 short animations you need to see before you die; Not right before you die, as a pre-mortem event — but rather, sometime — years even — in advance of the actual occurence . . .
Old man Winter has finally arrived — its cold and blustery in the NorthEast, and we even got some Snow yesterday (Take some photos to show your grandkids in case they ever ask what Snow is). Stay Warm!
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