Yesterday, we looked at the week that was. Today, we preview the week that might be:
Its a rather busy week, starting with Tuesday’s FOMC announcement. Expectations for a half point cut were tamped down by Friday’s barely adequate NFP data: We look for a quarter point cut, something creative on the discount rate side, and soothing language from Ben & Co.
Dow Jones notes:
"Like a spoilt child awaiting holiday gifts,
the stock market is stamping its proverbial foot and saying: "I want a
rate cut, or else." The combination of slowing jobs growth, somewhat
weakened retail sales, and continued credit and housing market
distress, has investors clamoring for more assistance from the Federal
Reserve. And, after this week’s rally and September’s indulgent
50-basis point move, the market may even turn its nose up at a 25-basis
point cut Tuesday when Fed policy makers meet."
That sounds just about right.
The rest of the week is chock full of data: Wednesday, we get Mortgage Apps, International Trade, and Import and Export Prices. Thursday, should be pretty busy, with Producer Prices (PPI), Retail Sales and Business Inventories. Friday, Consumer Price Index (CPI) and Industrial Production.
Friday is a
triple quadruple witching expiration — and that usually means plenty of volatility for the week.
Yes, I know it feels like earnings season juust ended, but not everyone runs a calendar quarter. Kroger posts third-quarter results Tuesday, Thursday is Costco Wholesale (COST).
As per usual, the Banks and Brokers start reporting their most recent Q (ending Nov 30), and no one is acutely optimistic. H&R Block (HRB) reports Monday, Lehman Brothers (LEH) starts on Thursday — the following week is Bear (BSC), Goldies (GS) and Morgan (MS).
Also this week: Goldman Sachs Financial Services
CEO Conference 2007: Look for a long list of high profile attendees to
re-explain what the word contained exactly means.
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• What Would Alexander Hamilton Do? The current credit conundrum was anticipated more than 200
years ago when Alexander Hamilton was the first Treasury Secretary. In
the early days of the Republic, investors bought Revolutionary War debt
at pennies on the dollar from patriots who bought them at face
value. Over the objections of those who complained the speculators
profited from the misery of the patriots who suffered as the result
their support of the Revolution, Hamilton said the original contracts
had to be honored, and the bonds were funded. By that act, the credit
of the new United States of America was established. (Barron’s)
• Apple May Surge 34% by End of 2008, Bear Stearns Says:
Apple Inc. shares may surge 34 percent by the end of next year, boosted
by higher iPod sales and better- than-expected demand for Macintosh
computers from Asia, a Bear Stearns Cos. analyst said.Andrew Neff
increased his share-price forecast for the Cupertino, California-based
computer maker to $249 from $243 and raised his earnings estimate for
the fiscal year ending in September by 2.9 percent to $5.40 a share.
• Is Tech Bust A Blueprint For Builders?
If the tech bust is a prelude, maybe home-building shares are about to
reach their nadir.As measured by the Dow Jones technology index, tech
stocks topped out in late March 2000. Then they began a long slide that
lasted until October 2002 and left them 84% below their
peak.Home-building stocks, as measured by the Dow Jones Wilshire
home-construction index, hit their peak in July 2005. Since then,
they’ve fallen 72%. The good news: If the slide in home-building stocks
lasts as long as the tech-stock decline, it has only another two months
to go. The bad news: In the past two months of the tech bust, the tech
index fell 20%.The tech index, while nowhere near its 2000 peak, has
staged a big rally from its lows. (WSJ)
• Jim Rogers Says Put Your Money Where His Mouth Is — in China: Jim Rogers has three pearls of investment wisdom to pitch: "Get out of the dollar, teach your children Chinese, and buy commodities.” (Bloomberg)
• Doug Kass calls out Ben Stein for his "unfair and off" base attack on Goldman Sachs: Ben Stein, Back Off Goldman Sachs (My approach is simpler: Where ever I would write Tom Foolery, I instead have begun substituting Ben Steinery instead).
• Credit crisis: Long road to recovery: Nearly six months since the credit crunch started, the situation is
still grim – and there are few encouraging signs, which doesn’t bode
well for businesses and households next year. Toxic debt keeps cropping up on bank balance sheets. The housing
slump still hasn’t found a bottom, and investors remain skittish.
Market watchers expect the credit environment to remain challenging
into the better part of 2008. That will take a toll on corporate
profits and squeeze American consumers, not to mention put a drag on
economic growth. (CNN/Money)
• Major Trends Just Keep Going and Going…
A TOUGH PART OF AN INVESTMENT analyst’s job is forecasting change,
especially trying to predict when that change will occur. What makes it
difficult is that at any given time, the odds favor a trend that’s in
force remaining in force. In its early stages, it’s unclear whether a
developing trend will last. But once it takes hold, once it gets its
sea legs and gets used to its surroundings, it’s usually reluctant to
go away. (Barron’s)
• Is the bull market in Gold over?: Has the bull market in gold just collapsed or is it merely catching its breath? The spot Gold Price closed Nov. ’07 at an average of $806.25 per ounce, a new record high – and the third record monthly average on the run. (Commodity Online)
• Debt Reckoning Is Also Looming For LBO Shops: Wall Street has been roiled by the declining value of exotic
securities that were tied to the housing boom. It might also want to
explore the valuation of paper tied to another boom — leveraged
buyouts. What would
the likes of a Univision, Freescale Semiconductor or Canadian phone
company BCE fetch if they were auctioned today as opposed to the
debt-debauched days of yore? (WSJ)
• Lenny Dykstra: MLB Player To Money Analyst To Publisher? Lenny Dykstra, baseball player turned financial analyst, is now adding another title to his resume: Publisher. He’s coming out with a magazine called The Players Club in conjunction with Doubledown Media, publisher of Trader Monthly. It promises to be a monthly business and lifestyle glossy for athletes. The circulation will only be 20,000, but the magazine press release says it will wind up in the locker rooms of the major professional sports. (CNBC)
• Here Comes Another Bubble (amusing video)
The Wall of worry continues to build:
• Recession Hits U.S. Profits; Economy Might Be Next: U.S. corporate profits are in a
recession, and the entire economy may not be far behind. Slower sales and higher energy and labor costs are forcing
companies from Bear Stearns Cos. to Pitney Bowes Inc. to reduce
spending and hiring. Their efforts to keep earnings from eroding
even further raise the risk that the economy, already weakened by
the steepest housing slide since 1991, may shrink sometime next
year. "The earnings recession has already arrived,” says David
Rosenberg, North America economist for Merrill Lynch & Co. in New
York. "We are going to see an economic recession in ’08.” (Bloomberg)
• Estimates May Have Overstated Job Growth: The American economy appears to have created far fewer jobs this spring than has been reported so far, a new government report indicated yesterday. That could provide further impetus for the Federal Reserve to lower interest rates when it meets Dec. 11. The report included a sharp downward revision of the government’s estimate of personal income growth for the second quarter. Because the changes were made as soon as better employment figures were available, the revisions made it seem likely that figures on job creation are also likely to be revised downward in coming months. (New York Times)
• William Poole Market Bailouts and the "Fed Put" (St. Louis Fed)
• The Subprime Credit Crunch Hits Local Governments: Thirteen years ago today, Orange County, Calif., sent tremors through financial markets when it filed for bankruptcy. Today, that same county — and states and counties nationwide with troubled investment funds — face new worries. This time, they stem from the subprime crisis. In Florida, the state-run Local Government Investment Pool is poised to reopen today after a contentious meeting with investors on Tuesday, letting local governments and school districts make withdrawals for the first time in a week. The fund was frozen last week by the State Board of Administration after billions of dollars were rapidly withdrawn because the fund had invested in subprime-related securities it couldn’t sell. (Real Estate Journal)
• Fear and loaning: The ‘normal’ three-month swap rate between the London Interbank
Offered Rate (Libor) and the US Federal Reserve’s discount rate used to
be about 12 basis points. Today, with the Fed signalling another 50
basis points at least of cuts to official US rates in the wake of the
sub-prime crisis, the swap rate is closer to 70 basis points. The
blow-out suggests something ominous.Libor and the Fed funds rate are
the rates at which banks lend to each other. With the Fed funds rate at
4.5 per cent (and likely to tumble further) and Libor above 5.2 per
cent, there ought to be an easy arbitrage opportunity for the
international banks – borrowing from their US counterparts to on-lend
to their UK peers and collecting an easy 70 basis points-plus ‘turn’ in
the process. (Business Spectator)
• Straight Talk on the Mortgage Mess from an Insider Herb Greenberg warns: Even before this mortgage mess started, one person who kept emailing me over and over saying that this is going to get real bad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Someobody’s got to warn people . . .”
• Forget Expensive Renovations When Upgrading a Second Home: Forget the pricey add-ons, unless you are bringing it up to modern standards by adding a second bath to a one-bath house, or a third bedroom to a two-bedroom house. Instead, stick to inexpensive cosmetic upgrades, like new paint and siding. For kitchens and baths, buy stock cabinets and faucets, rather than custom, and stay away from items that are easily damaged, like glass vessel sinks and fragile chandeliers. Buyers don’t expect the same levels of quality in casual second homes that they do in primary ones, though they do appreciate having everything fresh and new. (Real Estate Journal)
• Paulson Goes to Washington, Loses Way: In the old days, a mortgage lender — in many cases, your local banker — had a relationship with the borrower. When a homeowner fell upon hard times, he and his banker would sit down to renegotiate the loan. It was in the interest of both the homeowner (he keeps the house) and the banker (he avoids costly foreclosure) to modify the loan terms. Nowadays, subprime loans are bundled, sold, chopped up into pieces and packaged into collateralized debt obligations. The lender — in this case, the owner of a CDO tranche — has been replaced by a Cayman Islands hedge fund, a Florida municipality or a German bank. Their interests aren’t necessarily aligned with those of the homeowner, not to mention one another. (Bloomberg)
TECHNOLOGY & SCIENCE
• Google and Its Enemies: The much-hyped project to digitize 32 million books sounds like a
good idea. Why are so many people taking shots at it?
• The Picture Gets Fuzzy For TV Deals This Year: Bargains are still out there, but you’ll have to work harder to find them. Overall, the average price of flat-panel LCD sets 32 inches and larger is expected to drop 17% in the U.S. to $1,018 this quarter from a year earlier, compared with an average 34% price plunge last holiday season, according to DisplaySearch, a unit of NPD Group Inc. The average price of plasma TV sets is forecast to fall 23% to $1,272, compared with a 28% decline last season. (WSJ)
• In Defense of Audiophiles THE IPOD HASN’T MADE GREAT SOUND OBSOLETE (Slate)
• The Secret to Raising Smart Kids Hint: Don’t tell your kids that they are. More than three decades of research shows that a focus on effort—not on intelligence or ability—is key to success in school and in life.
• Dell: Not the PC company you used to know
Dell’s high-profile marketing push this summer showcased its new line
of pink, green, and red notebooks. But the most important color for the
PC maker right now is Best Buy blue. Dell has officially signed up Best
Buy as a retail partner, the companies said Thursday. Several models of
Dell’s XPS and Inspiron PCs will be available at 900 Best Buy locations
beginning after Christmas, including the very consumer-friendly XPS
M1330 notebook, Inspiron 1420 notebook, and the XPS One desktop. For a
company that built its fortune and reputation on selling its products
directly to consumers for more than two decades, the Best Buy deal
marks a major historical shift. (C/NET)
MUSIC BOOKS MOVIES TV FUN!
• JJ Grey & Mofro: Country Ghetto — one of my favorite new discs this year.
• Blade Runner on the Cutting Edge: The studio that just remastered the 1982 sci-fi classic shows us how a great high-def disc is made.
• The Picket Line Is The Place to Meet: A Writer in L.A.: About 12,000
screenwriters walked off the job in early November in a money dispute
with Hollywood film and TV producers. The big-name writers get the
lion’s share of the attention, but on the picket lines, just about any
working stiff whose show has a following is feeling the love.All sorts
of supporters are coming out of the woodwork. There are film students
looking to make contacts and hoping for tips on breaking into the
business. Neighborhood residents want to help out. And there are fans
crazy about some show or other.
Mocean Worker, Shake Ya Boogie (video)
That’s all from a cold snowy Northeast, where the shopping is hectic and more snow is forecast!
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Category: Financial Press
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