The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

One last article reviewing the outgoing administration:

Bob Woodward has an interesting take away from the past 8 years. Woodward has spilled as much ink as anyone covering the Bush White House — 11 hours of interviews with Bush, hundreds of hours with his key players, four books, totaling 1,727 pages — suggests that this has been the equivalent of a very long case study in how not to engage in presidential decision-making. From the Bush administration’s errors, here are 10 lessons that Obama and his team should take away:

1. Presidents set the tone. Don’t be passive or tolerate virulent divisions.

2. The president must insist that everyone speak out loud in front of the others, even — or especially — when there are vehement disagreements.

3. A president must do the homework to master the fundamental ideas and concepts behind his policies.

4. Presidents need to draw people out and make sure that bad news makes it to the Oval Office.

5. Presidents need to foster a culture of skepticism and doubt.

6. Presidents get contradictory data, and they need a rigorous way to sort it out.

7. Presidents must tell the public the hard truth, even if that means delivering very bad news.

8. Righteous motives are not enough for effective policy.

9. Presidents must insist on strategic thinking.

10. The president should embrace transparency.

The entire article is worth your time — it is both astute and thought provoking . . .

Source:
10 Take Aways From the Bush Years
Bob Woodward
Washington Post, Sunday, January 18, 2009; Page B01

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/14/AR2009011402791.html

A new video, captured by a security camera from Con Edison, is the longest video (47 minutes) to surface detailing the dramatic landing of the U.S. Airways flight landing in the Hudson River. Courtesy Reuters

1/23/2009

Eric Savitz of Barron’s notes that “earnings season is off to a miserable start” as far as Tech is concerned. He gives 5 key reasons:

1. PC DEMAND IS SUFFERING big time. Microsoft and Intel are both cutting jobs;  Advanced Micro Devices (AMD) posted a 33% drop in profits; Disk-drive maker Seagate ‘s (STX) revenues were down 34%;  Logitech (LOGI), reported a March-quarter miss.

2. MOBILE-PHONE SALES are in trouble. Nokia (NOK) reported a 19.5% Q4 revenue decline; Warnings were already out from Motorola (MOT) and Sony Ericsson;

3. CONSUMER-ELECTRONICS demand is non-existent.  Sony (SNE) expects a loss for its March 2009 fiscal year. GPS device maker TomTom (TOM2.AE) issued an earnings warning; and Foxconn International (2038.HK)

4. THE CHIP BUSINESS CONTINUES to erode. Taiwan Semiconductor (TSM) reported a 31% Q4 earnings decline. MEMC Electronic Materials(WFR) sees March-quarter revenues down 50%; Marvell (MRVL) sharply reduced its Q4 guidance.

5. EVEN THE GOOD EARNINGS REPORTS aren’t so good.  IBM’s Q4 revenues actually missed by more than $1 billion, dropping 6%, and their full-year profits reflect cost cutting, not top-line growth. Apple (AAPL) exceeded both top line and perofit expectations, but iPhone sales disappointed, falling 36% from Q3; desktop Mac sales were weak, and Apple same-store sales were down from last year. Google (GOOG) beat estimates, but concerns as the ad market continues to soften.

Source:
You Knew Earnings Would Be Bad, but This Bad?
ERIC J. SAVITZ
Barron’s TECHNOLOGY TRADER JANUARY 24, 2009

http://online.barrons.com/article/SB123275426986311581.html

Here is a very important paper debunking fair value accounting published Geoffrey Whittington, Emeritus Professor of Financial Accounting in the Centre for Financial Analysis and Policy at the University of Cambridge and a former member of the IASB and a former “academic advisor” to the British ASB.

Proponents of a modification in the terrorist regime of Fair Value Accounting will find it provides excellent reinforcement, an invaluable reference to bolster the efforts of counter-revolutionary forces.  Counter what?  Bubble think, dear friends, the last remnant of which is FVA:

Click here to view “Whittington-Two-World-Views-2008

Just remember that the proponents of FVA are the last people on the planet who believe in efficient market theory.  If you don’t believe that markets are efficient, continuous and complete (and that people are rational) you would never equate short term prices with value, as FVA does explicitly.

Thoughts?

Chris

LEI’s are up — but its only due to the Fed, as Money Supply and Interest Rate Spreads.

Leading economic indicators (LEI) index rose 0.3% month over month in December. Stock Prices, Jobless Claims, Pace of Deliveries, Average Work Week, and Building Permits were all negative. Consumer Goods Orders, Non-defense Cap Goods Orders, and Consumer Expectations were all essentially flat.

Coincident-to-lagging index fell; The coincident to lagging index, which tends to have a stronger correlation with GDP growth, conversely fell 0.1% over the month to stand 4.7% lower year-over year.
This metric has recently been flagging a sharper downturn in the “leading” index and bears watching going forward.

The surge in real money supply growth added a full percentage point to the headline number. From September til today, this has added between 0.4ppts and 1.0ppts to each month’s gain. The artificial boost to the LEIs has not translated into increased lending from the banks.

And, we see no reason to think this trend is going to change, regardless of Fed liquidity or recapitalization of banks.

M2 (Money Supply)*: 0.99%
Interest Rate Spread: 0.22%
Consumer Goods Orders*: 0.01%
Non-defense Cap Goods Orders*: 0.01%
Consumer Expectations: 0.00%
Stock Prices: -0.02%
Jobless Claims -0.15%
Pace of Deliveries -0.20%
Average Work Week -0.25%
Building Permits -0.31%

* Conference Board estimates

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Update: January 27, 2008, 6:35am

Jake at Econompic shows this difference visually:

Vincent Farrell, Jr. is Chief Investment Officer of Scotsman Capital Management LLC., a New York based investment management company. Over his long career on Wall Street, he has worked for numerous distinguished firms. Mr. Farrell graduated from Princeton University in 1969 and received his M.B.A. from the Iona College Graduate School of Business in 1972.

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Tim Geithner is off to a bad start. His tax dodge is not a hanging offense in most people’s book (Jim Cramer would strongly disagree). So to create a diversion on the scale of Round One of a trade war with China is overkill. It is a time honored tactic to stir up trouble somewhere else to take the spotlight off oneself. When the Argentine Generals fell out of favor with the people in 1982, they invaded the Falkland Islands figuring a short war would work to rally the populace and divert attention. The fact Maggie Thatcher got mad and spanked the generals didn’t figure in their calculus.

Geithner’s publically going after the largest owner of Treasury bonds is just plain dumb. Whether China is manipulating its currency is not the point. “Praise in public and criticize in private” is apparently something Tim is unaware of. And, Chinese officials must think our Gods are crazy. From the land of subprime, Lehman, Fannie, Freddie, AIG, Citi, and John Thain’s $65,000 commode comes financial criticism? Calm down Tim. We need professionalism more than ever. What created the Great Depression was a tightening of money (we are thankfully doing the opposite now) and the Smoot Hawley tariff which led to world trade contracting by two thirds in five years. Let’s negotiate privately and not get stuck in public positions that make compromise impossible.

The reality of President Obama taking office seems to have gotten the bond market’s attention. Seeking to hit the ground running the new President is pushing ahead with his stimulus program and TARP II- whatever form it’s going to take- with admirable speed. The bond market is going to have a lot of financing coming at it and the 10 year bond moved about 40 basis points to a 2.6% yield. Mortgage rates correspondingly rose. 30 year fixed rates moved to 5.12% from 4.96% the week before. Libor moved up a bit as well. This might well spur Bernanke into the long bond market with an open ended bid to keep rates low. The Fed meets this week and all eyes will be on the statement that comes out of the meeting.

Even with the rise in yields last week it was apparent that the bond market is open for business. Citi sold $12 billion of government backed bonds and junk rated companies were able to place more than $1 billion in new debt showing that there is some appetite along the risk spectrum.

The big earnings news last week belonged to GE. While per share earnings met expectations, the market was discouraged that it took a tax credit to do so. Jeff Immelt insisted that the $1.24 per share dividend could be paid and the company could still keep its AAA bond rating. The market clearly disagrees. GE sold off sharply after the earnings announcement and Friday’s close of $12 offers a 10% plus yield- if you believe the dividend is secure. We all made a huge fuss when Warren Buffet invested $3 billion in a GE preferred stock. The annual common dividend is over $13 billion and for my money GE will defend its AAA before it pays the dividend. Halving the dividend equals three Warren Buffets and the common would still yield 5%.

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Vincent Farrell
Chief Investment Officer
Soleil Securities Corporation
January 26, 2009

Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. He is the main architect for developing their proprietary stock selection models and trading algorithms. Prior to joining Fusion Analytics, Mr. Lane enjoyed success as the Chief Market Strategist for several sell side institutional brokerage firms. In those capacities he oversaw the firms’ research departments. He produced a broad range of widely followed institutional research publications ranging from industry specific notes to quantitative/fundamental reports on individual stocks. His buy side clientele consisted of many of the nations top money managers and hedge fund managers. Mr. Lane is a member of the Market Technicians Association.

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We wish there was more insight gained from our variety of S&P 500 market breadth indicators at present, however right now most of them remain in neutral status not yielding much information. That said the most useful look at the S&P 500 right now comes in the form of analyzing the various levels of support and resistance. As seen in the 31-day chart above since breaking near-term support levels at the 850 – 845 levels (double red lines) the index has moved lower.

Presently the S&P 500 is forming an every tightening triangular consolidation pattern between two converging trend lines (blue lines). A shorter-term trading direction will only be re-established once one of these levels (840 on the upside and 825 on the downside) is violated. A break above 840 then 850 would suggest that the recent test of the lows was a successful test and maybe a tradable low is forming, however a break below 825 would suggest the market is likely to leg down again and break the November lows.

Until one of these events above occurs the best thing to do is observe and wait for a good entry point

S&P 500 31-Day Chart

chart courtesy of FusionIQ

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Contact Peter Greene for more information about institutional research & trading:
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Since the Great Depression, presidents have frequently experimented with Keynesian economics to combat recessions.

Three economists chronicle the history of government policy during past recessions and explain what worked and what didn’t.

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Source:
How the Government Dealt With Past Recessions
NYT, January 26, 2009

http://www.nytimes.com/interactive/2009/01/26/business/economy/20090126-recessions-graphic.html

Existing-home sales fell 3.5% year over year in December. Sales rose 6.5% (seasonally adjusted) from November.

As we have been noting, the record surge in foreclosures are driving prices down towards affordable, and in some case, attractive levels. Bloomberg noted that sales were “propelled by the biggest slump in prices since the Great Depression.”

The median sales price fell to $175,400 in December, down a record 15.3% compared with a year earlier. For all of 2008, median prices dropped 9.3% to the lowest level since 2004. The December rebound was led by a distressed-property sales, primarily in Western states such as California, Nevada and Arizona. For the month, distressed properties accounted for about 45% of all sales.

The NAR reported that in 2008, the total number of existing-home sales fell 13.1% to 4,912,000; In 2007, the number were 5,652,000 transactions. 2008 was This is the lowest volume since 1997 (4,371,000 sales).

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Chart via The Mess That Greenspan Made

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Source:
Existing-Home Sales Show Strong Gain In December
NAR, January 26, 2009

http://www.realtor.org/press_room/news_releases/2009/01/ehs_shows_strong_gain

U.S. Existing Home Sales Rise on Record Price Slump
Bob Willis
Bloomberg, Jan. 26 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9w6qyDggjL0&

Existing-home sales rise 6.5% as prices plunge
Rex Nutting
MarketWatch, 10:01 a.m. EST Jan. 26, 2009

http://tinyurl.com/c47zd2

Insight on the latest housing trends, with CNBC’s Diana Olick; Susan Wachter, Wharton Business School; Carl Horowitz, National Legal and Policy Center; and CNBC’s Tyler Mathisen.

click for video

via CNBC