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

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I am totally looking forward to tonight’s premiere episode of the new Curb Your Enthusiasm on HBO.

I was a big Seinfeld fan, and am now an even bigger Curb fan.

I love the concepts Larry David uses in the show — the Restaurant/Tourettes finale, the Mel Brooks/Producers arc, and now the Seinfeld reunion. Just brilliant stuff.

At the start of its seventh season, “Curb Your Enthusiasm” isn’t really breaking any of its own rules, but what struck me about the first three episodes sent for review was how consistent the show has been from year to year. Perhaps the short seasons and lengthy periods between them are some of the reason, but it’s rare to see a show this at or close to the top of its game this far into its existence. Most sitcoms have worn out their welcome by the seventh season premiere. “Curb Your Enthusiasm” is not most sitcoms.

- BRIAN TALLERICO

And this:

Jerry Seinfeld is set to appear in five episodes of “Curb Your Enthusiasm” while the other “Seinfeld” cast members – Jason Alexander, Julia Louis-Dreyfus and Michael Richards – are slated to appear in four installments.

For Louis-Dreyfus, “It’s the anti-reunion reunion, and I’d like to copyright that.” And says Seinfeld, “As far as I’m concerned, we did do it, and in a better way than I ever imagined. This exceeded my expectations, so there’s no chance I would revisit it now.”

- Popwatch

Very cool . . .

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Videos here

Sources:
Back to ‘Curb’ and Getting a Kick
Tom Shales
Washington Post, September 20, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/18/AR2009091800241.html

‘Curb Your Enthusiasm’ back for more laughs in 7th season
Verne Gay
Newsday, September 20, 2009

http://www.dallasnews.com/sharedcontent/dws/ent/stories/DN-curb_0920gd.State.Edition1.4bd2aea.html

Washington’s Blog strives to provide real-time, well-researched and actionable information. George – the head writer at Washington’s Blog – is a busy professional and a former adjunct professor.

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The talking heads say that financial blogs aren’t trustworthy.

But the whole debate about blogs versus mainstream media is nonsense.

In fact, many of the world’s top PhD economics professors and financial advisors have their own blogs. For example (in no particular order):

• Nouriel Roubini

• Paul Krugman
  

• Nassim Nicholas Taleb

• Simon Johnson

• Frank Shostak

• Willem Buiter
  

• Tyler Cohen
  

• Greg Mankiw
  

• Richard Baldwin
  

• Mark Thoma
  

• Michael Pettis
  

• Brad DeLong

• James Hamilton and Menzie Chinn

• Michel Chossudovsky

• Michael Hudson

• Yves Smith

• Rolfe Winkler

• Steve Keen

And the conclusions of economists who don’t have their own blogs are collected by other bloggers and on YouTube videos. For example, this blog rounds up everything Marc Faber says.

And you’ve got blogs like Zero Hedge that break stories about Goldman and high-frequency trading months before the mainstream media. And insightful commentators like Barry Ritholtz and Mish and many others.

So what is “news”? What the talking heads choose to cover? Or what various leading experts are saying – and oftentimes heatedly debating one against the other – on their blogs?

I would argue that mainstream newspapers haven’t just lost readers because of the Internet as an abstract new medium, but that they lost readers because they became – with some exceptions – nothing but official stenographers for the powers-that-be. No wonder people have lost all faith in them.

Indeed, as of February, only 5% of the pundits discussing various government bailout plans on cable news shows are real economists. Why not hear what real economists and financial experts say?

To the extent that blogs offer actual news and the mainstream media does not, the latter will continue to lose eyeballs and ad revenues to the former.

Of course, many financial blogs are not very good. The trick is to learn which are trustworthy and accurate.

And this is not to imply that all mainstream commentators are short on facts. Some are really good. Once again, the trick is find the good ones.

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UPDATE September 20, 5:30pm:

And I was looking forward to debating Dennis on the value of blogs . . .

In the following Wall Street Journal commentary, “From Bear to Bull,” a long-time critic of the excesses and wayward policies that brought this country to its knees suggests the outlook for the economy is brighter than many people, especially the pessimists, believe:

James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.

“As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don’t know, and can’t. The future is unfathomable.

Not famously a glass half-full kind of fellow, I am about to propose that the recovery will be a bit of a barn burner. Not that I can really know, either, the future being what it is. However, though I can’t predict, I can guess. No, not “guess.” Let us say infer.

Though we can’t see into the future, we can observe how people are preparing to meet it. Depleted inventories, bloated jobless rolls and rock-bottom interest rates suggest that people are preparing for to meet it from the inside of a bomb shelter. . .

The Great Recession destroyed confidence as much as it did jobs and wealth. Here was a slump out of central casting. From the peak, inflation-adjusted gross domestic product has fallen by 3.9%. The meek and mild downturns of 1990-91 and 2001 (each, coincidentally, just eight months long, hardly worth the bother), brought losses to the real GDP of just 1.4% and 0.3%, respectively. The recession that sunk its hooks into the U.S. economy in the fourth quarter of 2007 has set unwanted records in such vital statistical categories as manufacturing and trade inventories (the steepest decline since 1949), capacity utilization (lowest since at least 1967) and industrial production (sharpest fall since 1946).

It isn’t just every postwar disturbance that sends Citigroup Inc. (founded in 1812) into the arms of the state or has General Electric Co. (triple-A rated from 1956 to just this past March) borrowing under the wing of the Federal Deposit Insurance Corp. Neither does every recession feature zero percent Treasury bill yields, a coast-to-coast bear market in residential real estate or a Federal Reserve balance sheet beginning to resemble that of the Reserve Bank of Zimbabwe. Yet these things have come to pass.

Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done. Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: “[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period.”

Growth snapped back following the depressions of 1893-94, 1907-08, 1920-21 and 1929-33. If ugly downturns made for torpid recoveries, as today’s economists suggest, the economic history of this country would have to be rewritten. Amity Shlaes, in her “The Forgotten Man,” a history of the Depression, shows what the New Deal failed to achieve in the way of long-term economic stimulus. However, in the first full year of the administration of Franklin D. Roosevelt (and the first full year of recovery from the Great Depression), inflation-adjusted gross national product spurted by 17.3%. Many were caught short. Among his first acts in office, Roosevelt had closed the banks. He had excoriated the bankers, devalued the dollar, called in the people’s gold and instituted, through the National Industrial Recovery Act, a program of coerced reflation.

“At the business trough in 1933,” Mr. Darda points out, “the unemployment rate stood at 25% (if there had been a ‘U6′ version of labor underutilization then, it likely would have been about 44% vs. 16.8% today. . . ). At the same time, the consumption share of GDP was above 80% in 1933 and the household savings rate was negative. Yet, in the four years that followed, the economy expanded at a 9.5% annual average rate while the unemployment rate dropped 10.6 percentage points.” Not even this mighty leap restored the 27% of 1929 GNP that the Depression had devoured. But the economy’s lurch to the upside in the politically inhospitable mid-1930s should serve to blunt the force of the line of argument that the 2009-10 recovery is doomed because private enterprise is no longer practiced in the 50 states . . .”

To be sure, Mr. Grant rightfully acknowledges the folly of economic forecasting and is careful about pinpointing when we might expect to see his anticipated strong recovery.

Yet by citing the work of the Economic Cycle Research Institute, which has recently been suggesting that a major upswing is on the cards, Mr. Grant seems to make it clear that now is the time for optimism.

Unfortunately, his rationale is weak, if not totally wrong. For the most part, his argument rests on the premise that, historically at least, strong recoveries have followed severe contractions.

Aside from discounting the fact that there are aspects to the current unraveling that are historically unique and extraordinarily unsettling (e.g., total credit market debt relative to gross domestic product is well beyond anything this country has ever witnessed), Mr. Grant makes a number of curious assertions.

For one thing, he assumes that the current downturn is near its nadir, instead of a temporary floor built on a massive stimulus injection and a knee-jerk bout of inventory restocking. Among logicians, such an analytical approach might be described as “begging the question.”

Mr. Grant also gives short shrift to the fact that in many ways — see “A Tale of Two Depressions” by Barry Eichengreen and Kevin H. O’Rourke for more on this subject — the economic episode that most closely parallels the current downturn is the one that occurred during the Great Depression, and which lasted twice as long as the latest one has.

Perhaps our economy will rebound sharply in 2011, but from what level? Should we really be preparing for the best right now — instead of the worst — given how many dangerous icebergs –like the accelerating meltdown in commercial real estate and the mortgage reset timebomb — are only just floating into view?

History suggests that time is not on the side of the optimists when it comes to episodes like the one we are going through right now. As I’m sure Mr. Grant is aware, Professors Carmen M. Reinhart and Kenneth S. Rogoff have published a research paper, “The Aftermath of Financial Crises,” based on data going back more than a century, which concluded that post-crisis downturns tend to be “protracted affairs.”

To bolster his allegedly contrarian argument, Mr. Grant points to the swollen ranks of pessimists preparing to meet the future from “inside of a bomb shelter.” But after decades of bubble-induced euphoria and an economy built on massive debt and unparalleled overconsumption, I wonder if he is engaging in a bit of dot-com era relativism — where the Nasdaq was “cheap” at 4,000 because it was down 20 percent from its peak (it is now 2,132).

If savings rates, debt levels, and the share of the U.S. economy accounted for by consumer spending were to return to, say, pre-Greenspan era norms, then one bomb shelter might not be enough to handle the economic onslaught that is still headed our way.

Finally, Mr. Grant makes the cardinal error of many ivory tower economists. He credits equity investors with the wisdom of crowds. Those are the same people who bid share prices to new all-time highs in the fall of 2007, just as credit markets were unraveling, home prices were collapsing, and the bottom was falling out of the real economy. Hmmm.

That said, it is certainly not my intention to lump Jim Grant with all those clueless strategists, economists, and policymakers who failed to see things coming. In fact, I think he is a very smart guy and I’ve always enjoyed hearing what he has to say. But the fact is that bull and bear markets frequently have one thing in common: turning points marked by the public capitulation of one or more prominent contrarians.

Given what Mr. Grant has just written, I can only ask: Did one of the world’s best known bears just ring the bell at the top of the great dead cat bounce?

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Source:
From Bear to Bull
JAMES GRANT
WSJ, SEPTEMBER 19, 2009

http://online.wsj.com/article/SB10001424052970204518504574420811475582956.html

Words from the (investment) wise for the week that was (September 14 – 20, 2009)

Marking the one-year anniversary of the Lehman Brothers demise, risky assets last week again marched higher to the tune of economic data supporting the argument of a global economic recovery. A realization among investors that the economic transition from recession to recovery was gaining momentum, resulted in many global stock markets scaling fresh peaks for the year.

Ben Bernanke, Federal Reserve chairman, on Tuesday said the US recession “is very likely over”. However, he remained cautious about the shape of the recovery and said he expected a “moderate” recovery in 2010 with growth “not much faster than the underlying potential growth rate of the economy”, i.e. approximately 3%.

“At the moment we don’t see (the economy) getting better or worse, but that’s better than you could say six months ago,” added Warren Buffett. “The terror of last year is gone and that’s thanks in part to the government.”

Source: Tom Toles, Slate.com

Not only did the US stock market indices record up-days on every day except Thursday, but all ten economic sectors that make up the S&P 500 also closed the week in the black. Most other stock markets (mature and emerging alike), commodities, oil, precious metals, high-yielding currencies and corporate bonds also put in a stellar performance as a bullish mood prevailed.

The CBOE Volatility Index (VIX), or “fear gauge”, traded at about the same level (23.9) as before the Lehman bankruptcy in September last year. Also, government bonds and other safe-haven assets such as the US dollar and Japanese yen were out of favor as investors sought higher returns elsewhere.

As investors started assuming more risk since March, the US Dollar Index headed lower, hitting a one-year low last week and trading in a confirmed downtrend as far as primary trend indicators are concerned. The combination of low interest rates and quantitative easing has made the US dollar an attractive currency for funding carry-trade transactions (i.e. selling low-yielding currencies to finance the purchase of higher-yielding currencies). (Click here for a short technical analysis.)

The declining dollar, central bank purchases, the de-hedging by gold producers and rising inflation expectations served as catalysts for gold bullion’s strength, causing the yellow metal to close above the $1,000 level for the sixth consecutive day on Friday. While gold’s move grabbed the headlines, platinum (+42.5%) and silver (+50.5%) have actually outperformed gold (+13.9%) significantly since the start of the year.

Source: StockCharts.com

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that indicates an increase in risk appetite.

Source: StockCharts.com

A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

Read the rest of this entry »

“This book will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.”

-Glassman and Hassett, introduction, Dow 36,000

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Call it the audacity of cluelessness: Let us congratulate James K. Glassman and Kevin Hassett, the authors of the incredibly money losing advice in their book Dow 36,000, on their 10 year anniversary. The book forecast that lofty number would be obtained in 3 to 5 years; it was  published precisely 10 years ago today.

In the ensuing decade since this book (and I use the term lightly) was published, the Dow is still below where it was 10 years ago, rather than tripling in price. The Nasdaq remains more than 60% below its highs of one decade ago.

I tried to read the book as a history lesson, but it was, to be blunt, unreadable. I got through enough to learn the basic argument they made: Stocks have been undervalued for decades, and over the ensuing years, we should expect a dramatic one-time upward adjustment in stock prices. Why? People were about to figure out what only these two geniuses already knew (hubris anyone?).

The book contain numerous implications that were questionable back then and today, look utterly ridiculous:

• Buy & Hold is the best strategy;

• Value is relative;

• Risk is wildly overstated by naysayers;

• The economic cycle has been defeated!

Perhaps the greatest sin in this foolishness is extrapolation — during the peak boom years, stock prices tripled every 7 years. The forecast of Dow 36,000 simply tacked on another 7 year run at a record breaking pace on top of an 18 year bill market. Smart!

But rather than merely engage in schadenfreude, let’s see what lessons we can learn from their errors. Here is what I can deduce as valuable lessons from the foolishness in their book:

1. Every Bull market is followed by a Bear market.

2. Buy & Hold is fine during a secular bull market; it is ruinous during a secular bear market;

3. Returns are a function of Risk: The greater return you seek, the more risk you must be willing to accept;

4. Valuation matters a great deal;

5. “Risk” as it is defined means that sometimes, you lose. Big.

6. The business cycle still exists, and recessions will occur regularly;

7. Markets are subject to bouts of emotional extremes. They are after all, just crowds of humans, where at times logic does not prevail.

8. Capital preservation is just as important as performance. Returns become irrelevant if during the inevitable downturn you lose all your money.

9. Extrapolating the current trend to infinity (or zero) is foolhardy;

10. Politics and investing make for terrible bedfellows.

There are always lessons to be learned from each turn of the wheel in the market. I find its much less expensive to learn them from other people’s mistakes, rather than my own . . .

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Related:
Dow 36,000 (excerpt)
by James K. Glassman and Kevin A. Hassett
The Atlantic, September 1999

http://www.theatlantic.com/issues/99sep/9909dow.htm

Waiting for ‘Dow 36,000′
Interview by Carlos Lozada
Washington Post, March 8, 2009; Page B02

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/04/AR2009030403455.html

Dow 36,000: Booknotes Interview
October 3, 1999

http://www.booknotes.org/Transcript/?ProgramID=1535

Kevin Hassett, Bloomberg columns

http://www.bloomberg.com/news/commentary/hassett.html

Kevin Hassett, Wikipedia

http://en.wikipedia.org/wiki/Kevin_Hassett

Even as the Dow flirts with 10,000, few investors are climbing aboard the rally, and many can’t bear the idea of losing more money. Barron’s Leslie Norton reports.

This video makes us travel through our galactic home, the Milky Way. Using the magnificent 800-million-pixel, 360-degree panoramic image featured in the GigaGalaxy Zoom project, launched by ESO within the framework of the International Year of Astronomy 2009 (IYA2009), we move towards the Galactic Centre, then across the Galactic Plane that runs horizontally through the image.

Source:
Voyage in the Milky Way
European Organisation for Astronomical Research in the Southern Hemisphere
EuropeanSouthernObservatory

http://www.eso.org/gallery/v/Videos/Galaxies/vid-32a-09_FLASH.flv.html

click for ginormous photo

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This is the entire celestial sphere as seen from the best vantage points on Earth. The 800-million pixel image comes from the European Southern Observatory’s GigaGalaxyZoom project. The Milky Way, viewed edge-on, shows its central bulge and both dark and glowing nebulae – birthplaces of new stars.

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Sources:
ESO unveils an amazing, interactive, 360-degree panoramic view of the entire night sky
14 September 2009

http://www.eso.org/public/outreach/press-rel/pr-2009/pr-32-09.html

Giga Galaxy Zoom’ offers tour of Milky Way
A. Pawlowski
CNN, September 16, 2009 –

http://edition.cnn.com/2009/TECH/space/09/16/galaxy.interactive.image/index.html

When the site was in a “No Comments” period, I received a few interesting emails that warrant further discussion, about the blog (generally) and advertising (specifically). We will soon see if the upgrades to the database fixes those node glitches we’ve been having. But the other issues riased are worth discussing.

Some background first:  Thanks to a notoriously short attention span, I always seem to have a dozen small projects running at any given time. Some of these slip quietly into oblivion, while others become new web projects, published books, or full time jobs.

I’ve always promised my wife that none of these ideas would become giant monetary sinkhole (I’ve been told that is the job of a boat). Foremost of these potential money pits has been the blog.

In the beginning, it cost nada — $11 a month on Typepad (up to $15/mo now). The increase in traffic eventually made it necessary to move to my own domain. That cost a few bucks ($250, then $500 a month on Rackspace). Then came the graphic designers, the software programming, and all other costs.

We were rapidly approaching sinkhole territory.

That’s when, after 5 years, I finally added advertising. The switch to Federated Media in May 2009 caused advertising income to bounce. Its on a long delay — about 5 months from ad service to payment — so the revenue kicks in Oct 1. It is a low 5 figure monthly number, with about 35-40% of the potential page views monetized.

The upside of advertising is that I can expand the blog work force significantly. I already have plans to add a few interns, editors, and graphics folks.  We might do another (money losing) conference in the spring, and have an occasional contributor dinner. The management of the all of the admin details is a giant time suck, and if I can offload that onto someone else, I can spend that time researching and writing (rather than patrolling comment spam).

The idea is to keep improving what the site offers — and some of that means more help.

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As always, your feedback is welcome . . .