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

After being away for a few days, here are some items that look interesting:

• Dollar Slump Persisting as Top Analysts See No Bottom (Bloomberg)

• Wall Street’s Spin Game (NYT)

• How to shrink the banks (Prospect)

• Unsustainable Path (Market Talk)

• Riding the Waves (Time) A look at Prechter’s theory of social cycles.

• U.S. Mortgage Delinquencies Reach a Record High (NYT)

• Investors are finally seeing the nonsense in the efficient market theory (Telegraph)

• Revisiting a Fed Waltz With A.I.G. (NYT)

• The world still can learn from Keynesian economics (LA Times)

• The Big Red Fez: How To Make Any Web Site Better (Book)

• A Recession-Friendly (cheap) Email Device (WSJ)

•  Thousands of strange creatures found deep in ocean (SF Chron)

What are you reading?

Following Friday’s expiration volume that was the 3rd lowest of the year (consolidated NYSE), today is on track to be slightly below even Friday. Today will also be the 3rd Monday in a row where the week started out with a bang based on the ‘easy for longer, short $, buy stocks trade.’ Two weeks ago we followed the G20 meeting with a Monday 2%+ rise in the S&P 500 with no further gains the rest of that week. One week ago we rallied 1.5% after the APEC in Asia said their stimulus plans won’t end anytime soon but by weeks end, that gain was given up as the US$ caught a bid. This says nothing about how the rest of the week will end but it remains clear, investment decisions are being made solely due to the direction of the US$. Tomorrow the papers will say, ‘stocks rally after home sales data,’ but the S&P’s are at the same level as they were at 9:30am due to the Fed comments which induced the weak $.

Felix Salmon linked to my story on Josh Tyrangiel and BusinessWeek. His worry is that Tyrangiel will turn BW.com into another version of Time.com, a massive pageview machine but one that is dependent upon huge traffic flow from its corporate cousins like CNN.com.

But that’s selective reading. Tyrangiel may have made his career at Time but he’s leaving because of the constraints surrounding the magazine’s legacy and corporate genealogy. Here’s how I put it:

Time’s great limitation was its cultural baggage as a weekly magazine. No matter how much Time.com changed the organization’s metabolism, it would always be thought of by readers as a weekly. BusinessWeek, on the other hand, gets a new lease on life if it can fuse Bloomberg’s reputation as an instant-information service with BusinessWeek’s reputation as a trend-watching guide.

To paraphrase the old candy bar commercial, they’re going to take two great tastes and make them taste great together—like peanut butter and chocolate.

In the past, Tyrangiel has used the phrase “medium recognition” to describe the guiding editorial principle behind working with more than one distribution mode. For Time, medium recognition meant training writers to create content that worked well on the web for the web while still creating magazine content that was tailored to a magazine.

This is the valuable talent Tyrangiel was hired for–not tricks for generating pageviews. Bloomberg’s main problem in reviving BusinessWeek and integrating it with Bloomberg is medium recognition. To put it bluntly, BW’s content no longer drives either the magazine or the website. It needs new content, appropriate to each medium, that can grow the franchise. My own opinion is that there is a model for creating a magazine/web hybrid in New York Magazine that is true to both formats. That’s a better fit for:

the combined talents of the former Time team, among whom packaging, graphics, and fluid, timely writing have always been the foot forward. Magazines are better for graphics—charts and photo spreads and charticles—and writing that holds the reader’s attention as it unfolds an A-to-B-to-C story or lays out a complex argument or analysis. The Web works better for trial balloons, opinions, and flat-out news.

And Tyrangiel doesn’t have to reinvent the wheel here. There’s at least one successful model out there that the Bloombergers can retool for business news: New York magazine. When you think about it, the model ports over very well. New York magazine has deep-pocketed ownership willing to invest in a great product. It takes a wise, witty, and knowing voice and applies that to some crucial constituencies. New York uses the Web to stay in constant contact with those subgroups and takes the most successful items from there and adapts them to print.

Bloomberg gives BusinessWeek news credibility. Now it’s Tyrangiel’s job to give it a voice and some franchises (as well as revive some of its older franchises) that will bring non-market focused readers into the Bloomberg fold.

Source:

BusinessWeek’s Mr. Outside
MARION MANEKER
November 23, 2009; The Big Money

http://www.thebigmoney.com/articles/impressions/2009/11/23/businessweek-s-mr-outside

From its October 2007 highs to the March 2009 lows, the SPX had fallen from ~58%. Before today’s big move, the SPX has rallied 67%:

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Source: The Chart Store

Unexpectedly, the Bank of Israel raised interest rates by 25 bps to 1%. While their policy has no relevance for the rest of the world in terms of its impact, the reasoning behind the move is worth a read to glean the thoughts of other central bankers. They said “1 yr forward inflation expectations increased moderately last month, and are in the upper part of the target range,” that this move to raise rates “will help to establish inflation one year ahead firmly within the target range” and Q3 data “indicate recovery in economic activity.” Also, they acknowledge that while economic indicators point to a recovery, uncertainty persists regarding its strength and that “even after this increase,” the “low level” of a 1% rate continues “the accommodative monetary policy.”

Fun, goofy new iPhone App called Bailout Ben:

Bailout Ben (aka Helicopter Benny), the intrepid pilot of Bail Force One, is on a mission to engineer the biggest bailout in the history of the universe! Benny’s helicopter is flying lower and lower, and if he doesn’t bail out every single company he will crash & burn!

The names of the companies to be bailed out are shown on the bottom of the screen, in stock ticker format. For example, C for Citigroup, GM for General Motors.

The debt of each company is denoted by the blue and green bars. The taller the bar, the greater the toxic debt. Tap the screen to drop a bundle of dollars and help bail out a company. Only one wad of cash can be dropped at a time, so manage your bailouts carefully.

Land the helicopter and see Benny dance to the funky beat*. Or be trampled by a herd of piggy banks, angry at the lack of money flowing their way. Sometimes they get really mad and then it’s “Oh my gosh they killed Benny!”

Can you bail out everyone safely, or will you soon crash & burn?  Its a question everyone is waiting on!

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For more info, contact:

Bailout Ben

http://bailoutben.com/index.html

Existing-home sales gained in October on a monthly basis as prices fell and cheaper homes predominated sales. Elevated inventory levels also declined.

Existing-home sales gained 10.1%, reflecting in large part an outsized seasonal adjustment. Sales were 23.5% above the 4.94 million-unit level in October 2008, when the collapse of Fannie, Lehman, AIG, Bank of America and Citigroup had paralyzed the nation.

Median existing-home price was $173,100 in October, down 7.1% from October 2008.

The biggest gains were found in the cheapest homes – especially condominiums and co-ops. Their sales surged 13.2% (seasonally adjusted) and were up an astonishing 40.8% above a year ago. Median prices for condos fell 10.4% below October 2008.

As expected, the prior month’s initial report was revised downward to annual pace of 5.54 million in September (originally reported as 5.57mm annualized). These revisions effectively eliminated the upside surprise of 220k sales last month.

It is noteworthy that the NAR claims the seasonally adjusted sales activity is at the highest level since February 2007 (6.55 million). CNN bought this nonsense hook line and sinker (Existing home sales at highest level since 2007) but it is not actually true without some accounting sleight of hand.

As the chart at right shows, the NSA data is quite unimpressive relative to the past few years.

Ultra low interest rates are helping sales somewhat. A 30-year, conventional, fixed-rate mortgage fell to 4.95% Last week, the 30-year rate dropped to 4.83%.

In addition to the low rates and the now extended first time homebuyers’ tax credit, a big spike in foreclosures is attracting bargain hunters. In parts of the country, some foreclosed units are selling for less than 50% of the peak 2005-06 price – especially on the low-end of the price scale. Foreclosure units have been selling briskly in California, Florida, Arizona, and Las Vegas.

Total housing inventory for sale fell 3.7% to 3.57 million existing homes, a 7.0-month supply at the current sales pace. This does not include a variety of so-called shadow inventory: REOs, rental units, vacation properties, and bank-owned strategic non-foreclosures.

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Seasonal Adjustments Continue to Skew Data:

Mark Hanson notes the ongoing skew of Seasonal Adjustments, and the continuing spin of the NAR:

1) The month of October was thought to be the end of the stimulus, so it reflects a last minute dash to get in before the tax credit sunset

2) Rates fell sharply to below 5% in Sept/Oct 2009

3) Despite this, Oct YTD sales are DOWN a whopping 716k from 2007

4) NSA sales were up 31k sales MoM to 499k in Oct — the exact same as Aug

5) NSA sales were up 86k sales from Oct 2008 – but in Oct 2008 rates were high (pre Fed QE) and there was not stimuli of any kind

6) Median and Avg prices fell again – about 1.5% MoM and 6% YoY – price drop accelerated into shoulder season as price dumping and short sales picked up

7) Year to date Oct 2008 vs Oct 2009 – 2009 sales finally passed 2008 sales by only 61k houses.

So in a nutshell, prices keep falling month after month and 2009 has produced 61k more real sales over 2008.

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chart courtesy Barron’s Econoday

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Source:
Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink
National Association of Realtors, November 23, 2009

http://www.realtor.org/press_room/news_releases/2009/11/record_big

Dan Greenhaus is at the Chief Economic Strategist at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:

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Monday November 23, 2009

After two weeks or so in which the equity and bond markets had little in the way of corporate earnings and macroeconomic data to deal with, the economy will again take center stage beginning today with existing home sales. Over the course of the week, numerous data points will be released, each of which have the ability to push the market around especially in the reduced trading environment in which we currently find ourselves. Indeed, two of the five trading days in the most recent week saw volume of less than 4 billion shares, something that hasn’t occurred since the beginning of July when trading is expected to slow down. Additionally, we haven’t seen a 5 billion share day since November 4, thirteen trading days ago.

As for the data, housing will be in the forefront as the market gets new data on existing home sales (the largest part of the housing market), the Case-Shiller HPI (YOY comparisons are starting to get much, much easier) and new home sales (high correlation with the homebuilders which are about 4% below September month end levels). Perhaps most importantly though, oddly enough, is the first revision to third quarter GDP. Usually revisions, even to data as important as GDP, are treated as old news however the importance of growth in GDP these days cannot be overstated. To repeat, with an unemployment rate north of 10% and an underemployment rate north of 17%, it takes a considerable amount of economic growth in coming quarters to put the 15.7 million unemployed persons back to work. This was key to the expansion in 1983-1885 which brought the unemployment rate down from nearly 11% to 7% and one of the reasons that the path of growth coming out of this recession, by any measure, will be muted in relation to what the models would suggest.

Key to our argument is that the pace of economic growth going forward will not be robust enough to soak up the unemployed and underemployed persons which will serve to put a lid on the pace of consumer spending going forward. With respect to this outlook, we will be monitoring not just the headline reading – which we are expecting to show growth of 3% rather than the 3.5% originally reported – but also its composition. We have argued that a large part of the growth experienced int he third quarter can be attributed to government spending and while there is a case to be made (we make it) that the government has a role to play at the depths of a recession this deep, it will be up to the private sector to carry us forward. It just wont happen after three months.

Which brings us to our final point this morning. We have detailed our believe that any given modest adjustment to the tax code, by itself and at current levels, is not enough to destroy incentives to the degree some would assert. While we believe that taxes should always and forever be as low as possible, we do not believe that a few percentage point move in either direction, at current levels, dramatically affects revenue and incentives. However, there is no doubt that going forward, the tax structure is going to be more challenging for many Americans and we are dismayed to see our colleagues on the economic side of things who are calling for robust rates of growth from 4-5% in coming quarters on the back of a rebound in consumer spending levels dismissing this major hurdle for the private sector.

We bring this up because the list of tax increases that we know about apparently just got a big longer this weekend:

1. We know that the top marginal tax rate is going to increase in 2011 to 39.6% from 35%.
2. We know that the capital gains tax is set to increase 5 full percentage points while dividends are set to be taxed as ordinary income.
3. We know that the upper income brackets will lose the ability to deduct mortgage interest from their state and local tax liabilities.
4. We spoke on Friday of our horror at learning the payroll tax would increase to 1.95% for some individuals and we spoke earlier this fall of the impending tax related to the health care initiative.

We know of all these tax increases and we have no doubt that upper income bracket consumption patterns (the top quintile accounts for anywhere from 40-50% of spending) will be affected. We would doubt the argument that it is enough to derail economic growth but it seems at least fair to say that consumption will be affected.

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The dollar weakened against the euro in the European foreign exchanges Monday, helping the gold price hit a fresh record high, boosting copper and other base metal prices, and helping mining, energy and raw material stocks lift equity markets as a whole.

11/23/2009