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

“If the current betting trends are to be believed, it now seems certain that a recall is in the cards”

-Paddy Power, Irelands Biggest Bookmaker
July 14, 2010 press release

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Speaking of dumb bets: Its time to revisit a recent prediction market “winner,” and review the strengths and weaknesses of these markets:

Recall this Bloomberg article:

Apple IPhone 4 Recall Odds Increasing, Irish Bookmaker Says

Apple Inc. is increasingly likely to recall its iPhone 4 after complaints about poor reception and a critical review from Consumer Reports, according to a betting company that tracks odds for such events.

Paddy Power Plc, Ireland’s biggest bookmaker, said the chances that Apple will ultimately recall the phone have increased following what it described a “betting frenzy” after the Consumer Reports review. The consumer organization said on July 12 it wouldn’t recommend the phone because of its tendency to lose signal strength when held in a certain way.

Only, not so much.

We have a long history of criticizing so-called prediction markets. There is no “wisdom of the crowd” unless the prediction markets has a similar demographic profile to whatever group is being forecast (or polled). When their community of voters are similar to an electorate, they act as a deeper polling mechanism. When they try to forecast the decision making processes of dissimilar bodies — Juries, Boards of Directors, or in this instance, corporate management — they stink the joint up.

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Source:
Apple IPhone 4 Recall Odds Increasing, Irish Bookmaker Says
Arik Hesseldahl
Bloomberg, July 14 2010
http://noir.bloomberg.com/apps/news?pid=20601087&sid=a0GOFk3C_q3k&

August CPI rose .3%, in line with expectations but the core rate was flat vs the forecast of up .1%. CPI is up 1.1% y/o/y and .9% ex f&f. Keeping a lid on the core rate continues to be Owners Equivalent Rent, which makes up 25% of headline CPI and about 40% of the core. Aug OER was flat after the two prior months which saw .1% gains. The y/o/y fall in OER is .3%. Landlords are dealing with a soft economy and unsold homes being rented on one hand and a secular downward trend in the homeownership rate that will increase the amount of renters on the other. After 3 strong gains in apparel prices, they fell .1%. Commodity prices, which make up 40% of CPI, were up .5%, mostly led by energy and food. Bottom line, a flat core CPI gives the Fed the belief that they have a license to continue their extraordinary policies but here’s perspective, the CPI is up 29% over the past 10 yrs and is down .6% from its record high. And they call that deflation.

Another month of record bank repossessions, even though the notices of default are down 30 percent year over year, reports CNBC’s Diana Olick. Could the worst be on the way, with Barry Ritholtz, Fusion IQ CEO, and Brett Arends, Wall Street Journal columnist.

Airtime: Thurs. Sept. 16 2010 | :00:0 10 ET

With quad witch expiration and the quarterly S&P rebalancing today, consolidated NYSE volume may actually be above 4b shares for the 1st time since Sept 1st. It was back on July 16th the last time we saw volume above 5b. Confusion begets inaction. Strength in tech in the early goings will have the SPX testing the mid June intraday and early Aug highs and the ‘trading range’ market will be put to the test. Keep an eye on Ireland still as 5 yr CDS are just shy of a record high and their bonds again are trading terribly with the 10 yr yield above 6% now at around 6.10%, the highest since 1997. If this level persists, Ireland needs to weigh this high level of funding costs vs the 5% level they can borrow from the EU/IMF in what would be bailout #2 in Western Europe. Ireland is no Greece as their CDS is less than half but the situation is becoming more dicey.

The proposed Capital Spending tax credit is making its way through Congress. You probably have seen and read very little about the accelerated depreciation plan, as it is wonky accounting stuff.

However, do not overlook this. This is one of the better stimulus ideas we have seen come out of the White House.

Indeed, when George Bush passed similar tax credits in 2004-05 — The Jobs and Growth Act of 2003 allowed a 50-67% accelerated depreciation in year 1 versus the a regular depreciation schedule — I applauded it (See the full 2 part analysis here). There is little doubt it goosed enterprise wide software upgrades along with other technology and CapEx spending, such as trucks, planes, machinery, etc.

The drawback? Well, it prodded companies to increase their Capex spending over hiring. That is why I suggested marrying this tax credit with a Payroll tax holiday so as to not nudge companies away from job creating.

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Bonus: I see Amity “Recessions-are-2-consec-Qs-of-neg-GDP” Shlaes thinks its a bad idea. That confirms for me that the idea has merit. She as about as reliable a fade as Ben Stein is. I’m in favor of anything she is against.

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Previously:
Accelerated Depreciation of Capital Spending (September 12th, 2004)

Economists vs. Job Creation: Why the disconnect? (August 24th, 2004)

Economic Stimulus? Try These 7 Ideas (September 16th, 2010)

The Unintended Effects of Accelerated Depreciation
Barry Ritholtz
RealMoney.com 9/3/2004
http://www.thestreet.com/p/rmoney/barryritholtz/10181479.html

Non Subscription PDFs here

Sources:
Obama Plans Business Tax Cuts, Spending to Aid Growth
Julianna Goldman and Lisa Lerer
Bloomberg, September 07, 2010
http://www.businessweek.com/news/2010-09-07/obama-plans-business-tax-cuts-spending-to-aid-growth.html

Taxes, Capital Spending, and Jobs:
Market strategist Barry Ritholtz explains why the Bush accelerated-depreciation tax break may actually be holding back hiring
Karyn McCormack
BusinessWeek, September 20, 2004
http://www.businessweek.com/bwdaily/dnflash/sep2004/nf20040920_8177_db049.htm

No, a mere 8 people did not bring Lehman Brothers down. It was a group effort to destroy the 150 year old firm. And all it took was excessive risk, massive exposure to mortgages, enormous leverage, insufficient capital.

This guy is so wrapped up in his old firm — he has no ability to see what is actually happened.

Its sad and I feel bad for the folks who worked at LEH — but this 8 guys nonsense is a crock.

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Nothing in the financial reform bill can prevent another housing bubble, Robert Shiller, a Yale economics professor and co-creator of the Case-Shiller housing index, tells CNBC.

Airtime: Wed. Sept. 15 2010 | 5:00 DT ET

WhatTF is going on with our weather? NYC got hit with 5 micro tornadoes — upturning trees, moving cars, disrupting rail and highways — over the course of about 20 minutes.

The commute home was insane — the railroads were all essentially canceled, with multiple trees on the tracks — and the drive home was simply unimaginable.

I cannot describe what it was like to take one hour to go a single exit. Normally, it takes me 30-40 minutes to get home at 8:30 at nite. I just walked in at 1am. It took me over 4 and half hours to get driven home (courtesy of CNBC).

FIretrucks every where, ambulances, police — it was bedlam.

I’ve never had a ride like this — an on rare occasion, I drive into the city with ush hour. That takes 60 – 90 minutes. This traffic was about 5X worse — it looked like a post-nuclear war. I was in the car for an hour just to get out the tunnel, and another hour before I got 2 miles east of the tunnel. It was simply unconscionable.

Forget nuclear bombs, terrorist can disrupt the entire metropolitan area with a few tree saws . . .

Photos courtesy of NYT

Visit msnbc.com for breaking news, world news, and news about the economy

FYI: Don’t blame NBC for that hokey line “Dim the luster of the gold” — that was mine . . .

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Back on the Kudlow Report at 7:00 pm this evening to discuss RE, mortgage mods, prices, foreclosures, and maybe even some housing.

We will cover:

Prices remain too high;

Negative Magazine covers suggest we are probably through the worst of this;

House prices have stabilized BUT

Housing market is facing a lot of headwinds: Weak household formation, soft job creation, Rates more likely to be higher than lower 5 years from now, etc.

Its likely to take a long while before we start seeing Housing show annual gains

As always, it should be fun.