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

Here are the latest additions to my Instapaper:

• The Effect of Falling Home Prices on Small Business Borrowing (Cleveland Fed)

• Bargain Junkies Are Beating Retailers at Their Own Game (Wired)

• Finding Time (Orion Magazine)

• 145 Minutes With Nassim Taleb (NY Mag)

• Counting on Google Books  (Chronicle Review)

• Your Apps Are Watching You (WSJ)

• The Day Comedy Won: How 30 Rock Beat Studio 60 on the Sunset Strip (SplitSider)

• The Odyssey of Captain Beefheart: Rolling Stone’s 1970 Cover Story (Rolling Stone)

Chris Kimble writes: “Long-term support resistance dating back to 1987 looks to be at hand right now. This line stopped the rally back in April, this time going to be different?”

I am not sure why this line would be significant. In terms of supply and demand, I strongly doubt anyone is hanging around waiting for prices to return to that trend line to buy or sell.

The only explanatory that possibly works for me is the long term trendline in GDP, earnings and interest rates create an approximate fair value.  And even that is a bit of a stretch.

Regardless, here is your chartporn of the day:

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click for ginormous chart

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Wow, I am honored and flattered to be included in the NY Times Sunday Magazine Year in Ideas, under the header “D.I.Y. Macroeconomics” (text version here). Cited as well were Calculated Risk and Mish’s Global Economic Trend Analysis.

Here is the relevant excerpt:

D.I.Y. Macroeconomics

Until recently, the economics profession largely controlled the production, dissemination and interpretation of economic data. Now there’s a new trend afoot: do-it-yourself macroeconomics, in which ordinary citizens pull apart the data and come to their own conclusions.

The democratization of economics owes much to the financial crisis that first hit in 2007. That ongoing catastrophe, which few economists predicted, tarnished the profession’s reputation, prompting some to look elsewhere for answers. They turned to – where else? – the Internet, where vast amounts of economic data that had once been hidden from public view were now online. Sites like FRED, maintained by the Federal Reserve Bank of St. Louis, enabled anyone with a connection to the Web to download data on everything from local home-price indexes to credit-card balances to weekly fluctuations in diesel prices.

At the same time, a growing army of knowledgeable “econo-bloggers” began analyzing the data available online. Strikingly, many of the authors of these blogs – the brains behind the Big Picture, Calculated Risk, Mish’s Global Economic Trend Analysis and others – aren’t academic economists but people with real-world experience in financial markets. Their Web sites offer sophisticated interpretations of economic data and hold passionate debates with their readers over the merits of the data. As a result, economic data that were formerly greeted with grudging acceptance by the public – the latest unemployment figures, for example – are now the catalyst for endless popular exegeses.  -Stephen Mihm

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I actually missed that on my own; thank you for everyone who emailed me this weekend!

State Budgets: Day of Reckoning
December 19, 2010 4:59 PM

Steve Kroft reports on the precarious financial conditions many states are facing and what they’re doing about it.

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Hat tip Joe Dedona

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Source:
State Budgets: The Day of Reckoning
On The Growing Financial Woes States Are Facing
Steve Kroft
60 Minutes, Dec. 19, 2010
http://www.cbsnews.com/stories/2010/12/19/60minutes/main7166220.shtml

It’s that time of the year when one of the more common Wall St sellside soothsayer concoctions hit the tape, that of 2011 year end price targets. Unfortunately it’s nothing more scientific than taking a year end earnings estimate and multiplied by typically 15, the relied upon average P/E multiple over the past 100 years. When asked myself by others for one I respond, ‘I have no idea, especially now.’ Firstly, because picking an earnings estimate at a moment in time with some made up multiple is not a very sophisticated way to value things as it doesn’t take into account any assumed long term growth rate and the cash it generates, doesn’t adjust for the current near record high in corporate profit margins which is a mean reverting statistic and assumes no change in interest rates. Secondly, we are living in an unprecedented time period where government actions have so overwhelmed fundamental economic analysis. In the market there is of course always uncertainty, but the one we are dealing with now is not reliably quantifiable in any model because again, its government event risk. Will US interest rates remain benign with much dependent on Fed action, will China raise rates and will other Asian nations continue to hike, will Spain and Italy become the next bailout targets, will there be a sovereign default/restructuring? Is 15 the right multiple when US government spending is rising to 25% of GDP and if not, will multiple compression offset a hoped for continued improvement in corporate earnings? Bottom line and to repeat, I have no idea where 2011 ends but I know for sure it won’t be as easy as many believe.

As seen below EK shares had massive distribution (highlighted by red arrows and circle) This distribution was a cathartic puke if you will. Now will potential future supply (sellers) already absorbed at lower prices EK shares should have an easier time advancing. Please note how recently all the heavy volume days are now on the upside (highlighted by Green circles and arrows). The recent consolidation after the high volume breakout looks like a classic continuation pattern to move higher. The measured upside move (black arrows) is $ 6.50.

Here we are beginning the final 2 weeks of the year.

The economy continues to limp along, improving, albeit rather slowly. “Recession fatigue” is likely to make this holiday consumption spree appreciably better than the past 2 years.

Markets have looked a bit tired — and yet — every opportunity to see big whackage has been met by liquidity driven buying. The bid beneath equities remains firm. The bias remains firmly to the upside.

With this year all but over, traders are starting to turn their attention to 2011. Corporate profits appear to be strong, but headwinds include unemployment and real estate. I continue to expect further contraction in RE prices, and my participation in the Case Shiller survey reflects that.

Rotation out of bonds is a major source buying buyer, following 18 months of main street preferences for fixed income products. It is ironic that mom and pop were Treasury buyers during what is likely to be the last gasps of a 30 year bull market in bonds.

Talk about late to the party!

History shows us that the public tends to be the last in. From the shoeshine boy in the roaring 1920s, to buyers of the Nifty-Fifty in the Sixties, then dot com stocks in the 1990s, and once again with bonds in the 2000s, main street joins Wall Street when their greed overwhelms their better sense. It is sad but don’t blame me, I am only pointing out this truth.

Don’t be surprised if the public’s rush into commodities marks that as a top, as well — including Gold.

This is a holiday shortened week — markets closed Friday for Christmas — so we could see some interesting action. The week after are little more than rookies manning the terminals, thin trading, and last minute position closings.

Around this time of year, I like to ask traders and investors the following: What is your plan for next year? What have you learned from your mistakes, what did you do right? (The 2009 Investing Mea Culpas were well received; Look for my 2010 mea culpas next month)

Last week, in our Holiday Shopping for Audiophiles, I mentioned the Monster Turbine High-Performance In-Ear Speakers. I found they are great iPod headphones, but pricey at $179.

Amazon is running a one day special: Today only, $59:  Buy a pair for yourself.
(check out the video here)

Read the rest of this entry »

This may be the last of the closures — (regulators prefer not to work on holiday weekends). We are still under 160, and with just 2 more weeks of 2010 to go, it looks like we may not make it . .  .

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Charts courtesy of The Chart Store.

TDS:

Here’s a tribute to a few Republican senators who find comfort and advantage in invoking the heroes of 9/11 but refuse to give them health care.

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