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

Alan Abelson in this weekend’s Barron’s:

“THE BULLS SEEMINGLY HAVE DEVELOPED an immunity to bad news. We’re admittedly jealous, since we’d love to glom onto the potion that makes everything, no matter how dire, come up smelling like a rose. It isn’t that we’re oblivious to good news; frankly, we hunger for it. Thus, when Bloomberg reports, citing data from Paychex, Intuit, Insperity and the National Federation of Independent Business, that small businesses, which have been down in the dumps forever, suddenly are energized by a surge of optimism and have started to actually hire people, we feel like emitting a discreet cheer.

But we somehow can’t blithely ignore disturbing bulletins out of Japan on the troubles besetting its effort to fix its damaged nuclear facilities. Or, the recurring financial woes in Europe. Or, closer to home, the mercurial rise in food and gas prices that threatens to effectively wipe out the bounty awarded the consumer via a temporary tax cut.

Nor can we turn a blind eye to less cosmic stuff like the decline in February durable-goods orders and, most notably, the drop in orders for nondefense capital goods excluding aircraft, which were off 1.3% versus an anticipated gain of 4.3%, a persuasive indication that businesses are still wary and keeping a tight grip on spending.

But our concerns about Wall Street’s pervasive bullishness go beyond the market’s lack of interest in, much less reaction to, unfavorable events, large and small. It’s also the not-unimportant matter of sentiment: pure and simple optimism among investment pros reigns supreme (apart from the usual scattering of cranky pessimists)—usually an early warning signal. In the latest Investors Intelligence survey, 50.6% of the advisors were bullish, a meager 22.4% bearish.”

Other factors Abelson cites: Margin debt is ballooning — $350 billion, equivalent to 2.2% of total market cap — one of the highest percentages ever. This last happened back in 2007 and 2008.

>

Source:
No Exit, No Entry
ALAN ABELSON
Barron’s March 26, 2011 
http://online.barrons.com/article/SB50001424052970204582404576214762215231664.html

This is Matt’s SXSW 2011 talk:

Lessons from 11 years of community (my SXSW 2011 talk) from Matt Haughey on Vimeo.

Floyd Norris gives us the no nonsense take on Housing: Yes, Housing remains moribund; No, this is not getting better any time soon. The charts at right (click for larger version) should make that clear to anyone:

“As can be seen in the accompanying chart, during the 12 months through February, about 46 homes were sold for every 1,000 households in the country. At the peak of the housing boom, that figure rose above 75, but the current level is significantly higher than the lows reached during the recessions of the early 1980s and early 1990s.

The sales rate for existing homes — about 4.9 million over the last 12 months — is virtually the same as in mid-1999. Yet sales of newly built single-family homes have plunged to the lowest levels seen since the government began collecting statistics on such sales in 1963. The Census Bureau reported this week that only 17,000 new homes were sold in February, for an annual rate of 250,000 after taking seasonal factors into account. Both of those numbers are the lowest on record.”

Why? As low as rates are, they cannot make up for the lack of wage gains, the massive deleveraging, and the ongoing foreclosure activities.

>

Source:
A Housing Market Cycle Different From Others
FLOYD NORRIS
NYT, March 25, 2011  
http://www.nytimes.com/2011/03/26/business/26charts.html

Unintended Consequences
John Mauldin
March 24, 2011

>

Loose Monetary Policies and Emerging Markets

Bubbles in Emerging Markets

Difficult Choices

Snowbird, New York, Portland, and La Jolla

The central banks of the developed world are printing money and are engaged in a very-low-interest-rate regime. What does that mean for emerging markets? It is more than just a dilemma, it is a tri-lemma – they have problems not just coming and going but also sitting still! I am in Zurich tonight after a long day, with a 4:30 AM wake-up call to get back home, but deadlines are deadlines. So, to make this one easier on me as well as hopefully instructive for you, you will get chapter 15 of my new book, Endgame, in which coauthor Jonathan Tepper and I speculate about the future of emerging markets in general and investments in them in particular. We once again are on the New York Times best-seller list this week, by the way (thanks to many of you).

The reviews keep coming in. I have never met Anthony Harrington, but he is clearly a keen and astute analyst, since he has called this book a must-read. Seriously, he homes in on one aspect that I think is critical; and that is the issue of trade deficits and fiscal deficits and how they affect each other. You can read his work at http://www.qfinance.com/blogs/anthony-harrington/2011/03/23/mauldins-end-game-teaches-politicians-the-basics-but-are-they-listening-austerity-measures.

And this week, if you have not yet bought your copy, let me commend you to my friends at Laissez Faire Books. I have been buying books from them for nearly 30 years. They are the best source for Austrian economics and libertarian books, along with the usual offering of investment books current in the market. They have matched the Amazon price for Endgame; but if you are interested, move around their website and pick up a few other things along with my book. http://www.lfb.org/product_info.php?products_id=1014&PromoCode=L401M301

And now, let’s look at emerging markets.

Loose Monetary Policies and Emerging Markets

So far we have focused on the United States and other mature, developed economies that have far too much debt. With Japan, the United States, the United Kingdom, and Switzerland at close to zero percent interest rates, it seemed like a good idea to stimulate the economy. However, emerging markets that maintain pegged currencies or that shadow the dollar are essentially reduced to importing excessively loose monetary policies. Reserve growth across many emerging countries has been very strong over the last year. Emerging Asian countries account for almost 50 percent of global foreign exchange reserves. Huge Asian reserve growth since early last year is a result of mimicking loose monetary policies in the developed world to keep their currencies competitive. China has accumulated the most reserves of any emerging market country. This is directly related to its currency peg and its need to recycle the dollars it gets from its exports.

A result of Asian emerging markets’ importing loose monetary policy from developed markets is that domestic inflation rates are rising quickly, as policy rates remain too accommodative. Asian emerging market countries are facing a trilemma: They can fix any two of a pegged exchange rate, free flows of capital, or independence in monetary policy, but not all three. The end result is likely to be higher policy rates and currency appreciation. (See Figure 15.1.)

Bubbles in Emerging Markets

Many emerging markets will double or triple over the next few years. Emerging markets are extremely small as a percentage of total global market capitalization. When investors diversify away from developed markets, it will be like putting a fire hose through a straw. Liquidity from developed markets will overwhelm emerging markets. Part of this is from investors in the developed world wanting to go where the growth is, but part of it is a result of quantitative easing all over the world, especially in the United States. That is why you see emerging markets like Brazil taxing inbound capital flows in an effort to keep their own economies from developing a bubble. (See Figure 15.2.)

There are good reasons why the United States and the United Kingdom are among the highest capitalizations. In part, this is because a higher percentage of companies are publicly traded in the United States and the United Kingdom, whereas in other countries, many more are privately held, family-owned, or indeed government-run. Individually, almost all emerging markets are less than 0.5 percent of total world capitalization, as Figure 15.3 shows.

Read the rest of this entry »

Here’s the thing about unproven “technical” tools: They are dangerous to your wealth.

Recall this article ‘Hindenburg Omen exactly 7 months ago on August 26 2010. If you shorted markets due to the Hindenburg Omen back on August 26 seven months ago, you have now lost about 25% of your money as of yesterday’s close — almost 30% as of the pre-quake peak in February.

And if you were festooned with QIDs, and SDS (like some recent accounts that have come into the office), over the same period those positions are down 44% or so. Ouch.

The problems with the Hindenburg omen is not that we have too small a data set (as some have suggested); rather it is a bad statistical indicator with a poor track record. In the WSJ article, I tried to emphasize both statistical and the psychological:

• The 25% track record is simply too weak statistically to pay any heed to (its worse than flipping a coin)

• The psychology that follows a major crash lends itself to what I called “Recession Porn” — an emphasis on all things bleak and negative. The Hindenburg Omen fits the profile perfectly.

Its worth rereading this article and recalling the Double Dip recession, Pre-QE2 crowd psychology.

>
click for larger graph

>

Source:
‘Hindenburg’ Creator Sticks to Guns
STEVEN RUSSOLILLO And TOMI KILGORE
WSJ, AUGUST 26, 2010
http://online.wsj.com/article/SB10001424052748704540904575452013459211330.html

How cool is this? The Parrot AR.Drone Quadricopter: An iPhone controlled quadricopter with a camera in its nose!

Here’s Barron’s:

“Parrots aren’t known for their flying ability. But the Parrot AR.Drone certainly is. It’s one of the most fantastically fun toys I’ve come across in years.

A camera in its nose can transmit images of your neighbor’s yard, or help you dogfight with other drones. It’s expensive, but—wow!—it’s worth every cent of the $299 price.”

That looks crazy cool!

HomePage

Amazon

The First Quadricopter Controlled by iPhone/iPod touch/iPad

Control with Your Apple Device
Thanks to its on-board Wi-Fi system, you can control the Parrot AR.Drone using an iPhone, iPod touch, or iPad.

The Parrot AR.Drone
The AR.Drone is the first quadricopter that can be controlled by an iPhone, iPod touch, or iPad.

High-technology Sensors Offer Simple Piloting
A mix of captors, wide-angle camera, high-speed camera and MEMS (micro electro mechanical systems), accelerometer, gyro sensors, and ultrasound sensor combine with a powerful on-board computer to make piloting the AR.Drone easy. Simply use your iPhone or iPod touch, and just tilt and touch to control the AR.Drone.

Connect and See
The Parrot AR.Drone generates its own Wi-Fi network to which you connect your iPod touch or iPhone to control. The front camera view is streamed to your piloting device display.

Autopilot
The AR.Drone autopilot allows easy takeoff and landing. After takeoff, autopilot stabilizes the AR.Drone at an 80-centimeter altitude. When you remove your finger from the iPhone/iPod touch, the autopilot function automatically puts the AR.Drone into stationary flight. Lost connection with the AR.Drone? Autopilot takes over again and stabilizes the device before attempting a soft and safe landing.

Indoor and Outdoor Hulls Included
The full hull shield protects the AR.Drone from impacts that occur during wild battles against enemies hidden in the rooms of the house. The streamlined colored hull is aerodynamic, allowing greater control outside.

High Durability and Easy Repair
AR.Drone is a quadricopter made of carbon fiber and high-resistance PA66 plastic. All parts can be changed for easy repair.

Free Piloting App on iTunes
Please download AR.Freeflight in the App Store to control the AR.Drone. iTunes account needed.

Augmented Reality Games
Not only see what the AR.Drone sees with the front-mounted camera, but enjoy a wide variety of games in augmented reality. AR.Games will be sold in the iTunes App Store. Choose from a selection of single-player and multiplayer games, using the AR.Drone’s camera and the augmented reality applications. Shoot enemies or other drones.

Videos after the jump.

Read the rest of this entry »

Seth Klarman talking about Value Investing and Baupost in 2009 (Hat tip ValueWalk.com

Part I

Parts 2 – 6 after the jump

Read the rest of this entry »

Joe Nocera’s last column in today’s NYT (he moves to the OpEd pages) tells a simply ghastly tale of misplaced governmental priorities: In Prison for Taking a Liar Loan.

It tells the horror show story of how the IRS came across one of the 15 million liar loans written during the credit bubble.

An excerpt simply will not do it any justice — go read it in its entirety.

There are few things in the world more dangerous to Liberty than an overzealous prosecutor on a morality binge. I am surprised my Libertarian friends aren’t more outraged by what the banking sector has done to property rights and to governmental criminal priorities.

If only the tea party hadn’t become a subdivision of corporate America — they might have accomplished some worthwhile goals.

The conflict in Libya between CNN’s Nic Robertson and Fox News’ Steve Harrigan escalates.

Thursday, March 24, 2011

Succinct summation of week’s events

Positives:

1) Japanese stocks bounce, reactor mania calms but not out of the woods
2) Initial Claims below 390k for 5th week in past 7
3) New Home Sales awful but keeps new homes off the market to better suck up existing ones
4) French biz confidence highest since Oct ’08 and German IFO remains near best on record
5) Trichet reaffirms desire to hike rates to quell inflation
6) Philippines joins fight against inflation by raising rates

Negatives:

1) UoM confidence falls 10 pts from Feb, 1 yr inflation expectations at 2 1/2 year high
2) Portugal heading into hands of EU/IMF as gov’t falls, Irish yields also spike
3) Feb Durable Goods disappoint even with easy comparison
4) New Home Sales awful, builders continue to suck wind
5) Existing Home Sales well below estimates
6) Oil prices back near recent high as bombs drop on Libya
7) Trichet still wants to hike rates, can Europe handle it?
8) UK CPI now at 4.4%