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

Good morning — here are 10 interesting reads for you to enjoy at the beach this gorgeous Saturday!

• Analysis: High-Frequency Trade Sparks Commodity Flash Fires (NYT/Reuters)
• The Big Business of Synthetic Highs (BusinessWeek)
• How to fix crumbling U.S. roads, rails and airways. (Marketwatch)
Falling tax revenue is hurting U.S. shipping and prosperity; here’s how to fix it.
• Mohamed El-Erian: America’s Dangerous Debt Ceiling Debate (Project Syndicate)
• Soft Patch 2 Is Main Influence on U.S. Rates (Bloomberg)
• Why Real-Estate Prices Spike in Places Like Manhattan (Atlantic)
• Spam clogging Amazon’s Kindle self-publishing (Reuters)
• The Humpty-Dumpty Problem (American Scientist)
• Grumpus Maximus (NYT Magazine) See also Questions for Louis C.K. (Slate)
• Dormice, sea urchins and fresh figs: the Roman diet revealed (The Telegraph)

What’s on your beach blanket?

I mentioned on Tuesday that I left my iPhone on the LIRR. New sports coat, pockets still sewn shut, phone not in the regular spot, so I somehow must have left it on the seat. Duh.

Through Find My iPhone, I was able to track it to Long Island City train depot, where my train (and phone) sat on track number three for 2 hours. I could have taken a 5 minute subway ride to get it, but LIRR assured me the conductor sweep of the train would find it.

So I sat there, watching my phone sit in the train depot, until suddenly — oh, shit! — I see it head out to Jamaica . . . then Hicksville . . . Farmingdale . . .  Bayshore. Great! My phone is on vacation, taking a week in the Hamptons to relax! Eventually, it stopped on Michael Street in Remsengburg, just west of the West Hampton.

Thankfully, Anna, the honest person who found it, called the number I texted to the phone, and arranged to return it. She is a home nurse practitioner, and was staying out east with a client that whole week. On her way home to Jamaica Queens, she met me in LIRR Plane to the Train terminal, and I was reunited with the phone. (I gave her an appropriate thank you gift).

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Here is my interesting takeaway: There are lots of things I love about the phone, but until you spend a week without it, you are unaware as to how dependent you can become on it. Its more than a phone, its a 2nd brain we rely on. Without it, you can feel surprisingly lost. While the iPhone has a definite “Wow” factor, the lack of it creates more of an “Oh, F*&% !” moment.

On one level, simple data is not available: Contact info, phone numbers, calendar. Frustratingly, there is the lack of access to the grid: Simple things like restaurant reviews,  train schedules, and movie listings, that we take for granted when away from a desktop, where not available.

And of course, Twitter.

I got an email from Runkeeper, noting I hadn’t uploaded a run in a week (I wanted to say that’s because I had no phone, but sheet, I hadn’t run since I lost it).

This whole week, I have felt out of sorts without the phone. Now that its backed, unlocked, and fully recharged, I feel myself again.

If you’ll excuse me, Runkeeper wants to go out for a quick jaunt — better go before it gets too hot  . . .

Based on the book by Michael Lewis:

“Moneyball” is directed by Bennett Miller. The screenplay is by Steven Zaillian and Aaron Sorkin, from a story by Stan Chervin, based on the book by Michael Lewis. The film is produced by Michael De Luca, Rachael Horovitz, and Scott Rudin.

Release Date: September 23rd, 2011 (wide)
Distributors: Sony Pictures Releasing

Could the Eurozone Break Up?
By John Mauldin
June 17, 2011

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Could the Eurozone Break Up?
The EMU Has Always Fallen Short…
Surely a Break-Up Remains Inconceivable?
Has it Really Come to This?
Kiev, Geneva and London

Is it possible for the Eurozone to break up? It was so inconceivable when they formed it that there is nothing in the treaty that mentions a member leaving or being removed; but now, if we’re to be honest with ourselves, we need to think about how that would work. This Friday finds me in Kiev for the first time ever, with my youngest son, Trey; and the small tour we went on last night was fascinating. Since I know not if I will ever get to this fascinating city again, I am going to write a briefer missive than usual, and it will center on my thoughts on Europe, as I have just had the pleasure of the company of a number of very diverse people, talking about the issues. Nouriel Roubini has graciously agreed to allow me use his latest private piece (very powerful analysis here), where he analyzes the question of whether the Eurozone could actually break up, so you will get the usual solid content (OK, maybe a little better), with my notes at the end. And I’ll close with some thoughts on Kiev.

But first, a quick fix. In last week’s fascinating Outside the Box by Pat Cox on the state of stem cell technology, which you really should read, there was a link to Lifeline Skin Care cream that was faulty. It should have been http://www.lifelineskincare.com.

Could the Eurozone Break Up? Possible Over a Five-Year Horizon

By Nouriel Roubini

The current “muddle through” approach to the eurozone (EZ) crisis is not a stable disequilibrium; rather, it is an unstable disequilibrium. Either the member states move from this disequilibrium toward a broader fiscal, economic and political union that resolves the fundamental problems of divergence (both economic, fiscal and in terms of competitiveness) within the union…

…or the system will move first toward disorderly debt workouts and eventually even break-up, with weaker members departing. Over a five-year horizon, the odds of a break-up are at least one-third.

The EMU Has Always Fallen Short…

The EMU has never fully satisfied the conditions for an optimal currency area: Synchronized economic activity and growth rates; a high level of labor and capital mobility; fiscal federalism allowing the fiscal risk sharing of idiosyncratic national shocks; and a significant degree of political union.

The hope was that the EMU’s lack of independent monetary, fiscal (the Growth and Stability Pact fiscal constraints) and exchange rate policies would lead to the acceleration of structural reforms that would in turn lead to the convergence of productivity and growth rates, rather than increased divergence.

The reality turned out to be different… Paradoxically, the early interest rate convergence became damaging as it allowed a severe lack of fiscal discipline in some countries (such as Greece and Portugal) and the build-up of asset bubbles in others (such as Spain and Ireland). Moreover the lack of market discipline delayed the necessary structural reforms and led to divergences in wage growth relative to productivity growth, and thus a rise in unit labor costs in the periphery and a loss of competitiveness that led to economic divergence between the PIIGS and the core. And the straightjacket of common monetary and currency policy exacerbated the real growth divergence at a time when structural and fiscal policies diverged.

Figure 1: Divergent Unit Labor Costs (ULCs, relative to EZ average, 1998 = 100)

Note: ULCs are computed as the ratio between compensation per employee and real GDP per employed person. Source: European Commission

Read the rest of this entry »

If you missed the (already legendary) opening act from the 2011 Tony Awards by Neil Patrick Harris, you are in for a treat: It is an outrageously funny and enlightening song letting America know not only is it a live show, it is more than lip-synched version of “GLEE”, but most important of all, the Tonys are not just for gays anymore!

Moody’s is putting their Aa2 rating (2 notches above S&P, 1 notch above Fitch) on Italy on review for a possible downgrade. They cite the following, 1)”Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time, 2)Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy’s stock of debt and keep it at affordable levels and 3)Risks posed by changing funding conditions for European sovereigns with high levels of debt.” Bottom line, Moody’s is just playing catch up to the other rating agencies.

About 6 months ago on CNBC Fast Money, I discussed why Blackberry was toast (cant find the video, but it may been this).

I was astonished anyone would even defend RIMM against the Apple onslaught. To be blunt, i am surprised RIMM is a still a double digit stock.

This was one of the cases where it was too easy: You did not need to be a quant or a rocket scientist or any sort of genius to see that Apple was eating RIMM’s lunch. The pushback against this obvious observation was surprisingly robust, as Wall Street analysts defended the name. Was it a purely a case of a value trap, or merely whoring for more banking business?

Regardless, it seems the last Street Analyst threw in the towel today.

I do not know when RIMM truly becomes a value play, but I don’t see the stock as dirt cheap here.

Succinct summation of week’s events:

Positives:

1) Merkel/Sarkozy and hopefully the ECB coalesce around the idea of a voluntary debt rollover which Fitch thinks would not be a technical default but some sell job must be made to convince current holders to buy new bonds
2) After 8 of 9 weeks above estimates, Initial Jobless Claims below forecasts but still above 400k for 10th straight week
3) Multi family starts outlook a positive for construction
4) May Retail Sales a touch better than feared
5) 7 month low in mortgage rates lead to 6 month high in refi’s
6) RBI and PBOC take more steps to slow inflation, soft landing?
7) Chinese retail sales and IP hang in in May

Negatives:

1) Even with more help, Greece will never be able to pay back what is owed and the inevitable action to bond holders gets pushed further into the future
2) Philly and NY mfr’g survey’s unexpectedly fall into negative territory
3) NAHB builder survey falls to 13 from 16, bad gets more bad
4) Auto production falls for 2nd month due to Japanese supply issues
5) US CPI now running 3.6% y/o/y, the most since Oct ’08
6) NFIB small business optimism falls to lowest since Sept
7) Chinese bank loans rise 100b yuan below expectations, M2 growth slowest since Nov ’08, PBOC again hikes RR and RBI lifts rates to sacrifice growth for price stability, soft landing?

Last year, international buyers spent a whopping $41 billion to purchase US residential Real Estate. Some of this is attributable to the weak American Peso, but lower US RRE prices relative to European counterparts are also a factor.

Via Trulia, we can see the fascinating data flow of what overseas home buyers are looking at homes in which states. The global house hunters might surprise you.

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click for interactive graphic

Source: Trulia Insigths, American-Hotspots

Hat tip (Flowing Data)