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

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Eclectic Train Reading:

• Dow hits 20,250 by 2020, but first a big crash (Marketwatch)
• Survival Of The Stupidest (Science 2.0)
• Should You Automatically Reinvest Dividends? (NYT)
• Milton Friedman misunderstood Quantitative Easing (Pragmatic Capitalism)
• Decoding the Wide Variations in House Appraisals (NYT)
• Pre-Copernican Models and Economic Forecasts (Modeled Behavior)
• Jon Stewart: Daily Show is like Fox News: ‘We’re Both Expressions of Dissatisfaction’ (Rolling Stone) see also Behind the Scenes with TDS (Rolling Stone)
• Google Goes Face to Facebook (WSJ)
• Ayn Rand: A Fitting Muse for the Tyranny of the Self (Jesse’s Café Américain)
• An Immune System Trained to Kill Cancer (NYT)

What are you reading?

Based on the music listening habits of Musicovery’s registered users, Mapping Music by Likes [musicovery.com] demonstrates how people’s general music preferences share some universal values.

In particular, when the ratio between number of listeners who tagged “I like” and “I don’t like” is calculated, it can be observed that almost all positively ranked songs carry some form of “universal” values, such as wisdom, compassion, love, peace, etc.

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click for Musicovery

Source: infosthetics

Originals here: http://blumenthals.com/index.php?web-equity-infographic

The undervalued yuan gives China an “unfair advantage”, Gary Locke, US ambassador to China, told CNBC.

Tue 20 Sep 11 | 05:45 AM ET

via Visual.ly

Click for larger chart

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Michael Gayed of Pension Partners wonders if that the current Stock/Bond ratio is suggesting a rally:

“The chart above shows the price ratio of the 7-10 Year Treasury ETF relative to the S&P 500. Prior to the Summer Crash of August, Treasuries began to slowly outperform equities before spiking as macro problems came into focus. Interestingly, notice that the relationship of bonds to stocks whereby bonds outperform stocks has been stuck in a holding pattern for the past few weeks. All this despite global news seemingly getting worse (no jobs in U.S., possible Recession, Greece, Italy, etc). This is indicative of a high probability rally in risk assets as investors begin to realize the bonds are no longer out-pacing stocks in the face of very negative macro news.

Investing is all about probabilities and the odds do suggest that for now, we could be in a very real risk-on moment (right when no one reading the news thinks we should be). Of course, should a Lehman-like event occur, all bets are off since the possibility does remain that bonds could spike once again and reach for the 2009 relative peak (March 2009 equities lows)…”

Aug Housing Starts totaled 571k annualized, 19k below estimates and down from 601k in July. After a steady increase over the past few months, multi family starts fell by 24k. Single family starts fell by 6k to 417k. Permits though saw an increase in each category, totaling 620k, 30k more than expected. To quantify the change in single family vs multi family construction seen over the past few years, single family starts are 263k higher than multi family compared to 1.489mm in Feb ’06. In terms of construction jobs, over the past 6 months, 3.526mm homes (both single and multi) have been completed vs the 3.482mm of new starts over that same time frame so many are now looking for more work. Bottom line and no surprise, single family starts continue to bounce along the bottom with the extraordinary competition from the supply of existing homes while multi family starts remain a bright spot as vacancies fall due to the fall in home ownership rates.

After the initial downward response in the S&P futures to the S&P downgrade of Italy, markets realized again that rating agencies follow the markets, never lead them. To put into context, Italy’s 5 yr CDS is at a record high again at 507 bps and S&P downgraded them to A, 3 notches above Moody’s and 2 above Fitch. Hungary’s 5 yr CDS is trading at 475 bps with a BBB- rating and S&P just upgraded Turkey to investment grade at BBB- and Turkey’s 5 yr CDS is at 258 bps. Spain sold 1 yr and 18 month debt at yields about 20 bps above those sold in Aug. Greece will have another call with the EU and IMF at 1pm est time and most signs still point to them buying more time (time is now in weeks, no longer months and years). Portuguese yields are rising to 2 month highs. European stocks got a lift at around 5am after Germany’s Sept ZEW investor confidence in their economy was a touch better than expected even though it fell to the lowest since Dec ’08. In Asia, Hong Kong’s unemployment rate in Aug fell to 3.2%, the lowest since 1998. The FOMC 2 day meeting begins today and as I’ve said repeatedly, incremental Fed action is now impotent and in fact damaging.

Here is what I am reading today:

• U.S. Probes S&P USA Rating-Cut Trades (WSJ)
• Greece Nears the Precipice, Raising Fear (NYT) see also The world must insist that Europe act (FT.com)
• Uh Oh: Copper Falls to 2011 Lows (WSJ)
• Insight: Extreme makeover BofA: An asbestos solution (Reuters) see also UBS Scandal Is a Reminder About Why Dodd-Frank Came to Be (Deal Book)
• OPEC’s $1 Trillion Cash Quiets Poor on Longest Ever $100 Oil (Bloomberg)
• When good tech ideas go bad (Gigaom) see also Time Warner Should Reed Hastings’s Lips (WSJ)
• Foreclosures, House Prices, and the Real Economy (Institute For Monetary And Economic Studies)
• Cuban: The Most Patriotic Thing You Can Do (Maverick) see also Bartlett: The Biggest Challenge for Today’s Tax Reformers (Economix)
• 102 Things NOT To Do If You Hate Taxes (Addicting Info) see also Our Hidden Government Benefits (NYT)
• Dinosaur Feathers Found in Amber Reinforce Evolution Theories (The Atlantic)

What are you reading?

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Mike Thompson via Detroit Free Press