Another week, another ride on the rollercoaster: Start with a couple of big down days, add in a few bigger up days, and voila — modest gains in everything, excepting volatility, whose gains were immodest.
We now have a peculiar combination: job growth has been slowing for a full year now; retail sales are softening; The elephant in the room is the ongoing creditcrunch and housing market distress. These factors have investors clamoring for rate cuts from the Fed.
Then there’s the rescue plan announced by the White House: modest in scope, focused more on lenders than homeowners, it nonetheless helped psychology somewhat this week. Although the number of potential foreclosures actually averted is small (Deustche Bank estimated it was less than 90,000 out of nearly 3/4 million in 2008 — the net reaction was positive.
Let’s go to the week’s numbers: The biggest winner were the REITs, up 2.6%. They’ve slid nearly 10% over the past year.
The Russell was also a big winner, up 2.3%. The small cap index is barely negative for the past 52 weeks. The Industrials, Nasdaq, and SPX tagged on 1.9, 1.7, and 1.6% respectively.
Gold was up (1.6%), Oil was down (0.5%), other commodities were mostly flat (+0.6%). The dollar slipped some more, while US Investment Grade bonds took a nice 1.2% hit.
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• U.S. Stocks Rise for 2nd Week on Bush Plan to Avert Recession: U.S. stocks posted their steepest two- week advance since September after President George W. Bush announced a plan to freeze some mortgage rates to prevent foreclosures from causing a recession. Stocks have rebounded after losing their 2007 gain at the end of last month, spurred by speculation the Federal Reserve will reduce interest rates to prop up the world’s largest economy. The S&P 500 declined yesterday after a Labor Department report showed U.S. employers added more jobs than estimated in November, diminishing the odds that central bankers will cut their rate benchmark by half a point on Dec. 11. (Bloomberg) see also Plan to freeze interest rates may prove to be a cure that breeds another disease
• Whom Will the Subprime Plan Help? Don’t be fooled. The Bush Administration’s deal with lenders to get them to freeze interest rates on some adjustable-rate subprime loans isn’t really about rescuing lots of homeowners. It’s mainly about buying some time for mortgage servicers, Wall Street firms and investors around the world who face a chaotic couple of years as foreclosures rise and a couple million subprime loans reset at higher rates. (Time)
• Invest style: A man for all seasons: BROOKE THACKRAY, THERE was no single moment-no burning bush or falling apple-that told him the markets have a natural rhythm. But with each change — of season, the Toronto native grew to understand that history repeats itself. Even as a child, Thackray took an interest in recording and charting what might otherwise appear to be random stock movements. "I was always looking at trends," says the 46-year-old father of four. "I’m a student of the market. (Globe and Mail)
• No Sign of `Sell’ on Wall Street as Analysts Say: ‘Buy,’ ‘Hold’: (Bloomberg) — Anybody who followed the advice of Wall Street’s top-ranked analysts, none of whom would say "sell” for a single company in the securities industry this year, is reckoning with subprime-like losses. Shrinking fees from brokerage commissions mean fewer dollars for research and more pressure on analysts to hang on to paying customers such as hedge funds. While clients care little for ratings, they covet meetings with company executives — audiences that favored analysts can deliver. As a result, "sell” ratings on Wall Street are even scarcer than four years ago, when 10 securities firms paid $1.4 billion to settle allegations by then-New York Attorney General Eliot Spitzer that they used research to improperly promote stocks. (Bloomberg)
• Buybacks That Bite Back: Since late in 2004, U.S. companies have been expanding their appetite for stock buybacks — often financed by taking on more debt — with the real gorging evident in 2006 and 2007. Proponents of the strategy — and they’re legion on Wall Street — argue that, by decreasing the amount of stock in circulation, buybacks push up stock prices. Corporate executives like them because they boost reported earnings per share (a measure, not incidentally, that greatly determines the size of the corporate brass’ bonuses). But a study by Standard & Poor’s equity analysts Todd Rosenbluth and Stewart Glickman posits that buybacks often are a waste of a corporation’s cash. Titled "How Rewarding Is Corporate Share Repurchase Activity?", the study finds that most repurchases don’t support share prices for long and don’t even sop up many shares. Oftentimes, the researchers argue, shareholders would be better served if the company simply had put the money into Treasury bonds or into an exchange-traded index fund that mirrors the S&P 500. (Barron’s)
• Picking Through Subprime Wreckage: SAVVY INVESTORS KNOW THAT THE stock market is a forward-looking
entity. Often, when the fundamentals are at their bleakest, the stock
market begins to rally as it anticipates changes that are coming in the
future. With bad news a daily event in the financial sector, the
question is whether the stock market is starting to look past it
towards better times. While still early, some stocks are showing signs
that they are going to be the survivors and these are the ones on which
to focus for the time when the sector is ready to come back. There are five key areas in the financial sector — commercial
banks, securities firms also known as brokers, mortgage finance, real
estate trusts and insurance. (Barron’s)
• Bill Miller’s new streak : Bill Miller, the Legg Mason Value Trust manager who is an investing legend for beating the S&P 500 for fifteen consecutive years, is likely to start a new streak this year: a losing one. Miller’s fund failed to outperform the S&P 500 in 2006. And as of Dec. 3, Miller’s chances of beating the market this year do not look promising. The Legg Mason Value Trust fund is down 6.1 percent year-to-date compared to a 5.8 percent total return for the S&P 500. (CNN/Money) See also Man behind the streak
• 14,164.53* Critics say the Dow high is tainted
Critics of credit reporting agencies and Wall Street analysts say their
failure earlier this year to properly warn investors about the possible
extend of the subprime mortgage meltdown tainted the 14,164.53 record
high of the Dow Jones industrial average. Therefore, the critics say,
the record high hit on Oct. 9 should carry a Barry Bonds-like asterisk
- because it was reached unfairly. "These were phantom Dow highs in
that they were predicated on unrealistically low expectations of risk
in the housing market," Christian Stracke, a senior strategist at
CreditSights in London, told The Post last week. (NYPost)
• Last week, I sat down with WallStrip (What is with that eyebrow?)
The Wall of worry continues to build:
• Evidence Grows That Consumers Are Pulling Back: Consumers spend more on housing, health care, education, travel, restaurants and other services — $4.6 trillion last year — than they do on food, gasoline, clothing, electronics, cars and other goods — $3.6 trillion. Spending on services such as education and housing tends to be less sensitive to economic swings. But discretionary spending, such as elective medical procedures or airline tickets, is susceptible to cyclical pressures (WSJ)
• ‘Decoupling’ Debunked as U.S. Collapse Infects World: It turns out the U.S. economy matters after all. The credit collapse and dollar decline that followed a surge in U.S. home foreclosures jeopardize expansions in the U.K., Canada and Germany, economists said. They also debunk "decoupling,” an argument advanced by analysts at Goldman Sachs Group Inc. and Morgan Stanley that the world wouldn’t suffer as it did during U.S. slowdowns in previous decades. (Bloomberg)
• Surge in Auto-Loan DelinquenciesIs Latest Trouble for the Economy: First came housing loans and the subprime-mortgage crisis.Now, signs of stress are creeping into another key consumer area: auto loans. Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association. (Wall Street Journal)
• Price spiral hits Christmas trees: After
a year in which almost everything from food to oil appears to have
become more expensive, the upward price spiral has now encircled its
ultimate seasonal prize: the Christmas tree. Shoppers around the
world buying their festive trees this weekend will be confronted with
price rises of up to 30 per cent, as two of the great forces of our age
– globalisation and climate change – have, it seems, hit the humble
• 84% of WSJ readers were against the Treasury Sub-prime rescue plan to Freeze Mortgage Rates;
• Wells Fargo woes show breadth of mortgage meltdown:
Here’s more evidence that you can’t call the mortgage crisis a subprime
problem. On Tuesday, Wells Fargo said it will set aside $1.4 billion
for home-equity loans it expects to go bad in 2008 and 2009. What it
didn’t say in its news release was that these are not loans to
borrowers with subprime credit scores. "This was a prime portfolio,"
Wells Fargo spokesman Chris Hammond says.
The average FICO credit score for all Wells Fargo home-equity loans is
750, well into prime territory. The midpoint of all credit scores in
America is 723. Only 40 percent of credit scores are 750 or higher.
Subprime starts in the mid-600s and goes down from there, according to
Fair Isaac, the company behind FICO scores (SF Chronicle)
• Paulson Mortgage Plan Surfaces Too Late to Stem Housing Slide: Existing home prices may fall as much as 15 percent by 2009 from their peak last year, even if interest rates are frozen on one fifth of 2006 subprime loans resetting next year, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. About 2.8 million mortgage loan defaults will occur in 2008 and 2009, Zandi said in Dec. 5 testimony before the U.S. Senate Judiciary Committee. (Bloomberg)
• Foreclosure rescue: No help for you: A plan put together by U.S. Treasury Secretary Henry Paulson to stave off foreclosures leaves out a lot troubled borrowers.Already behind on your mortgage payments? No help there. Able to make payments even after the rate on your adjustable mortgage moves higher? You can manage on your own. (CNN/Money)
• Twisted ARMs and Figures That Lie:
ARM borrowers who have kept up with their "starter" rates — the new
euphemism for teaser rates — have the opportunity to hang onto to
these cheap rates that were supposed to be too good to last under the
Twisted ARMs scheme. And that 5.96% fixed-rate mortgage calculated by
Freddie Mac and quoted without question by the popular media? Those now
should be called sucker loans because only a sucker would play by the
old rules when Washington is handing out free "do-overs." (Barron’s)
• Iraq Bonds Surge on U.S. Troops, Rising Oil Revenue: World’s Highest Yield Holders of Iraqi bonds are giving President George W. Bush a vote of confidence.
• Military Families Question Iraq War as Support for Bush Slips: A Bloomberg/Los Angeles Times poll shows that Fletcher’s skepticism about the war reflects a growing disenchantment within the broader military community, long a bastion of support for the Bush administration and Republicans. Among active-duty military, veterans and their families, only 36 percent say it was worth going to war in Iraq. This compares with an Annenberg survey taken in 2004, one year after the invasion, which showed that 64 percent of service members and their families supported the war. The views of veterans and their families are now closer in line with overall public sentiment. The poll shows that 32 percent of the general population supports the war. (Bloomberg)
• How America Lost the War on Drugs: After Thirty-Five Years and $500 Billion, Drugs Are as Cheap and Plentiful as Ever: An Anatomy of a Failure. see also Smartest Drug Story of the Year: Rolling Stone on the war on drugs. (Slate)
• The facts behind the CIA tape inquiry: A preliminary investigation has begun into whether the agency acted illegally in destroying video of interrogations. The Justice Department and CIA have announced a preliminary investigation into whether CIA officials obstructed justice or engaged in an illegal coverup by destroying videotapes in 2005 that showed the interrogations of two terrorism suspects. (Los Angeles Times)
TECHNOLOGY & SCIENCE
• Google will change this industry forever Simply put, we’re on the precipice of something groundbreaking that will change this industry forever. Whether it will be good or bad is unknown, but regardless of the long-term effect, Google has its sights firmly planted on this 700MHz spectrum and if you ask me, we won’t even know what hit us. As you are probably aware, I’m a firm believer that the major reason for Google getting into this auction is to capitalize on the spectrum’s unique ability to travel through walls and buildings all over the country. And along those lines, there is no reason to suggest that this wireless spectrum can’t be used with cell phones. (News.com)
• Prices on TVs, disc players fall like snow: At a time of year when traditions are important, there are two in
the consumer electronics world that are back this holiday season like a
regifted fruitcake, only tastier: Big-screen television prices are lower; Blu-ray and HD DVD players also have gotten cheaper as the two
high-definition disc formats continue to slug it out over which will
win — if either. (LA Times)
• The web thing that we’re all talking about, is less than 5,000 days
old. If 10 years ago I told you everything was coming, and that it all
was coming for free, you wouldn’t have believed. We thought the
internet was going to be TV but better. Wikipedia is impossible in
theory, but possible in practice. We have to get better in believing
MUSIC BOOKS MOVIES TV FUN!
• What Big Picture Visitors are Reading: Here are the books Big Picture visitors were reading in November:
That’s all from a cold snowy Northeast, where the shopping is hectic and more snow is forecast!
Got a comment, suggestion, link idea? Or do you just have
something on your mind? The linkfest loves to get email! If you’ve got something to say, send email to thebigpicture [AT] optonline [DOT] net.
Category: Financial Press