Yesterday, we reviewed the week that was. Today, we preview the week that will be.
Back to work, back to school, back to the usual routine: We kick things off start off with a relatively light, four day work week.
We find out how the back-to-school season went, as the
retailers report their August sales figures. We already heard from Target they were doing well, while Wal-Mart noted their customers were suffering from high gas prices and housing and credit turmoil. Last week, we heard from several high end retailers that their part of the market is just fine, thank you very much.
There are still quite a few significant earnings to report: Many of the automakers release this week, and home builder Hovanian reports Thursday; expectations remain muted.
On the other hand, Apple has scheduled a media event for Wednesday, and expectations for enhancements to the company’s products run high. The smart money is betting on yet more enhancements for the company’s ubiquitous iPods. I actually wrote this linkfest on an iPod, and I am hoping they improve the speech recognition. There are expectations that Apple will be adding teleportation to a new model, but I suspect that’s just wishful thinking.
Lots of economic releases this week: On Tuesday, ISM Manufacturing Index, and Construction Spending data gets released (yawn). Wednesday sees MBA Purchase Applications, Challenger Job-Cut Report and the ADP Employment Report (little more interesting). Thursday we hear from the central bankers: The BOE announcement is at 7:00am ET, and then we hear from the ECB 45 minutes later (now I’m awake). Thursday we get the Monster Employment Index, Jobless Claims, and Productivity and Costs (and paying attention). Friday is the one you have been waiting for: Employment Situation. As usual, I’ll be doing NFP duty that morn. We will also hear from a virtual parade of Fed Presidents on Thursday, repeating Chairman Bernanke’s message from last week at Jackson Hole.
This week, Congress returns from recess, so we got THAT going for us, which is nice.
Volume over the past few weeks have been light, and with the return of the crowds, we should expect to see those numbers pick up.
Also worth noting are several sentiment issues: Barron’s Mike Santoli points out
that "the ratio of insider selling to buying has been below 10 for nine
weeks, a rarity. And TrimTabs last week noted that insiders were net
buyers of shares on six separate days this year, and four of them were
since Aug. 16. Meantime, money-market fund inflows have surged and the
American Association of Individual Investors survey Thursday showed
bears outnumbering bulls for a fourth straight week." That excess of
negative sentiment might be suggesting potential upside action, lurking somewhere in the near future.
Let’s get busy:
INVESTING & TRADING
• Dispelling the ‘Bin Laden’ Options Trades:
As if the mortgage-market meltdown wasn’t enough to spook investors,
some market players expressed concerns about unusual options bets that
some observers have dubbed "Bin Laden Trades." The blogosphere and
options trading desks have been rife with speculation about these
trades, which are unusually large bets that the market will make a huge
move in the next month. Some entity, or entities, has taken a large
position on extremely deep in the money S&P 500 options, both puts
and calls, that won’t pay off unless the market undergoes an extremely
large price move between now and the options’ expiration on Sept. 21.
(TheStreet.com) see also This $900 Million Bet Has Global Traders Talking…
• The Punch Bowl Caucus: In the past week, a strange group has been pleading for the Federal Reserve to return the punch bowl to the toga party—to slash interest rates to restart the Wall Street party. The Punch Bowl Caucus, whose members hail from all over and hold different ideological views, share a common belief: that the Federal Reserve, by reducing either or both of the interest rates it controls, can turn the clock back to the halcyon days of 2005 and 2006, when home values moved in only one direction, when defaults were nonexistent, and when credit to homebuyers, consumers, and, above all, to hedge fund operators, ran downhill like a mighty stream. (Slate)
• The Bulls Have It!
In fact, the eight strategists surveyed by Barron’s see stocks climbing
well into 2008, despite the credit-market tumult and the policy
uncertainty of the election year.The average forecast among the eight
calls for the S&P 500 to reach 1568 by New Year’s Eve, or 6.4%
higher than today’s level of 1474, and even the most cautious have
penciled in hardly any downside for stocks. In contrast, their economic
prognosis is far less assured and unanimous: Three firms see economic
threats grave enough to require the Federal Reserve to slash interest
rates to 4.5%, from 5.25% today, while two others think the economy is
doing just fine. (Barron’s) See also Bullish on the inside: Corporate insiders’ buying bodes well for the stock market (Marketwatch)
• Where’s Merrill?
Another day of carnage in the subprime mortgage sector on Wednesday,
and another day of silence from Merrill Lynch. Someone get Jeff
Edwards, the investment bank’s finance chief, on the phone. It’s high
time Merrill let us in on how much damage it has incurred from the
subprime mess. (CFO)
• Market Beater(?): Introducing the Barron’s 400
When you think about the history of the many Dow Jones Indices, its almost surprising that Barron’s doesn’t already have its own index. Barron’s says "the index is based on the research methods of MarketGrader, a Miami firm that rates stocks by a proprietary formula that incorporates companies’ growth profile, profitability and stock valuation." Still, stating the new index is "built not as a mere reference point but as a money-making tool for investors" sounds like it could be an exercise fraught with risk . . .
• No Rush to Snap Up Lenders: It may be tempting to go bargain hunting, but the prevailing opinion of investment advisers is that prices do not yet account for the difficulties that the industry is expected to face in the months, and possibly years, to come as the housing market deteriorates. Opportunities are far better, they say, in diversified banks that do a brisk mortgage business but do not depend on mortgages for the bulk of their revenues.
• Why a U.S. Subprime Mortgage Crisis Is Felt Around the World:
But the global financial turmoil — set off by problems with subprime
mortgages — has prompted a backlash in some quarters against such
financial engineering.More broadly, it has led to a better
understanding of the downside of spreading risk so well — it can be
felt in all corners of the world, unsettling hedge funds, banks and
stock markets as far away as Australia, Thailand and Germany. In
effect, reducing risk on a global scale appears to have increased it
for some players. (New York Times)
• US Cellular: Next In Line For Telecom Takeover?
If Sprint acquired U.S. Cellular it would add 6 million subscribers to
its base, putting it up there with its two bigger competitors in terms
of size. But why would Sprint, which has struggled since its merger
with Nextel, want to make an acquisition? Analyst Gorbatenko thinks he
knows. “When you’re drowning in an ocean and someone’s swimming next to
you, you latch on,” he said. (Forbes)
• Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own:
People tend to hold overly favorable views of their abilities in many
social and intellectual domains. The authors suggest that this
overestimation occurs, in part, because people who are unskilled in
these domains suffer a dual burden: Not only do these people reach
erroneous conclusions and make unfortunate choices, but their
incompetence robs them of the metacognitive ability to realize it.
The Wall of worry continues to build:
• Heading for the rocks: Will financial turmoil sink the world economy? Via The Economist
Intelligence Unit, the shockwaves of the subprime mortgage crisis are
still being felt in financial markets around the world. But what is the
likely longer term impact on the global economy?
• Want to know what the Fed is going to do next? Here is a Primer on calculating the probabilities of Fed rate moves.
• Markets Are Normalizing, Causing Dilemma for Fed:
Federal Reserve officials’ decision to provide liquidity to credit
markets rather than an interest- rate cut appears to be paying off.With
the Fed supplying funds to relieve the sudden cash crunch, investors
have had time to begin to distinguish good credits from bad. As a
result, large portions of the market have begun to normalize.
(Bloomberg) See also Normalcy Still Is a Ways Away
• Milton Friedman, Meet Richard Feynman: How physics can explain why some countries are rich and others are poor. (Slate)
• On a 30 year conforming loan, fixed rate mortgages are now 50 to 100 bps cheaper than ARMs. Looks like Wells Fargo (WFC) is trying to push borrowers to away from ARMs and into the higher standards of fixed interest rate loans.
• Goldman Sachs Housing Forecast: Excerpts from a Goldman Sachs
research note on housing: Home Price Declines: Accelerating and Around
for a While
• Subprime Mortgage Crisis Spreading to High-End Housing Market
The subprime mortgage crisis is spreading to a somewhat unexpected
place: homes costing more than $500,000.As lending has rapidly gotten
more restrictive for borrowers taking out large loans, sales of
expensive homes have fallen sharply around the country during what
should be one of the busiest seasons for buyers and sellers, mortgage
bankers and real estate agents say. (AP)
• Inside the Countrywide Lending Spree:
Countrywide’s entire operation, from its computer system to its
incentive pay structure and financing arrangements, is intended to
wring maximum profits out of the mortgage lending boom no matter what
it costs borrowers, according to interviews with former employees and
brokers who worked in different units of the company and internal
documents they provided. One document, for instance, shows that until
last September the computer system in the company’s subprime unit
excluded borrowers’ cash reserves, which had the effect of steering
them away from lower-cost loans to those that were more expensive to
homeowners and more profitable to Countrywide. (New York Times)
TECHNOLOGY & SCIENCE
• 3 Ways to Re-Engineer the Gulf and Stop Katrina 2.0:
The root sources of the problem in 2005 have been traced back through
the entire history of design, construction, operation and maintenance,
and have since been dubbed grand failures in engineering. But the truth
is more complex: There were failures in engineering—existing technology
was not properly used, leaving the margins for safety far too low. (Popular
• Google twofer:
• Jewish Genius: Contentious author Charles Murray explains the history of Jewish achievement. Murray, who is not Jewish, is the author of the controversial The Bell Curve, and the less controversial Human Accomplishment: The Pursuit of Excellence in the Arts and Sciences, 800 B.C. to 1950
MUSIC BOOKS MOVIES TV FUN!
• Berkley Professor Robert Reich’s new book, Supercapitalism gets a good review in the New York Times
today: "[Reich] does not rip into opaque hedge funds and demand their
regulation. Nor does he harp on lax government regulation of credit and
mortgage practices. On the contrary, he criticizes many of the usual
liberal fixes directed at the “excesses of the market.” His book is
smart and compelling, if ultimately toothless." Reich was Labor
Secretary under Clinton, and is a regular on Kudlow & Company. His Blog and home page can be found at the links nearby.
• In last week’s fest, a NYMag article noted the
score from Terry Gilliam’s "Brazil" was showing up everywhere. Several
readers wrote to correct me: Michael Kamen did not write the theme, but
rather, adaptated it from Tommy Dorsey’s "Brazil", which another readers
informed us it can be
enjoyed here: http://cfelt.com/0210_2.html
Another gorgeous day! Yes, I am taking the XSR48 out again, hoping to set a new Atlantic speed record.
Enjoy the rest of your holiday weekend!
Category: Financial Press