Another week, another batch of mayhem. An ugly Tuesday, with Wednesday and Thursday making up most of the losses, followed by Friday’s strong start and reversal (not encouraging). All told, when this market is in the history books, you will at least have something to tell your grandkids about.
For those of you who are interesting in the technical details since the May top, the Dow dropped 5.48%, SPX lost 6.13% the Nazz gave up 10.20%, while the Russel 2000 lost 11.29% peak to trough (see more here). Since the lows, we have seen bounces for the Dow of 1.97%, the SPX regained 3.44%, the Nazz took back 3.91%, while the Russell 2000 recouped 5.95%.
Only the SPX has regained half its point losses so far. Fun with math: Remember, to recover half of the point losses takes gains of more than half of the percentage losses. Think of a $100 stock that drops to $70. Thats a 30% loss; It needs a 21.43% gain to make up half the point loss; to get back to breakeven after a 30% drubbing requires a move of near 43%.
OK, enough numbahs! Let’s see what we found around the web this week:
• We have a new Treasury Secretary (whoopee), here is Henry Paulson, in His Own Words. (I wonder if he feels a bit like the cavalry arriving in time to find Custer’s body). Slate asks: "What’s so special about Goldman Sachs?" Alt. title: Bush drafts Hank to ba
third. Not even Paulson can save the dollar
• Worst Case Scenarios: Why the Fed Tends to Overtighten explains their choices leads them to the lesser of two evils.
• I may disagree with John Dorfman’s recent column, but I respect him enough to offer up this: he says U.S. Stock Decline Won’t Turn Into a Bear Market; Mark Hulbert observes perhaps there is a Silver lining in May clouds; Marshall Loeb offers advice on Protecting yourself against a big bear market;
• 10 Lessons Learned in the May 2006 Selloff (I must admit to being very pleased with how this came out);
• For you Econ wonks: The St Louis Fed’s nontechnical survey on Learnability Criterion and Monetary Policy (analyzing models of learning, in which expectations are not initially rational but which may become so);
• As if we need any more: How to Set Up Your Own Hedge Fund
• Cody Willard and I had a terrific debate this week on the stinky jobs numbers and what they mean (In the words of Dealbreaker: Kapow!) Here’s everyone’s favorite chart on How Jobs Recovery Stacks Up this cycle.
• Here are the Five Key Rules To Heed Before Hiring a Financial Adviser ($)
• The IMF takes a long look at Economist/NYT columnist Paul Krugman: Economist as Crusader
• On Wednesday, I looked at a bunch-o-charts related to Real Estate. They show the party is ending. And why not? Home loan demand has fallen as interest rates climb, Condo developers are getting sued for cancelling construction due to increases in the price of materials; The Real Estate Journal advises how to cope with the Condo Sales Slowdown; Barron’s subscription only cover story from last week – Second-Home Housing Glut; Real-Estate Bubble Losing Air — is now available free; Check out the Open-House Blog via WSJ.
Here’s advice no one needs: How to Buy a $450K Home for $750K;
If money is no object, however, here is a list of castles from around the world for sale;
Lots of transportation related stuff this week:
- The Chevrolet Impala — still the best selling American branded automobile has become a Signpost to Detroit’s Decline;
• Some interesting energy news:
- File this one under WTF? The new White House energy plan eliminates Conservation
There was a ton of Political stuff this week, but I’m going to keep it short:
-One Cabinet Secretary down, one more to go: PENTAGON ORDERS MISSILE DEFENSE SHIELD TO PROTECT RUMSFELD
• I keep finding interesting stuff on Guy Kawasaki’s blog;
• Over the holiday weekend, I spent alot of time playing with the iPod on the beach; I am embarrased to admit I have all sorts of crap hidden on the white toy. It turns out I’m not the only one: iPod’s guilty little pleasures;
• The most interesting new disc I’ve been listening to is Songlines, by The Derek Trucks Band. Guitarist Trucks sound has been described as "snake-like and swampy," and the album runs through blues, jazz, Jamaican, gospel, and world music. Good stuff.
• There’s still time to bid on the DEVIL’S COIN COLLECTION — Auction ends Tuesday — thats 6/6/06 (June-06-2006) at 6pm; shipping costs are 6.66;
That’s all from NYC, where the Fed watch is getting increasingly tiresome. Oh, well – enjoy what’s left of your weekend!
Today’s NFP number stunk the joint up: 75,000. That’s half of the monthly population growth, meaning the percentage of people working (relative to pop) actually went down, if we are to believe this data.
Astonishingly, some people STILL do not understand the data or the context of the weak job growth within this recovery. To wit, my friend Cody Willard – a telecom strategist – writes:
"Surely, Barry, you’re not seriously trying to rekindle your argument about "job creation is not what it is typically at this phase of a recovery."
That statement has been a cornerstone of your bearish rants for the last couple years. Yes, I know you’ve been a "trading bull" and what not, and rightly so, but this economic argument of yours has been, in my view at least, wrong for the last few years and now that job creation is finally starting to slow — years after your repeated flagging of how this "recovery" (You still call this a "recovery" btw?)"
Ahhh, poor Cody. He is lost in a sea of data, unable to see the truth. He believes the spin.
Rekindle? Just because you close your eyes, the boogie man doesn’t disappear.
Hey Cody, please cite me some data revealing this to be an above-average private sector jobs creation recovery. Hell, I’ll take average.
You won’t, because you cannot.
Cody is engaging in several analytical foibles, but the best way to describe it is "ignore reality." But his subjective error does not change the objective reality for the rest of us: By any honest measure – e.g., NY Federal Reserve or Cleveland Federal Reserve research — this has been the worst modern jobs recovery on record.
This is not a meme I am pushing or a Bear story I fabricated.
It just “is.”
This doesn’t mean you run out and short everything; as I wrote last December, one should Never Confuse Economic Analysis With Trading.
But comprehending the reality of the economic situation is important. Why does this matter? What Cody fails to consider is the importance of understanding the specifics of how a recovery comes about, and how it compares to prior recoveries. What it means as the massive government stimulus that goosed the economy begins to fade. What happens when the Pig is finally thought the Python?
I expect that as we begin to slow, there ain’t a whole lot of fat to get sliced. As unemployment starts ticking up, it will not be pretty. It suggests the next recession will be more severe than the last one.
UPDATE: June 2, 2006: 12: 47pm
Cody and I finish the debate below