Saturday, January 30, 2010
Friday, January 29, 2010
8 Reasons Stocks Are Selling Off
1) There are very few fundamental indicators that support the rally.
6) With rates already at 0% and the money multiplier below 1, the Fed is powerless to stimulate the economy via the credit markets.
7) Fear that the banks may tighten credit further in response to political attacks and the potential for strict reforms.
8) Uncertainty over whether Obama, Bernanke, Geithner & Co. are the right folks to handle the most difficult economic environment since the Great Depression.
Financials Break Down
Well, The NYSE Financial Index has broken down. I honestly don't really know what to make of it, however, as the XLF financial ETF is still above its respective multi-month lows. This divergence makes me wonder if it may turn out to be a false breakdown but as I tweeted earlier, "stocks SHOULD be able to rally here. [It] says much that they can't seem to pull it off."
The Fiasco At Fannie Mae
This is an amazing chart from Calculated Risk. Defaults at Fannie Mae continue to explode exponentially well after the financial crisis has subsided. Persistently high unemployment is a major factor contributing to this problem and it isn't going away any time soon. 
While the president touts the profits made on the TARP the government must be losing it all and then some on Fannie and Freddie. Doesn't it make you proud to know that as an American citizen you own a piece of this piece?
While the president touts the profits made on the TARP the government must be losing it all and then some on Fannie and Freddie. Doesn't it make you proud to know that as an American citizen you own a piece of this piece? Bend: The Aftermath Of The Bubble
The charts above come from a story in today's Oregonian about the economic travails that continue to plague Bend:
Once one of the nation's fastest-growing cities, Bend has shed thousands of jobs during the past two years. The number of families receiving food stamps has more than doubled. Last week, the state Employment Department reported Bend's seasonally adjusted unemployment rate for December at 14 percent -- higher than the statewide average of 11 and the national rate of 10... Bend was among the first places in Oregon to be swamped by the economic storm, but few here expect it will be among the first places coming out. Not real estate agents. Not business owners. Not social service providers. Not city officials. "In my personal opinion, we will be among the last places to recover," Bend City Manager Eric King says.
The fact that the state now has the highest personal tax rate in the country doesn't inspire start ups or existing small businesses to relocate here, either.
via oregonlive.com
Thursday, January 28, 2010
CACB's Long Kiss Goodnight
According to my notes, Bank of the Cascades' deadline to raise capital under a cease and desist order from the FDIC came and went yesterday. The company said last month that it has failed in its attempt to raise the $150 million required by the feds and the Nasdaq intends to delist the company if it doesn't raise its stock price. The bank hasn't released any information since. Does the company's silence surrounding this deadline mean CACB is resolved to fail? It certainly doesn't inspire any confidence in its prospects for survival.
Why The Fed Is Impotent
The chart below comes from the Federal Reserve Bank of St. Louis and shows the current Money Multiplier. Basically, the Money Multiplier shows the maximum amount of credit that can be created by commercial banks while maintaining adequate reserves. From the looks of this chart, it's obvious that the credit markets aren't improving and that the Fed's power to stimulate the economy via the credit markets is severely hampered. 
For more on this topic download the latest issue of "The Felder Report."
For more on this topic download the latest issue of "The Felder Report."
Wednesday, January 27, 2010
Is Obama Sowing the Seeds of Another Depression?
John Carney over at The Business Insider wrote an important critique of Obama's planned spending freeze yesterday. If we are in the middle of an extended deleveraging cycle as I have suggested recently then removing government spending is the last thing the economy needs right now. In fact, it may sow the seeds for another depression. Carney writes:
Read the whole thing here.
The Obama administration’s embrace of a spending freeze at a time when it is proposing tax hikes is frighteningly reminiscent of the disastrous policies that exacerbated the Great Depression. He is doing nothing less than setting us on the path to economic suicide. The Great Depression was actually two economic downturns. According to the National Bureau of Economic Research, the first recession ran from August 1929 to March 1933 and the second from May 1937 to June 1938. Unemployment remained high until the Second World War.
The neo-Keynesians such as Paul Krugman and Christina Romer argue that what sparked the second downturn was an unfortunate inadvertent switch to contractionary fiscal and monetary policy. This is precisely what the Obama administration seems to be doing now: freezing spending and raising taxes even as the Federal Reserve retracts quantitative easing and considers rate hikes... From the Hayekian perspective, the second downturn was the inevitable product of the first stages of the New Deal. The early New Deal stymied an economic recovery by creating a false dawn recovery. Employment returned and the economy grew but this was just another bubble...
Read the whole thing here.
Tuesday, January 26, 2010
How George Lucas Uses The Force (Of Inflation) To Keep James Cameron At Bay
It's been over a month since Avatar was released and people are still buzzing about it. It's a great movie; I personally enjoyed it and recommend it. Theaters are still selling out though so, if you're like me and can't stand crowds, I recommend you do what I did: see the first showing on a Tuesday morning.
Unlike most hits, I remember Jim Cameron's previous mega-blockbuster flick, Titanic, building over weeks and weeks rather than a having a big opening weekend and trailing off afterwards. Avatar doesn't seem to be building like Titanic did but it started strong and sure does have staying power.
Having said that, it's no surprise Avatar just passed Titanic in gross sales. Hell, the 3-D tickets go for 15 bucks a pop or something - which brings up a good point: I'm not that old and I remember when movie tickets were half what they are today. That got me wondering how the mega-blockbusters of the past stand up to today's when adjusted for inflation.
The chart above shows that adjusted for inflation Star Wars is still much bigger than Avatar. And I guess that's the way it should be - George Lucas' masterpiece will always hold a bigger place in my sci-fi nerd's heart.
via boxofficemojo.com
via boxofficemojo.com
The Worm in Apple's Earnings
So Apple reports blow-out earnings and the market rewards the stock with a 3% bump. There was one little hiccup in the report, however: iPhone sales missed analyst estimates by about 5%. For a company that is notorious for under-promising and over-performing this is a big deal. Yes, iPhone sales were up 100% over the prior year's number BUT I think it's no coincidence that sales missed estimates in the same quarter that Android grew its market share by 200%.
Facebook's Massive Central Oregon Data Center
Coming soon to the high desert: a massive Facebook data center! And I wonder if this might be FB's albatross... 
There Is No "I" in "Wall Street"
There has been a great deal of discussion about how our financial regulations should be reformed. Over the weekend Jason Zweig brought up an interesting suggestion:
Here are a few ideas... being championed by Edward Kane, an economist at Boston College who has studied financial regulation for more than 40 years. Bonuses to senior bankers and managers should be paid in a special class of stock that would require the holders to chip in their own personal capital if the firm becomes insolvent. A secondary market in these special shares likely would spring up to provide diversification to the holders; they would have to offer a discount to entice buyers, and the market price would give investors and regulators another way to monitor risk.
I, for one, really like the idea of not only giving corporate leaders a financial incentive to the upside (options already accomplish this) but also a stake in the downside at the firms they manage. We've already witnessed what happens when execs only have upside incentives - they swing for the fences and many strike out. Having a stake in the downside might inspire a few more sacrifice flys, bunts and maybe even leaning into a few pitches to "take one for the team" (aka, customers, employees and shareholders). How refreshing would it be to see something like that on Wall Street?
via wsj.com
Monday, January 25, 2010
Jobs & Co. Scrambling to Hold Off Android
I recently posited that Apple was going to the Dark Side (Microsoft) because Jobs & Co. have finally decided to take the Android threat seriously. Over the weekend we received more news that supports this theory. Mashable reports:
It’s almost inevitable that AT&T will lose its iPhone exclusivity sooner or later. According to Hot Hardware, that milestone could come as early as next Wednesday at Apple’s special event. It makes sense for Apple: analysts say iPhone sales could as much as double as a result of pursuing broader carrier distribution.
This potential boost for iPhone sales would also help it hold off the Android threat, which, according to recent research has seen its market share explode 200% over the last three months of 2009:
iPhone swapping Google Search for Bing and losing AT&T exclusivity are both just rumors for now. However, where there's smoke there's fire and it sounds like Apple is reacting to its first real challenger to the iPhone by actively looking for any and every way possible to maintain its first position in the smart phone marketplace - one of the only industries it maintains such a lofty market share.
Sunday, January 24, 2010
Saturday, January 23, 2010
Friday, January 22, 2010
SPY Wipes Out
Well it looks like "The Wedge" is giving stocks a little lesson in wiping out as the 50-dma/support were taken out in today's 2%-plus drop. 
I'm now more interested to see how the financials hold the neckline of the failed head and shoulders pattern in the chart below:
Stocks Are Still Caught Up In "Irrational Exuberance"
Warren Buffett has said that one of his favorite measures of value for the stock market is total stock market capitalization relative to GDP. The chart below shows that, according to this measure, before "irrational exuberance" (circa 1996) took over there was never a time in history stocks have been as overvalued as they are today. 
via ritholtz.com
The Widening Gap Between Wall Street and Main Street
I usually find divergences like this to be very telling: 
Is a Massive Avatar Tribute Coming to Your City Under the Guise of Economic Stimulus?
Richard Koo has taught us that traditional monetary policy is ineffectual in an environment of deleveraging such as Japan has suffered through since the early 1990's; only massive government spending aimed squarely at job creation can have any real impact. 
This has forced the Japanese government, including municipalities, to get very creative with their methods for stimulating the economy. The city of Shizuoka has gone so far as to erect a massive Gundam in such efforts. Kotaku reports:
Last summer, a giant 1/1 scale Gundam statue towered over Tokyo's Odaiba. That statue will be erected this July in the city of Shizuoka. How will it affect the local economy? The city of Shizuoka guestimates that the statue is able to draw 900,000 visitors and 40 billion yen over the course of 300 days. The statue will also create 9,600 jobs for things like security, maintenance and the like. The duration of the statue's stay in Shizuoka has yet to be decided.
Considering the fact that the U.S. faces the prospect of a similar, prolonged deleveraging, it's very possible we see municipalities here adopt similar methods. In fact, I wouldn't be surprised to hear a few years from now of the creation of a massive Avatar tribute being assembled and disassembled all over the country under the guise of economic stimulus.
For more on the topic of "deleveraging" in the U.S. download the latest issue of "The Felder Report."
Thursday, January 21, 2010
SPY Drops In at "The Wedge"
When I wrote after the close yesterday that I thought the wedge might break down "soon" I didn't specifically mean today... SPY is still holding above the 50-dma and the support created by its November/December consolidation - for now. Below that, however, it could get interesting.
Quote of the Day: CNBC is to Advisors as...
Sooo true:
“Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical were watching General Hospital…”
-Senior portfolio manager, UBS
via ritholtz.com
HRT: It's Alive!!
I wrote about the irony in HRT's long-term chart only a couple of days ago. Since then it's popped for 50% plus. It wasn't a recommendation, folks, just and observation. Sheesh.
Wednesday, January 20, 2010
Female Bobsledder Plays Pants Peek-a-Boo With TV Crew
This might be the only way to drum up interest for the Winter Games:
via break.com
Watching the Wedge
No, not the surf break - I wish. I'm watching this wedge, aka ending diagonal, in SPY like a hawk. It fell to the lower trend line today and held it. Momentum has been waning for some time and I wouldn't be surprised to see it breakdown soon.
Tiffany's Early Valentine's Gift to Shareholders
Ten Tiffany Insiders unloaded a total of over $38 million worth of stock over the past few days. I guess a diamond is forever but a 35x p/e might not be.
via wsj.com
Why Apple Is Going to the Dark Side
A couple of weeks ago Google introduced the Nexus One, the official Google phone. It had been greatly anticipated since Google brought out its Android operating system back in 2007. Since then many handset makers have introduced phones that run Android and it has really taken off. 
The chart below shows how quickly the Android platform is growing - so fast that it's about to overtake Blackberry (RIMM):
via admob.com
Actually, this chart is a few months old. At its current growth rate I have no doubt it has already passed Blackberry and is now the third most widely used smart-phone platform in the world. Not bad for the new kid on the block. In fact, Gartner predicts that Android will overtake the iphone in only a couple years time.
I imagine this is the impetus for Apple approaching its arch-nemesis Microsoft recently to discuss replacing Google search with Bing. Hell must have frozen over. Don't underestimate the importance of this news. This is Luke going over to the Dark Side; this is Jake Sully reuniting with Colonel Quaritch; this is Apple shivering in its boots over the Android threat.
Tuesday, January 19, 2010
Deleveraging Is Dead; Long Live Deleveraging!
The Wall Street Journal reports today that last week set a new record for junk bond issuance. It's amazing, really, to consider that only a year ago we were mired in the worst financial crisis in a generation and now junk bond demand is stronger than ever.
On the face of it, this massive new junk bond issuance seems to fly in the face of the deleveraging thesis. However, the article reveals that," these new deals are improving the companies' balance sheets by repaying existing debt and pushing back maturities. These overleveraged companies hope they can get more time to improve operations and benefit from an economic recovery."
So companies aren't using the funds to invest in new profit initiatives which would be a boon to the economy; they are focused intently on repairing their beleaguered balance sheets. Deleveraging is, indeed, alive and well.
For more information on this topic download the latest issue of "The Felder Report."
Crayola's Law: The Number of Colors Doubles Every 28 Years
It's not quite as exciting as Moore's Law but there's something about Crayola's Law I find more appealing. via neatorama.com
The Stock Market Imitates Life
In the course of my research I came across this chart of Arrhythmia Research Technology. Tell me that doesn't look like a cardiogram...
Can We Believe Anything the Government Tells Us?
Last week the Wall Street Journal published an opinion piece called, "Don't Like The Numbers? Change 'Em" by economist Michael Boskin with the tag line: "if a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison." The irony, however, is that Boskin's own economic creative distortions have his critics wondering why he is not in prison.
Boskin writes rather convincingly about politicians willfully distorting GDP, jobs numbers, the effect of the current government economic stimulus and scientific findings related to global warming. We expect politicians to bend the truth but economists and scientists are supposed to hold to a different standard of truth and accuracy but Boskin shows that they are not immune from political influence. He conveniently leaves out his own role in such dealings.
The Boskin Commission was formed in the mid 1990's to analyze the Consumer Price Index because it had been suggested by Alan Greenspan that inflation was being overstated. The Commission agreed with Sir Alan and suggested, among others, two very dubious adjustments to the index. Barry Ritholtz reports:
My two favorite pieces of Boskin intellectual fraud are substitution and hedonic adjustments. Hedonic adjustments are addressing the improvement in quality as a form of deflation. For example, the price of a new car in the U.S. had risen from $6,847 in 1979 to $27,940 in 2004. Using hedonic adjustments, the government calculated the price of a new car had risen from $6,847 in 1979 to $11,708 in 2004. These adjustments wildly distort not only CPI data but GDP as well. Bill Fleckenstein calculated that the hedonic adjustments of faster computer chips and dropping costs massively jacked up the productivity data and GDP data from 1995-2002.
Substitution is a nonsensical approach that adjusts inflation for consumer behavior. When steak prices rise, consumers “substitute” cheaper proteins such as hamburger or chicken. Thus, Boskin states, the consumer is spending no more than they previously were, and is not suffering inflation. The reality is that consumers have been priced out of steak due to price increases. Oh, and somehow, the decrease in quality does not get hedonically adjusted when it raises inflation.
By using methods such as "hedonic adjustments" and "substitution" the Boskin Commission found that inflation was overstated by 1.1%. CPI since 1997 has been adjusted lower by at least this amount. This has been a great boon to government spending and a great curse to retirees. Frederick Sheehan reports, "from the time the changes were instituted through 2008, the compounding of an artificially low Consumer Price Index reduced payments to social security recipients by about half." Isn't that convenient for a government facing a growing deficit/debt problem?
Ultimately, when it comes to the truth about the economy or the environment or any other politicized topic, for that matter, we can trust the government, including politicians and those economists and scientists working for them, about as far as we can throw it. For it is obvious that they see the truth merely as something that gets in the way of business as usual in Washington.
Monday, January 18, 2010
Wishing Well Win or Fail?
Revolving consumer credit dropped 18.5% in November. Could it be that the throwing-the-credit-card-into-the-wishing-well trend is catching on?
via failblog.org
Friday, January 15, 2010
"The Recovery" in Pictures
If these charts of key economic indicators tell the tale of "the recovery" it looks like it might be more of a short story than a epic novel. Aside from the stock market, I just don't see much substance - at least not yet.
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