Thursday, September 30, 2010

Do you know Bill Gross?

If not you probably should. Mr. Gross is the founder and co-chief investment officer of Pimco. Pimco has grown from just $12 million of assets under management in 1971 to over $1 trillion today - yes, trillion, with a t.

I always have been wary of Mr. Gross' commentary because it typically is very self-serving. If he has a particularly large exposure to a certain sector of the economy or a particular currency then he tends to "talk his book" or have opinions that might lead to a good outcome for his investments. This isn't new, most managers talk their book, but not everyone manages $1 trillion.

Anyway, in his recent letter to investors he seems surprisingly pessimistic.

"In the meantime, investors are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living.”

I'm not sure what his angle is - perhaps he's trying to tell people that returns everywhere will be terrible but they'll be less terrible at Pimco so why don't you let us manage your money? Nah, even I'm not cynical enough to believe that.

This is the quandary that we all face. The market is still providing excellent returns for the nimble trader and the silicon traders, but the days of buy and hold and retire in 40 years seem to be in our rear view mirror.

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I know I sound like a dinosaur when I remember fondly the days when stocks traded based on their individual merit rather than moving in lockstep with Apple. I've assumed for some time that Apple's influence over the market was starting to get a bit out of control but it took someone with some pretty bloomberg charts to really break it down for me.

"When the NASDAQ index was “founded” they put a cap so that no company could be larger than 24% of the index. This was because Microsoft would have been dominating the index if they would not have capped it. Now, it’s Apple approaching the limit because of its rapid growth, currently it is 20% of Nasdaq.

Since September Apple has moved together with the Australian dollar. This is a strange phenomena because their is no particular reason for the Australian dollar to be influenced by Apple.

"I believe the reason Apple and Australian dollar trade the same is because the market is now driven by a single factor – cheap dollars. This goes back to my first point. Everything is moving based on the FED quantitative easing program, the market does not even care about other economic or company specific factors anymore. Is this a healthy market which will translate into a self sustained bull market?"

"So once upon a time the biggest company in the Nasdaq index was Microsoft, and I think it’s pretty easy to argue that Excel and Word did make a lot of things more efficient (real growth) than compared to typewriters and whatever people used before Excel.

Well, I have an iPad and it actually makes some time savings for me. But overall, I think the growth behind Apple is not based on a massive industry spending motivated by increased efficiency, but rather consumers who stopped paying their mortgages and are now buying iPhone 4 with the money instead so they can play Angry Birds."

While I don't think people are avoiding their mortgage to buy and iPad, I get the point. The gain in productivity from the pre-pc era to 2000 when everyone had a PC and internet access was enormous. I don't see those same gains coming from a gloried video game console.

Cheers!

Tuesday, September 28, 2010

Odds and ends

This one is specifically for my family members who may never be able to buy another loaf of bread.






A food production company was ordered to pay nearly £17,000 after a man found a dead mouse in a loaf of bread as he made sandwiches for his children.


Stephen Forse, of Kidlington, Oxfordshire, had already used some slices when he came across the mouse.

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How about turning $39 into $11 million? This is kind of an obscure sports story, but did anyone notice that Jim Furyk won the last tournament of the year and the season title on the PGA tour this weekend? He won just over $1.3 million for the last tournament and $10 million for winning the Fedex Cup.

Apparently before the final tournament Mr. Furyk walked into a local golf shop outside of Boston and picked up a USED $39 putter from a bin of 300 used putters. He tried it, liked it and used it this weekend to win $11 million in the tournament. The next time your better half wants to spend $399 on the latest Callaway putter you might want to remind him or her of this story.

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I've often wondered about this situation myself - when you see a lecture hall full of kids on their computers are they really taking notes or just sitting in a classroom while surfing the web?

"It was in a theater-style lecture hall, with rows of desks rising away from the podium. From where I stood in the back, I had a good, down-slope view of the screens of students’ laptops. One guy seemed to be taking notes on the lecture until a message popped up. He typed a response, sent it, read the response to his response, typed again. Then he took out his phone and, sheltered by his open laptop, began texting.

Another student craned forward for a better view of the sports highlights on the screen of a student in the row ahead, which caught the attention of a third student a couple of rows back of them, who then tried to go to the same site on his own laptop. I could see others shopping, watching videos, reading the news. Many appeared to be taking class-related notes at least some of the time, but I didn’t see any who stuck to note-taking all the time. And when they were actually taking notes, they didn’t seem to be actively listening to the argument of the lecture with concentrated intellect so much as transcribing the professor’s words in a sort of secretarial fugue state."

I can't say I blame the kids because if I'd had access to youtube in college I might have been distracted a bit as well. However, I think it is the responsibility of the college or university to make sure that it's delivering a good product that is being utilized by the students. Asking kids to be stenographers is not an engaging way to learn. If you have kids on the verge of making the college decision ask if you can attend classes for a day. Get a sense for what is the style of teaching in a college and would it ultimately improve your chances for success in life? The cost of college is astronomical and you should get more out of it than free wifi.

Cheers!

Sunday, September 26, 2010

Gas on the fire...

Well, after a fair amount of weekend reading it seems to me that there is a developing consensus on Wall Street that something big is coming.

The group think of the week seems to be that the Fed is heading toward another substantial round of asset purchases that could equal or exceed their first round. This could add $1 to $2 Trillion to the Fed's balance sheet and the long term ramifications are too numbing and scary to get into so let's focus on what you'll see every night.

"Stocks rallied today because a butterfly flapped it's wings in Mumbai."

"Bonds rallied because well frankly we have no idea why."

"Gold, silver, and every other hunk of metal is suddenly worth more than the air you breathe."

In layman's terms, these moves by the Fed will again weaken the US dollar which will light a fire under every asset class priced in US dollars. This is likely to be very short lived and I don't think anyone will see a real change in the underlying fundamentals of the US economy but it sure won't hurt going into an election season if the stock market soars twenty percent in 2 months.

However, it seems clear that everyone is on this side of the bet. Sometimes things can get interesting when everyone has the same idea.

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Ok, if you have been paying attention you know that I'm a bit of cynic when it comes to goofy, feel good stories. Well, Mr. Zuckerberg's $100 million gift to the schools of Newark fits that mold.

1) The timing of the announcement was clearly designed to distract everyone from the opening of a movie about Mr. Zuckerberg which casts him in an unfavorable light.

2) The thing that no one seems to question is that it doesn't appear that Mr. Zuckerberg has $100 million. He owns a large stake in a private company. Remember with a private company it's not easy to "sell your stock" because there isn't always a market for the stock. Some owners of enormous, profitable, private companies would have a hard time writing a check for $100 million. I imagine Mr. Zuckerberg will fund the donation through a combination of loans or by selling some of his shares, but it's a question worth asking.

3. There was a bloomberg report today that the donation is to be made at Mr. Zuckerberg's discretion over a number of years and he can cancel the agreement if he is unhappy with the progress.

Hmmm, if he could just figure out a way to sell ad space for Farmville on the back of the chairs in Newark's schools it would sound an awful lot like Facebook's privacy policy with all of these contingencies. I hope this works and Newark's schools turn around overnight, but I think it sounds like a super rich guy buying a bit of good publicity with about 1.4 percent of his net worth.

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Talk about a HUGE recall (that's an inside joke for local readers). I find it funny that Hyundai currently proclaims on their website that the 2011 Sonata received the Insurance Institute for Highway Safety’s selection as a “Top Safety Pick”.

However, they seem to forget to mention that the U.S. National Highway Traffic Safety Administration has forced a recall of some 140,000 Sonata sedans in the U.S. because of a safety defect that could result in a loss of, or reduced, steering. You can see the recall document here.

Steering is overrated, anyway. Honestly, though it sounds like a small issue but since everyone drives a Hyundia in NNY I thought I'd mention it.

Cheers!

Friday, September 24, 2010

Durable goods orders tumble more than expected and so, of course, stocks explode

In fairness, much of the drop in durable goods was due to a huge decline in transportation and aircraft and excluding those numbers durable goods did come in a little better than expected.

I think it will be very interesting to watch if the market can hold these gains. If it does, this will be the first major break out above previous resistance levels and all of the computer programmers in CT/NJ will flip their programs to trigger more buying for the foreseeable future.

The real story is what has been going on with the US dollar. The falling US dollar has been driving stocks and physical assets higher (gold is almost $1,300/oz and Silver is at a 30 year high!) and until the trend reverses it's business as usual.

New home sales were dismal, but no one cares today.

The three things that keep me up at night regarding this market - lack of volume, lack of volatility and everyone is bullish. When these things line up it typically isn't a good indicator.

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I haven't voiced my distaste for Apple lately so it seems appropriate to mention a few things now that Apple has become the second most valuable company in the world. It's truly stunning.

Consider that of the 20 most popular apps in the app store designed to increase our efficiency, 17 are video games. The non-video game options - a ringtone designer, a barcode scanner, and Nike+ GPS for runners.

That's it. Look in the productivity store for real business apps? Nope, it's all alarm clocks and emoticon generators.

I understand why Exxon is valuable, I don't get why Apple, Facebook, and Twitter are considered valuable. I'm clearly in the minority, though.

Cheers!

Thursday, September 23, 2010

Quote of the day...

I think this perfectly sums up my current political leaning....

"I am not a Democrat, because I have no idea what their economic policies are; And I am not a Republican, because I know precisely what their economic policies are."

Courtesy of "The Big Picture"

Wednesday, September 22, 2010

Has Walmart replaced the bread line?

I've seen Walmart's CEO make comments before on the timing of certain spending around the first of the month but it seems like it is a trend that continues to accelerate.

Courtesy of Bloomberg...

"You need not go farther than one of our stores on midnight at the end of the month. And it's real interesting to watch, about 11 p.m. customers start to come in and shop, fill their grocery basket with basic items – baby formula, milk, bread, eggs – and continue to shop and mill about the store until midnight when government electronic benefits cards get activated, and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher."

I'd be really interested to see this in action but there are only about 425,873 other places I'd rather be than at a Walmart at midnight.

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As we get ready for another volatile political season I found Tom Friedman's piece in the NY Times today to be spot on.

"For the U.S. visitor, the comparisons start from the moment one departs Beijing’s South Station, a giant space-age building, and boards the bullet train to Tianjin. It takes just 25 minutes to make the 75-mile trip. In Tianjin, one arrives at another ultramodern train station — where, unlike New York City’s Pennsylvania Station, all the escalators actually work. From there, you drive to the Tianjin Meijiang Convention Center, a building so gigantic and well appointed that if it were in Washington, D.C., it would be a tourist site. Your hosts inform you: “It was built in nine months.”

In deliberately spotlighting China’s impressive growth engine, I am hoping to light a spark under America.

Studying China’s ability to invest for the future doesn’t make me feel we have the wrong system. It makes me feel that we are abusing our right system. There is absolutely no reason our democracy should not be able to generate the kind of focus, legitimacy, unity and stick-to-it-iveness to do big things — democratically — that China does autocratically. We’ve done it before. But we’re not doing it now because too many of our poll-driven, toxically partisan, cable-TV-addicted, money-corrupted political class are more interested in what keeps them in power than what would again make America powerful, more interested in defeating each other than saving the country."

From rebuilding at Ground Zero to updating our infrastructure we seem to be stuck in the mud while China races past us. Can we find any politicians with the backbone to make the hard choices for our country?

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Speaking of hard choices, the nations pension plans still seem to have their heads stuck in the sand. Over the past ten years the US stock market is flat, treasury yields are next to nothing but pension funds continue to assume that they will earn 8% a year for the foreseeable future which is identical to their assumption back in 2001.

(To NY State's credit we were one of the first states to lower our assumptions but we only dropped it from 8% to 7.5%)

Why do these assumptions matter? "The Colorado Public Employees Retirement Association showed in its 2009 financial report the impact of reducing the rate. Using a 8% expected return rate, the plan faced a $23.4 billion deficit, based on market values, at the end of 2009. If the rate was cut to 6.5%, the shortfall would jump to $34 billion."

That's a 45% INCREASE in the pension shortfall based on cutting the rate of return by just 150 basis points.

Guess who gets to make up the difference? Joe and Jane taxpayer.

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India seems to be having a bit of a problem of their own when it comes to developing infrastructure to support athletes coming to the Commonwealth Games as soon as latter this week. With the athletes en route only 18 of the 34 buildings in the Athlete's Village are complete.

Yesterday, some representatives of attending countries said that the condition of the Athlete's Village was not suitable and various athletes have begun to pull out of the games. It will be interesting to see how this shapes up.

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Happy Fall!





Tuesday, September 21, 2010

All eyes on the Fed

We'll see whether the Fed tips their hand on the next steps toward QE II, but the market is leaning toward breaking out on the upside despite the wealth of negative trends.

* Take the housing starts data. This is a relatively small sample and can be affected by a number of factors, but housing starts jumping 10% from July just speaks to the problems we face. We have a glut of housing right now and the last thing we need is MORE housing.

* I mentioned this to friends recently - lots of smart people are plowing (pun intended) their investment dollars into .... farmland?? I think this has to do with people with lots of money diversifying, but it's interesting.

I'll follow-up tonight after the Fed meeting.

Friday, September 17, 2010

Data, data everywhere....

There has been a wealth of data out this week so here's a quick recap...

* The Philly Fed survey was below expectations and showed contraction again in August. This is a broader indicator of manufacturing activity than the Empire survey and it provides further evidence that the economy is at least slowing if not contracting again.

"The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of -7.7 in August to -0.7 in September. The index, which has been negative for two consecutive months, suggests that growth has stalled over the last two months. Indexes for new orders and shipments continued to indicate weakness this month: The new orders index fell 1 point, remaining negative for the third consecutive month, and the shipments index decreased 3 points, remaining negative for the second consecutive month."

* Consumer sentiment seems to still be slipping. After a sharp rebound in '09-'10 consumer sentiment has now slipped for three consecutive months.

"The UMich index declined to 66.6 in September - the lowest level since August 2009 -- from 68.9 in August."

It is troubling that we now sit only about 6-8 pts off the lowest levels of consumer confidence that we saw during the deepest part of the financial crisis.


* There remains a great deal of buzz around the increasing bond spreads in Europe. There is also a great deal of talk that a couple of European countries (maybe Ireland and Portugal) may have to go back to the IMF soon for additional funding.


* Remember how China is going to save the global recovery? What happens if you build enough homes to house roughly 2/3rds of the US and no one shows up?

"Recent media reports citing information from China's electricity authority claimed that 64.5 million urban electricity meters registered zero electricity consumption over the past six months, equating to enough empty flats to house 200 million people. The electricity authority has since denied the figure."

So this means one of two things: China has a ton of empty homes that have been built without any buyers or China puts the same quality into their data collection as they do their manufacturing.

* Local economic data also seems to be a bit disturbing. New car registrations fell 13% from the sugar-high induced activity of 2008 (cash for clunkers), but were also down 8%from Aug 2008 when the financial crisis was just beginning. Vehicle registrations are down a staggering 39% from 2006.

Also, the fact that local unemployment continues to trend above the same period last year seems to be confirming two dangerous trends converging in NNY. Our heavy reliance on Federal and State government employment and declining private payrolls are meeting budgetary headwinds in Albany and Washington. Even if the US economy begins a sharp rebound it is likely that budgets will be cut for the foreseeable future. This could lead to NNY having elevated unemployment rates (which are now below the national average) for the next 2-4 years.


One final thought - I'm really puzzled by our stated positions on the global currency markets. On one hand we seem to be encouraging Japan to intervene in the market (which will be futile given the size of the currency market), while we continue to allege that China is manipulating their currency. Either both Japan and China are manipulating their currency or no one is. We can't have it both ways.

Cheers.

Wednesday, September 15, 2010

Stat of day

From a Tax Analyst blog

"Between 1999 and 2008, employment by majority-owned foreign affiliates of U.S. parent corporations grew from 7.8 million jobs to 10.1 million. That’s an increase of about 2.4 million jobs, or 30 percent."

"The number of U.S. employees of U.S. multinationals declined from 23 million to 21.1 million between 1999 and 2008. That’s a decrease of about 1.9 million, or 8 percent."

This data is a bit old and it doesn't include much of the Great Recession, but it's clear that US companies did create jobs over the past decade, just not US jobs.

I suspect that this trend has accelerated over the past 2 years based on the number of stories I've read about HP, IBM and Microsoft expanding in Asia while they cut jobs domestically.

Cheers!

Tuesday, September 14, 2010

When did America become afraid of its own shadow?

I'm not sure whether I find this funny or sad or both....

"Police said a substance found inside Decatur City Hall Monday was baby formula and not a hazardous material.

Shortly before 3 p.m., the cleaning crew found a white, powdery substance in a women's restroom on the first floor and called police. A hazardous materials unit was called, along with Huntsville's Haz-Mat unit, to test the substance, police said.

As a precaution, Decatur police evacuated the building and postponed Monday night's scheduled City Council meeting.


The substance found was determined to be baby formula, police said. Emergency personnel also found a diaper and an Enfamil wrapper in a trash can near the bathroom, along with two women carrying a diaper bag in surveillance photos, police said.

Decatur police said policy and procedure was followed in investigating the substance after it was discovered by the cleaning crew."

A formula wrapper and a diaper in the trash but that white powder on the changing table must be a) baby powder, b) baby formula or c) weaponized anthrax?

For the record Decatur is a town of 55k people and Huntsville has their own HAZ-MAT team for their 176,000 residents.

Cheers!

Increasing concentration of trading in fewer names...

A data analytics firm announced that in August

"* The cumulative volume of the top twenty equities, sorted by average daily principal traded, represent over 26% of domestic principal traded.

* Once you reach just the 112th ranked symbol, you have accounted for over half of a day’s volume."

Think about that the top 20 stocks account for 1/4th of all volume on the US stock market! This level of concentration among a select number of stocks could one day be a contributing factor to another flash crash b/c these stocks tend to march in lock step together.

At some point in the next 5 years the stock market will consist entirely of the daily moves in Apple and Google (sarcasm off).

The markets rocketed higher yesterday on news that the European banks were in a heap of trouble but they have up to 8 years to fix the situation. Well, if we've learned anything through the financial crisis it's that kicking the can down the road always fixes things, right?

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Debt is the anchor around the neck of many Americans. Student debt is a particularly dangerous because it can hinder young Americans from moving forward toward the next stages of wealth building and household formation. From the NY Times consider this article on how debt can impact a relationship.

"Nobody likes unpleasant surprises, but when Allison Brooke Eastman’s fiancé found out four months ago just how high her student loan debt was, he had a particularly strong reaction: he broke off the engagement within three days.

Ms. Tidwell will probably rack up $250,000 in debt by the time she is done with school.
Ms. Eastman said she had told him early on in their relationship that she had over $100,000 of debt. But, she said, even she didn’t know what the true balance was; like a car buyer who focuses on only the monthly payment, she wrote 12 checks a year for about $1,100 each, the minimum possible. She didn’t focus on the bottom line, she said, because it was so profoundly depressing.

But as the couple got closer to their wedding day, she took out all the paperwork and it became clear that her total debt was actually about $170,000. “He accused me of lying,” said Ms. Eastman, 31, a San Francisco X-ray technician and part-time photographer who had run up much of the balance studying for a bachelor’s degree in photography."

Like so many other debt related issues, there are many parties at fault in the higher education system - the universities and their bloated infrastructures, the students that chose to borrow to fund degrees in photography, the lenders that lend to people pursuing degrees in photography, etc., but I think we should address this issue in the next session of Congress.

Cheers!

Monday, September 13, 2010

Playing hooky at work...

I've lamented for the past few years the casino-like atmosphere around the stock market. Way, way back in 2006 you could analyze a company, it's competitors, it's products, it's industry and develop an idea about where the stock might be headed over the next 12 months.

Today, you only need to play for an hour in the morning and an hour in the afternoon. As evidence of that consider the case of these traders that literally take the middle of every day off.

"On the day the “flash crash” bludgeoned the stock market and chaos swept over the floor of the New York Stock Exchange, the founders of Briargate Trading were at the movies.

Rick Oscher and Steven Rubinstein weren’t playing hooky. Briargate, a proprietary-trading firm that the two former NYSE floor “specialist” traders started in 2008, is mostly active at the stock market’s open and close.

In between, when market activity typically drops, the Wall Street veterans play tennis in Central Park, take leisurely lunches, visit their children’s schools and work out at the gym. Dress shoes have been replaced with flip-flops, slacks with cargo shorts. Once during market hours, they walked about five miles and crossed the Brooklyn Bridge to try Grimaldi’s pizza.

“We actually planned on working a full day,” says Mr. Oscher, wearing a white polo shirt and blue-plaid shorts. “But from 11 to 2, the markets are pretty quiet—what’s the point?"

Trading has become increasingly concentrated in the first and last hours of the session.
Those two hours now make up more than half of the entire day’s trading volume, according to an analysis of data provided by Thomson Reuters. In August, the first and last hour generated nearly 58% of New York Stock Exchange primary volume."


Is it any wonder that our best and brightest have been flocking to Wall Street over the past few years? Work a little, get paid a lot and wear flip-flops. Welcome to the Facebook Economy.

Cheers!

You have to respect this idea...

Actually, this is about as slimy as it comes in the real estate market which is really saying something. Developers around the country discovered a beautiful concept (well, beautiful in the eyes of the developer) -- behold, the 1% resale fee!

Here's the concept: Every time a house sells over the next 99 years the original developer gets 1% of the final sales price.

"A growing number of developers and builders have been quietly slipping “resale fee” covenants into sales agreements of newly built homes in some subdivisions. In the Dupaix contract, the clause was in a separate 13-page document — called the declaration of covenants, conditions and restrictions — that wasn’t even included in the closing papers and did not require a signature.

The fee, sometimes called a capital recovery fee or private transfer fee, has been gaining popularity among companies that have been frantically searching for new ways to gain access to cash in the depressed housing market."

I don't have a huge problem with concept of a resale fee but the term is absurd (99 years!?!?) and sliding it into a contract without requiring signature is slimy.

Where will this go next? Well, I'm sure there are certain architects refining their contracts to include a 1% resale design fee :) Maybe, the window manufacturers will start looking for a cut of the resale price as well.

Sorry, for the slow posting last week. The markets continue to march forward on little positive data here is a recap.

a) The mortgage indexes continue to rise as the effect of the tax credit starts to wane.
b) Initial Claims for unemployment fell more than expected but there was a huge issue with the data b/c of Labor Day.
c) Australia and Canada Aug jobs data beat forecasts. I can't speak to Australia but I suspect that some of the same small sample issues that impact the Canadian data are impacting Australia. Again, both Australia and Canada are well positioned over the next 50 years because of their abundance of natural resources, but Canada's dependence on the US economy would give me pause.

Negatives
a) Lots of questions about the adequacy of the European bank stress tests and Deutsche Bank wants to raise more capital (bonus points: make a connection between DB and NY-23)
b) German data was below expectations
c) Individual investors are back to their highest level since April this is usually means something negative is coming.
d) Wholesale inventories keep growing.

Finally, as we mark the 9th anniversary of the horrible events of 9/11/01, I've been struck by the hypocrisy of much of the commentary surrounding the proposed Islamic center in lower Manhattan. As a point of reference, I bought the second suit I ever owned in the old Burlington Coat Factory store that formerly occupied the building. The fact that anything within 1/4 mile of the WTC is "hallowed ground" rings hollow to anyone that has actually lived or worked in lower Manhattan.

It is very interesting that no one seems to be troubled by a certain adult entertainment facility that is located on Murray St. just 2 blocks from the World Trade Center . Or if you're feeling a need to get your betting fix for the day there is an OTB located within about a block of the WTC. Apparently in today's America the Freedom of Religion is limited while Freedom of Pron and Gambling lives on...

Ok, I'm off my soapbox.

Cheers!

Monday, September 06, 2010

Should we be trying to save the housing market?

I think the countless mortgage modification programs designed to keep homeowners in their overpriced bungalows misses the point. We are faced with a staggering supply of homes and too few household formations or upwardly mobile families to absorb that supply.

These mortgage modification programs now seemed to be aimed less at the people that are unable to make their payment and increasingly at those that are just underwater. Having negative equity in a home is a balance sheet item and frankly, that is a separate issue from whether or not you have the cash flow to cover the monthly mortgage. If you earn $85k and have a $200k mortgage on a house you bought in 2007 for $250k, I'm not sure that it is the government's job to bail you out because that home is now worth $150k. Home ownership is not a one way investment and prices can and should fall from time to time. If we start insuring against private loses then we'll have to add that to our list of big issues.

Housing has probably approached a bottom in many ultra bubbly areas, but many metro markets still seem too high for the current economic environment. The idea of wrapping a $10-$20k/year real estate tax bill (that might seem high, but that's the norm in middle/upper class neighborhoods in the Northeast and it's growing at 5%/yr) around my neck for the next 30 years in an asset that has declining utility seems pretty unappealing.

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In honor of the first day of school I thought it would be fun to offer up some words you are probably mispronouncing via lemondrop.com...

Chipotle: It's a pepper, it's a mayonnaise flavoring, it's a restaurant chain beloved by soccer moms across the US. And it's NOT pronounced "chip-ole-tee." It's chee-POHT-lay.

Sudoku: This is phonetic, but people must be intimidated by the vowels. It's soo-DOE-koo.

Açaí: Just like in French or Spanish, the "squiggly C" cedilla indicates that it's soft. It's also three syllables: ah-sah-EE.

Espresso: "Express" is a type of train or a store for women (and slightly girlish men). There is no "ex" in ess-PRESS-o.

Asterisk: The last syllable of this punctuation term should sound like the board game about war, not multiple people named Rick. It's ASS-ter-isk.

Gyro: OK, sure, a lot of people use the Americanization -- but you don't pronounce the L in "quesadilla." It's time to stop pronouncing the G. It's YEER-oh.

Ok, most of these are just words that I'd like certain members of my household to pronounce correctly but I thought I'd make the suggestion discretely via the blog :).

Sunday, September 05, 2010

What is the data really telling us?

Just to recap - The market posted a couple of huge rally days last week on the heels of the ISM manufacturing report that came in slightly better than expectations and the jobs report that was also slightly ahead of expectations.

1) The ISM report seems to fly in the face of every regional report I've seen posted. Somehow, job markets are weakening in almost every major metro market but the manufacturing jobs component surged in July and was the primary driver behind the ISM surprise. When you peel back the layers of the report there were negative trends in every leading indicator like new orders, but details are for schmucks in this market. Rally on!

2) The best characterization of the jobs report was that it was stronger than expected but still not strong. I still find the birth/death numbers laughable (adding over 100k jobs to the BLS black box formula) but the number of part-time workers should really concern everyone. This jobs report was slightly better than expected so -- rally on! What was really surprising was the negative ISM service report out on Friday (reported 51.5 vs 53.2 expectation - the second lowest reading of the year) didn't get more coverage. Services are what drive the US economy not manufacturing. However, a weird statistical blip in the manufacturing number goosed the markets 300 pts, while a negative report in the much more important services sector didn't even register on Friday.

The combined ISM reports are at their lowest levels since Jan 2010.

The tone of the press and market coverage had turned so negative it was due for an "unexpected" pop. We'll see if it carries over post Labor Day.

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I don't have much to add here but there are two unsustainable trends.... Nearly 1 out of 2 Americans took a prescription drug at least once a month. Note that this is from a 2008 study and I'd guess the numbers have continued to increase over the past couple of years.

1) The continued trend of drugging our kids is going to put us further and further behind the rest of the world despite promises to "Race to the Top!".

2) We can't afford to sustain an aging population that is surviving on a daily drug cocktail of 5+ prescriptions.

"One of every five children ages 11 or younger took at least one medication each month in 2008, led by asthma and allergy treatments, according to the survey released today by the U.S. Centers for Disease Control and Prevention. Among those ages 60 or older, 37 percent used five or more prescriptions per month."

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On a happier note, I can't remember if I've posted pictures of this pool before.... Over 1,000 meters long in Chile with 155 ft deep end! Now that's a pool!

Cheers!

Friday, September 03, 2010

Jobs report slightly positive so it's to the MOON for the markets.

The headline number of -54k jobs lost has to be adjusted for the 114k census jobs that were expected to go away. Thus, the "real" jobs number is probably closer to +67k but we will never really know because of a statistical anomaly (it has to do with seasonal factors, etc).

Anyway, the surface of this report is better than expected and stocks may rally on the initial report, but I'm wary of some of the details.

* "The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million." So did they all have a)rich uncle pass away. b) get jobs or c) just fell of the unemployment roll?

* "The number of persons employed part time for economic reasons increased by 331,000 over the month to 8.9 million." This continues a very negative trend.

* The birth/death model plug was a goofy 115k jobs again this month. It's unclear what impact this has on the final data but when the private sector adds only 67k jobs it's safe to assume this made up number has some impact on the data.

There were huge positive revisions for June and July data that I'll have to look into later. In all this should be viewed as a slightly positive report, but remember the last time we had a slightly positive report the market exploded for 300 points.

I'll post more thoughts as I read through the report.

Wednesday, September 01, 2010

Pop goes the market...

I've said over the past couple of weeks that the pessimistic side of the street seemed to be getting a little crowded. Everyone was jumping on the negative bandwagon and that often leads to violent reversals on little or no news.

Take today for example. Chinese economic data was a little lighter than expected (but seriously we need to stop trading based on their economic data. It seems about as legitimate as that $120 Rolex you bought on Canal Street last year) and the ADP jobs data was negative for the first time in nearly a year. Then the manufacturing data comes out at 10am ever so slightly above expectations and bam, the market explodes. It's not always about the data, sometimes it's just how the market reacts to the data.

Two points I'd make on the ISM report.

1) This is a measure of manufacturing activity which has declined in importance in our economy over the past 20 years. The service index is a much for accurate read on the current state of the economy.

2) The report was much more mixed than the headlines would lead you to believe. While the prices, production, inventories, imports and employment pieces rose, the new orders, backlog of orders, supplier deliveries and new export orders fell. I read this to be more of a gain in efficiency than any uptick in global demand.

There was some good commentary from another strategist last week that highlighted the increasing correlation of all stocks to one another. This perfectly meshes with what happened in Japan over the past 2 decades and what has happened here in the US markets roughly every 18 years. If that analysis proves correct then we are going to be in a volatile trading pattern for the next 7 years with ample opportunities for the nimble traders to make boatloads of cash to fund their memberships at Baltusrol, while Joe and Jane six pack watch their 401k stagnate for 20 years. Good times.

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I've been saying for some time that rising ticket prices is covering up the fact that ticket sales are drifting lower at movie theaters.

It's as if music companies could have invented some form of 3d music that would allow them to charge $24/disc then they could ignore what iTunes and illegal downloading did to their industry. Well, the movie industry seems to be recognizing some of their issues....

"Summer movie attendance fell to the lowest level since 1997, while soaring ticket prices produced record revenue for Hollywood studios and theater owners.The number of tickets sold from the first weekend of May through the U.S. Labor Day holiday is expected to drop 2.6 percent to 552 million, Hollywood.com Box-Office said yesterday in an e-mailed statement. That would be the lowest attendance since summer moviegoers bought 540.3 million tickets in 1997."

Cheers!