Market Minds

The following video should be required viewing for every member in Congress, every teacher in the United States, and every parent with children in public education. The video is 40 minutes long but I assure you that watching it will be time well spent. The video compares the U.S. public education system with that in Europe, and with magnet and charter schools vs. districts where there is no competition. The results are shocking. Please watch …. Stupid In America Here are a couple of select quotes: From a parent: “I would not send my kids to an American public school, not even for a million dollars.” From a student: “I think it’s a pity that American children don’t have the same opportunities and the same choices that we have” Parental Participation Is The Key Here is an email from “Concerned Parent” about the U.S education system. Concerned Parent Writes …

I think the WSJ gets this wrong: The dearth of credit for hundreds of thousands of small businesses is keeping the economic recovery from gaining momentum. WSJ’s Neil Hickey reports. NOTE: The NFIB reports its a lack of demand, not credit, that is hurting small business activities. And the ladder company was referencing Capital, not Credit — there is a huge difference between the two. 3/14/2010 3:30:00 PM

The March NAHB home builder sentiment figure was 15, 2 pts below expectations, down from 17 in Feb and matches the lowest level since June ‘09. Both Present conditions and Future expectations fell and the Prospective Buyers Traffic component was down by 2 pts to the lowest level since Mar ‘09. The regional breakdown in this last category was mixed as traffic rose in the Northeast and West but was down in the Midwest and South. The NAHB chief economist said “the lack of available credit for new projects, the large number of distressed properties for sale and the continuing hesitancy of potential buyers due to the weak job market are definitely weighing on builder confidence.” So, here we are, $1.25T of MBS/Agency paper purchases later to suppress mortgage rates and a home buying tax credit to bring out 1st time home buyers and builders still have very little confidence even with historically low inventory of new homes.

A year ago, everyone on the planet was a bear, and there was a lot of chest-thumping going on about just how bad things were going to get. There were even widely-broadcast concerns that all the neighborhood banks would shut down, so stocking up on raw cash (or, better yet, dusty bags of old silver coins from decades past) was considered a good idea. That was, of course, the bottom of the market to date. And I challenge anyone to go to Safeway this afternoon and stock up on groceries with their silver pieces from 1960. It’s been interesting to observe the transmogrification that has taken place since then. Here, in no particular order, seem to be the ways the bears of a year ago have adapted. I’m going to avoid naming names, but those who spent their lives hanging out on the web probably will surmise who’s who. Camp-Switchers - These folks are just as loud and obnoxious on the bull side as they were on the bear side

Last week, CLNE broke out on an earnings related news release. Blink your eye and you missed it. So now what? Do we do what the master TV herder says we should do and that is just blindly buy buy buy? Or should we do what we here at All About Trends preach all the time and that is to NOT CHASE BUSES and let them come to us.

Consumer Metrics Institute is a (relatively) new econometric data and research firm. What makes them so interesting to me is that they are not economists — they are simply number geeks trying to analyze U.S. consumer data in real-time. The goal is to uncover macro-economic trends by using different data then everyone else. Rick Davis runs the place. He is a physicist enamored with what numbers say — and he is less than impressed with what the economics profession does: My real gripes with the established economists are their lack of innovation

I took a snapshot earlier today of DIVX, which I’ve suggested before as a long idea (I’m long from 7.07 this stock). Since I took the picture, it has bumped up a little more, up 7.14% this morning as of this writing. I really like this breakout.

Inquiring minds are watching a pair of interviews with Max Keiser and Birgitta Jonsdottir, a member of the Icelandic Parliament. Part One Part Two In Iceland Rejects IceSave; Does No Mean No? I said … Notice how Prime Minister Johanna Sigurdardottir calls the will of 93% of Icelandic citizens “obsolete”. The reality is she will soon be obsolete and voted out of office. Such arrogance is not tolerated anywhere.

An interesting indicator worth monitoring is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The relative movement of the yields is indicative of investor confidence. There has been a solid improvement in the ratio since its all-time low in December 2008, showing that bond investors have favored more speculative bonds over high-grade bonds over the past 15 months. (Note that this is a relative comparison, as both categories have improved, but lower-quality bonds more so than high-grade ones.) It is interesting that the Index has surpassed its pre-Lehman level, but still has more work to do in order to reach pre-crisis levels. As an aside, the S&P 500 Index has to gain another 8.8% in order to reach its pre-Lehman level of 1,252, and 36.1% to reclaim the 2007 pre-crisis peak. As equities and corporate bonds scale fresh cycle peaks, this should serve as a reminder that the economic recovery still has quite a way to go.

The past year has been all about shifting debt.   The financial crisis drove American homeowners into debt. Homeowners defaulted on their loans (or threatened to), driving the banks into debt. The U.S. government bailed out the banks, shifting debt to the public balance sheet.

I mentioned earlier how much I liked the 60 Minutes piece with Michael Lewis. Janet Tavakoli called foul this morning on Lewis assertions, pointing to a Bloomberg column he wrote in 2007, titled “ Davos Is for Wimps, Ninnies, Pointless Skeptics .” Tavakoli specifically points to this paragraph: “None of them seemed to understand that when you create a derivative you don’t add to the sum of total risk in the financial world; you merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about.” That statement, as of 2007, was simply wrong. Plenty of people were warning about this, and as his And, the column trashed variant perspectives warning about derivatives and an unhealthy credit market — Lewis, according to Tavakoli is guilty of precisely the sort of groupthink he criticized in both his book and on 60 Minutes. I’m a big fan of Lewis’s work — I defended his book against some Amazon idiot reviewer trashing it only because the kindle version isn’t out yet — but back in2007, he got derivatives, Sarbox, and risk all wrong. Score this one for Tavakoli . . . > Sources: Michael Lewis: Junior Salesgirlieman Janet Tavakoli Huff Po. March 15, 2010 06:26 AM http://www.huffingtonpost.com/janet-tavakoli/michael-lewis-junior-sale_b_498781.html Davos Is for Wimps, Ninnies, Pointless Skeptics Michael Lewis Bloomberg, January 30, 2007 http://www.bloomberg.com/apps/news?pid=20601039&sid=aaagOLYMd4yg& Janet Tavakoli home page http://www.tavakolistructuredfinance.com/ Michael Lewis Bloomberg Columns http://www.bloomberg.com/news/commentary/lewis.html Recent Books Lewis: The Big Short: Inside the Doomsday Machine Moneyball: The Art of Winning an Unfair Game Tavakoli: Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street Collateralized Debt Obligations and Structured Finance : New Developments in Cash and Synthetic Securitization

On Friday, the Federal Reserve released their Z.1 Flow of Funds statement for Q4 2009. FoF is essentially a snapshot of households, companies and governement’s balance sheet. It showed a very modest improvement in the aggregate debt levels. Barron’s noted that consumers showed some signs of cleaning up their balance sheets ever so slightly: The Numbers 1.3%: gain in U.S. household net worth in the fourth quarter from the third $54.18 trillion: household net worth in the fourth quarter 1.7%: decline in U.S. household debt in 2009, the first annual drop since record-keeping began in 1945 $13.5 trillion: total household debt in 2009 > Sources: Federal Reserve , Barron’s

The Mar NY mfr’g survey, the first Mar industrial # out, was a touch above expectations at 22.9 vs the forecast of 22 and down from 24.9 in Feb. The components though were strong as the headline is not a sum of its parts. New Orders rose to 25.6 from 15.1 and its the highest since Oct ‘09. Employment rose to 12.4 from 5.6, the highest since Oct ‘07. Backlogs rose to 4.9 from 2.8, the highest since June ‘06. Inventories went positive for the first time since Aug ‘08. Prices Paid fell 2 pts but remains 6 pts above its 6 month average and Prices Received doubled to 8.6, the highest since Oct ‘08 and is a sign that businesses are having some success in passing on some higher costs. The 6 month outlook rose 1.5 pts to 54.3 and is in line with the 6 month average. In a related question, 24% of firms surveyed, down from 39%, saw more tightening in credit availability with 11% noting easing. Net-net, mfr’g continues to be the focal point of recovery

Th total stock market index went up 1.11%. Below are the sectors, sorted based on their weekly change.  I’ve prepared a full report of all of the DJ US Sectors that you can find here .  Of the 164 sectors 76.2% were positive v. 99.4% last week Average increase was 1.10% v. 4.04% last week. The full report also includes weekly and daily charts of the broad sectors above. All date is courtesy of Stockcharts.com |  Compilation is courtesy of me.

Chinese Premier Wen in no uncertain terms has told the US that they will not be pressured into revaluing the yuan and when the moment does come, it will be under China’s terms. He said “I do not think the renminbi is undervalued…We are opposed to countries pointing fingers at each other or taking strong measures to force other countries to appreciate their currencies.” The Shanghai index fell to a 4 1/2 week low in a response to more talk of policy tightening. In a ‘be careful of what you wish’ for moment, if China succumbs to the pressure of the US Congress and revalues before they are ready, they will acquire less reserves, less money will then be recycled into US Treasuries, and thus higher interest rates will follow as the largest holder buys less. A convertible yuan is inevitable at some point but political pressure won’t make it happen any faster. EU finance ministers meet for 2 days but no bailout plan for Greece is imminent.

Why is the White House allowing soon to be retired Senator Dodd to drive the entire financial reform discussion? The Consumer Protection legislation and the derivative reforms are the sort of things that the President should be leading on — not following someone like Dodd. Why is the White House AWOL on these important issues? Can someone please explain to me — in calm, non-biased, rational terms — just what is going on here?

Be sure to see the 60 Minutes piece with Michael Lewis, discussing his new book “ The Big Short: Inside the Doomsday Machine .” Fascinating stuff . . . Video here .

Michael Lewis’ new book “ The Big Short: Inside the Doomsday Machine ” looks at the financial meltdown. Part I Watch CBS News Videos Online ~~~ Part II Watch CBS News Videos Online ~~~ There are numerous web extras here : Web Extra: Is Wall Street Overpaid? Web Extra: Bailout Blues Web Extra: The $8.4 Billion Bet Web Extra: Wall Street Misfit Web Extra: “The Blind Side” Source: Wall Street: Inside the Collapse Author Tells “60 Minutes” What Led to Wall Street Collapse and Who Predicted It http://www.cbsnews.com/stories/2010/03/12/60minutes/main6292458.shtml

The cover story of Barron’s is on public pensions, an issue I have been railing about for years, and heatedly so for several months. Please consider The $2 Trillion Hole . LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street. Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege — the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers. Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed, no matter how stocks and other volatile assets backing the retirement plans perform. In contrast, most of the taxpayers footing the bill for these public-employee benefits (participants’ contributions to these plans are typically modest) have been pushed by their employers into far less munificent defined-contribution plans and suffered the additional indignity of seeing their 401(k) accounts shrivel in the recent bear market in stocks.