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Wednesday, August 01, 2007


what hubris looks like

this entreat to buy smacks of some desperation in the face of some very serious economic problems. watching cnbc this morning, it became clear that the tagline of the day was "don't panic", with the friday jobs report being called "the most important data report of the year". this last was a phraseology mimicked by yahoo finance, as well as rupert murdoch's new york post. as well. as such, one can be virtually certain that it will be appropriately positive, whatever gearing that may require.

it's important for investors to realize who exactly owns and runs financial news media like cnbc and the journal. these are interests that, when not explicitly possessed by investment banks, are hugely beholden to them.

the trading desks at investment banks and brokerages have made billions by selling securities to the ignorant at the top and buying same from them at the bottom -- it is what they do.* this has become such a profitable enterprise in the age of mass media and mass stock ownership that some, like goldman sachs and to a lesser extent merrill lynch, have essentially become hedge funds with side businesses in investment banking. for such banks to use their leverage in financial media to facilitate making money is such an obvious extension of their business model (and one with such a long history, dating back to the origins of bourses themselves) that the bias of such reportage should be plain. nowhere is that more true than on cnbc and the opinion pages of papers like the journal and investors business daily.

the truth is that credit markets are in turmoil this week because there are very important financial problems afoot, problems whose roots lie in the hubris of the last two years that saw excesses in banking that are without ready parallel. the wise should note that the banks as a sector topped in the first quarter -- some six months ago.

and it isn't just banking. exposure to the residential market has become toxic -- take savings and loans.

the entire real estate sector, including reits.

but also consumer retail sectors -- take car dealers...

or apparel...

or department stores...

all of these have been backing off since 1q. profit growth in the s&p 500 has backed off as well, down from the double-digit heyday of past years and on course for something like 5% in q2. this deceleration may continue.

not everything is gloomy. tech and telecoms continue to prosper. industry has done well. but the financials and the consumer -- and particularly their interrelationship in a time of enormous consumer debt loads -- are the keystone to the economy. this is clearly not the best of times, and we may be seeing the beginning of the recession that seems presaged by consumer sentiment. bill cara had mentioned that this past leg might be the last as the large houses got their ducks in a row. if anything, opeds like this one verify that probability.

* -- an update via naked shorts -- fidelity is among the houses pushing their stock off on "underinvested" customers.

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