Kass to Oil Bulls: "SOLD TO YOU!"

Notable bear Doug Kass writes today:

While not easily documented, the last leg up to the recent climb in the energy complex's price did not appear to be stimulated by any meaningful change in demand and/or supply. Rather, from my perch, it had to have been importantly influenced by speculators -- some of which are those wonderful folks who gave us the previous bubbles in Internet stocks in the late 1990s and in housing in the early 2000s...

I have seen this movie before, and I have profited from it. It is all too familiar... At the risk of being slightly premature, I say to the oil longs -- sold to you!

All I have to say is, "word up, Mr. Kass."

Source:
Kass: Speculators Helped Spawn Oil Crisis
Doug Kass
TheStreet.com

Chart of the Day: the little bank stock that couldn't

While most financials have rallied off of their 52-week lows, Bank of the Cascades continues to regularly make new ones. It is now forming a decent descending triangle pattern (bearish).

Blogging = :-)

(image: bloggers = smiley face in Comic font)

Scientific American reports today on the tangible benefits of blogging:

Self-medication may be the reason the blogosphere has taken off. Scientists (and writers) have long known about the therapeutic benefits of writing about personal experiences, thoughts and feelings. But besides serving as a stress-coping mechanism, expressive writing produces many physiological benefits. Research shows that it improves memory and sleep, boosts immune cell activity and reduces viral load in AIDS patients, and even speeds healing after surgery. A study in the February issue of the Oncologist reports that cancer patients who engaged in expressive writing just before treatment felt markedly better, mentally and physically, as compared with patients who did not.

Scientists now hope to explore the neurological underpinnings at play, especially considering the explosion of blogs. According to Alice Flaherty, a neuroscientist at Harvard University and Massachusetts General Hospital, the placebo theory of suffering is one window through which to view blogging. As social creatures, humans have a range of pain-related behaviors, such as complaining, which acts as a “placebo for getting satisfied,” Flaherty says. Blogging about stressful experiences might work similarly.

(image: non-bloggers = smiley face in Basketcase font)

Source:
Blogging--It's Good for You
Jessica Wapner
Scientific American

True Microbrew

"Mmmm... Beer." -Homer Simpson

We Oregonians love our microbrews - so much, in fact, that I'm sure this product is going to be very popular here in Bend:

From popsci.com:

The only thing better than beer is more beer. And the only thing better than more beer is more beer you make yourself—it saves you a trip to the store. Thus, the NanoBrewMaster—an all-in-one, computer-controlled brewing system that takes your beer from wort boil to frosty pour....

What was once an industrial-looking, hand-welded system that used water-cooled jackets and a thick aluminum coldplate for temperature-control, and a series of manual valves to move the beer between stages, has morphed into a fully-automated, glycol-chilled, 15-gallon fountain of brew that looks so modern your wife might even let you keep it in the house.

Because, really, why should the kids have to go all the way to the garage to fill daddy’s mug?

(Photo: Evolution of the NanoBrewMaster)

Source:
Brewmaster's Delight
Mike Haney
popsci.com

Home Price Declines Accelerate to Record Pace

AP Reports:

U.S. home prices posted their sharpest first-quarter decline since the government began tracking the data 17 years ago.

The Washington-based Office of Federal Housing Enterprise Oversight said Thursday that home prices fell 3.1 percent in the first quarter compared with last year. The index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

This is an annualized rate of decline of 6.92% and an acceleration of the decline from previous quarters.

Sources:
1Q 2008 House Price Index Report
OFHEO.gov

Gov't home price index posts largest drop in 17-year history
Alan Zibel
AP

Inflation Takes Off

The media tells us the stock market has sold off hard this week mainly due to inflation worries. Seems to me, then, that the market's just catching on to something consumers have fretted over for some time now.

Source:
Association of American Editorial Cartoonists
Adam Zyglis
The Buffalo News

Chart of the Day: Housing Bottom? We're Still Making a Top!

Barry Ritholz presented this enlightening chart today over at the Big Picture. It's simply a great perspective on the investment value of housing and where we stand in the current cycle.

Source:
Housing Price to Rent Ratio
Barry Ritholtz
The Big Picture

Real Estate Database

Scanning the Bend Economy Bulletin Board I came across a link to the Real Estate Database. The site was created by Jared Folkins and does a great service to anyone interested in the local real estate market.

The site tracks DIAL data by specific neighborhood. Although the data samples for some neighborhoods are small it still makes for some very interesting research.

Check it out for yourself here: http://www.redb.org/

Sources:
Real Estate Database
http://www.redb.org

Bend Economy Bulletin Board Forum: www.redb.org
http://bendeconomy.informe.com/viewtopic.php?t=3960

Chart of the Day: Commodities

First of all, it doesn't matter what this is a chart of; it's one hell of a trend. From the looks of it, however, the commodities complex is looking very tired, if not downright toppy.

Icahn: "It's good to be the king"

There's an interesting article in today's New York Times profiling Carl Icahn:

It is tough being the Superman of Shareholders, rescuing investors from villainous corporate boards. Or at least that’s the way Mr. Icahn, who is 72, sees himself these days.

“It’s awful the way all these entrenched boards act,” he grumbled in his raspy voice as he slurped shark fin soup. “Someone’s got to stand up and say something. That’s what I do. And maybe I’ll make a little money at it.”

"Make a little money at it?" Mr. Icahn has already made more than a little in just the past couple weeks. From Silicon Alley Insider:

Ain't it just grand to be a corporate raider? The Yahoo fight hasn't even started yet, and already Carl Icahn has made more than $120 million.

How? By starting to buy Yahoo's stock the moment Microsoft withdrew its bid--when Wall Street analysts were frantically downgrading the stock and experts (yours truly) were predicting it would fall to the low $20s. Which it did. Which is where Carl Icahn hoovered up his first 15 million shares. And then he snapped up another 15 million or so the next day, when it was trading at about $24-$25.

With the stock over $27 today Icahn is already sitting on some pretty profits. If he gets his way and Microsoft ends up buying Yahoo for anything close to the $33 offer, he'll make about half-a-billion dollars.

Forget the superman metaphor, I dub Icahn the King of Shareholders.

Sources:
A Gamble, but What if He Wins?
Andrew Ross Sorkin
The New York Times

Carl Icahn Already Up $120+ Million on Yahoo Bet (YHOO)
Henry Blodget
Silicon Alley Insider

Bubbleology

I first posted the chart below last fall when the stock market was testing its old 2000 highs.


Since then, stocks have sold off and today the S&P 500 is roughly trading at the same level it traded at almost 10 years ago. That's just the price investors pay for the "Irrational Exuberance" of the late 1990's.

This next chart shows the price-to-earnings ratio of the same index that dates back over 100 years - just about as long-term as you can get.


Looking at this chart, the stock market bubble is fairly obvious. Valuations at the peak in 2000 were four standard deviations out of whack, an ultra-rare, once-in-a-lifetime kind of event.

However, the chart shows that as of the end of last year, valuations are still streched (one standard deviation above average). Fundamentally, this argues for continued sub-par returns for stocks.

And if 10 years is still not enough time to work out the stock market bubble I wonder how long it will take to unwind the largest bubble in history.

The example of Japan may not be as far fetched as it seems. If nothing else, it certainly makes the current bottom-callers sound more than a bit premature.

Sources:
Online Data from the book Irrational Exuberance
Robert Shiller
Yale Department of Economics

In Come the Waves
The Economist

Stock Market: "Can't You Hear Me Knockin'?"

The S&P 500 is knocking on the overhead resistance and giving it a good go here. I think it will eventually "break on through" but it may take a little "patience" in the short term.


(Click through for video)

EA execs playing too much GTA IV?

Electronic Arts, in Niko Bellic fashion, again extended its offer of "protection" to Take Two shareholders over the weekend:

Electronic Arts, the world's largest video-game publisher, today announced its third extension of its tender offer for shares of Take-Two Interactive Software until June 16, continuing its attempt to acquire the publisher of one of the video-game industry's most valuable products, the "Grand Theft Auto" series.

EA, though, said it would not raise its $2 billion bid.

EA's bid now represents a discount to the current stock price - virtually unheard of in takeover deals (Yahoo! refused a 75% premium from Microsoft!). And for some reason EA execs don't think that the offer of a takeunder for the company that just put out the biggest media release in history is unreasonable.

Sounds like they're playing a little too much GTA IV:


(Click through for video)

Source:
EA again extends deadline on Take-Two offer
John Boudreau
Mercury News

A $500 Million Week for Grand Theft Auto
Matt Richtel
The New York Times

Starbucks CEO calls "bullshit!"

The Wall Street Journal reports that Howard Schultz is pretty darn fired up:

"We are going to bring this company back!" Mr. Schultz practically shouted at a meeting with managers in New York in April. The idea of skeptics that the battered stock won't recover is "total bull-" he said, his voice rising.

Gotta admire his passion - that and his caffeine tolerance; the guy probably bleeds espresso.

Source:
Schultz's Second Act Jolts Starbucks
Janet Adamy
The Wall Street Journal

“Once they pop, bubbles tend not to be reignited”

Good, balanced article on the local economy in the Bulletin today. I was especially glad to see Tim Duy's thoughts on real estate and the local economy reported accurately:

“Once they pop, bubbles tend not to be reignited,” Duy said. “People have to come to grips with this.”

Median home prices in Bend dropped from $347,750 in the first quarter of 2007 to $306,500 in the first quarter of this year, a 12 percent decrease, according to data provided by the Central Oregon Association of Realtors.

In April, the median home price in Bend dropped to $270,000, 26 percent less than April 2007, according to a report from the Bend-based Bratton Appraisal Group, which tracks home statistics monthly.

Tighter lending standards and the county’s median income levels will bring home prices more in line with the area’s income, Duy said.
Median home prices could shed another $70,000 over the next year, Duy predicted.

“If the question is, When do we return to 2005? The answer is, Not for years, if ever,” he said. “I would not be shocked to see Bend’s median prices go down to $200,000 in the next year.”

I talked with Tim over two months ago to clarify his opinions which had been seemingly misrepresented at the time:


(Click through for video)

Source:
Index shows more softening in economy
Jeff McDonald
The Bulletin

A local tale of greed and fraud

There is an excellent story in today's Oregonian detailing the greed and fraud that propelled the Central Oregon real estate boom. Here's an excerpt:

As central Oregon's long real estate gold rush gives way to a grim new era of falling prices and foreclosures, few companies have crashed to earth harder than Bend-based Desert Sun Development.

The upstart operation, led by its intense 29-year-old founder, Tyler Fitzsimons, is under siege from lenders, suppliers and contractors who say they've been stiffed for millions of dollars.

But Desert Sun's problems go well beyond clamoring creditors, The Oregonian found in its examination of the company. It offered a homeownership program to more than 30 people, mostly employees, that has left many participants deeply in debt for houses that aren't complete or even started.

The employee program is one of several aspects of Desert Sun that have drawn the attention of FBI and IRS agents in recent months. According to people quizzed by the agents, investigators are focusing on Desert Sun's financing and its relationship with a bevy of Oregon banks, which threw millions of dollars at the company.

The unfolding saga reflects how the financial industry operated in central Oregon and elsewhere during the real estate boom. Banks lined up to back newly minted companies. They made huge loans to workers of limited means who couldn't afford the payments.

Read the rest of the story at OregonLive.

Source:
Bend developer's problems leave losses, questions in wake
Jeff Manning
The Oregonian

The Bull Turns Tail

As they typically do, analysts are getting skeptical about 12 months after it was appropriate to do so:

Merrill Lynch, the nation’s largest brokerage firm, unveiled a new system on Tuesday for rating stocks that suggests Wall Street finally may be mustering up its courage to say “sell” more often. Starting in June, Merrill will require that its analysts assign “underperform” ratings to 1 out of every 5 stocks they cover. About 12 percent fall into that category now.

It’s a tectonic shift for Merrill, the so-called thundering herd whose insignia, a bull, symbolizes the natural exuberance of the market place.

The move underscores an industrywide effort to inject a healthy dose of skepticism into stock research at a volatile and uncertain time for the markets, the broader economy and Wall Street banks themselves.

For those that don't know, Merrill's mascot is a bull (see the photo above). And now the bigggest bull on wall street has become a bear - it's enough to make a contrarian buy the Growth Fund of America.

Source:
Merrill Tries to Temper the Pollyannas in Its Ranks
Jenny Anderson and Vikas Bajaj
The New York Times

Treasury Secretary: 'Nope - this ain't the bottom.'

The Financial Times reports:

Hank Paulson on Friday said that housing remained “the biggest risk” to the US economy, as new data showed construction of family homes dropping to the lowest level in 17 years.

Speaking at a conference in Washington, the US Treasury secretary said that the correction in the housing market had “further to go”, but that the US was “working through the excess inventory”.

So Hank comes down on Eli's side. And I still haven't heard a credible second of Mr. Bratton's bold call.

Source:
Paulson cites housing as ‘biggest risk’
James Politi and Chris Bryant
The Financial Times

"The pain trade is for the market to go higher than people expect"

That's what Wall Street Bigwig Barton Biggs told Maria Bartiromo last week. Now there's at least one fairly reliable stock market indicator confirming Mr. Biggs call:

Called the Recession Buy Indicator, it was devised by Norman Fosback, who was editor of Mutual Funds magazine in the 1990s and the author in the mid-1970s of the popular investment textbook “Stock Market Logic.” He currently edits Fosback’s Fund Forecaster, an investment newsletter.

The indicator is based on the notion that it is darkest just before the dawn — that when the economic news becomes bad enough, the stock market’s likely subsequent direction is up. Because the stock market is forward-looking, Mr. Fosback said in the most recent issue of his newsletter, it “has little use for yesterday’s, or even today’s, crises.”

“The focus,” he added, “is always on the future — how will business be six months, or a year or two, from now?”

When the economy appears to be on tenuous ground, as it does today, he said, “stock investors looking well out to the future are able to perceive the seeds of the next economic expansion.”

Like Biggs, the indicator has some real history:

He came up with this indicator in 1979, and since then it has set off four buy signals (not counting the current one). On average over the 12 months following those signals, according to his research, the average stock on the New York Stock Exchange had a total return of 37 percent. And in the three years after such a signal, the average gain was 106 percent. These gains are triple the stock market’s long-term average.

(Mr. Fosback has also backtested this indicator to the late 1940s, the earliest period for which data on the coincident economic indicators were available, and it performed just as well from then until the late ’70s as it did in more recent decades.)

It feels like a contrarian long-term call right now (which is a good thing) but, as such, it may take some patience in the short-term.

Source;
An Alarm Is Blaring: Time to Buy
Mark Hulbert
The New York Times

"If you have a mortgage, consider yourself lucky"

That's the beginning of an interesting piece in today's New York Times. It continues:

Some prospective borrowers who just a few months ago were considered easy bets for mortgages are being turned away with the slightest credit blemishes — or even with stellar credit scores.

“Standards are getting a lot tighter,” said Bob Moulton, president of Americana Mortgage Group, a brokerage firm based in Manhasset, N.Y. “For every 20 calls I get, I might close four or five loans. Two years ago, it’d be 18.”

Mr. Moulton said that one recent client sought to buy a $2.5 million home on Long Island with a $1.5 million down payment and full documentation of his income. The bank refused the loan because the borrower’s credit score was 672. A single recently missed credit card payment can sometimes be enough to drop a borrower’s score below 700.

“It’s all about the credit score now,” Mr. Moulton said. “I’d say 700 is a minimum score now. Some banks are requiring 740, particularly for interest-only loans,” in which the borrower pays only interest for the first 5 or 10 years of the loan before starting to pay down principal.

Brokers and bankers in the greater New York area said that stated-income loans — typically used by the self-employed or workers paid on commission who cannot document steady streams of income — are all but gone. (Mr. Moulton said he had recently found only two lenders who would write such mortgages.) The same is true for subprime loans, offered to high-risk borrowers.

I wonder if the record number of people losing their homes to foreclosure feel "lucky" to have gotten a mortgage. Cue Paul Evans:


(Click through for video.)

Source:
Lenders Raise the Bar
Bob Tedeschi
The New York Times