Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.
The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.
Scapegoat-of-the-moment
The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.
Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.
NASDAQ has released its short interest for the end of March, with a March 31, 2008 cut off date. Overall short interest fell by a rate of some 1.2% on NASDAQ for the two-week period to 9,657,092,223. Interestingly enough, there were a few standouts that saw some major gains in short selling.
The percentage terms on Level 3 are not that great, but the raw number of shares is significant.
These were not the only gainers out there, but the bets against some of these rising short interest stocks were staggering. You can check NASDAQ short interest on any of these stocks or others at the NASDAQ Trader site dedicated to short interest.
As investors await today's start of earnings season, they should remember that Wall Street's equity analysts blew it in the fourth quarter, overestimating profit by 33.5 percentage points, the biggest miss ever, according to Bloomberg News.
"Merrill Lynch & Co.(NYSE: MER), Bank of America Corp. (NYSE: BAC) and the rest of the securities industry aren't losing credibility because of anything sinister," the story says. "The problem is they didn't get their math right after credit markets froze nine months ago."
I am not terribly optimistic that analysts have improved much in the first quarter. Earnings estimates are probably still way too high. Many, many companies are going to miss their earnings estimates. This will erode Wall Street's credibility even further.
Richard Weiss of City National Bank told Bloomberg that first quarter results will be a "big wake-up" call for some analysts. Some may lose their six- and seven-figure jobs because of it.
The lesson here is for investors to do their own homework. Anyone who doesn't have the time or motivation to do it should either hire an adviser or buy index funds.
These days, you can't take Wall Street's word for anything.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
My riskiest stock pick Newcastle Investment Corp (NYSE:NCT) is down almost 37% this year, and the energy stocks did almost as poorly even though fuel prices are near all-time highs. The downers were not offset by this months' repeat winners.
March was a seesaw battle, but in the end there was not much to show for it. However, unlike the last day of January (down 370 points in the Dow) and February's last trading day (down 315 points), March had a final day of plus 46.49, which is not very meaningful.
Most of my picks sagged a little more, while two remain in positive territory. Raytheon Co. (NYSE: RTN), the high tech defense contractor is up and Reliance Steel & Aluminum (NYSE: RS) is way up.
MOST NOTEWORTHY: Cisco Systems, NYSE Euronext, Nasdaq and Cognicase were today's noteworthy initiations:
Friedman Billings believes Cisco Systems (NASDAQ: CSCO) is well-positioned to take advantage of "Business 2.0" applications and to gain share in a slower economic environment. The firm initiated shares with an Outperform rating and $31 target.
NYSE Euronext (NYSE: NYX) and Nasdaq (NASDAQ: NDAQ) were assumed with a Neutral rating and $72 target and $44 target, respectively, at UBS. The firm cited increasing competition and moderating volumes.
Deutsche Bank believes Cognicase (COGI) is one of the few carriers offering high-capacity commercial Internet access to enterprise customers at a discount to nearly all of its competitors. Shares were initiated with a Buy rating and $23 target.
OTHER INITIATIONS:
China Housing (OTCBB: CHLN) was initiated at Merriman with a Buy rating.
Goldman started Juniper (NASDAQ: JNPR) with a Market Perform rating and $27 target.
Suntrust initiated hhgregg (NYSE: HGG) with a Buy rating and $16 target.
The Dow Jones industrial average soared almost 400 points today as a plethora of good news soothed the frayed nerves of investors. This is the best start for stocks in the second quarter since 1938, according to Bloomberg.
For once, the economic data wasn't all that bad either. Data from the Institute of Supply Management showed manufacturing activity slowed in March at a slower rate than February and the government also reported better-than-expected construction data for February.
Over the last quarter $100 billion has left equity funds. The FT says that data from Emerging Portfolio Fund Research shows that "investors pulled $70bn from US, Japan and Western Europe funds during the quarter." Some of that money went into funds which invest in emerging markets and a great deal of it went into safe money market funds.
The data means that many mutual fund companies will post bad first quarter figures, but the news is much more serious than that. Such a large amount leaving these funds means that stocks are being sold to provide the capital for redemptions. The process sets up a bad cycle. Stocks are sold to provide money to go into other assets. The sale of stocks continues to push equity indexes down. This leads to more withdrawals.
The only positive aspect to the news is that there is now hundreds of billions of dollars in money market funds, most of it very liquid. If the markets do begin to recover due to better news on earnings or a perceived end to problems in the financial sector, there is a great deal of "dry powder" to be put back in the market. That could further accelerate a market recovery.
But, if withdrawals from equity funds continues, that could be a long way off.
Douglas A. McIntyre is an editor at 247wallst.com.
Twice monthly we peruse short-selling trends in individual stock names and individual sectors. Broad-based short selling is a tool to use as well, although the amount seen in ETFs has been making this trend more difficult to use as ETFs have taken up more and more volume.
We ran the top five names from the NASDAQ 100 and the stocks all saw an increase in short selling. This was taken from NASDAQ data released last night. These were the changes seen from February 29, 2008 to March 14, 2008. This is listed as shares in the short interest and there is a percentage change given as well.
Some Wall Street analysts believe that most write-offs for subprime mortgages, LBO loans, and other credit paper are behind the big banks and brokerages. Goldman Sachs (NYSE:GS) analysts think otherwise.
According toBloomberg: "Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed."
If the analysis is true, it will cause two huge problems in the financial markets. The first is that banks and brokerages will probably have to raise more money. This capital may be hard to come by. Sovereign funds and private equity firms appear to have lost their appetites for investing in US financial companies while their stocks keep dropping. That leaves the Fed to provide more capital, which will have to come from someplace. That someplace is the tax base especially individual taxpayers.
The other byproduct of more losses is that banks will cut lending to customers even further instead of risking capital on consumer credit, auto loans, mortgages, and small business loans.
In other words, borrowing a dollar for a cup of coffee may be out of the question.
Douglas A. McIntyre is an editor at 247wallst.com.
It has happened before. The cuts were especially deep after the market crash in 1987. New York City now believes that Wall St. will cut 20,000 jobs over the next two years. The number seems too small.
Accoding toReuters: "The city's Independent Budget Office, in its report, estimated that Wall Street's profits for 2007 will sink by more than 80 percent to the lowest level since 1994." Financial firms account for almost 35% of all income in NYC.
While this would seem to be a local problem, that is not entirely true. Companies that sell luxury items from Tiffany (NYSE:TIF) to BMW will take some hit from falling employment among workers at big banks and brokerages.
Just as important, all of these people pay a hefty federal income tax. As unemployment grows the government will see receipts from the IRS fall. The more of the rich who move off the payrolls, the more difficult it will be to cut the Federal deficit and fund agencies like the Fed.
Douglas A. McIntyre is an editor at 247wallst.com.
At each century mark I like to post something special to note the occasion. This is my 600th post since lead editor Amey Stone asked me to join her original blogging team. That was a little over two years ago and I must say, it has been a fascinating experience from atop AOL's giant soap box.
Although investors have had to withstand a tremendous amount of turmoil in the market place, and not just the stock market, there is much to report that is very positive on this Good Friday. So, in no particular order I give you the following to consider.
The stock market closed up yesterday, and for the week, with the Dow Jones Industrial Average settling in at 12,361.32,up 261.66. The NASDAQ closed at 2,258.11, up 48.15 and the S&P 500 Index finished at 1,329.51 up 31.09.
The stock market being up at all after so much bad news and given the longer weekend is a miracle. I would have thought traders would have wanted to be out of the market for the stretch. The Dow is above 12,000 and all things considered that is good.
News from Iraq shows signs of improvement and while Osama bin Laden may still be issuing hateful video tapes, he is not doing so from a five-star hotel and is likely to perish in the rubble of his hiding place.
Crude oil reached an all-time high price this week, but by Thursday had retreated more than 10% dropping below $100 per barrel. The reason for the retreat was fear about a recession, but I think I will take the lower prices as a positive regardless of the reason.
We have a vibrant presidential campaign that has stimulated interest among young and old alike with three candidates each offering something new.
In sports, March Madness is upon us and the NBA play-offs are just around the corner. The boys of summer have started to loosen their limbs for the long stretch to October and the steroid noise has settled down to a whisper, at least for now.
The majority of economists now seem to believe we are in a recession. That is a good thing because we need capitulation before we can improve. I do not think we will hear the president capitulate, but maybe he has and just can't bring himself to use the word.
Spring is here and the days are brighter longer.
Even though many industries have seen a downturn in business, many are still booming.
The devalued dollar has had the predictable effect of improving our trade imbalances.
Unemployment is still relatively low.
AOL finally got it's much improved stock section out of beta test mode this week, now up and running.
Interest rate cuts (which I have my doubts about) are serving to stabilize financial markets. I think that there will be bad news from the financial markets for the rest of the year, but very little will shock us any more. If the shock effect is gone -- implied by the up market yesterday and to my great surprise last Monday, than we may have turmoil and bad news but after a few more gyrations the stock market will move up.
Among the many good things to report, there is value in the market among many sectors. There are many stocks on my shopping list worth buying. These I will leave for post 601...
Have a GOOD FRIDAY!
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns.
Today the market is closed for Good Friday. Maybe the market can use the day off.
The market is bipolar. Rising from stratospheric highs to crushing lows at the flick of a switch. Mind you, sometimes it takes a big event to turn the market on and off and sometimes it doesn't take much of anything. That's what makes the market so maddening to follow.
Bloomberg News argues that the market's reaction indicates that Federal Reserve Chairman Ben Bernanke's strategy of aggressive interest rate cuts is working since commodity prices had a huge sell-of this week.
"The Standard & Poor's 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos. (NYSE: BSC), the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes," the news service reported. "The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29."
But any rejoicing may be premature. Consumer confidence remains shaky amid continued worries about the real estate market. Applications for unemployment benefits soared to their highest level in nearly two months, according to theAssociated Press. In short, there is plenty to worry about.
The trick for investors is not to panic and do anything rash. Markets aren't volatile forever and do eventually sort themselves out. Getting to that point may cause quite a lot of pain in the meantime.
I'm glad all these "blue chip stocks" are blowing up. No, I don't enjoy seeing investors suffer, but as I've written about here, here and here, investors need to learn not trust any company or anybody in this business. Investors don't even have to remain invested all the time! Contrary to the advice of fee-earnings-professionals, the majority of whom continually fail to match the S&P 500's returns, you don't have to manage your money like a $500 million mutual fund. Diversification is for widows and orphans!
While it'll probably take me a few years to truly get through to all of you, if you've been invested for any length of time in any company listed below-considering what you've been through-you're probably more likely to believe me:
The glow is coming off yesterday's huge Fed rate cut. Just as I expected, the market gave back much of yesterday's huge gains.
Investors sent the Dow Jones industrial average down 293 points, or 2.36%, to 12,099.66, while the Nasdaq Composite Index fell 58.30, or 2.57%, to 2,209.66 and the S&P 500 tumbled 32.32, or 2.43%, to 1298.42. Market watchers, who were jubilant yesterday, were downright depressed today.
"This whole market is driven by fear right now,'' James Gaul, a portfolio manager at Boston Advisors LLC told Bloomberg News. "Investors are thinking more and more this will be a long and drawn out recession, and that pulls down commodity prices and energy prices.''
"Clearly there is fear. I would say the needle is pointing more toward fear than greed right now," said George Shipp, chief investment officer at Scott & Stringfellow, in an interview with the Associated Press.
O.K, we get the picture. People are scared. Fear rules the day.
That's the case for now, but the funny thing is this fear will not last. The slightest good news will send the market skyward yet again.
You can get whiplash watching this market rise and fall.
Some fairly simple math indicates that it wouldn't take much to wipe out the capital of the banks and hedge funds. And this simple math helps explain why the popular delusion that 'liquidity' = 'capital' is so dangerous. That mental equation works just as easily to create the illusion of prosperity as it does to eliminate the capital that is supposed to stand as bulwark against bad lending decisions.
That's because investment banks and hedge funds combined have borrowed $10.9 trillion on a sushi-thin slice of equity of $340 billion. Newsweek reports that on average, the ratio of borrowed money to underlying capital for investment banks and hedge funds is about 32-1. It reports that in 2006, investment banks had an estimated $280 billion in capital. At 32-1, the investment banks are borrowing $8.96 trillion. Meanwhile, hedge funds manage $1.9 trillion worth of assets – which would represent $60 billion in equity and $1.94 trillion worth of debt.
What would it take to gobble up that little piece of sushi? Well, collateralized debt obligations (CDO) represented a $6.1 trillion market. I say 'were' because I am guessing that this figure refers to the value of the CDOs when they were issued. And CDOs seem to be worth some amount below that now. I have seen estimates that they are worth 20 cents to 40 cents on the dollar of their original value.
But if investment banks and hedge funds had used all their money to buy these CDOs, then it would take a mere 6% decline in their value to wipe out that $340 billion in capital. Obviously investment banks and hedge funds have invested in other things besides CDOs. But when you borrow $32 for every dollar in capital, there's not much room for error.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one. 
As investors await today's start of earnings season, they should remember that Wall Street's equity analysts blew it in the fourth quarter, overestimating profit by 33.5 percentage points, the biggest miss ever, according to 
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
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The Dow Jones industrial average soared almost 400 points today as a plethora of 
Over the last quarter $100 billion has left equity funds. The FT 
Some Wall Street analysts believe that most write-offs for subprime mortgages, LBO loans, and other credit paper are behind the big banks and brokerages. 
Today the market is closed for Good Friday. Maybe the market can use the day off.
I'm glad all these "blue chip stocks" are blowing up. No, I don't enjoy seeing investors suffer, but as I've written about 
The glow is coming off yesterday's huge Fed rate cut. Just as I expected, the market gave back much of yesterday's huge gains.
Comfort Zone Investing: One thriving area of real estate: Apartments
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Nordstrom and Kohl's post smaller-than-expected Q1 profit declines
