Mid Week Funnies

Time for our weekly review of news from around the world in the form of editorial cartoons!

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The administration seems to have been able to ignore all the losses in Iraq until the recent political losses.

Meanwhile Karl Rove has been trying to spin the war by pulling everyone into political maneuvering. Even many Republicans are pushing back.
Jerry Falwell passed away this week, in case you hadn't heard.


More revelations of colleges working with loan companies to their mutual profit and student detriment seem to be coming out weekly. I can't say that I'm surprised. Advertising and bribery are separated by a thin line at times.

Mid-Week Funnies

The president, already suffering in approval due to his handling of Iraq, fed the flames surrounding his party even more by using only his second veto ever to deny a budget requiring metrics and reports on progress. (First veto was the one on stem cell medical research.)



In case you missed it, there has been a video making the rounds from the recent Republican debates. The moderator asks who among them doesn't believe in evolution and three candidates raised their hands. All three immediately plummeted in approval rankings, which is a nice statement for those of us who would like the USA to be part of the age of reason and science.

Weekly look ahead

The recent roaring climb on wall street has some people opening up champagne.

Iran is still building nukes, but wall street doesn't care.

Economic growth is at its slowest in 4 years while earnings growth is at a 3.5 year low -- and yet the stocks are climbing. Home prices are expected to see their first year-over-year price drop ever, but stocks are climbing.

This is it, the capitulation where everybody who was still holding cash decides they have to get in on the roaring market. Everyone has heard the truism about how the market climbs a "wall of worry", and traders know that when the worry goes away the last money is entering the market and the drop is ahead.

Guess when the last time was that the markets climbed for this long? That would be roaring 1929, right before the great collapse. There shouldn't be a collapse this time (we don't have as much leverage and the fed policies are now countercyclic instead of procyclic), but the landing could still be harsh due to the hedge funds.

Hold fast to your cash reserves and be very conservative. I have only about 15% in stocks right now (all in the Finance Wonk Portfolio stocks)

Capitulation means this is "panic buying" an odd phenomena made of individual investors who suddenly think risk is gone and fund advisers getting yelled at because they aren't paid to manage cash. One can't predict when the madness will end, but we know how -- the market will drop. Now is NOT the time to buy.

Firday Tech Files

== Vudu Box is Netflix without the mail ==

This new box from Vudu Labs is probably worth watching. It downloads movies off the web so that you can watch them on TV. That's a similar notion to the Apple TV box but Vudu has deals with 7 movie studios already, making their online offerings potentially larger than either Apple or the paltry online Netflix catalog.

It looks like this year is really setting up to be the year of net-to-TV gadgets. The trend could be trouble for Netflix. Netflix has publicly stated that they don't want to be a trailblazer in the field which has been "supposedly hot" since about 1995. Netflix has started an online program but it offers only a small set of movies and still hinges on viewers watching through their computer in a web browser, with the typical issues involved. As far as I can tell Netflix dosen't even offer a fullscreen version for playing through a media PC to fill up a widescreen television.

Netflix stock has analysts predicting 31% growth indefinitely, and I calculate that the net present value has that growth rate already priced in. I would say that NFLX is overpriced for a company determined NOT to be the vanguard of a new technology that will be getting into homes in the next few years.

== Microsoft goes for another vowel with the oPhone ==
== (or do they) ==

Okay, fine, so it's actually a comedy skit produced internally at Microsoft for fun, but this video is pretty funny and seems to be making the rounds. Check it out:

== Make the perfect Cocktails ==

What could be more of a required skill for the budding investment banker or wall street rainmaker than being able to handle liquor. Recently I stumbled across these nice folks and their books. Get some of their books today and become a dab hand at mixology.

Mid Week Funnies

At this point I don't think anybody in Washington can complain about others making political hay out of Iraq. Has anybody NOT used that for political gain yet?

Four years after George Bush unveiled the "Mission Accomplished" banner, some jokes at his expense were pretty inevitable.
In George Tenet's new book he says that when he was running the CIA the administration was uninterested in facts and just wanted justification for war. I don't really see how that exonerates Tenet though, since he obviously went along with them.
The massive pet food recall continues to grow. In case you haven't heard the current theory is that a bunch of Chinese suppliers figured out they would score higher on protein tests and get paid more if they dumped furniture chemicals into their foodstuffs. Welcome to capitalism!

Weekly look ahead

Charts are below. My apologies but no analysis right now, as I am dealing with an ongoing medical problem.

Mid Week Funnies

Time for our weekly review of non-financial news in the form of editorial cartoons from around the country.

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Bush has had some unfortunate timing lately, extending troop tours the same week he railed against how democrats unacceptably wanted to do the same thing, and fighting against a budget passed by both the congress and senate.


The scandal regarding the firing of US attorneys seems to have all the major elements now: white house involvement, a trail of political motivation, and details of how several of the fired attorneys were investigating key republicans for corruption. The real trick is that nobody can seem to find any laws being broken!

Weekly Look Ahead

Last week saw strong market gains despite surprising and negative economic information. This makes it hard to predict what will happen next.

There is a lot of economic news coming out this week and a fair amount of it is likely to be negative. Investors will get readings on construction spending, pending home sales, factory orders, the manufacturing and services sectors, and personal income and spending (see chart for details).

With more than 2.3rds of the S&P having reported earnings it looks like earnings growth will come in around 6.8%, a serious decline from the last few years. Despite the negative news investors have priced in assumptions that the economy, while slowing, will not go into recession. At some point that sentiment should change... although possibly not for a few more quarters.

One thing is certain though. Based on a hard value analysis point of view the lower growth rates are making stocks seem more expensive. Rising stock prices and declining growth can only go on for a limited time.

Economic Poker

The recent run-up in the market has had me questioning my judgment that cash is the best place to be right now (review: cash accounts currently pay just over 5% risk free).

The stock market used to be a great indicator of economic health, showing the collective guesses of millions of people on profits and growth. This is why the stock market is part of the Conference Board’s index of leading indicators. And yet over the last 3 months the leading indicators have declined (on a year-to-year basis) while the market climbs -- basically most of the economic indicators except the stock market show weakness.

David Rosenberg, chief North American economist at Merrill Lynch & Co., thinks there is a "disconnect between how the economy is doing and the way the equity market is doing." The U.S. economy has just completed four quarters of annualized growth below 3%, which has never happened in 60 years without being followed by recession.

This morning first quarter GDP was reported at 1.3%, below even the pessimistic predictions of 1.5%. Trade and inventories reduced growth significantly, business and government spending growth was tiny – almost all the growth was driven by consumer spending. Consumer spending, however, seems to be giving mixed signals. Reuters and the University of Michigan reported their consumer sentiment index came in at 87.1 at the end of April, compared with readings of 85.3 midmonth and 88.4 at the end of March.

So what does this mean for the future? The quote above from David Rosenberg shows one economists view. Meanwhile Ed Hyman, chief economist at ISI Group, a New York investment dealer expects economic growth to slow further -- to an annual rate of 1.5% in the last nine months of this year -- and the Fed to cut short-term interest rates by three-quarters of a percentage point. But then says “The boost to stocks from lower rates should more than offset the drag from weaker growth and profits”. So this investment dealer says growth will weaken but you should buy stocks anyway.

The Hyman argument bothers me. It suggests he believes stock prices will go up because the returns from cash and bonds will be low, forcing people to buy stocks if they want returns. But this sort of logic ignores profits and stock values completely. Personally I am a fan of rock solid value investing using present value analysis. And it works! My buy list of value stocks blasted market returns last year, and they’ve been climbing like rockets this year too.

I still hold my buy list stocks (this is a real money portfolio after all), but I also still think that cash is a better place for money not specifically in a target stock. I believe the indexes will not outpace current 5% cash returns during this year. It’s stressful to be holding cash while the market climbs, but will feel good during the drop.

Mid-Week Funnies (a day late)

Sorry this is late, I was traveling for business and the airlines failed me. Here are the mid-week funnies from around the country! As always click on any image to view a larger version.

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I have little left to say on Iraq. At this point staying seems to involve vast party-line political considerations. Just as "only Nixon could go to China" we may have "only Democrats can leave Iraq".


In case you missed it the newly conservative supreme court last week decided to uphold a particular form of abortion ban. Many people are making an issue out of it although I think more out of a slippery-slope concern than real impact. The procedure in question is rare.

I had to print this one after the Virginia Tech event for the harsh light on our mercantile culture versus public safety. Ouch.
The situation with Gonzales firing 8 US attorneys, apparently for political reasons, took several ugly turns recently. Not only did the Attorney general say basically nothing in his testimony (such that even Republicans were angry at him), but it is being revealed that many of the attorneys he fired were pursuing fraud cases against Republicans. That's not going to be good for public sentiment.

Weekly look ahead

Good grief! 35 percent of the S&P 500 reports earnings this week. So far earnings growth has been about 5%, not nearly enough to justify the cost of half the stocks on the S&P (based on Net Present Value). Meanwhile the market has been roaring ahead as people are happy that earnings growth has been above the 3.3% projections. Beating projections is nice but growth needs to be high enough to support market value or it's all for nothing.

Given recent sentiment the dow may reach new highs this week again, but it will be interesting to see how long it takes for people to realize that 5% growth can be had with CASH these days, so stocks with 5% earnings growth are not necessarily worth high P/E ratios.

Friday Tech Files

Travel Passes Go Live

Rejoice frequent travelers! The Fast Pass for airport security is now here. You can go here and start the enrollment process, which involves giving up a bunch of privacy for faster trips through airports. Some of us (like myself) who are already under a microscope due to our work shouldn't mind this a bit.

For enrollment they first take:

• Driver's license number
• Previous home addresses for the past five years
• Social Security number
• Alien registration number (permanent foreign residents only)
• A current credit card

And then when you visit in person they check your ID and take your fingerprints and iris photos. The cost is currently about $100 per year.

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E-Ink Watch

E-Ink showed up in the Sony E-book (revealed here September of last year) and now the E-ink concept watch has become real. The above is a women's watch with either an "efficient" setting in which the time is shown in clear numerals or an "elegant" setting (shown) in which the time is somewhat hidden in delicate curls by the high resolution of E-ink. Right now it's still being used as a lure for the lux, as this watch costs $2,000 to buy, but we all know how technology goes so look for this to drop in price over the next few years.

Market Tidbits Today

Greg Zuckerman says the $25 billion proposed buyout of Sallie Mae has more specialists in the private equity industry thinking that the financial-services industry, once considered off limits for buyouts, might be ripe for others. “Among those that could be takeover bait are Countrywide Financial Corp., CIT Group Inc. and iStar Financial Inc., according to some traders and analysts. The fact that Blackstone Group also vied for Sallie Mae suggests that other private-equity firms could be eager for these kinds of deals,” he writes in today’s Wall Street Journal.

David Rosenberg, Merrill Lynch economist, sees current market activity as the reverse of the events of late 2002 and early 2003. “Back then, the equity market just kept on slip-sliding away even as the economic data was turning up in fits and starts and we were moving further out of recession-mode – which had actually ended more than a year earlier,” he writes. “Fast-forward to today and we see the exact opposite – the data have weakened sharply for a few quarters now, no sign of a turnaround in growth, and equities are hitting new highs.”

Henry Blodget thinks the idea that Time Warner could end up spinning off its cable businesses to focus elsewhere is a bit off-kilter. “The theory behind the strategy, apparently, is that cable will become increasingly commoditized and less relevant in a world with the Internet and Internet TV, etc,” he writes. “It was, of course, exactly this sort of thinking that led to the “transformative” AOL-Time Warner merger in the first place.”

George Gutowski, the Financial Skeptic, takes Jefferies to task for its earnings release. “Jefferies is playing a dangerous game. They know most investors and financial media will not listen to and or read the conference call transcript,” he writes. “The press release has such poor disclosure that it will be ignored and viewed as useless by investors.”

Robert Doll, global chief investment officer at BlackRock, says economic softness may last for a couple more quarters, but says equities should hang in there. “We believe the conditions for a bear market simply do not exist, given solid stock valuations, a market that is no longer overbought from a technical perspective and continued high levels of public and private buyout and merger-and-acquisition activity,” he writes in a quarterly update. “Additionally, we would point out that although earnings growth is slowing, we are not expecting any sort of profits recession.

Vinny Catalano writes of how a virtuous cycle of investment, profits and economic growth can break down based on certain economic events or shocks to the system. “It’s easy to see how a serious contraction of U.S. consumer spending can break the virtuous circle – lower U.S. consumer spending begets lower capital flows to emerging economies and oil-exporting countries, which lead to fewer recycled capital into debt instruments, which puts upward pressure on rates, which impacts the borrowing availability to U.S. consumers. And so it goes,” he writes.

Herb Greenberg says executives at Netflix who believe Blockbuster won’t be able to maintain the low prices that are hurting Netflix’s bottom line are smoking something. “Customers are no dummies. They obviously like the combination and flexibility of mixing bricks-and-mortar with online,” he writes. “More importantly, they have now proven that if service and selection are similar, they’ll go with the company that offers the lowest price, margins be damned.”

Mid Week Funnies

Hello folks! Time for our weekly review of news from around the nation in editorial cartoon format.

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Much of the discussion of global warming impact has been industrial growth measured against drawbacks. Recently some protests have focussed on the fact that much of the worst impact will be against those who benefit least from industry. In the worst scenarios the future could be pretty grim, but I bet we all remember the dystopian future scenarios of the 80s. Remember "Road Warrior" ? We were all supposed to be living in a wasteland already and instead we have eBay and the internet.
I like this cartoon not only for the humor but also because of the subtle reference to the corn/oil political maneuvering. Please read here for a VERY neat article on the surprise brilliance of the Bush administrations ethanol policy.