The Big Picture

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• All Major Global Equity Markets Close Below Their 50-day M.A.
• Hey, You Kids, Get Off My Lawn!
• HBO’s Lessons Learned from ‘Too Big to Fail’
• Europe’s Spreading Infection
• Fleckenstein Doesn’t See Technology Industry `Bubble
• Federal Reserve Posters (1920′s)
• What Does Company Guidance Tell Us About The Economy?
• Sector Performance Since QE2
• Monday Morning Reads
• A Losing Bet: The End of the World

All Major Global Equity Markets Close Below Their 50-day M.A. Posted: 23 May 2011 10:00 PM PDT What a difference a trading day makes.   As of Friday's close only seven of the fourteen major global indices that we track were below their 50-day moving averages.  As of today, they all are.  The S&P500,  Dow (just barely),  Nasdaq,  all three European, and the Korean Kospi broke their 50-days.   The Hang Seng and Shanghai fell sharply to close below their 200-day moving averages. Some positives were the VIX, after opening at 19.55,  traded lower almost all day.  The S&P500 filled the April 19-20 opening gap at 1312.70-ish and held.   The BOVESPA and Mexican Bolsa  were able to muster impressive bounces off their opening lows.  And, finally,  Apple,  after probing the key support level of $327.50,  closed up $5 off its low of $329.42.   Given the attack of the Macro Swans and lack of upside catalysts, tough to see how we bounce big here,  other than some nutcracking short covering.   Let's see what Turnaround Tuesday brings us.   (click here if table is not observable) >

Hey, You Kids, Get Off My Lawn! Posted: 23 May 2011 03:54 PM PDT The entire internet is making us dumber. That’s a meme is making its way around the internet. Its partially true, in that the meme itself will make you dumber. The internet, on the other hand, will not. Via Bill Keller of the NYT, the latest version of parents hating their kids music is this rather simplistic take on technology. Keller’s column, The Twitter Trap, should have been titled “As Dumb Or Lazy As You Choose to Be” (except that scored too poorly with the SEO consultants). I wanted to avoid discussing The Twitter Trap until pal Doug Kass mentioned it in his column today. Ugh. No, we are not outsourcing our brains to the cloud. That’s the rosy glow of nostalgia, which is so powerful it can even make horrid little things like slide rules seem attractive in retrospect. So let’s cut to the chase: Anyone can take any technology and abuse it to the point of foolishness. If you rely on anecdotes involving your own kid, you can find proof of anything. Consider the following: • The Printing press threatened existing political power structures and religious authorities; That was why it was scandalous. Not because we no longer had to rely on memorizing huge amounts of information. Apparently, a massive increase in literacy and bringing books to the masses was to be ignored; • What do I lose now that I do not have to waste vast amounts of time with empty, brainless, non-thinking, learn-by-rote memorization? I now have time to spend on critical thinking and analytical reasoning. Who believes that was a bad trade off? • No more slide rules? You mean now ANYONE can do use a calculator (instead of only a select few?) • And did the pocket calculator really “reduce a generation’s math skills?” I thought Calculators meant that fast, accurate, reliable mathematics were available to everyone. • Wasn’t recorded music going to kill live music . . . ? • “The typewriter killed penmanship.” (But it allowed for legible words to be put on paper quickly) • Has television “muffled creativity, discourse and interaction?” I thought TV brought entertainment to millions of people at affordable prices. It democratized entertainment versus theater and film. • Does having a GPS really impair our sense of direction — or does it helps millions of people get to their destination, allow visitors to go where they might not otherwise attempt, and allow delivery people to find where they are going safely? • Who really believes “Texting diminished our language skills and our vocabulary?” I find Texting teaches brevity and focus. • Are our memory capacities actually being weakened by Google? I have enough memory to 1) ask for empirical evidence of that; 2) Remind you that Google has allowed us to access and learn far more than we might have forgotten; • Does the “ephemeral nature of social media, like Facebook and Twitter, creates stunted relationships and has damaged our attention span?” I now that Facebook creates “ephemeral” relationships with people I would otherwise have had no relationship with. Is that preferable? And so on. It seems every new technology that has ever been  developed has come with wildly over-hyped, madly inaccurate forecasts by the prior generation. In a bizarre way, the internet is the ideal technology for Luddites to ironically spread their anti-technology messages. That is because it is a tool — a way to interact, access and share information, opinions, even foolish memes. Like any other tool, it can be misused or abused by some. You kids turn that music down!

HBO’s Lessons Learned from ‘Too Big to Fail’ Posted: 23 May 2011 12:00 PM PDT

Europe’s Spreading Infection Posted: 23 May 2011 11:30 AM PDT From The Economist: “THE fear that Greece’s sovereign-debt crisis might presage similar episodes elsewhere in the euro zone has been borne out. In November, Ireland joined Greece in intensive care, becoming the first euro-zone country to apply for funds from the rescue scheme agreed in May 2010 in concert with the IMF. Sovereign-bond spreads (the extra interest compared with bonds issued by Germany, the safest credit) have risen sharply in other euro-zone countries, notably Portugal, but also in Spain. “ Source: (The Economist)

Fleckenstein Doesn’t See Technology Industry `Bubble Posted: 23 May 2011 10:08 AM PDT William Fleckenstein, president of Fleckenstein Capital Inc., discusses the outlook for technology stocks and his investment strategy. He talks with Betty Liu, Dominic Chu and Jon Erlichman on Bloomberg Television’s “In the Loop.” May 23 (Bloomberg)

Federal Reserve Posters (1920′s) Posted: 23 May 2011 10:00 AM PDT These cool posters below come from the San Francisco Fed archive, courtesy of NY Fed’s blog Liberty Street Economics. Over the years, the Federal Reserve System has used many methods to communicate about the role it plays in support of stable prices, full employment, and financial stability. Current communication tools include the new press conferences by the Chairman, speeches by Bank presidents, public websites, economic education programs, local outreach efforts, publications, and blogs like this one. Back when the Fed was new, and the nation's economy was plagued by a growing number of bank failures, the posters below were supposed to convey a sense of strength and stability. More posters after the jump

What Does Company Guidance Tell Us About The Economy? Posted: 23 May 2011 09:00 AM PDT Last week, we highlighted how earnings estimates were being gamed and have become more inaccurate in recent years. If earnings estimates are no longer a good tool in predicting economic activity or market movements, can company guidance offer any insight? The chart below shows the daily number of companies offering positive guidance in red, negative guidance in blue, and neutral guidance in black. The sharp-eyed reader will note that positive guidance (red) is almost always below both negative guidance (blue) and neutral guidance (black). This means the majority of guidance is either neutral or down. Analysts are always too optimistic on future earnings, making it nearly impossible for a company to offer higher guidance than analysts' estimates. Company Guidance Trends Click on chart for larger image This index below plots the number of companies offering positive guidance minus those offering negative guidance plus 1/2 the number of companies offering neutral guidance divided by the total number of companies offering guidance. Neutral guidance gets a 1/2 weighting because affirming the consensus is not as important as offering guidance that differs from expectations (positive or negative). A rising ratio means companies are offering relatively better guidance while a falling ratio means the opposite. By this measure guidance is more positive than usual. 3 Month Company Guidance Index Click on chart for larger image Does Guidance Lead The Economy? The next chart overlays the Company Guidance Index with the ECRI Growth Rate index. The ECRI is a weekly measure of seven economic releases that are supposed to lead the economy (detailed here). Without running a statistical analysis, it is clear that the ECRI turns ahead of the Company Guidance Index. Currently the ECRI growth rate is heading down while the Company Guidance Index is heading higher. In the last year, any relationship between company guidance and the economy appears random.  Divergences between these measures are often reconciled with the Company Guidance Index moving toward the ECRI and not the other way around. In other words, the ECRI leads the economy and the Company Guidance Index. 3 Months Company Guidance Index vs ECRI Growth Index Click on chart for larger image Does Guidance Lead The Stock Market? If guidance is on the rise, should investors expect further gains in the stock market in the near future? In one word, no. Let's examine stock returns in the quarter immediately following previous peaks in the Company Guidance Index. The chart below plots the 3-month rate of change of the S&P 500 in red and the 3-month average of the Company Guidance Index in blue. The second-highest peak in the Company Guidance Index occurred on June 5, 2002. In the 3 months following that peak, the S&P 500 returned -14.44%. In the 3 months following the Company Guidance Index' June 7, 2004 peak, the S&P 500 returned -0.89%. In the 3 months following the Company Guidance Index' July 22, 2008 peak, the S&P 500 returned -28.70%. This is not meant to imply that stocks fall soon after the Company Guidance Index peaks. However, the argument that rising guidance is positive for stocks is not supported by the data. A quick look at the chart shows a general lack of any relationship between these two measures. We are not surprised by this lack of correlation because many more things than company guidance (or forecasts) drive stock prices, especially in recent years. 3 Months Company Guidance Index vs S&P500 Rate of Change Click on chart for larger image

Sector Performance Since QE2 Posted: 23 May 2011 08:45 AM PDT In light of today’s sell off, I thought it might be worthwhile to look at how various sectors have been performing since QE2 began (all charts courtesy of The Chart Store) > click for larger charts

Monday Morning Reads Posted: 23 May 2011 07:37 AM PDT Lots of interesting reading to start the week: • Once bullish, contrarian Jim Grant likes cash now (Aleph Blog) • In defence of the Shiller p/e (The Economist) • Yes, This Is Called the Dismal Science. Why Do You Ask? (Delong) • Caroline Baum: Both Parties Wrong on Tax Breaks for Big Oil (Bloomberg) • China hit by worst energy crisis in years as drought compounds chronic power shortages (Washington Post) • Agreeing on Groupon (HBR) • The Wave-Maker (Vanity Fair) • How spam works, from end to end (BoingBoing) • Fantasy Island – Are Republicans losing their grip on reality? (Slate) • How our bits shape us: James Gleick's "The Information" (Nieman Lab) What on your browser?

A Losing Bet: The End of the World Posted: 23 May 2011 06:00 AM PDT If you are reading this, it means that the end of the world, previously scheduled for 1994 Saturday night, did not occur. Why anyone pays attention to these dang fools is one of the more annoying vestiges of the 2007-09 recession and market collapse. The rise of the cranks is a classic example of the Recency effect, an after the fact, 20/20 hindsight, rear view look at the world. Not just the eejit End-of-Worlders who have been with us since the beginning of time. There have also been a slew of broken watch pundits who have enjoyed an undeserved credibility following the crisis. Who are these Doom & Gloomers? They include: • Crisis rock stars; • Goldbrickers who missed the equity rally; • Thinly veiled partisans; • Hyper-inflationistas; • Conspiracy theorists! • Austerians; • Analysts trying to turn one good call into a new business model; • One sided web sites that never see anything positive; • Specialists in Recession Porn; I don’t have to name names — you can do that if you want. I am compelled to point out that this crowd not only is enjoying undeserved credibility, they are NOT making their followers money. Listening to their advice, their readership missed the greatest market rally in 4 generations, but they piled into commodities in time for a major collapse, got frightened out of munis that have no credit issue or default threat, and have otherwise missed opportunities and lost capital. I have never been a perma-bull — not only because its money-losing to be one-sided, but also because throughout most of my career, equities have been over-priced. The bottom line is simple this: You best understand the motivations, track record, and credibility of the people you choose to read before you allocate any capital based upon it.

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