Monday, July 31, 2006

Clearance Sale On U.S Homes!!

By Greg Weldon

The National Bank of Slovakia tightened monetary policy last Tuesday by a unanimous 7-0 vote, taking their official short-term interest rate higher by 50 basis points, taking the two-week repo-rate to 4.5%, following hard on the heels of the ‘surprise’ rate hike enacted by the Hungarian Central Bank on Monday (key rate up by 50bp to 6.75%.).

Note the tenor of the commentary offered by National Bank of Slovakia Vice Governor Martin Barto:

The bank’s board expects that monetary policy tightening will have to continue in the coming months. We cannot rule out further increases in interest rates for the rest of 2006.

The rate hike is just the last in a series of moves designed to provide support for the depreciating Slovak Koruna (Crown) which has included significant direct foreign exchange intervention. We note the sizable decline in Slovakia’s FX Reserves since the end of June, during which time the NBS has ‘spent’ over $3 billion in support of the SKK, amid a reserve contraction from $16.15 billion to $13.06 billion.

The Slovak CB is not the only global monetary authority that is taking a more aggressive stand against currency depreciation and rising rates of inflation, as we note that the Bank of India hiked their official reverse-repo rate last Tuesday, jacking it by +50 bp to 6.0%.

Moreover, after an average monthly increase in India’s official foreign exchange reserves of more than $3 billion over the last year, thanks to currency intervention growth has ceased and reserves have fallen by (-) $1.5 billion since the middle of May.

And the People’s Bank of China is making more noise related to a more aggressively hawkish monetary stance amid intensified speculation that the CB will not only hike short-term interest rates in the near future, but also, that they will begin to take a more serious approach to manipulating the value of the CNY to the upside, in order to assist in the fight against inflation.

Indeed, the Chinese Yuan is making new post-revaluation highs and is now clearly established ‘above’ the psychologically important 8 Yuan per US Dollar level.

Observe the push to new lows in the USD versus the Chinese Yuan as evidenced in the daily chart on display below.

Against a global backdrop that has, and continues to become increasingly dominated by central bank monetary tightening, our focus is the potential exacerbation of the parallel, intensified erosion taking place in the US Housing arena.

The latest macro-data offered in the US is clear on this point, as demand for homes wanes and the supply of unsold homes soars. Data scalpel in hand, we carve away at the data released by the National Association of Realtors (NAR), and the National Association of Home Builders (NAHB).

  • NAR, Existing Home Sales fell (-) 1.3% in the month of June, driving the year-over-year rate further into negative territory, posted at minus (-) 8.9%, down from the (-) 6.6% y/y decline seen in May, and the (-) 5.7% pace of y/y erosion witnessed in April.

  • NAR, Median Existing Home Price up +0.9% y/y, the lowest in over a decade, as home price reflation vanishes into thin air, relative to the +6.0% y/y pace of home price appreciation posted just one month ago, in May.

  • NAR, Median Existing Single-family Home Price up +1.1% y/y, evaporating from +6.4% y/y price appreciation posted in May.

  • NAR, Existing Condo Sales down by a sizable (-) 5.5% during the month of June, taking the y/y rate of Condo sales to a deeply negative (-) 14.6% pace of decline, more than double the (-) 6.6% y/y pace of sales deflation posted in May.

  • NAR, Median Existing Condo Price deflated by (-) 1.0% during the month, taking the y/y price change from positive to negative, as defined by the (-) 2.1% y/y decline posted for June, versus the rise of +1.9% y/y seen in May.

  • NAR, Supply of Existing Condos for Sale rose to a whopping 8 months worth of sales, a NEW RECORD HIGH, up from 7.7 months posted in May, and almost twice as many as seen in June of last year, when the figure was pegged at 4.2 months.

  • NAR, Supply of Existing Homes for Sale rose by a huge +3.8% during the month of June alone, taking the total supply of unsold existing homes to a NEW RECORD HIGH of 3.73 million. Further, the number of homes for sale spiked to 6.8 months worth of sales, up from the 6.4 months worth of sales posted in May and sharply higher than the 4.4 months worth of sales posted in June of last year.

Indeed, the number of Existing Homes for Sale measured in months worth of sales reached its highest level since July of 1997, and, more impressively, has risen by more than one million homes over just the last twelve months, a nominal increase of nearly 40%!!!

No wonder then, that Home Builder’s sentiment is...

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Wednesday, July 26, 2006

Earnings Season Randoms: Vicor, Cypress Semi, Plantronics, Sirf, Mueller Water

By Fil Zucchi

  • Vicor (VICR) gave me fits yesterday, after reporting a surprisingly bad quarter and saying that customers pulled the plug on demand. Not a shocker when it comes to PC related products, but a “canary in the coal mine” when it comes to customers in the capital equipment side of things. Was the CEO blowing smoke about the deteriorating macro environment, just to cover his tracks? Maybe, but I always viewed the guy as a straight shooter. What am I doing with this? I was long 80% of a position from $17.00 and I bought the rest yesterday at $11.00. It was either average down or cut bait, and in the scheme of my other positions, and perhaps falling back on some bad old habits, I chose the former. As you can tell from the tone of my writing, my level of conviction is not exactly high.

  • Cypress Semi (CY): T.J. Rodgers continues to deliver on the profit promise. No warnings signs from him (and if they were there you can rest assured he’d tell you), but this exchange was “interesting”:

    Analyst :. . . it looks to me like the revenue guidance might be conservative, especially given the growth coming from SunPower. Can you comment on that and why you're looking for less turns in the September quarter?

    TJ Rodgers: “We have 87% of the quarter booked from day one, our turns are consistent with the quarter, but this has been going, good news, for six quarters now. And like all of you, the questions today are clearly, how long will this last and how long will it be good type questions? We also wondered, we see no signs whatsoever, and therefore, we're giving you a number we believe we can make.” (Emphasis added)

    Are folks starting to wonder if the party can last? Are they seeing something that suggests that it should not be lasting?
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Friday, July 21, 2006

Cajoling The Markets

By John Succo

The comparison of what Mr. Bernanke said to Congress..."the housing market slowdown appears to be orderly decline" what the CEO of DR Horton (DHI) said..."sales are falling off the Richter scale"...should say a lot of how the government attempts to cajole markets.

The company "senses there are three to four quarters of inventory adjustments ahead for homebuilders."

From the flawed statistics they release to their subjective commentary, I can't believe anyone still listens to them.

Government intervention and control of markets has a very negative cumulative effect. Easy credit allows unproductive companies to survive when they should not. It interrupts the system from cleansing itself which creates stronger growth in the future. Our economic growth becomes more and more dependent on speculation. All that stability investors "feel" is...

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Wednesday, July 19, 2006

What Options Are Telling Me

By John Succo

I am pretty busy selling deltas (stock) up here against our positions. Wells Fargo (WFC) has rallied 3.3% today yet they crush volatility in option prices. This is a major move in stock and the reaction of people always amazes me. But it is really due to call selling from overwriters.

Just like a major increase in option prices tend to make markets rally (as explained), a crush in volatility sets up the market to fall back. Again, much of this rally is due to a sort of short covering where those long expensive puts panic and "puke" them out.

And it starts over and over again, a process that tells a lot if you look between the lines. Options are telling me that people are now more worried about missing a rally than anything.

All this in a backdrop where central banks are more...

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Monday, July 17, 2006

Random Thoughts

By Todd Harrison

  • Minyans must remember that the geopolitical issues aren't the root cause of the big picture malaise. We've got massive structural imbalances, a bloated consumer and all kinds of issues to digest in a complicated financial mess. Please keep this in mind if your risk is out-sized and you need to re-balance your book.

  • With that said, Sky News is reporting that would agree to a ceasefire if Hezbollah withdraw from the Israeli border area (citing an Israeli official). IF that happens (and I'm not sure how plausible it is), we'll likely see a relief rally. It is then, while the screens are green, that we'll have an opportunity to reposition our risk.
To catch the rest of Todd's Random Thoughts, Read the full Article

Tuesday, July 11, 2006

Random Thoughts

By Todd Harrison

  • CRB 330-334 remains an uber-important double secret support zone for commodity land. If they break that shake, you'll start hearing the word "deflation" on a lot more lips.

  • We've seen a lot more option selling than option buying as we edge into earnings. As Professor Succo would say, that's a complacent 'theme.'

  • Outside of specific nibbles (such as JP Morgan puts under BKX 108), I'm typing with one hand and sitting on the other. This, despite my earlier sense that the S&P 200-day was fraught with fragility.

  • A view from afar? I can tell you, after a week abroad, that the dollar is hurtin' for certain and the collective perceptions of the USA aren't what they used to be. Not a shocker, given my long-standing and oft-communicated vibes, but worthy of a mention nonetheless.

  • Snaps to Minyan Matt Ford for the upcoming publication of "Threat, Intimidation and Student Financial Market Knowledge: An Empirical Study" in the Journal of Education for Business. I am a co-author of this academic study--which is sorta cool--but Matty deserves the group hug. He's doing great things with UMV so if you've got college age Minyans--or would like to include your school in our syndicate--please get involved. That's how we grow!

To see the rest of Todd's Random Thoughts, Read the Full Article at

Monday, July 10, 2006

Can AOL Catch Google and Yahoo?

By Kevin Wassong

When I started at J. Walter Thomson in 1998, I sat down with the then world wide COO to talk about interactive advertising and JWT’s position in the market. In terms of interactive, he said to me, “…this is a race for our lives. It used to be that we were looking at our competitors, running right behind them (Ogilvy, BBDO, McCann), but now they are so far in front of us that we can’t even see them anymore. Your job is to get us back into that race.” This is exactly what I did at JWT’s digital arm until leaving the firm at the end of 2004.

In the late 1990’s AOL was one of, if not THE leader in online advertising, garnering the lion’s share of ad dollars being spent on line. The man leading the charge was Meyer Berlow. A hard nosed/shrewd ‘player’ in the media space. He was one of the first meetings I set up as the head of JWT’s interactive division. I knew Myer from an earlier agency I had worked at in California, but Myer had now climbed to the top position at AOL as President for Global Marketing solutions and he could sell advertising. Most of the big fish, Unilever (UL), Proctor & Gamble (PG), all the Automotive manufacturers bought the AOL pitch, hook, line and sinker. In the post Berlow era, AOL lost its drive for the advertising and focused on subscriber growth – does anyone remember the CDs they’d receive in their newspaper offering “25 Hours of AOL FREE!” If I had a nickel for each of those CDs I’d be retired today!

To see Kevin's analysis read the full article at