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Five Things You Need to Know: Do Not Adjust Your Radio Dial, Who Do You Trust? Bank Shot, Why New Yorker Readers Are Cranky, Prediction: Disaster!

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What you need to know (and what it means)!

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Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Do Not Adjust Your Radio Dial

Take a look at the chart below of the S&P 500, Nasdaq-100 and Russell 2000 futures contracts from early Sunday evening.

  • See the big spike at 6:25 p.m. on Sunday evening?
  • Looks like a misprint. But it's not. According to Globex all trades stand.
  • So if you were minding your own business yesterday afternoon and fired up the Bloomberg at home to check on Futes just after halftime of the late football games, you would have seen the SP futures up about 14 points and the ND futures up more than 20 points.
  • With no news hitting the wires at the time, speculation about the causes for the move run the gamut of pure speculation - from an accidental, fat-fingered trade - though all markets (SP, ND, RL) moved simultaneously - to pure capitulation, to perhaps the anxiety of a hedge fund risk controller forcing a trader out "Now!"
  • The important part, however, is not so much why it occurred but that the trades stand and the chart is correct.


2. Minyanville Presents: Who Do You Trust?

Give the following choices, who do you trust?

a). The National Association of Home Builders
(Who last week trumpeted to anyone who would listen that the declining home building market has "stabilized" after a one-point surge in their index of builder confidence.)

b). David Lereah
("chief economist" for the National Association of Realtors and author of the book "Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them," who last week noted that "Our sense is that home sales may have reached a low in August.")

c.) Actual, real-life traders of mortgage-backed securities
(And the derivatives on which those securities are based.
)

  • Look, we have no idea who you chose to trust on this.
  • Maybe you chose to trust (a), the NAHB - an association whose mission, according to their own Website, is to represent the building industry and to "create an environment" where housing and those who provide it are recognized as the "strength of the nation."
  • Or maybe you chose to trust (b), the "chief economist" for the NAR, an association whose mission, according to their Website, is "to help its members become more profitable," which last time we checked will only happen if more houses are sold.
  • Did we mention that David Lereah, the NAR's "chief economist," has a book for sale?
  • Or perhaps, like us, you instead chose to trust real-life traders who:
    - C
    ouldn't care less about helping builders build homes and become the "strength of the nation"
    - Couldn't care less about whether realtors are profitable and successful
    - Have not written any books about the never-ending boom expected to continue over the next decade in real estate
    - Actually trade mortgage-backed securities for a living
    - Based on their actual trades made with their real money are expecting mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale as measured by the National Association of Realtors (whose mission is to help its members - realtors - become more profitable) is at a 13-year high
  • Further, did you know that the ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January, according to Bloomberg?
  • As well, the percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998, Moody's Investors Service said Oct. 17.


3. Bank Shot

So, how did the third quarter stack up for Banks - the sector macro theorists love to hate? Minyanville Professor John Succo asked Vicis Capital's London-based research analyst Steve Zausner for a rundown.

  • Overall, the third quarter was pretty weak, Zausner wrote.
  • "Most banks did meet, or slightly beat, estimates, but the quality of the earnings was suspect, with a lot of banks meeting or beating due to one-time gains (Citigroup (C), Wachovia (WB), Suntrust (STI), expenses and credit quality (Wachovia most notable)."
  • Net interest margin was the most worrisome aspect of the quarter, he said. "Almost every bank reported a decline in net interest margin. In almost all cases this was caused by: rising bank deposit costs and a flat to inverted yield curve."
  • Loan loss provisions remained at historically low levels, despite multiple indicators that credit quality is weakening, especially in subprime mortgage and residential construction.
  • There is a flashpoint in this data, Zausner said: "very few banks provided for loan growth and I saw very little cushion left in reserves. Banks are betting that the loan market disappears and with rising profits and without a steep yield curve, so should profits. Either that or they keep lending like they had, credit gets crunched and we start seeing chargeoffs."
  • According to Zausner, the best quarters were at Wells Fargo (WFC), Regions Financial (RF) and surprisingly Comerica (CMA).
  • Worst quarters were at ASO, BBT, FHN, STI, WB, USB.
  • The big three (JPM, BAC, C) were all neutrals.


4. Why "New Yorker" Readers are Cranky

Several times a week during my subway commutes from lower Manhattan to MVHQ offices in Midtown and back someone will shove me trying to get on or off the subway. Inevitably, this person (the shover) will be carrying a copy of the New Yorker. Why are New Yorker readers so cranky?

  • At first I just assumed people who read the New Yorker, the intelligentsia (AKA, people who are smarter than the rest of us), were simply very cranky or perhaps in a hurry to get somewhere quickly so they could finish reading an extraordinarily long magazine article (It's like a magazine with three paperback books printed inside!).
  • Last week, however, I learned the truth when a New Yorker reader shoved me off the subway and the door closed on their copy of the latest New Yorker magazine.
  • Quickly, I snatched the magazine out of the door as the train pulled away.
  • I did this, a.) out of spite, and b.) also out of spite.
  • Turns out being a New Yorker reader gives you have a lot to worry about.
  • In the October 23 issue I snatched from a pushy subscriber, the lead article was a piece by Michael Specter about "the possibility of a catastrophic water shortage."
  • "Unfortunately, water has always been a major force in human conflict," Specter notes. "It's hard to see how that can get anything but worse as the population grows and water becomes less available in many parts of the world."
  • Yikes.
  • Of course, Minyanville readers have been fortunate enough to learn quite a bit about water as an investment thesis for more than a year thanks to comments published here by Raymond James' Jeffrey Saut and Minyanville Professor Fil Zucchi.
  • More importantly, no one was shoved on or off a subway to find out about it.


The mighty Mississippi?



5. Prediction: Disaster!

Five years after its debut, the iPod has been a universal success as a digital tech product. Love it or hate it, the facts are everyone knows what it is, knows what it does, knows who makes it, knows where to get one and most would like to invent the next one.

  • But did everyone immediately recognize the product's potential at its unveiling in 2001?
  • Playlist Magazine looks back at the earliest iPod reviews:
    - One of the "Top Five Worst Tech Gifts" to get for Christmas in 2001-TechTarget
    - "No wireless. Less space than a Nomad. Lame."-CmdrTaco, Slashdot
    - "Sure, it looks to be a well implemented MP3 player but who cares? Apple loyals will swipe up a bunch of them but there really is little innovation to care about."Reader post, MacInTouch
    - "I'd call it the Cube 2.0 as it won't sell, and be killed off in a short time… and it's not really functional."Forum poster, MacRumors.com
  • Of course, not everyone predicted disaster for the iPod. Smash Mouth lead singer Steve Harwell produced our favorite, succinct prediction:
    -
    "This kicks every other product's ass right here."
  • Indeed.


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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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