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Weekend Reading

Paul Kedrosky

Good Sunday morning, and welcome to Weekend Reading. As always, here are some articles and papers worth reading. First, however, a look back at the week that just finished, and a look forward to the week ahead.

It was the worst week for the major markets since March 2003. The Dow lost 4.2%, and the S&P 500 index was down 4.4%. The Nasdaq Composite was its usual more volatile self, tumbling 5.8%.

There already is an entire cottage industry of people coming up with explanations for why the markets fell last week, and, in particular, why there was such a dramatic air pocket on Tuesday. But the bottom line is that there is no bottom line. Sure, there were some weak economic figures, Alan Greenspan hinted at a possible recession and the Shanghai market had a bad day at the beginning of the week. But in the end, the markets fell because the markets fell. Anyone who pretends to have a better explanation is selling something.

Looking forward to next week, the newly active fault line running through the major markets will make things even more entertaining than usual. Any hint of weakness and people will be running for the exits, and any sign of meltup and people will be piling into equities for fear of missing a big move upward. There is going to be plenty of opportunity for both, but the trend is likely to be directionless volatility, at least until investors figure out if last week's event was a one-off or something more serious.

Turning to economic indicators, the highlight of the week will be the government's release of the nonfarm payroll report on Friday. Earlier, on Monday, the Institute for Supply Management plans to release its services sector index.

Finally, here are some articles and papers worth reading:

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• Don't trust the explanations for last week's market metldown. (Bloomberg columnist Caroline Baum)
• Troubles in subprime mortgages are set to ripple through collateralized debt obligations. (Investment Dealers' Digest)
• The CDO market is set to soften. (The Economist)
• The U.S. mortgage crisis goes into meltdown. (Telegraph)
• More than 20 subprime mortgage companies are now in bankruptcy. (The Christian Science Monitor)
• Prices soared as ARM use in California went from 20% to 80% -- so which caused which? (SSRN)
• Lending standards are suddenly tightening dramatically, with potential widespread consequences. (Reuters)
• The cheap airline revolution is tranforming Europe. (Bloomberg magazine)
• JetBlue's(JBLU Quote) critics should fly Chinese airlines for a while. (Los Angeles Times)
• Barron's tips a bevy of cheap large-caps, while Abelson disagrees. (Barron's)
• Microsoft(MSFT Quote) is being pummelled in the online search-marketing business -- and it's getting worse. (InfoWorld)
• By 2010 Microsoft will have shifted all its advertising to digital. (AdAge.com)
• Yahoo!'s(YHOO Quote) Panama ad server is seeing positive early indications. (Infectious Greed)
• The U.S. division of Akzo Nobel(AKZOY Quote) is under pressure over a controversial new antibiotic. (The Washington Post)
• Nortel(NT Quote) restates earnings again, for the fourth time in four years. (The New York Times)
• Farm real estate continues to perform. (The New York Times)
• Cloned hedge funds are now up and running. (Institutional Investor)
• Despite recent volatility, things look upbeat for major markets. (BusinessWeek)
• Chinese markets function more like casinos than economic indicators. (Globe and Mail)
• Chinese investors think the state will bail them out if stocks go awry. (The Washington Post)
• How a crisis in a faraway market could cause the next market meltdown. (The New York Times)
• A U.S. slowdown is to be expected. (The Economist)
• Goldman Sachs(GS Quote), Merrill(MER Quote) almost junk status. (Bloomberg)
• Investors busy alpha-chasing, without many capturing it. (Bloomberg)
• Book of interviews with hedge fund managers gets positive press. (Traders' Library/The New York Times)
• The sensitivity of short rates to macroeconomic news. (FRB)

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting