Weekend Reading: Smooth Sailing

Good Sunday. Here are some articles and papers worth reading. First, however, a look back at the week that just finished, and a look forward at the week ahead.

The major markets all advanced again last week. We are near four-year highs on the Dow, and the S&P 500 is in a similarly advanced state of glee. While the Nasdaq Composite is doing nowhere near as well, it too had solid week.

Why do investors remain so cheery? Lower energy prices and relatively stable inflation have helped, as has the absence of hurricanes, floods, and other acts of misbehaving nature. But it also feels like one of those year-end things, a situation where investors are determinedly optimistic about putting a good-sized slug of money to work, and they will continue doing so until there is a good reason not to.

Turning to the economic week ahead, it is a holiday-shortened one. On Monday we have the Conference Board's Index of Leading Indicators, which is expected to show a 0.9% improvement. On Wednesday we have consumer sentiment figures, which are also expected to have turned the corner from the mopey period surrounding the hurricanes earlier this year.

Next week is fairly quiet in terms of earnings reports, but there are still a few. Look for Campbell Soup (CPB Quote), Sharper Image (SHRP Quote) and Nintendo (NTDOY.PK Quote).

Finally, here are some articles and papers worth reading:

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• Economist magazine says bye to another skeptical Buttonwood columnist -- which must be an indicator of something? (The Economist)
• Investors continue to believe, nervously, in this year-end rally (Los Angeles Times)

• While new Fed chair Bernanke faces tough choices, the toughest financial choices are faced by Congress (Fortune)
• Passive index funds have been beaten recently by a basket of mutual funds, so they are regrouping and looking a lot less passive (Bloomberg)
• Barron's tips Kodak (to Bill Miller's year-end delight) and Weyerhaeuser, and pans Google (!) (Barron's)
• High gasoline prices aren't stopping service stations from going broke (San Francisco Chronicle)
• Merrill Lynch drops its "market-weight" investment rating -- everything's now either a buy or a sell (The Globe and Mail)
• RIM CEO not worried about Microsoft: People buy apps, not operating systems (CRN)
• The hidden risks of hedge funds (Stanford / Institutional Investor)
• The derivatives market is now likely larger than the corporate bond market (Institutional Investor)
• Research: Analysts are less likely to issue overly-positive recommendations on IPO candidates, but they still are overly optimistic (SSRN)
• Research: What can rational investors do about Mr. Market's mood swings? Nothing, mostly (Wharton working paper)

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