Week-in-Review Linkfest

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Contained? Contain this!

Mr. Market had a good laugh at everyone's expense this week, chuckling at all that chatter about the "containment" of the subprime meltdown. A certain contingent of mindless pundits who have been clothing the emperor had been steadily chanting that the fall in housing would have no impact on either the economy or the markets.

Of course, it's becoming crystal clear that this was the mind-boggling nonsense that it seemed to be. Whether it's in retail numbers -- think Best Buy, Starbucks and FedEx(FDX Quote) -- or in the frenzied $3.2 billion dollar machinations by Bear Stearns to rescue two hedge funds, we now know beyond any shadow of a doubt that the rise and fall of the housing sector has had major repercussions on the markets and the economy.

The question before us now is whether the zookeepers can track down the beast, tranquilize it and drag it back to its stinking cage before things get much worse.

All things considered, the damage this past week was mild. The biggest losers were the REIT stocks, down 4.2%. Commodities gave up 3.2% (but crude gained just under 1%). Among the major U.S. indices, the Dow Jones Industrial Average dropped 2.0% (its second-worst week this year). The S&P 500 also slid 2.0%, while the Russell 2000 experienced a 1.6% drop. The Nasdaq held up relatively well, declining but 1.4% -- a victory of sorts, considering the tech-laden index's predilection for volatility. Treasuries rallied slightly, regaining some of their losses from the prior week.

Barron's Trader column summed up the week thus:

"Bulls will put a positive spin on the pause, pronouncing such consolidation a constructive necessity for the bull's onward charge. A wholly unscientific poll, conducted over several happy hours, also suggests that many traders do not see higher interest rates hurting stocks until the 10-year yield tops 5.5%."

Our review of the week finds a mix of good and bad news. Wanna know how this all went down? Get clicking!

INVESTING & TRADING

• Contain THIS! So much for that theory...

• The Soft Underside of the Bull: "The battle between Bulls and Bears rules in any market, and this year the bulls are reigning supreme. But the question many chart watchers are now asking is whether this is due to sustainable demand for stocks or from too much money chasing an ever-shrinking pool of available shares in which to invest." (Barron's)

• Adding to this week's volatility: The Russell Indices' Rebalancing.

• Private Equity Squeezes the Shorts: "... as short-selling has proliferated, it has become increasingly difficult to make money at the game. Whereas a profit-challenged enterprise may once have floundered until shutting down or filing for bankruptcy, many such companies are now targets for private equity firms that style themselves as turnaround artists. ... What's more, such firms are often willing to pay a rich premium to the market price for troubled outfits in which they see promise." (BusinessWeek)

• Investing blogs are popping up from every corner of high finance. The Associated Press is your tour guide.

• Seven Factors Boosting Treasuries: "The U.S. Treasury market is advancing on a number of factors, some of which would likely spur a significant advance if they developed further, although this is not yet in sight. The best bet is for stability in bonds -- no moon shot -- because many of the factors that recently drove yields higher are still in place." (TheStreet.com) As you would imagine, I find these arguments quite interesting, but not compelling.

• For a decidely different take on the Blackstone IPO, read The Golden Ass: How Blackstone CEO Steve Schwarzman's antics may cost him and his colleagues billions of dollars. (Slate)

• What happens when you suggest we should replace subsidies for oil and ethanol with subsidies for solar, and at the same time have expedited processing for nuclear power plant permits? A whole lot of commentary! Crude Remains Strong Despite Inventory Build.

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ECONOMY

The Wall of Worry continues to build:

• What do you call a 25% increase in the Goldman Sachs Commodity Index over the past five months? Agflation!

• Stephen Roach's Bookends: "Two years - 1982 and 2007 - frame the window of my experience as an economist at Morgan Stanley. When I walked in the door a quarter century ago, my focus was on a $3 trillion high-inflation US economy that was mired in the depths of its worst recession of the post-World War II era. Today, all eyes are on a low-inflation, increasingly integrated $52 trillion world economy. There couldn't be a greater difference between then and now."

• Report from UCLA team skirts the R-word: "The sluggish housing market is starting to drag down the rest of the economy, leading UCLA forecasters to conclude that although the U.S. is not actually in a recession, 'it is certainly close.'" (Los Angeles Times)

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HOUSING

• Out of touch with realty reality: What, me worry? Most Americans don't seem to believe there's a serious housing slump. "Despite turmoil in the housing markets that includes record foreclosure numbers, mortgage rate increases and home price depreciation, homeowners don't believe there's a real estate slump, according to a new poll." (CNNMoney.com)

• Subprime storm winds will keep blowing: "The fallout from a years-long surge in subprime lending -- higher-cost loans to borrowers with impaired credit -- is far from finished. The number of homes entering foreclosure is expected to top 1 million this year, with 60% of those being subprime mortgages, says mortgage giant Freddie Mac." (USA Today)

• Rate Rise Pushes Housing, Economy to `Blood Bath': "The worst is yet to come for the U.S. housing market. The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported." (Bloomberg)

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TECHNOLOGY & SCIENCE

• Steve Jobs in a Box: "It's a stunning box, a wizard object with a passel of amazing features (It's a phone! An iPod! A Web browser!). But for all its marvels, the iPhone inaugurates a dangerous new era for Jobs. Has he peaked?" (New York)

• Microsoft(MSFT Quote) vs. Google(GOOG Quote): The duel on your desktop. (The Seattle Times)

• 25 Web Sites to Watch. (PC World.com)

• Mapping the Internet: "The increased use of peer-to-peer communications could improve the overall capacity of the Internet and make it run much more smoothly. That's the conclusion of a novel study mapping the structure of the Internet."

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MUSIC BOOKS MOVIES TV FUN!

• An Earth Without People: "... what if all human beings were suddenly whisked off the planet? That premise is the starting point for The World Without Us, a new book by science writer Alan Weisman, an associate professor of journalism at the University of Arizona. In this extended thought experiment, Weisman does not specify exactly what finishes off Homo sapiens; instead he simply assumes the abrupt disappearance of our species and projects the sequence of events that would most likely occur in the years, decades and centuries afterward."

• The 30-Second Bunnies Theatre Library ... in which a troupe of bunnies parodies a collection of movies by re-enacting them in 30 seconds, more or less.

The rumor is that the Hamptons are going to be pretty quiet this weekend, especially where the hedge fund set and their iBankers hang out.

But that's not true -- I hear there's a big party over at Doug Kass' place!

Got a comment, suggestion, link idea? Or do you just have something on your mind? The Linkfest loves to get email! If you've got something to say, then by all means please do.

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