A Dash of Insight

Street Fighters: Good Information and Good Fun

Kate Kelly's book, Street Fighters:   The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street,  now on our recommended reading list, is a great source of information and fun to read.  It is well-sourced, authoritative, and always interesting.

Does it provide, through a look at Bear, the answers to our financial crisis?  We think not, but that is part of the fun.  The reader can collect information -- raw data -- with real confidence.  There will be many accounts of the financial crisis.  Anyone seeking a complete understanding should consult many sources.

The Approach

Street Fighters tells an engaging tale focused upon how a mighty firm was reduced to rubble in three days.  You know the ending before you start reading, but it is no less engaging.  The author has a nice sense of the characters and has done extensive research into backgrounds.  We not only learn about the major players, we learn what everyone else thought about them.

Such an approach is open to challenge.  Kelly provides footnotes for sources, and acknowledges disagreement.  It is convincing support  for her narrative.

The Result

The reader is treated to a view from several perspectives.  It is an insider's take on the politics within an investment bank.  There is genuine conflict over risk and which products to feature. Even the most jaded reader may have some sympathy for a wealthy guy who spent a lifetime building up his company and his position, only to lose it all in a few days.  This is "inside baseball" at its best.

The story is dramatic and well-told.

Assorted Insights

The reader has raw data to draw conclusions on several interesting points.  Here are some that stood out for us.  Yours might be different.  Please consider the following:

• Significance of CNBC.  David Faber had a story about firms not trading with Bear.  It was big news, but it was later denied by those in question.  The damage was already done.   The issue is how much information one needs to go with a story like this, when the story itself can affect the outcome.  Should Faber have verified more completely before going with this story?  Would it have made a difference?
• Significance of Kelly and the WSJ.  Many readers will already be familiar with the three-part series in the Wall Street Journal.  In the book, Kelly asserts that the series itself -- criticizing Cayne's leadership -- had an impact within the firm.
• Hank Paulson's Role.  Paulson is portrayed as dictating a punishingly low stock price for Bear.  Historians will combine this information with additional information, includeing his reversal on the use of TARP funds, the decision to force TARP on all of the major banks, and other similar decisions.  From our perspective as public policy experts, this is an extraordinary and arbitrary use of powers.  It is on a scale that is without precedent for a Treasury Secretary.
• The Fed Role.  The decision of the Fed to expand lending to include investment banks, only two days after the Bear failure, was extremely arbitrary with respect to timing.  We should all be concerned when public officials make decisions about which firms (and which investors) live or die, and do so without clear rationale.  Bear was allowed to die while others were saved.

Conclusions

Kelly's conclusion is that Ace Greenberg built a firm on some principles and Jimmy Cayne violated those and lost it all.  We are not convinced.

We can now see what happened to many other firms.  It would not have mattered if Bear's leverage and risk had been a little less.  Kelly is probably right in suggesting that Bear was an unloved firm on the Street, and therefore first to be challenged.

It was beyond her scope to consider other causes, although there is a paragraph or two on the trading in Bear stock.  This was something we watched daily on our trading screen.  Those betting against the firm could trade in the thin Credit Default Swaps market (CDS), buy puts (where premiums exploded in issues that were far out of the money), short the stock, pull your hedge fund accounts, and spread rumors.

These events were all taking place.  The sequence of causation will never be determined.  What we do know is that any business depending upon confidence and credit can be destroyed in three days. Those aiding the destruction can make millions as it happens.   If that is a verdict on a business model, the entire banking industry is in question.

Final Take

The book is fun to read and has plenty of raw data with authoritative sources.  You should read it, and combine what you learn with other information.  The story of the 2008 crisis is complicated.  We look forward to reviewing other books on the subject.

Successful Financial Blogging

Let us suppose that one wants to start a successful financial blog.  The start up costs are low, so many will take a shot at this. What defines success?

Part of our experience is advising early-stage companies.  It is a good model for a blog.  What should one do?

• Learn the market.  The blogger needs to understand the readers -- who they are, their viewpoints, and what they want to hear.
• Understanding behavioral finance.  Most readers track on what worked most recently.  That is how the heroes are found.
• Go for the rankings.  The various ranking services start -- and mostly end -- with traffic.  If you write something that appeals to the online audience, you have a better chance of success.  Most of those doing rankings are not qualified to evaluate the content, so ratings dominate.
• Post frequently.  The more you write, the more people visit your blog.  Many raters use frequency of posting as a filter.
• Exchange links.  Be willing to trade links with nearly anyone.  Offers abound.

Identifying the Online Audience

Here is a dramatic example of what works online.  The best example is the recent online poll by Time.com.

In a stunning result, the winner of the third annual TIME 100 poll and new owner of the title World's Most Influential Person is moot. The 21-year-old college student and founder of the online community 4chan.org, whose real name is Christopher Poole, received 16,794,368 votes and an average influence rating of 90 (out of a possible 100) to handily beat the likes of Barack Obama, Vladimir Putin and Oprah Winfrey. To put the magnitude of the upset in perspective, it's worth noting that everyone moot beat out actually has a job.

This tells us very little about who is most influential, but a lot about those taking the poll.

The frequent polls on CNBC and other sites tell us a great deal about the trading audience -- what they believe, their positions, and what they expect.  These polls are mostly skeptical of any government program, the future of our country, and the prospects for the economy.  They are widely divergent from polls that use a scientifically selected group.   These polls show a wide acceptance of Obama and his policies.  This is not a political statement, but merely a look at some facts.

It pays to cater to the online audience.  Andrew Leonard's Prophets of Doom list is also a list of the most popular blogs and commentators (with a few prominent omissions).

Popularity Pays -- for Someone....

Popularity clearly pays for the bloggers.  They are wisely following a successful model for an early-stage effort.

Our mission is quite different.  We attempt an objective interpretation of data, an effort to find the best sources, and a willingness to alter short-term perspective.  In particular, we are skeptical of sources swinging outside of their "happy zone" (hat tip to Ted Williams -- click through to see the famous strike zone picture).

For the individual investor trying to find help from the Internet, this is a minefield.  The information from the popular sources is unrelentingly negative.  Meanwhile, the real story is not so clear.

Investors should pay attention to data, not opinions -- and especially not political opinions.  There is a time lag in the impact of government policies.  It is time to start monitoring the lagged effects of lower interest rates, innovative Fed policies, and the stimulus package.

Why There is No Bottom: Economic Forecasts

Since the stock market seems to have no bottom, investors want to know why.  We shall consider this in a series of articles.  This is Part One, dealing with economic forecasts.

What People Read

We know that individual investors are frightened, a perception fueled by stock market results.  For most, the stock market is the barometer for economic forecasting.

Fueling this is the popular perception of the economic prospects.  The New York Times pulled together a number of op-ed pieces, asking When Will the Recession be Over?

This is powerful material, drawing together the opinions of many experts.  Readers should review all of the pieces.  We know from reader feedback, emails, and calls that it was an important article.

Jim Grant, erudite, polished, and persuasive, tells us, "don't ask when."

Stephen Roach, of Morgan Stanley, predicts late 2010 or 2011.

A. Michael Spence, the Nobel-Prize winning management Prof from Stanford says "unusually long and deep global recession through 2010."  That is if governments get their acts together.

William Poole of the Cato Institute rails against unwise government bailouts, which he believes are making things worse.

Eric Schmidt, Chairman and CEO of Google, expects signs of life later this year, and a resumption of normal lending in 2010, with the Internet playing a key role.

Financial writer George Cooper sees a financial drag extending into the next decade.

Harvard historian Niall Ferguson sees two years of contraction and two lean years after that.

Princeton Econ Prof and former Fed Governor Alan Blinder sees growth resuming in the fourth quarter of 2009, but with many caveats.

University of California-Riverside economists Marcelle Chauvet and Kevin A. Hassett take a probabilistic approach based upon past recessions, and see the probability of the current downturn lasting through 2009 at 50-50.

University of Maryland economist Carmen Reinhart focuses on a return to normal growth, setting out four years or more as the time frame.

NYU Econ Prof Nouriel Roubini sees a three-year recession, with chances for much worse.

A Different Approach

A different approach to the problem is to use a continuing panel, not selected for star quality.  The Wall Street Journal forecasting survey provides such a comparison.

The Journal article on the latest survey carries a gloomy headline, Economists' U.S. Outlook Dims.  The Journal surveys 52 economists, and reports on 2009 as follows:

The average forecast now sees growth in the third quarter at 0.7%, less than half the rate expected last fall. The fourth-quarter picture has also darkened, but just slightly, to growth of 1.9% from the 2.1% seen in November. Five economists see growth declining through the fourth quarter of 2009; they say the current consensus outlook, which says the recession will end in August as GDP growth returns positive, is far too optimistic.

Briefly put, the economic panel has reduced estimates for growth, but is dramatically more positive (less negative?) than the New York Times group.  They see the monthly job loss for the year as 183,000 per month, much better than current rates, and unemployment peaking at 8.8%

A key difference is attention to the stimulus package, which they see as saving about 90K jobs/month.  Interestingly some say it was too large, and others, too small!

Our Take

The entire media approach is very negative.  The New York Times has an all-star cast of experts, but it leaves us wondering a bit.  When an article like this appears it creates an illusion of scientific sampling.  We are also bothered by the lack of attention to the dramatic government intervention begun many months ago, policies with known lags.  The peak of the crisis came right after the Lehman fall and credit freeze.

None of the economic models have any experience with the myriad of Fed programs, not to mention the stimulus package.

Models can be quantitative or qualitative, but are always based upon experience.  None of us have the relevant experience for this particular crisis, so our models are suspect.  It is also natural to highlight experts who have been right -- those who "got it" in the popular Street parlance.  The question is whether the skills involved in predicting the problem are also the right skills for identifying the possible solutions.

We find the WSJ panel to be an interesting counterpoint.  The investment prize will go to those who can identify economic indicators showing any bottoming signs.  With equity prices at depression levels, even a moderation in the depth of the recession could be good news.

Meanwhile, most investors are focused on the headlines.

Learning from Mistakes: The Short Sale Ban

The verdict is in.  There is growing recognition that last September's ban on short selling in certain financial stocks was a mistake.

Most of the professional trading and investment community do not see short selling, per se, as a problem.  There are several debatable issues:  the uptick rule, credit default swaps, and mark-to-market accounting for assets intended as long-term holdings.  Short sales were not controversial among professionals.

The Academic Verdict

There is some fast work from the academic community.  A team led by Columbia Professor Charles Jones, Chairman of the Economics and Finance Division, has a strong data-based analysis of the short-selling ban.  They note that despite the initial pop in these stocks, they actually did worse during the market decline over the period of the ban.  More importantly, they note that liquidity in these issues got much worse.  The average trader faced wider bid-ask spreads leading to more costly trades.  Short sales add liquidity and even fuel rebounds when fundamentals change.  As many noted at the time, there were various ways to avoid the ban, including purchases of put options and inverse ETF's.

The SEC Verdict

SEC Chairman Christopher Cox acknowledges this error.  In a just-released interview in the Washington Post, he is quoted as follows:

Cox said the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks. But in publicly acknowledging for the first time that this ban was not productive, Cox said he had been under intense pressure from Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke to take this action and did so reluctantly. They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.

Our Take

We should note first with applause the rapid data-based effort by unbiased academic investigators.  We can all enjoy the effect of the Internet.  Instead of waiting more than a year for academic publication in a peer-reviewed journal, results are now available more quickly.  If there is criticism, that is also available to all.  It is a major improvement in the way academic research becomes relevant.

We find more difficulty in the Cox "go slow" concept.  It is clear that events were moving more rapidly than policy.  Paulson and Bernanke were correct in identifying a problem, but the focus was wrong.

Eventually we will see an academic study that pulls together the key elements:

• The unregulated credit default swap market, easily manipulated with modest amounts of capital;
• The widespread publicity surrounding the CDS trading, implying insolvency of the institutions in question;
• The speculative put buying by those profiting from this pattern;
• The mark-to-market implications for institutions not involved at all;
• The possible manipulation of widely used ABX indices, affecting the entire market.

This all needs investigation.  Will it be on the agenda for the new Obama team?  We hope so.  Learning from this lesson is absolutely essential.

Market Curiosities

So many issues -- so little time.  Let us try a few quick takes on some current issues.

Selling the GE News.  We watched with some wonder as selling ensued on the basis of a the announcement by S&P of a negative outlook for GE's triple A bond rating, perhaps in two years.  Surely the issue was widely known, as is Jeff Immelt's determination to avoid this outcome.  If investors doubt his plan, why wait until the S&P announcement?

Additionally, when did everyone suddenly decide that the ratings agencies "got game."  At one moment they are the villains of the CDO fiasco, but now they know better.  Were we alone in this reaction?  No, we see that the astute team at Bespoke Investment Group is on the story.

Bush Delay on Auto Companies.  When the Senate failed to pass legislation to help the auto companies last week, there was some interesting bargaining and speculation.  The measure had majority support, but a procedural vote brought to the floor by Majority Leader Reid showed that the votes were not there to block a filibuster.  In the aftermath, there was widespread speculation that conservative Republicans held firm because they "knew" that President Bush would come to the rescue.  Others speculated that the UAW held the line because they had the same tip.

In short, the parties did not want to negotiate a solution in haste, preferring to sit around a table with a few months to reach a solution.  Now that everyone sees the effect on car sales (see Calculated Risk on Chrysler) and the Bush delay, we wonder if there are any second thoughts.  We still expect action, but it not have the form expected by the parties last week.

Gaius Marius is on this case, discussing the problems with the bankruptcy alternative.

Our take.  The government role should be to create the right incentives for the needed bargaining and let the parties work it out.  This means a firm deadline and some guidelines, but not a dictated solution.  Sen. Corker seemed to be making some headway on this.  The goal should be to achieve the restructuring without the stigma.

Warren Buffett.  In our introduction of the concept of Wall Street Truthiness we noted recent criticism of The Oracle of Omaha, including suggestions that he has "lost it."  Regular readers know our preference for the long term and real data versus an incident or two.  Mebane Faber has a great analysis of the Buffett record, including data and simulation tools.  The results had some surprises, even for those of us who are Buffett fans.

Fed Policy Moves.  It took less than twenty-four hours before the punditry decided that the Fed moves were going to be inflationary -- or ineffective --- or both.  This pattern of market reaction has been typical for months.  Policies that take many months to implement and get traction are declared worthless in the absence of instant results.  Many of those leading the critics, including the CNBC "devil's advocates" do not have much background or expertise on the subject.

Why not look to someone who has both the knowledge and experience?  Readers should consider Bob McTeer's viewpoint.  He has been a practical voice of reason for many months.  Since he is a courteous man, and not a loud and fast talker, he seems to get shouted down on these programs where they put up six or eight talking heads at a time.

Our Take.  There will be time to move from fighting deflation to fighting inflation.  Readers who are not familiar with the importance of the velocity of money should bone up.  You are going to be hearing a lot about the concept.

Looking Back, Looking Ahead

Today marks some important changes both in market fundamentals and in psychology.  On such occasions we interrupt our regular writing agenda for more specific market commentary.  This is an occasion where readers unfamiliar with our recent work should take some time to follow the links.

In recent days we have tried to provide some perspective on the market turmoil and what to watch for.  Some of these ideas are starting to play out, but there is more to come.

A Review

Here is a brief review of the last few days.

We reviewed a number of popular myths and provided a brief assessment.  We then showed how some shallow thinking was leading many to be excessively negative.

We made timely shifts from bearish to neutral to bullish via our TCA-ETF system.  Investors in the program had a gain of 9.7% today.  Being in the right sectors means a lot.  Our current holdings seem to capture the rapidly revised thinking of market strategists.

We wrote about possible catalysts, including this suggestion:

Housing initiatives.  The Treasury is hinting at a new plan to reduce mortgage rates.  The Fed has already acted.  We expect the market to be skeptical of both, so it may take some real evidence to change opinions.

In addition to the Fed statement today, there was other important news, setting up the rally.  The Obama Administration seems to be embracing a major plan to cut mortgage interest rates to 4.5% for everyone.  We have the full story on our sister site, ElectionStocks.com.  This story is very big in many ways and for many sectors.

Being Modest

We are very cautious with a period of success.  There are so many who think they know so much.  In fact, investors should look not to a single market call, but to long-term history.  We tried to illustrate this with our football analogy.  In our own methods, we try to emphasize the long run.

Looking Ahead

Today's trading could represent a change in market psychology. There are plenty of fund managers who are either caught short or under-invested.  The negative sentiment has been palpable.  The news of scandals and the market declines have tested the resolve of many long-term investors.  We expect some managers and investors alike to shift gears.

There are more catalysts to come.  We continue to collect ideas on this front.  More to come, with several interesting ideas.  Briefly put, those making negative forecasts on the economy, on corporate earnings, and on stocks have a doubtful platform.  They are not just fighting the Fed.  They are also fighting the Treasury and the incoming Obama Administration.

Investors do not understand government policy, and have expected immediate reaction from the many programs.  They have been dazed by acronyms and have lost focus as a result.

There is a firm determination to avoid a major recession.  The market will look ahead, beyond the recession that is now a year old.  This may already be starting.

Conclusion

We have ridiculed strategists calling for a five-percent gain in the next year.  This is silly, when intra-day moves are frequently greater.  The only reason to invest in stocks is an expectation for a major rebound.  Few are willing to talk about valuation, when the consensus mentality disparages earnings prospects.  We note some courage on this front from Morningstar, where they see the Dow as 30% undervalued. (Hat tip to Abnormal Returns, helping everyone see what otherwise might be missed.  None of us can check everything!)

We shall comment further on valuation issues, with a focus on expected and trailing earnings.

The Madoff Scandal: Where was the SEC?

Regular readers of "A Dash" know that we are generally more sympathetic to government actors than the investment punditry.  We think this stems from more direct experience with those in government and our disciplined effort to look at a problem from all perspectives.

Despite this perspective, there is one institution that gets a consistently low grade:  The SEC.  A few days ago we suggested that investors monitor potential changes at the SEC.  We continue to believe that this would be important to the long-term health of the market.  If the new leadership were to suspend mark-to-market accounting rules pending clarification, it could even have a short-term effect.

Likely Changes at the SEC

Here is what we wrote earlier today on RealMoney:

The Madoff scandal is yet another black mark for the SEC and Chairman Christopher Cox. In past comments I have noted that his official term of office extends until June of 2010, although Obama could appoint a new chairperson. In fact, several top SEC staff members announced their resignations right after the election. Cox himself has indicated plans to step down at the end of the Bush term, although he is willing to serve longer until a replacement is found. Gary Gensler (Treasury and Goldman Sachs) is the transition official in charge of the search. Some think that he might also be a candidate. Others mentioned include former SEC Commisioner Roel Campos, also on the transition team. Some speculate that Robert Pozen (former Fidelity vice-chair and now Chairman of MFS Investment Management) is a leading candidate.

The issues facing the SEC are deeper than just the personnel. There will be some effort at comprehensive reorganization to get rid of the gaps among the SEC, the Fed and the CFTC.

Charlie Gasparino just reported that the SEC is saying that they get many tips like the one received on Madoff. One of the critcisms of Cox is that he did not go after the budget authority needed to fulfill the enforcement responsibility.

Conclusion

This upcoming change is a market positive that is not yet on most radar screens.  A good dissertation topic for someone in political science and public policy would be the study of Presidential transitions and why timing created over 200 years ago no longer works.

We give President Bush high marks for his attempts at handling the crisis and turning over the reins.  Despite the "country first" attitude, the delay in implementing new programs is contributing to the economic distress.

Bloomberg Economics Podcasts: James D. Hamilton Interview

Reading is the most efficient way for most of us to get information.  You can scan an article quickly for a general idea.  You may choose to read it more carefully if necessary.

Sometimes a video is worth a thousand words.  In fact, there may be no good substitute.

We also find a role for the podcast.  There are times when reading is not an option .  Walking the dog and driving are two good examples, although we have seen some scary exceptions on Chicagoland expressways!

We fill in those times with podcasts and audio books, usually picking material we would otherwise miss.

An Informative Podcast Series

We especially like Bloomberg economic podcasts.  Tom Keene, a CFA and Editor-at-Large, is host of the daily series, Bloomberg on the Economy.  His interviews have three features we applaud:

1. Asking the questions the listener has in mind;
2. Drawing out the subject with questions going beyond existing material;
3. Giving the subject plenty of opportunity to explain positions and ideas.

He prepares carefully in advance.  He follows an agenda in an unhurried fashion.  The result is a combination of information and entertainment -- at least for us policy wonks!

A Great Example

A good recent example is a very informative interview with James Hamilton, Professor of Economics at the University of California, San Diego.  Prof. Hamilton and his blogging colleague Menzie Chinn are (for quite different reasons) among our favorite sources.  We always read and often cite their work at Econbrowser.

The Hamilton interview covers topics he has written about on the blog, but also a number of other interesting themes.  It is a good place for our readers to sample information from this source, since the information is extremely topical.  While the emphasis is on the deteriorating global economy, there are some useful insights on the Fed.  Rather than second-guessing past Fed moves, as most pundits do, Hamilton emphasizes the need to develop a coherent policy.  There is also a nice segment on the Obama economic team.

To summarize, the podcast approach does not work for everyone, but we find that it has a place.  Give it a try.

Now if we could only get CNBC interviewers (other than Maria) to listen to Tom Keene.....

Wrong Turn for TARP

A few days ago we wrote our top suggestion for President-Elect Obama.  Several blogging colleagues took up the theme, and we sincerely thank them for their interest and for stimulating discussion.  We plan a more complete review of opinion, but events have, once again, overtaken the schedule.  The current Administration is moving in the opposite direction.

Secretary Paulson announced that the TARP program would not purchase troubled securities, at least not in the way originally envisioned.  He stated that direct investment in financial institutions was a better use of TARP funds with more impact.

A Discouraging Turn of Events

Here at "A Dash" we try to analyze markets rather than to offer prescriptive advice.  The "Letter to Obama" was a rare excursion for us.  While others stray far from their expertise, we like to stick to our "happy zone."

Here are two takes on the wrong turn in TARP.

Market Take.  Market participants, rightly or wrongly, now see the program as a funding source for anyone who claims a need.  They see it as socialism.  Most importantly, they interpret the failure to purchase distressed securities as an acknowledgment that these holdings are worthless.  Briefly put, the Treasury has undermined the very assets they hoped to support, and the leadership has lost the confidence of investors.

Political Take.  The decision to invest in preferred stock instead of troubled assets is an easy course.  It sounds great to the taxpayer.  The companies are held by private investors, so there is an inference of value for preferred shares.  This is better than buying what is perceived as "toxic waste."  It has an easily-understood causal mechanism -- a direct injection of capital.  The downside is that it has eliminated an clear public-interest distinction, inviting nearly anyone to apply for TARP funding.  It fails to address root causes.

Public Policy Take

Quite frankly, the investment and political types are not doing clear-headed public policy analysis.  This involves understanding the following points:

• Focusing on the cause of the problem.  The cause was originally troubled housing loans.  We could have addressed this directly at less cost than the current plan.  Instead, we have allowed mortgage securities to have an ever-decreasing mark-to-market value, and now face similar issues with Alt-A loans, student loans, and securitized credit card debt.  As long as this spiral continues, the need for additional government investment will continue.
• Recognizing the error of using a club instead of incentives.  The government is now instructing financial institutions to do more lending.  We are not learning the lesson of Fannie and Freddie, where the government tried to combine public interest with a private company.  It did not work there, because the government asked private companies to behave more aggressively than their financial statements warranted.  We are going down the same road.  If you were a bank manager with TARP funds, would you choose to strengthen your balance sheet in the face of declining assets, or make more loans?  Simply instructing them will not work.
• Failure to develop and implement a coherent plan.  The current "plan" seems to change weekly.  Everyone sees this, so confidence is lost.  It is the country's misfortune that our leadership was far too slow to address the relevant issues.  We hope that the Obama Administration will carefully develop and implement an incentive-based approach,  but the President-Elect does not yet have control.  Our tradition of transition in government is being tested in a way that has no historical precedent.

The best hope for investors is that the new administration will quickly develop and announce proposals that get to the root of problems.  Their key appointments should reflect this.  The Bush Administration should cooperate during the transition.

It is a major burden for an incoming President.  Never before has a President-Elect had such a responsibility before actually gaining the reins of power.

How Equity Investors Should follow Credit Markets

The credit crunch was the proximate cause of six weeks of stock market stress, beginning with the Lehman non-bailout.  At the very minimum, this will cause an economic vacuum for a month or two.  The question is if and when policies will have a significant effect.

We are well aware of the issues involving the extent of the recession and the impact on earnings.  Following progress involves tracking credit markets.  To this end, we follow some key sources:

• JCK at Alea.  There is a daily update (often skeptical and challenging) on the various Fed moves and the impact on various indicators.  Today's report is typical.  There are also great articles on subjects like light trading in the ABX, used to mark securities and possibly subjectd to manipulation via the CDS market.  This is a daily must read for us.
• Calculated Risk.  CR is now doing a daily update on credit markets.  This is another must read for equity investors looking at credit markets.  There is much, much more, but the credit stuff is especially valuable.
• Tony Crescenzi at RealMoney.  (Full disclosure -- we write there, but we paid for the site before joining.)  Tony's daily blog is very valuable on all things economic.  Some of it gets reported elsewhere, but it is worth reading right away.
• Abnormal Returns.  This is a consistent source of new ideas from academic papers and "new" bloggers.  The author reads nearly everything and consistently points to new ideas, including credit issues.

There are plenty of other great blogs on our featured list, but today's focus is the credit markets.  Anyone wanting to look for signals of a potential turn in equities should be paying attention.