This was a pretty good week for the markets. Looking at the underlying economic news isn’t as glamorous as trying to trade hot stocks, but I believe it will lead to long term better performance. Why do I create this podcast? In the long run it’s the economic fundamentals that drive market returns. I’m in my early 20’s and have invested heavily in the markets for over 10 years. I’ve been burned and elated. I want to move from present-tense thinking and look ahead to underlying economic trends. So please leave me comments, suggestions, and feedback using the comments link below this post. Also, check out the references I used to create this report. -JAW

Listen live now, it’s only 5 minutes long

• The Fed will hold its target for short-term interest rates at 5.25%. This was expected, and received well by the market.
• September existing home sales declined 1.9% on a month-to-month basis. House prices dipped 2.2% on a year-to-year basis.
• September’s new orders for manufactured durable goods was up 7.8%, larger than expected and mostly driven by civilian aircraft orders.
• September’s new home sales was up 5.3% from August’s downwardly revised figure. The Northeast saw a 34.5% plunge.

Q3 2006 GDP growth is slowing, down to an annualized 1.6% figure (Q2 was 2.6%). Drivers of this drop include home building (plunged 17.4% in Q3) and imports growing faster than exports. Investment in equipment and software, though, grew at an annualized 6.4% rate. The Federal Reserve Board announced it will hold its target for short-term interest rates at 5.25%. Two reports on the housing market showed a continuing slump in existing home sales, and a (surprising) increase in the sales of new homes. (That increase is due in part to declining prices). Durable-goods orders advanced sharply, primarily driven by airplane orders. Friday’s report on Q3 GDP showed slowing growth. For the week, the S&P 500 Index rose 1.0% to 1,377. The yield of the 10-year U.S. Treasury note fell 12 basis points to 4.67%.

Existing home sales data for September showed continued weakening in the housing market. Sales of existing homes declined to 6.18 million units on a month-to-month basis, down by 1.9%. House prices also dipped on a year-to-year basis, declining by 2.2%. The September sales data is the weakest since January 2004 with turnover off 14% from one year ago and down about 16% from the high in June 2005. The decline is nearly uniform across U.S. regions, and inventories remain high.

The Fed’s Open Market Committee (FOMC) held the target federal funds rate steady at 5.25%, as it had in its two previous meetings. In discussing its decision, the FOMC cited slowing growth, particularly the weakening housing market. Although core inflation has moved somewhat higher, the Fed expects that inflation pressures will likely moderate in the months ahead, in part due to falling energy prices. The GDP deflator (inflation measure) was up at just a 1.8% annual rate. That was down from 3.3% in each of the four preceding quarters. And lower energy prices only pulled that down about 0.2%. It appears inflation moderating in response to slower economic growth.

September’s orders for manufactured durable goods rose 7.8%, a larger-than-expected gain. The increase was largely driven by civilian aircraft orders, as orders for transportation equipment rose by 28%, the largest increase since June 2000. Gains in other sectors were more modest.

September’s new home sales also exceeded analysts’ expectations. According to the Commerce Department, September sales of new homes were 1.075 million units, up 5.3% from August’s downwardly revised figure. Sales were down most in the Northeast, by 34.5%, compared with August. New home prices continued to decline, helping to ease high inventories.

Q3 GDP numbers were released Friday. Growth is slowing, down to a 1.6% annualized rate from the second quarter’s pace of 2.6%. (First Quarter 2006’s growth was a steamy 5.6%). Homebuilding plunged 17.4% in the third quarter and subtracted one percentage point from overall growth. Trade also hurt GDP. Exports increased, but imports grew at a faster rate. The economy is definitely slowing, however in Q3, investment in equipment and software grew at an annualized rate of 6.4%.

Consumer spending, rose at a 3.1% annual rate, and business investment was up at an 8.6% rate. Payroll increases, wage growth, and strong profit trends will keep those categories at steady rates, keeping GDP growth from slowing dramatically.

Oil prices rose to just over $60 a barrel, while the 10-year note yield eased to 4.67% from 4.78% last week.

The economic week ahead holds many economic reports. Monday the Commerce Department will release the report on personal income. Tuesday the Labor Department releases the employment cost index, and the Conference Board: the report on consumer confidence. Data on construction spending will be released on Wednesday, and the Institute for Supply Management will release its factory sector and non-manufacturing indexes, on Wednesday and Friday, respectively. Reports on factory orders and nonfarm productivity on Thursday will be followed by the Labor Department’s report on employment, due Friday.

References: Vanguard, Briefing.com

I went to the ACM Reflections Projections conference this weekend. There were top speakers, including the co-founder of Paypal, Max Levchin and the co-founder of YouTube, Jawed Karim. Here are some highlights from their talks.

Max Levchin: co-founder of Paypal.com and current CEO of slide.com

Millionaire Before Graduation: Entrepreneurship in the Post-Post-Bubble Internet

Speaking to an audience of undergrad and graduate students at UIUC, Max stressed if you’re an entrepreneur:

“You should start a company right now.”

But what is an entrepreneur? And what if I don’t have an idea yet?

“An entrepreneur is someone who desperately wants to start companies. He or she doesn’t even care what they are about, or which one.”

The important thing is starting. Max says you’ll never get it right the first time. So start now. Fail a few times while you are young. Paypal was Max’s fifth company. He started his first in his Junior year in college, and every one that wasn’t successful taught him what had to change for the next time.

When you start, the idea is cheap. It’s okay to be mostly interested in starting the company. Some people say in starting a company it is 90% hard work. No, says Levchin:

• 40% is hard work.
• 50% is having a great team

When you start a business, start it on the web. Why?

• It’s really cheap
• You get really fast feedback

However, don’t start selling something to enterprises. Enterprise sales cycles are slow, expensive, and require loads of salespeople. (You don’t want salespeople on your team early on either. Just tech people.) Make things work, and satisfy your direct-to-consumer audience.

Once you’re up, you need to record metrics on everything. Obsess over all of your data. You’ll discover the pages people actually use is different from what you expected them to use. Iterate. Bring what people use to the front. If you’re still in school, take lots of stat classes. It makes the metrics easier.

Remember you will fail.

Failure is your true test. It’s really good to fail in the beginning… If failing anytime is good: now is best. [So get to work and take risks so you’ll fail, so you’ll learn, so you’ll succeed!]

Tenacity is number one. You must be willing to fail 10 times for success in the 11th.

When you’re succeeding and you need to monetize, Levchin has three strategies:

1. Advertising - with Google Adsense, and other ad networks
2. Premium Subscriptions - this is tough though if your competition has these too, and you end up competing on price
3. Memberships - monthly, yearly, etc.

Jawed Karim: co-founder of YouTube and current masters student at Stanford

YouTube: From Concept to Hypergrowth

Jawed is the 2004 UIUC CS graduate who, after a 5 year tour at Paypal, co-founded YouTube. 19 months after launch, YouTube is one of the most-visited sites on the web.

• More than 100 million videos are served daily.
• A new video is uploaded every second
• The average user spends 30 minutes on YouTube per day

Prior to YouTube, what did video sharing look like? FTP uploads to a private website [or peer to peer] was the best way to share a video. People without websites and technical savy couldn’t share. Downloaders would have to download the full file, have the right codecs, and finally be able to view the clips. Discovering other related videos was not easy, and there was no way to post comments about a video you enjoyed. In 2004 the “Bit Torrent effect” emerged, which was scalable - but it lacked social aspects, simplicity, and was mostly for hard core geeks.

In 2005 Jawed and friends decided to create some sort of video sharing app inspired by Flickr and hot or not.

On Feb 14, 2005, work began.

We launched the site with a bunch of “stupid videos” … except no one one used it but ourselves. We pitched it to our friends. We wrote to all the Wired reporters (no replies). We talked to lots of VC’s (they didn’t call back.)

By May 2005, it was very frustrating. 50-60 videos were uploaded. They had an idea:

We posted an ad to the San Francisco Craigslist asking for girls to post videos to YouTube. If we thought they were attractive, and they posted 10 videos, we would send them $100 via Paypal.

No girls responded.

In June 2005 YouTube got revamped. “Related Videos” was added, to make the site more sticky. And instead of Jawed and co-founders spamming all their friends, they added a button “Email a friend” so the visitors could do that for them. Everything was changed to encourage user interaction. Make people want to spend more time on the site.

August 2005, YouTube gets Slashdotted. Things started taking off from here. The community did things they never expected. People would leave video responses to other people’s videos. So they created the Video Responses product. Pretty soon they had $3.5 Million in capital from Sequoya, and then you all know about the Google acquisition.

One lesson Jawed pushed home was:

Just because experts reject an idea does not mean it is a bad idea! In certain areas, there are no experts.

If you’re out there creating innovation, you may be the expert.

As we look for the next big thing, Karim suggests it will explode from newly emerging secondary technologies. Start a company that will make something that was previously difficult, easy.

And expect failure. Jawed worked on numorous other projects that failed, before hitting big with YouTube including a geographic aware IM client that grew to about 50,000 users before he pulled the plug. An interesting article about him, as the silent YouTube partner, may be found here.

Update 10/28/2006: A video of Jawed’s presentation is now on YouTube, watch it below:

Economic news was mixed. Oil fell and inflation worries subsided, yet economic indicators were not overly positive.

• September’s CPI fell 0.5% (for the first time ever this year)
• September’s PPI fell 1.4% (but posted 0.6% incline if food and energy are excluded)
• The September Conference Board index of leading economic indicators rose 0.1% in September (below estimates)
• September’s residential construction rose 5.9%, but permits for new housing falling 6.4% for the month. Compared with Sept. 2005, new housing starts are down almost 18%.
• September’s industrial production fell 0.6%, the first decline since January

References: Vanguard, Briefing.com

Microfinance in developing nations holds the promise of eradicating poverty through capitalism. Does it work? What is microfinance? Here’s a (biased) video emphasizing microfinance’s benefits.

Mike Murray of Unitus Co-Founder and discusses his initial misconception of the poor in developing countries:

“I thought the poor in developing countries probably lacked work ethic, they didn’t try hard enough. You know if they would just put their shoulder to the wheel, and try a little harder, and maybe wake up a little earlier, and just go for it like we do here in America. Then they’d have a better life. Well shame on me, these people work incredibly hard. They have to, because if they don’t their babies starve and people die. Their life stops! There is no safety net to catch them if they fall.”

Lorene Arey, President of the Clara Fund claims the poor lack opportunity. As opposed to drive or opportunity.

Mana Otero, President and CEO of ACCION International claims there are millions of poor people around the world who have no lack to financial services.

Financial services? Like IRA’s or maybe the new Roth 401(k)? No financial services like loans at reasonable market rates or banks to save their capital.

Enter Microfinance: a method for the poor to help themselves. It came about first in the 1970’s, by giving the poorest people of the world credit. Yup just like mortgages or those credit cards with beefy interest rates that can eat up a person’s income… the power of credit can allow business development in the developing world. Microfinance is explicitly not a gift. It is a loan, repayable at market rates.

Initially organizations would make loans from US$50 to US$150. Recipients would use the loan to buy capital in a small business, then pay it back with interest. It actually works. Today, not in 20 years. Take venture capital and marry it to poverty, you’ll be surprised at the result.

Most surprisingly (if you’re new to microfinance), the repayment rates are exceptionally high (95%). And most of the loans are made to women. They are found to be more responsible with the money, and investing profits from their business into their families. If this interests you, watch at least the first 5 minutes of the video. This video is only 14 minutes.

Has anyone visited a UNITUS funded business? This video is a pitch for their services, anyone have critical reviews on microfinance? Let’s bring about a balanced, critical analysis of this topic. Thanks for finding this link from Ryan, here.

Eric has funded someone through Kiva’s peer-to-peer microlending program. Anyone else?

Unitus is a global microfinance accelerator that acts as a social venture capital investor for the microfinance industry. Unitus identifies the highest-potential microfinance institutions (MFIs) in developing countries and helps accelerate their growth through capital investments and capacity-building consulting, thus empowering them to help exponentially more poor people worldwide. In doing so, Unitus aims to demonstrate that MFIs can be run as profitable, large-scale, poverty-focused businesses with links to local capital markets. As of October 2005, Unitus had seven MFI partners worldwide serving more than 504,000 poor clients.

The Dow hit record highs as oil prices came close to record 2006 lows. The Fed released their Beige Book, which hinted at less worries for inflation.

• August’s U.S. trade deficit increased to a record $69.9 billion from July’s revised $68.0 billion
• The U.S. goods deficit with China increased to $22.0 billion (31% of the trade deficit)
• August’s crude imports were valued at $22.7 billion (raw, not seasonally adjusted), which was a new high. August’s average price per barrel was $66.12.
• September’s retail sales fell 0.4%, yet largely this was due to a 9.3% drop in gasoline station sales.
• August’s business inventories increased 0.6% from July and were up 7.7% from August last year.
• September 20’s Fed policy meeting minutes was released. These showed a mixed view on the economic and inflation outlook, but concluded that there was “a modestly better inflation outlook.” The recent decline in energy prices certainly is a factor in that regard.

References: Vanguard and Briefing.com

I’m getting really excited for the upcoming No Fluff Just Stuff conference (November 17-19 in Chicago near O’Hare). At a recent Mobile Monday event, Neal Ford said he will be giving his Productive Programmer presentation at NFJS. I’ve seen the slides (pdf) and was impressed.

The whole pitch of the NFJS conference series is to pull in awesome speakers and authors, cap attendance at 250, and make it on a weekend so only the die-hard tech people come out. Many conferences or seminars have more marketing fluff than I can shake a stick at (I’m thinking of a recent Sun SOA talk I attended), so I hope this is different.

In preparation for the conference, I’m reading the NFJS Anthology 2006, a series of a couple dozen chapters written by the speakers. So far I’ve been impressed. Scott Davis had a chapter on Real-World Web Services, and Neal Ford has an excellent chapter on DSLs and Language-Oriented Programming (the next big thing after OO).

Here’s the schedule, has anyone attended NFJS before? I’ll be attending with someone else from work, so we plan to split up and go to different sessions, then having a mind meld on Monday. Shortly thereafter, we’ll be giving loads of presentations at work, which will then make their way to this blog.

I’ll be attending the ACM Reflections Projections conference (Techsocial link) this weekend. The speaker lineup looks impressive. Thanks to AJ Arora for inviting me.

Reflections | Projections brings together students and professionals from across the country to gain a broader perspective on computer science. The conference is a unique opportunity for attendees to enrich their knowledge of cutting-edge concepts from beyond the classroom. /blockquote>

The speakers include Joel Spolsky (huge blogger), Chris DiBona (Google), and Jawed Karim (co-founder of YouTube). I look forward to speaking with Jawed about the Google acquisition, seeing how I want to build a software company too.

The Dow closed at all time record high Thursday with generally upbeat comments by Fed Chairman Bernanke on Wednesday to the Economic Club of Washington.

• September showed substantially slower job growth than expected, yet the Labor Department reported that the unemployment rate was “essentially unchanged.”
• September’s ISM indexes of manufacturing and services activity both were at 52.9 (a significantly larger decline than analysts expected).
• July’s private residential construction declined by 1.5%, the fifth monthly decrease. Yet, strong private nonresidential construction and public construction offset the decline in residential outlays: overall spending was 4.4% higher than a year earlier.
• Ben Bernanke remarked that the “substantial correction” in housing likely would cut “a percentage point off growth in the second half of this year.” Outside the housing sector, he commented as the economy “remaining relatively strong.”

References: Vanguard  and Briefing.com

Full show notes:

The week’s reports pointed to more signs of an economy that is growing, but at a slower pace. Hovering over the economy was concern about the potential spillover effect of the weakening housing market. For the week, the S&P 500 Index rose 1.03% to 1,350. The yield of the 10-year U.S. Treasury note rose 6 basis points to 4.70%. Oil closed the week at $59.76 a barrel, down from $62.90 at the close of last week even though OPEC made noises about cutting production.

After teasing investors the prior week with the possibility of a new high, the Dow Jones Industrial Average finally edged past its six-year-old previous record of 11,723 on Tuesday. It pushed further into record territory on Wednesday and Thursday, before dropping 16 points on Friday.  The other indices are a long way from record highs in part because the S&P and Nasdaq reached greater heights in the tech-driven bubble years.  The Dow, however, is made up of mega-caps such as General Electric and Johnson & Johnson.  That has brought the focus, and much optimism, back to large cap blue chip stocks.

Job growth was substantially slower than expected. Payrolls grew in September by only 51,000 jobs compared with the 125,000 jobs analysts had expected. However, the monthly figure can be volatile; when viewed over the past few months, payroll employment has been relatively stable on average.  The August gain was revised upward by a large 60,000 to show a 188,000 increase.  The average for the two months is in line with trend, and the one-month apparent drop caused only moderate concern. The largest job decline in September was in the goods-producing sector, where a job decline of 19,000 in manufacturing payrolls was offset by job growth in construction of 8,000. The service sector added 62,000 jobs, although there were pluses and minuses within it. For example, jobs in retail, temporary help, and government declined, while jobs in the financial and professional and business sectors rose.

Despite September’s slower job growth, the labor market appears to be tight. The Labor Department reported that the unemployment rate in September was “essentially unchanged,” declining slightly to 4.6%. At the same time, claims by new applicants for unemployment insurance for the week ended September 30 fell more sharply than analysts had expected.

Measures of economic output suggested that the pace of economic growth was slowing. The Institute for Supply Management’s (ISM) indexes of manufacturing activity and of service-sector activity each stood at 52.9 for September—and both declined significantly more than analysts expected. (An index above 50 indicates general expansion.) “It’s apparent that manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market,” said Norbert J. Ore, C.P.M., chair of ISM’s Manufacturing Business Survey Committee. Separately, the Commerce Department reported that new orders for manufactured goods were little changed in August following a decline in July. Factory orders had increased in the prior two months.

A weakening housing market affected construction spending, which stood at $1.2 trillion in August. Construction spending increased 0.3% from July—but the overall dollar amount masked disparate underlying trends. Private residential construction declined in July by 1.5%, the fifth monthly falloff in spending in response to declining housing starts, itself a response to a slowdown in the housing market. Yet generally strong private nonresidential construction—office buildings and power facilities, in particular—and public construction has offset the decline in residential outlays. Overall spending was 4.4% higher than a year earlier.

Concerns about the effect of the weakening housing market on the economy were addressed by Federal Reserve Chairman Ben Bernanke on Wednesday to the Economic Club of Washington. His comments weren’t particularly startling, but he was upbeat about the economic outlook, or at least not too pessimistic.  That led to a sharp rally in both bonds and stocks.  The S&P was up 16 points that day. He noted that the “substantial correction” in housing would likely lop “a percentage point off [potential] growth in the second half of this year.” He also characterized the economy outside the housing sector as “remaining relatively strong.” At the same time, he noted the difficulty of unraveling the potential effect of housing market trends on the overall economy. Wednesday evening Fed Governor Kohn gave a speech in which he suggested the market is overly optimistic about the inflation outlook and possibly Fed policy.  The markets paid little attention.  Philadelphia Fed President Plosser on Thursday also presented a hawkish tone in some comments, but the underlying bullish sentiment overrode the bearish implications.

The economic week ahead:

Several reports are scheduled for release next week, including international trade and the Federal Reserve’s Beige Book on Thursday and retail sales and business inventories on Friday. On Monday, third quarter reports start coming out, and the following week the reporting schedule is very heavy.  The focus will shift to earnings, and there is optimism that the third quarter numbers will be good because there have been few warnings in recent weeks.  Expectations are for the S&P 500 in aggregate to post a gain in operating earnings of 14%.

CSS is something most of us in web development understand. But so many people still hate it. Why such an awkward response for something that makes sense after you get past the awkward tweener period? I love to teach. Especially tech. I just learn so much more that way. So here’s my CSS training for when you know css, but you want to connect the pieces together a little more.

At work we can have “Lunch and Learns,” where someone demos and astounds us as we happily munch on free food. I’ve done a few in the past, but now it’s time to ratchet it up. This is such an awesome (and underutilized) way to turn us into a consulting powerhouse. Goal: one lunch and learn per month as long as I’m working in the office.

Download:

• Zip file of the demos css tweener html css files lunch and learn.zip
• Powerpoint presentation css training tweener.ppt
• Pdf version of the presentation css training tweener.pdf

Or… look at some of my beautiful slides. Look what you’re missing if you don’t download the presentation.

Meaningful CSS

Meaningful Pages

The often misunderstood box model

Grab a cheat sheet

Get the css cheat sheet here

The coolest thing happened twice while I was teaching, I looked out at my coworkers, and every eyeball was looking right back at me rapt with attention. It may have been because I have the tendency to move a little too fast through examples, but I like to think they were really interested and I was doing an awesome job.

The Dow Jones hit an all time high this week, despite mostly downbeat economic news.

• August housing data was gloomy with existing home sales dropping 0.5% to 6.3 million units annualized. Also the median price of an existing single-family home declined for the first time since 1993, falling 1.7% to $227,000.
• August’s new home sales did rise 4.1%, on par with analysts expectations.
• Q2 GDP growth was revised downward to 2.6% from 2.8% previously.
• August data came out relating to continued inflation worries: consumer prices rose 0.2% and the core personal consumption expenditure price index was up 2.5% over the past year (the highest gain since 1995).
• August’s new orders fell 0.5% after July’w 2.7% decline.
• September’s consumer confidence was up though, rising 4.3 points to 104.5.

References Vanguard, Briefing