Mick Weinstein The Week's Best Stock Blogs

With the Federal Reserve showing signs this week of increased concern over inflation, financial bloggers began to consider the likelihood of an interest rate hike in the near future:

• Portfolio.com's Felix Salmon notes the Fed Funds futures contract predicts the central bank will hold steady in June, then raise rates in August: "The good news here is that Bernanke isn't that vain, and he might even welcome the extra room for maneuver which a slightly higher Fed funds rate would give him."

• But this is an election year! Would the Fed dare tighten its policy as voters head to the booths? James Picerno: "central banks weren't invented to make voters happy. In fact, one could say that an unpopular central bank may be a central bank that's doing its job, which in [my] opinion is maintaining the integrity and value of the currency. After all, if the Fed falls short on that front, can it really be effective in any other sphere?"

• "Finally!" says portfolio manager Bob Lang. "Chairman Bernanke has woken up from a deep inflation coma... With Tuesday evening's comments that the economy has skirted a disaster, the focus turns to inflation which has been ignored for months. Is it just jawboning or a true policy shift? Another wildcard is productivity...The economy can grow non-inflationary with higher productivity. This may be the only savior against the Fed raising rates to fend off inflation."

• Yet bond expert John Jansen thinks all of the talk of rate hikes is simply off base - so he's buying beaten-down short term debt: "I know the economy is weak. It is an election year and the unemployment rate just jumped to 5.5 percent. The housing market is a debacle...The credit markets are frayed frazzled and fragile. Recovery has barely begun. The Fed won't tighten, and these are fair levels to establish long positions in the front end of the yield curve."

Lehman in Freefall

It was a rocky week indeed for investment bank Lehman Brothers, which saw its share price swoon following (1) its report that it expects a massive ($2.8 billion) quarterly loss, (2) its plan to raise $6 billion in a new share issue, and (3) an announcement that chief operating officer Joseph Gregory and chief financial officer Erin Callan will be removed from their posts. Lehman stock is down no less than 65% since January 1 - ouch!

• Salmon: "[D]id the stock crater by 13% [Wednesday] on rumors that Callan and Gregory were getting pushed out, or did they get pushed out because Wednesday's fall was the last straw? My feeling was that it's a little of both: a vicious spiral... the stock's going to continue to fall unless and until a white knight gallops in to save the day."

• Bespoke Investment Group wonders if there's a connection between Callan's bare legs splashed across a Wall St. Journal section cover and Lehman's share price collapse.

• It's just odd, says financial fund manager Mark McQueen. "With the U.S. Fed making overnight loans available to U.S. brokerage firms, I'd thought that the industry was now untouchable. The lesson is this: raising capital only keeps the lights on. It doesn't actually drive share prices higher. Addressing the business challenges that necessitated the equity offering(s) is the only way to do that."

• Mike Steinhardt notes that 'Wall Street's finest' were WAY offbase on how bad the situation was Lehman: "As for the analysts - those supposed "experts" in understanding all this crap and being able to create reasonably accurate forecasts of revenues... [they] showed they didn't understand very much over the past few years and they showed they didn't understand Lehman's situation today. Average earnings estimates polled by Thomson Reuters was a loss of 22 cents/share with the lowest estimate at $1.28/sh. How good is that? Do you really believe they understand this business when the real loss is $5.14/per share? So - the average investor who might use fundamental analysis and valuation metrics based upon questionable accounting and hopelessly inaccurate analyst estimates...well they are relying very flawed information. Oh Brother!"

• Then there's the David Einhorn affair. The hedge fund manager has been vocally short Lehman stock and, well, dead right. Whitney Tilson, who manages funds that have also been short LEH, takes the New York Times to task for its "hatchet job" coverage of Einhorn.

Yahoo Opens a Google AdSense Account

On Thursday, Yahoo and Google formally announced that Google will begin showing its ads alongside some Yahoo search results. Yahoo shares promptly fell 10%, as investors now see a Carl Icahn-forced-$30+ deal with Microsoft as far less likely.

• For straight (albeit corporate) talk unencumbered by press release-speak, read Yahoo's own blog post on the deal here, and Google's blog post here.

• Former Wall. St. Internet analyst Henry Blodget likes what he sees: 'Enough with the trendy Yahoo bashing. This is actually a smart deal--way better than the wacky chop-shop plan Microsoft proposed.' Blodget goes on to detail just why.

• But what will Yahoo's top engineers, who have been building an ad-serving system designed to compete more effectively with Google, have to say about outsourcing their product to Google? Mathew Ingram: "this is like Ford signing a deal to have its cars built by Honda... It is, effectively, an admission of failure - a failure to monetize its own assets properly, and ultimately a failure to compete in search period."

• The Yahoo-Google deal will now face serious antitrust scrutiny. Barron's Eric Savitz summarizes Google's preemptive strike against the regulators and finds it "counter-intuitive."

And finally, a bet definitely worth noting: Warren Buffett has wagered $1 million that a group of hedge funds can't outperform the broader market over a ten year period. Jeff Miller, an investment manager himself, says he'd take the hedge funds' side on this one.