Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1.  Can't Truss It

So here's a song to the strong 'bout a shake of a snake, and the smile went along wit dat, can't truss it, according to Public Enemy and (finally!) the Wall Street Journal this morning.

  • All the way back in 1991 Chuck D warned us that we can't truss it. 
  • Now, 16 years later, the Wall Street Journal is wondering if Chuck D was right. 
  • How is it, the Journal asks, that job growth remains robust even as the economy has slowed, especially relative to the housing industry?
  • Housing starts in April fell 33% from their recent peak in January 2006, the Journal notes, yet the number of residential-construction jobs has dropped by only about 3% over the same period.
  • After surveying a handful of economists, the Journal concludes that this must be because 1) layoffs have lagged the housing slump and the worst is yet to come, 2) the Labor Department's Bureau of Labor Statistics is overestimating employment, or 3) the BLS isn't registering job losses by illegal immigrants.
  • Well bass in our face!  Can't truss it.
  • Like Chuck D we got a story that's harder than hardcore and one that, as incredible as it is to believe, wasn't even mentioned in the Journal story. 
  • The BLS's use of the Birth/Death model.  Can't truss it.
  • How a story about the economy slowing in the face of "robust job growth" can not mention even once the Birth/Death model is beyond us, but what are you gonna do?  Ya can't truss it.
  • U.S. job growth in April slowed to 88,000, but you can't truss it, because the Birth/Death model contributed 317,000 adds to those 88,000 jobs. 
  • Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs.  Can't truss it.
  • Last year it added 964,000 jobs.  Can't truss it. 
  • We want to believe, of course. 
  • But because the Bureau of Labor Statistics refuses to allow academics and commercial economists access to the models they use for the birth/death additions, we'll stick to our song to the strong 'bout a shake of a snake, and the smile went along wit dat, can't truss it. 

     


2.  Return of Capex?

Durable Goods orders increased 0.6% in April, slightly below market expectations for an increase of 0.9%, but the story here as far as the market is concerned is the rise in core capital equipment goods. 

  • Core capital equipment goods increased 1.2% in April after a 4.4% increase in March. 
  • Core capital equipment goods are things used by businesses used to produce more goods.
  • This is important because it's a good snapshot of business capital expenditures.
  • The increase in capex largely came from electrical equipment and fabricated metals, while autos and aircrafts, parts orders and machinery showed declines.
  • Overall, durable goods orders have now risen for three consecutive months.


3.  The Yay Dang Zone

New Homes have now entered the yay dang zone.  What is the yay dang zone?  We're glad you asked. 

  • The Commerce Department this morning reported that new home sales increased a whopping 16.2% last month, the biggest increase in 14 years.  Yay!
  • Of course, this stunning figure was only achieved due to a 11.1% decrease in the median price of a home last month, the largest decrease since 1970.  Dang! 
  • The inventory of unsold homes fell by 1.5%.  Yay!
  • Year-over-year, however, sales are down 10.6% and through the first four months of the year are down 20%.  Dang! 
  • Sales showed a 28% increase in the South, 8.5% in the West, 3.8% in the Northeast.  Yay!
  • But sales fell 4% in the Midwest.  Dang! 
  • The new home sales figure of 981,000 exceeded expectations of 860,000.  Yay!
  • But the report's standard error is 13%, meaning the government in reality can't be sure whether home sales rose or fell.  Dang! 
  • Welcome to the yay dang zone.


4.  Food for Thought

An interesting article in the Financial Times today stoking fears of food price inflation. 

  • Retail food prices are heading for their biggest annual increase in as much as 30 years, the FT says. 
  • The newspaper cites several factors in the rising cost of food: biofuels, climate change, growing prosperity of China and India increasing competition for farm commodities ranging from wheat to milk and corn.
  • Food companies have lately been trying to pass food cost increases to customers, with varying degrees of success. 
  • We noted earlier this week the pricing power shown by Campbell (CPB), which in February increased prices on most soups by 4.8% after a year ago increasing prices in by 2.3%.
  • But even within the Foods sector pricing power remains tenuous. 
  • Hershey this month cut its 2007 profits forecast because of the rising cost of milk, and Nestlé warned investors last month it would not be able to cope with higher milk costs by simply raising prices, the FT said.
  • John Parker, a food analyst at Deutsche Bank, told the FT: “There is growing concern within the food industry that the present upswing in soft commodity prices is structural rather than cyclical."
  • Below are three related charts, courtesy of Ron Greiss' TheChartStore.com.

    1)  This is a chart of Producer Prices for Farm Products, Processed Foods and Feeds

    Meanwhile...
    2) This is a chart of the Consumer Dollar Purchasing Power since 1914


    Which probably explains why chart number 3) Consumer Price Index for Food is considerably different from chart number one. 


5.  Things I Have Learned Number 37

Yesterday afternoon I was over at the Nasdaq Times Square location for an appearance on the Nightly Business Report.  I learned something very important.   

You Cannot Use the Special Fast Money Restroom.

Purely by chance, my appearance on NBR coincided with the taping of CNBC's Fast Money.  So on the way to the studio the producer asked if I wanted to visit the restroom before getting mic'd up.  Sure, I thought, as a New York City resident you learn to go when you can, not when you have to.  So he leads me into a room with not one but TWO restrooms, which also happened to contain the entire Fast Money team in makeup preparing for their show.  Making my way over to one of the restrooms,"Hey, there's Minyanville's Jeff Macke," I said.  "And there's Guy Adami."  "Dylan, what's up!"  Minyanville's Dr. J's brother, "How you doing?"  Other guy on the show whose name I don't know, "How are you?"  I reached out for the restroom door and was in the process of turning the doorknob when I felt the icy grip of a CNBC producer on my arm.  "What do you think you're doing?" she asked.  "I'm just going to the restroom," I said. "No you're not." she said.  "You can't use this one, you have to go upstairs."  Hey, no problem, I said.  I'm a friendly guy and not one to cause a scene.  But I'm also Irish.  So I never forget.  I realize the time may never come, but one day, perhaps many years from now, a certain producer from CNBC may find herself in need of the Minyanville restroom key.  I pray that the one person on the face of the earth holding that key is me.