Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Why the Fed Doesn't Matter
Fed Watcher and Bloomberg columnist John Berry says the Fed will pause. But does it really matter what the Fed does?
- The July labor market report tipped the scale in favor of a pause in the Federal Reserve's drive to raise interest rates to keep inflation under control, Bloomberg columnist John Berry says.
- Berry is widely regarded as the "Fed's Columnist" for writing pieces that are considered close approximations of interior Fed-think.
- Fed Funds futures are now pricing in about a 17% chance of a Fed rate hike tomorrow, down from 41% last Thursday and down from 85% a month ago.
- At no time during the past two years' of rate hikes have Fed Funds futures priced in such a low probability of a rate hike.
- According to Bloomberg, 17 of 23 primary dealers believe the Fed will pause tomorrow.
- 65 of 90 economists believe the Fed will pause.
- Here is where the market learns about global liquidity conditions and capital flows.
- Americans tend to think everything begins and ends with the US Federal Reserve.
- Meanwhile, 17 central banks reined in liquidity in June. Eleven tightened in July. And five have raised rates so far this month.
- Last week both the European Central Bank and the Bank of England raised rates.
- So regardless of whether the Fed raises rates or stops tomorrow, the bottom line is global liquidity growth is slowing.
2. This Land is My Land...
High prices and increasingly scarce crude oil finds are emboldening governments to take more control over their oil industry or extract more revenue from foreign operators, according to a Reuters story from the Washington Post this morning.
- Dubai has joined those oil producers tightening their grip on energy assets, with a deal to take control of its offshore oilfields, the Reuters story notes.
- The Gulf Arab emirate will take over the fields from a unit of U.S. ConocoPhillips (COP) next year, a joint statement said.
- Gulf producers Saudi Arabia and Kuwait nationalized their sectors in the 1970s.
- More recently, nationalism of energy resources has increased in Russia, Latin America and the Caribbean.
- Anything which slows the global flow of capital that our financial markets have grown dependent upon is worrisome for asset prices.
- Now we have the combination of slowing liquidity growth worldwide accompanied by an increasing wave of defensive global policy actions designed to "protect" and "manage" vital resources.
- But do bear markets produce nationalism, or does nationalism produce bear markets?
- That may seem like a chicken and the egg type of question, but it is important to understand the social forces that underlie protecionist policies and nationalistic movements.
- Protectionism and nationalism are rooted in defensive behavior and risk aversion.
3. No Oil for You
Speaking of natural resources, the pipeline from our biggest oilfield was shut down to assess suspected corrosion, the Associated Press reported.
- BP is working to assess suspected pipeline corrosion that will shut shipments from the nation's biggest oilfield, the AP story said.
- The pipeline accounts for about 8% of our daily crude production.
- Workers reportedly found a "small spill" of about 4 to 5 barrels, which has been contained and is being cleaned up, BP said.
- One barrel contains 42 gallons of crude.
- The shutdown is expected to take 24 to 36 hours, reducing oil production by about 400,000 barrels per day.
4. Build It and They Will Come
Experts have warned that India's growth will slow if the country cannot build enough new roads, ports, airports and power stations.
- India needs to invest $331billion on infrastructure over the next five years if it wants to maintain its rapid economic growth, a study suggests.
- The BBC reports that a Research for the Confederation of Indian Industry (CII) study has found India needs to spend 8% of its gross domestic product on new infrastructure or risk seeing the country's rapid growth slow.
- India's economy has been growing at a pace of slightly more than 8% a year.
- The CII said that India was expected to spend about $47bn on infrastructure in the fiscal year to March 2007, a figure which needs to be doubled to $84bn a year by 2012.
5. Incoming: Text Message
Apparently, while text messaging is popular overseas, it's not really catching on here in the States, according to Business 2.0 magazine.
- Text messaging - or SIMS, as it's more commonly known overseas - is widely popular overseas, but has yet to really catch on in the U.S., the article says.
- Users in Ecuador send on average more than 200 SIMS messages a month.
- Americans send only an average of 50 messages each month, however.
- The article notes that what's so weird is that while Americans may be 10 times as wealthy as Ecuadorians - they have a paltry per capita GDP of $4,300 compared to $42,000 here in the U.S. - they send four times as many text messages! What gives?!
- Why would Amer... uh, pardon me for a moment, looks like I'm getting a text message...
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