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Five Things You Need to Know: PPI/CPI, House Your Daddy?, Carry On, JP Morgan: Life Is Good, Wal-Mart Causes Organic Panic

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What you need to know (and what it means)!

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

1. PPI/CPI

Just in time for Ben Bernanke's testimony today before the Senate Budget Committee this morning is the latest PPI and CPI data. Bottom Line: The Fed ain't doin' nothin' anytime soon.

  • Yesterday Producer Prices came in slightly stronger than expected, with the headline number blaring a much stronger than expected 0.9% month-over-month.
  • But looking at the core print for Finished Goods we actually saw a decline from 1.3% in November to .2% in December.
  • As well, the Core Intermediate Goods PPI was negative for the second consecutive month, coming in at -.1%.
  • And that negative core intermediate reading came in spite of a surge in the Core PPI for Crude Goods, which rose from 0.5% in November to 1% in December.
  • All of this continues to point to difficulty producers have in pressing the price issue with consumers.
  • And speaking of consumers, this morning the Consumer Price Index came in largely in-line, with a headline print of 0.5%, but ex-food and energy at a softer 0.2%.
  • Year-on-year the CPI has now come down from 2.72% in October to 2.57% in December, edging closer to the Fed's comfort zone.


2. House Your Daddy?

The National Association of Home Builders reported an improvement in builder sentiment in January, though the data may be slightly skewed due to a shortage of rope.

  • The NAHB Housing Market index rose to 35 in January from an upwardly revised 33 in December, its highest reading since 39 in July, the group said.
  • While the NAHB trumpeted the report as indicative of a "stabilizing" market, it should be pointed out that readings below 50 are regarded as signaling a "poor" outlook from builders.
  • NAHB Chief Economist David Seiders said the slightly improved reading reflects a stabilization of demand due to reductions in mortgage interest rates from mid-year and lower energy prices.
  • Oh, and also reductions in home prices and widespread incentives. Those helped move homes too.
  • Meanwhile, this morning Housing Starts showed an unexpected climb of 4.5%, led by an increase of 26% in the Northeast thanks to the warmest December since 1957.
  • Just keep in mind that houses are easy to start, slightly more difficult to finish and sell.


3. Carry On

In something of a surprise, the Bank of Japan held rates unchanged at 0.25 percent today.

  • The Bank of Japan's board voted 6-to-3 in favor of keeping rates unchanged, some citing strong political pressure in recent days to refrain from stifling the economy.
  • Three members of the policy board jointly proposed a rate increase but the others opposed it to allow for an assessment of incoming data.
  • Central bank governor Toshihiko Fukui dismissed the notion that the central bank bowed to political pressure in keeping interest rates steady.
  • "There were no other factors that affected our decision-making other than the analysis of prices and the economy, and there is no room to consider other factors than those when we make a policy decision," he said, according to XFN-Asia news.
  • Fukui also disputed the notion that leaving interest rates too low for too long causes excessive liquidity in the global financial markets, and said he does not think the central bank's policy has caused distortion in the global marketplace.
  • In fairness, the core consumer price index is up a mere 0.2 percent year-on-year and household spending fell for the 11th consecutive month in November, dropping an inflation-adjusted 0.7 percent from a year earlier.
  • More important than any kind of purported political pressure (try saying that three times in-a-row) is the ghastly specter of the last time the Bank of Japan attempted to end its zero interest rate policy in 2000. It lasted all of seven months.
  • Next key datapoint will be GDP for the fourth quarter in mid -February.
  • Some economists suggest that a better-than-expected GDP print for Q4 2006 could prompt the BoJ to raise rates, but we'd point out that in Q4 2000 GDP printed at a 3.2% annualized rate, while expectations for Q4 2006 are for something along the lines of 2.9% annualized.


4. JP Morgan: Life Is Good

An interesting read in the Wall Street Journal today on deteriorating credit conditions in the personal lending arena, points to one of our key themes for 2007: personal savings is going to rise.

  • According to the WSJ, JP Morgan (JPM) yesterday became the latest bank to report that customers on the bottom end of the credit spectrum are having trouble meeting their debt obligations.
  • JP Morgan said more customers are falling behind on payments and fewer customers are paying off their credit-card balances in full.
  • Michael Cavanagh, chief financial officer at JP Morgan, said, "These are normal trends coming off very good times."
  • Wait, did he really say normal trends? Very good times?
  • How can 20 consecutive months of negative personal savings followed by a decline in the ability to service debt be associated with phrases such as "normal trends" and "very good times"?
  • Easy. Cavanagh meant "normal trends" for JP Morgan after the bank enjoys "very good times." JP Morgan net income soared 68% and the bank saw substantial growth in most key areas.
  • Ah, I get it. In other words, it's perfectly normal for a bank to see a rise in the numbers of borrowers who are unable to pay their debts after... uh...the banks make a lot of money off them? Hmm, maybe I don't get it after all.


5. Wal-Mart Creates Organic Panic

According to CNN, a policy research group is accusing Wal-Mart of "organic fraud."

  • The Cornucopia Institute claims Wal-Mart (WMT) is defrauding its customers by mislabeling non-organic products as organic.
  • The policy group said it conducted checks of Wal-Mart stores in five states and discovered labeling violations in nearly all stores visited, CNN reported.
  • Wal-Mart uses green signs to identify organic products in its stores.
  • The retailer is the latest player looking to get into the approximately $15 billion organic food industry.
  • Wal-Mart announced last year it would start selling more organic products.
  • The company said any shelf labeling mistakes are isolated events and that it often mixes organic and conventional products on its shelves to make it easer for customers to find organic options, CNN reported.
  • Not content to sit back and rely on the Cornucopia report, we sent a Minyanville intern to a Wal-Mart store in New Jersey this morning to check for potential organic mislabelings.
  • He found the following rather questionable "organic" labeled products:


Potentially mislabeled organic items at Wal-Mart:

  • Uncle Ernie's Organic Barbecue-Flavored Pork Rinds
  • Sizeburn's Organic Pesticide and Rodent Spray
  • Evergreen Organic Lawn Paint
  • Dudley's Organic-Flavored Organic Rib Rub Crystals With Extra Organic
  • Sparkmaster Organic Jumper Cables
  • Sealit Brands Organic ShrinkWrap Machine ("The Organic Flavor Saver")
  • Haynes Organic Recyclable Mens Briefs
  • AquaMarine Organic Fishing Rod and Reel Set with Organic Glare Reduction Sunglasses
  • Granny's Organic Frozen Fishsticks
  • Pork Friendly's Combination Organic Meat Puppet Kid's Play Set and Summer Sausage Hors D'oeuvres Tray
No positions in stocks mentioned.

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