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Five Things You Need to Know: We Feel Good, This Bear's Repeating, Oh, That Supply and Demand, Gas Tank On Full, Pockets Too?, Some ETFs We'd Like to See


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


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

1. We Feel Good

The University of Michigan Consumer Confidence survey released this morning showed a preliminary reading for January of 98, well above expectations for a 92.4 reading.

  • The rise to 98 follows December's reading of 91.7 and is the highest reading in three years.
  • The current conditions index rose to 112.5 in January from 108.1 in December, the highest since July 2005.
  • And the expectations index rose from 81.2 to 88.7, the highest since December 2004.
  • Consumers' expectations about inflation over the next five years remained at 3%; well anchored Federal Reserve Chairman Ben Bernanke might say... which leads us to today's Number Two...

2. This Bear's Repeating

Don't look now, but by the (completely arbitrary) definition of a bear market (a prolonged price decline of 20%), Commodities are in a bear market.

  • Since its peak during the week of May 12, commodities are now down 20% based on both the CRB Index (CR/Y) and the Goldman Sachs Commodity Index (GN/X) .
  • Those more positive on commodities may wish to follow the Dow Jones AIG Commodity Total Return Index (DJAI), however, since it's down only 12% over the same period.
  • An interesting paper from 2005 takes a look at "Facts and Fantasies About Commodity Futures."
  • Over time commodities have a negative correlation with both stocks and bonds while offering the same return and Sharpe ratios as equities.
  • Interestingly, commodities are positively correlated with inflation, unexpected inflation and, perhaps most worrisome for the Fed, changes in expected inflation.
  • In this secular disinflationary environment, during which we have experienced a couple of years of cyclical inflation, for the Bernanke Fed maintaining well-anchored inflation expectations is key.
  • One imagines that sharp changes in inflation expectations, particularly to the downside, would be quite worrisome.

3. Oh, That Supply and Demand

New data from the International Energy Agency show oil consumption in the 30 member countries of the Organization for Economic Cooperation and Development fell 0.6% in 2006, the Wall Street Journal reported.

  • A decline of 0.6% seems small, but that's the first annual decline in consumption for OECD countries in more than 20 years, the WSJ said.
  • OECD member countries use nearly 60% of the nearly 85 million barrels consumed globally.
  • According to data published by the IEA, oil demand last year fell in all three major OECD regions -- North America, Europe and the Pacific, the newspaper said.
  • What about oil demand from China?
  • Well, global oil demand grew 0.9% in 2006, thanks in large part to China and the Middle East.
  • But that was down from growth of 3.9% in 2004 and 1.5% in 2005, the Journal reported.

4. Gas Tank On Full, Pockets Too?

The federal Energy Information Administration said the average U.S. retail price for regular gasoline could drop to close to $2 a gallon in the coming weeks from the current national price of $2.229.

  • Crude oil accounts for about half the cost of producing gasoline.
  • An 18% decline this year in the price of crude has sent the EIA back to the drawing board for 2007 price projections for gasoline.
  • According to the EIA it takes about eight weeks for the spot prices for gasoline to make it to the pump.
  • As well, the nearly 13-million-barrel jump in U.S. gasoline stocks over the last three weeks is also pushing pump prices lower, the EIA said according to the LA Times.
  • In a free-spending U.S. economy, a drop in gasoline prices of the magnitude the EIA is forecasting could potentially mean a boost to consumers of more than $40 billion.

5. Some ETFs We'd Like to See

Forget the SPY, the Diamonds and the Quadruple Qs. An entirely new crop of exchange-traded funds is set to roll out this year featuring some unique investment styles, according to the Financial Times.

  • When traders and investors think of ETFs they typically imagine passive index funds tracking specific sector or market indices.
  • However, a number of interesting ETFs featuring unique styles are set to roll out this year, according to the FT.
  • Among them, the Ocean Tomo Patent index is a major market index that tracks the portfolio of diversified companies that the creators believe own valuable patents.
  • "Intellectual property today is an inefficient market, and the index leads to greater opportunities to unlock value for investors," Keith Cardoza, chief investment officer of Ocean Tomo, told the FT.
  • Another unique ETF is the PowerShares Buyback Achievers Portfolio, which invests in companies that have repurchased 5 percent or more of their outstanding shares for the preceding 12 months.
  • Finally, the FT mentioned the Sabrient Defender Index, which is made up of companies that had positive returns the prior quarter and performed well on down days.
  • From 2000 to 2006 the number of ETFs exploded from about 50 to more than 380, covering everything from equity styles to commodities and even currencies.
  • Still, there remain quite a few gaps in ETF styles and investment choices.
  • Below are a few ETFs Minyanville would like to see rolled out this year, ETFs which reflect our own unique approach to markets and personal investment philosophies.

ETFs Minyanville Would Like to See In 2007

  1. The Rand ETF (RND) invests in a basket of companies that are dedicated to pursuing their own goals of rational self-interest; companies that choose their own values and exist for their own sake, neither sacrificing their principles for others nor others to the company, and which have heroic CEOs.
  2. The Kant ETF (KNT) only invests in companies that "appear" sound, but which may occasionally be unsound given the limits of human understanding, though certain data can always be restructured to seem normal depending on one's senses, which would make their quarterly results rather OK, at least as far as anyone knows.
  3. The Popper ETF (KPO) invests in companies whose annual reports can be quickly falsified in an open forum and whose CEOs have full awareness of their own fallibility.
  4. The Hegel ETF (HEG) only invests in Yoga centers.
  5. The Deconstructionist ETF (DER) invests in companies whose results are indeterminable; perhaps positive, but necessarily, even simultaneously, negative; self-referential, a contradiction that reveals itself in the price of the underlying securities as secondary concepts that are themselves grounded in hierarchies that cannot be easily extracted from the cultural texts which both constrain them and, paradoxically, give them their meaning.
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