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Five Things You Need to Know: On Tap, Speaking of..., Payrolls Part Deux, Alas, Poor Super Spike..., California Knows How to Party

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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. On Tap

On tap this week: Consumer Credit, Trade Deficit, Retail Sales

  • This week is relatively quiet on the data front until Friday's Retail Sales, which should give the market the opportunity to buy/sell equities on their, ahem, own merit.
  • But in the meantime there are a couple of pieces of information worth watching.
  • First up this afternoon is Consumer Credit for November (See latest release here).
  • Expectations are for an increase of $5.5 billion in consumer credit for the month of November.
  • We'll be watching this closely as last month's preliminary data showed the first monthly percentage decline since March.
  • That makes two months this year (March and October) where consumer credit was reined in.
  • When was the last time we saw multiple months in the same year where consumer credit contracted?
  • March, June and October 1992.
  • Interestingly, the Personal Savings Rate, which is currently at negative 1%, began 1992 at a whopping 7.4% and finished the year at 9.4% - it hasn't been higher since.
  • The December 1992 Personal Savings Rate of 9.4% was the highest level of personal savings in this country since March 1986.
  • Second, on Wednesday this week we'll see the latest trade deficit data.
  • Economists estimate that trade gap widened to $59.5 billion in the month.
  • In a related story, check out the Wall Street Journal piece this morning on "How to Reduce the Trade Deficit."
  • A weaker dollar would help narrow the deficit by making U.S. exports more attractive to foreign buyers while making it costlier for Americans to buy products from abroad, the Journal notes.
  • But you know what else would reduce the trade deficit? Consumer balance sheet repair, increased savings, less consumption.
  • Considering that Asia currently makes just about everything we consume these days, why again should we just assume that they'll be content to sit back and let their currencies rise against the dollar, thereby making their goods more expensive for a U.S. consumer in cutback mode?
  • No worries. We'll see your trade deficit reduction via a weaker dollar and raise you an increase in personal savings in the U.S. and a return to structural deflation.

Consumer credit, year-over-year % change

Consumer credit, month-over-month % change

2. Speaking of...

Are future inflation expectations still "well anchored"?

  • The Economic Cycle Research Institute (ECRI) Future Inflation Gauge for the U.S. came in at 119.6 for December, down from November's 120.0, according to Reuters.
  • The annualized growth rate also decreased, down from -2.5% to -2.8%.
  • The ECRI's Future Inflation Gauge is designed to anticipate cyclical swings in the rate of inflation.
  • U.S. inflation pressures have declined significantly since the fall of 2005, Lakshman Achuthan, managing director at ECRI, told Reuters.
  • Meanwhile, ECRI Future Inflation readings for both Europe and Asia both showed increases.

3. Payrolls Part Deux

On Friday the headline change in nonfarm payrolls for December came in at an upside surprise of 167,000 versus consensus expectations of 100,000. Digging deeper in the data, however, reveals a few nuggets that may have escaped headline prints.

  • If the Friday payrolls print was a relief, it was probably due to the dampened expectations following the ADP jobs report and ISM Manufacturing Employment Index, both of which were released earlier in the week and suggested below expectations employment in December.
  • A peak under the hood of the government data release, however, revealed a couple of interesting factoids.
  • Inside the payroll report was a continued decline in employment in the industrial sector.
  • Manufacturing employment decreased by 12,000.
  • Hours worked declined by 0.1%.
  • "Please," you may say, "that's manufacturing and we're a services economy."
  • True enough, professional and business services employment continued to expand in December with a gain of 50,000.
  • Finally, here's an interesting nugget related to housing.
  • After dumping 25,000 workers in November, builders "only" dropped 3,000 jobs in December.
  • Sounds "better" on the surface, but given the extraordinarily mild weather in the Northeast some were reasonably expecting job additions by builders.
  • Food for thought for those anticipating improvement in the homebuilding sector.

4. Alas, Poor Super Spike...

Goldman Sachs has cut its 2007 U.S. crude forecast for a second time in as many weeks, according to Reuters.

  • Goldman Sachs today said it was cutting its average price forecast for crude oil by $3.50 to $69 a barrel, blaming unseasonably mild weather and a larger commodities-wide selloff for the price reduction.
  • Goldman cut its forecast for this year by $3 on Dec. 22, citing unexpectedly high U.S. oil inventories.
  • In March 2005 Goldman Sachs issued a report calling for a potential "super spike" in oil to $105 per barrel.
  • That aside, Goldman did have one of the most accurate forecasts for 2006, calling for $64 a barrel at the start of the year, according to Reuters.
  • Last year U.S. front-month crude averaged just over $66 a barrel.

5. California Knows How to Party

Real estate bubble? Ain't feeling it, says Cali. Instead, we down with the 12MoDef up in here.

  • The aptly named company Mortgage Payment Deferral, Inc., based in Roseville, California has released a patent pending mortgage program that allows homeowners to defer anywhere from 3 to 36 months of their mortgage payments, according to RISMedia.com.
  • The new program is called 12 Month Deferral or the catchier "12MoDef" for short (seriously), and can apparently be applied to any type of refinancing loan the news release said.
  • "I was inspired to create 12MoDef with the idea that a year without mortgage payments could give someone financial freedom and stability for a better future," Jeremiah Miller, President of Mortgage Payment Deferral, was quoted as saying.
  • 12MoDef works by setting aside some equity of a home into a trust account for the benefit of the homeowner.
  • The trustee makes sure the mortgage payment is made to the correct lender.
  • At the end of the deferral period, the trust account is closed, the borrower is given all of the earned interest from the trust account and simply resumes making their usual mortgage payment while having spent a full year eating through some of their home equity!
  • So to summarize, the key ingredients for the inevitable conclusion of the home lending credit boom are now in place, including, but not limited to, such creative financing opportunities as the 50-year mortgage, mortgage payment deferral programs, interest-only mortgages for speculators, so-called Payment Power loans and Option ARMs.

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