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Five Things You Need to Know: Crude Surprise?, Greenspan to the Rescue, Virtual Insolvency, Goldilocks Lives!, The Real Goldilocks


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. Crude Surprise?

Crude Oil this morning is down nearly 3% even as word comes out of Qatar that the Oil Minister there has decided that Qatar will begins its share of the Organization of the Petroleum Exporting Countries' (OPEC) 500,000 barrel per day production cut immediately.

  • This morning it was reported that OPEC's president is holding intensive phone consultations with fellow oil ministers on further action by the exporter group to stem a sharp price drop.
  • Yesterday, Venezuelan Oil Minister Rafael Ramirez called for an emergency OPEC meeting before the group's scheduled March 15 session to discuss prices.
  • Although undeclared, most believe OPEC has targeted $60 per barrel as a price floor to defend.
  • Meanwhile this morning, despite word from Qatar on moving up the production cut and reports raising the possibility of an OPEC decision on additional cuts, Crude front-month futures traded below $54 a barrel briefly, an 18-month low.

Below is a chart of Crude (blue) with the S&P 500 (red) and U.S. Dollar Index (green) overlaid.

2. Greenspan to the Rescue

The U.S. economy is showing signs of re-acceleration, former Federal Reserve Chairman Alan Greenspan told Japan's Finance Minister Koji Omi during a meeting Jan. 8, according to Bloomberg.

  • The U.S. economy as a whole is turning a little bit upward and is showing signs of re-acceleration, Greenspan said during a meeting yesterday.
  • The Japanese finance official spoke to reporters in Washington on the condition of anonymity, Bloomberg reported.
  • Key to Greenspan's economic viewpoint is housing, which he is already on record as saying has likely bottomed.
  • That's weird, because just yesterday, Fed Governor Donald Kohn, who resides in the inflation "hawk camp," and who we would hope (as an active Fed Governor) is "closer to the data than Mr. Greenspan, noted that he has become less convinced the housing correction is behind us.
  • "In my own judgment, housing starts may be not very far from their trough, but the
    risks around this outlook still are largely to the downside."

3. Virtual Insolvency

The American Bankers Association, in its quarterly survey of consumer loans, reported that credit card payments 30 or more days past due increased to 4.57 percent in the July-to-September quarter of 2006.

  • That's up from 4.41 percent in the second quarter and is the highest since the third quarter of 2005, when the delinquency rate stood at 4.74 percent.
  • The survey is based on information supplied by more than 300 banks nationwide.
  • The ABA survey also showed that the delinquency rate on a composite of other types of loans, including auto and certain home-equity loans, rose from 1.96 percent in the second quarter to 2.12 percent in the third quarter.
  • That's also the highest in a year, according to the ABA.
  • Meanwhile, yesterday's upside print in Consumer Credit for November shows that the entire increase for Nov., Consumer Credit was accounted for by revolving credit.
  • What do you call it when late payments rise even as revolving credit rises and personal savings is negative? Well, there's really no name for it, because we haven't seen it before.
  • How about: Virtual Insolvency.

4. Goldilocks Lives!

Goldilocks is alive and well and impervious to bears who believe the US and world economies are on their way down, the Financial Times reported... (with impunity!)... this morning.

  • "Goldilocks" is the now almost universal tag for an economy that slows down without going into a recession, bringing a moderation of inflation with it, the FT noted.
  • What does it mean in the U.S.?
  • Simple, the FT says. A "Goldilocks" scenario would allow the Federal Reserve and other central banks to cut rates slowly, or not as aggressively as if the economy seemed to be in serious trouble, and companies to continue increasing profits, though at a reduced rate.
  • John Hodge, the president and chief investment officer of Permal, the world's biggest fund of funds with $27 billion, told the FT that the consensus among the 200 hedge fund managers that Permal invests with is that there will be a "soft landing" (the Goldi-locks outcome) for the US economy this year.
  • And what's so wrong about that? If so many people are confident that Goldilocks will survive her encounter with the bears, the FT says, then perhaps that's a sign that we should start worrying.
  • Nah!

5. The Real Goldilocks

(As told by a bear).

Here is the real story of Goldilocks and the three bears (as told by a bear).

  • Once upon a time there was a family of three bears; a mama bear, a papa bear and a baby bear.
  • This family of bears lived in a quiet cottage in the woods.
  • One day, waiting for their porridge to cool, they decided to take a leisurely walk in the woods, as bears are known to do.
  • While they were out on their walk, a little girl named Goldilocks who happened to be playing in a field nearby, discovered their house, and also the porridge inside, which, let's be honest, is not really porridge, but a metaphor for the collective savings of the three bears which they wisely keep under their mattress for fear of an economic collapse.
  • Being curious, and an expert burglar, Goldilocks managed to break into the three bears' house, though she later claimed the front door was left "wide open."
  • Once inside, she examined the first bowl of "porridge'" (a metaphor for U.S. Treasuries) .
  • "This porridge is too cold!" she exclaimed.
  • So she whipped out her cell phone and ordered the Federal Reserve to take some kind of policy action to to try and force this "cold porridge" out of the hands of domestic holders and into the equity markets where returns would look great, even to bears, as long as the bears didn't bother to notice that the returns were due solely to the devaluation of their paper currency.
  • Moving on to the second bowl of "porridge," which is clearly gold, Goldilocks noted, "This porridge is too hot!"
  • So she dumped it onto the open market, even going so far as to sell gol... er, "porridge," that she doesn't even own and can never ever possibly physically deliver in order to make it unattractive to bears.
  • Finally, she moved to the third bowl of "porridge," which in this case is a metaphor for a stack of U.S. dollars that the baby bear kept under his mattress to use as "writing paper."
  • "Ahhhhh," Goldilocks said. "This porridge is just right."
  • Then, she abruptly fell asleep in the baby bear's bed. (Editor's note: Certain metaphorical acts committed by Goldilocks, such as raising taxes, browbeating foreign trading partners for structural deflation, etc. have been omitted for the sake of brevity.)
  • As she was sleeping, the three bears came home.
  • "Someone's been eating my porridge," growled the papa bear.
  • "Someone's been eating my porridge too," growled the mama bear.
  • "And someone's been messing around with my writing paper and used it all up!," cried the baby bear.
  • Just then, Goldilocks woke up, saw the three bears and screamed. "Help!," she cried. "Print more money!" she demanded. "Buy something... anything!" she screamed.
  • But it was too late.
  • By 10:30 a.m. the corporate debt market had locked up, and forced selling by overleveraged hedge funds was spilling over into commodities and equities markets.
  • By 11 a.m. the first round of trading curbs kicked in, but this had the perversely ill effect of actually withdrawing even more liquidity and bids from the market.
  • By noon the Federal Reserve had called a special meeting with Wall Street's money center banks to see which, if any, could remain operable through the end of the week.
  • Goldilocks, meanwhile, was vilified in the press for her reckless breaking and entering and total disregard for good porridge.
  • The bears felt vindicated, but not particularly good. After all, in a real bear's market, no one wins, not even the bears.
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