Five Things You Need to Know: Fed Still Got Game, NAHB Housing Index Shows Dramatic One-Point Surge, SEC Abolishes Margin Calls, Fly the (Too) Friendly Skies?, Google Buys Wrong Tube
What you need to know (and what it means)!
Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Consumer Price Index Shows Fed Still Got Game
The headline drop in the Consumer Price Index was a bit greater than expected thanks largely to the expected decline in energy prices.
- The CPI, excluding food and energy, came in at (-0.5%) versus (-0.3%) expected.
- Why are stocks up on the lower-than-expected core inflation print?
- For the same reason stocks were down yesterday on the lower-than expected and disinflationary Producer Price Index.
- In annual terms, core CPI is running at a 2.9% annual rate, the highest level since February 1996.
- That rate is also well above the Fed's "comfort zone" of 1% to 2%, and so now we have "evidence" of an economy running on some "hot money."
- With the Fed well divided among Hawks, Doves and Centrists, the CPI gives the green light to stocks and bonds in terms of continuing liquidity.
- In other words, housing bust or not, this Fed ain't going down the path of deflation without a fight.
2. NAHB Housing Index Shows Dramatic, Imperceptible Surge
The pace of U.S. home building strengthened in September as new housing starts rose 5.9 percent.
- Housing starts increased 5.9 percent to an annual rate of 1.772 million from a 1.674 million pace in August, the Commerce Department said.
- Well, that's good news. Finally.
- Meanwhile, yesterday afternoon, the National Association of Home Builders/Wells Fargo index of builder confidence rose to 31 from 30 in September.
- Last month you'll recall it reached its lowest level in 15 years.
- The rush to disassociate from the housing doomsday sayers was palpable yesterday following the release.
- "US housing bottoming out!," screamed one headline.
- "Builder Confidence Stabilizes in October" the NAHB said.
- A separate article noted the positive nature of the NAHB Index:
"The index was up just one point to 31, but this is a positive considering the index has fallen in 13 of the past 16 weeks.
- Below is an enlarged chart of the index so you can see the dramatically massive and tremendous one point surge in home builder optimism following the very slight downturn the index has shown over the past year as it leveled off in the 78 to 30 area.
NAHB HMI Shows Dramatic Surge
3. SEC Moves to Abolish Margin Calls
The SEC will likely approve an application from the NYSE to ease margin requirements in certain types of accounts. What does this mean?
- First off, let's be clear: this is not a move to lower the Regulation T initial margin requirement, which is set by the Fed, as it applies to individual retail investors.
- The initial margin rate, set by the Fed, for individual investors is 50%.
- Institutions and hedge funds already "enjoy" far lower margin rates set by banks and broker-dealers.
- This is a move to further relax margin standards and requirements for institutions and hedge funds.
- The concept, called "portfolio margining" would adjust margin requirements based on the type of assets held in an account.
- Proponents (basically the NYSE which, we might add, has a favored horse in the race) say the relaxation of margin requirements are necessary to compete with European markets and that the current cost of leverage is too high.
- Funny, wasn't it just four weeks ago that the Fed's Timothy Geithner said in a speech in Hong Kong that margin requirements that are sensible in normal times may prove too thin in stressful market conditions and could actually aggravate violent market moves?
- Yes, it WAS just four weeks ago!
- But here is what he meant. "As financial firms demand more collateral, funds are forced to liquidate positions, adding to volatility and pushing down asset prices, leading to more margin calls and efforts by the major firms to reduce their exposure to future losses," he said.
- Yes, margin calls beget margin calls, apparently, leading to exacerbated volatility.
- Instead, the SEC will replace margin calls with friendly reminder calls.
Broker-Dealer "Friendly Reminder Call" Transcript
Broker-Dealer, Tom: Hi Darrell, Tom over at (inaudible), looks like you guys took a hit on the wheat/corn spread and have a slight negative equity problem, just wanted to give you a heads up.
Hedge Fund, Darrell: Ah, mmm, yeah, we're, uh, we're, uh, looking at that right now Tom.
Broker-Dealer, Tom: Oh sure, sure, no pressure, just giving you a heads up.
Hedge Fund, Darrell: Right. Look, Tom, you think maybe we can soft dollar that?
Broker-Dealer, Tom: Hmmm, wow. Soft dollar. Whew. Soft dollar. I can check with accounting and operations on that, but it would have to be in AMEX gift cards.
Hedge Fund, Darrell: Ouch. The gift cards are tough. We usually feed those through Scores.
Broker-Dealer, Tom: Hmmm, yeah. I can see that.
Hedge Fund, Darrell: Wait! What about some fruit baskets? We're swamped with fruit baskets since our investors got the Q3 letter. You guys like macadamia nuts over there?
Broker-Dealer, Tom: Hawaiian or Australian?
Hedge Fund, Darrell: Dude, be serious. Our investor minimum is $5 mil. These are the real deal. Australian.
Broker-Dealer, Tom: We can probably work with you guys on that.
4. Fly the (Too) Friendly Skies?
Here's a serious question.
- Question: Would you trust a beer brewer to run an airline?
- Answer: Who wouldn't!!!!
- Kingfisher Airlines, owned by the brewers of India's Kingfisher beer (a clean, pale malt with a light, floral hop aftertaste that holds up well with spicy foods), has become one of India's fastest growing airlines since debuting in May 2005.
- Kingfisher has 108 flights daily and recently cut a deal that will allow North American travel agents to access its flight and seat inventory, according to Cnet News.com.
- The airline's motto: Fly the Good Times.
"Ladies and gentleman, once we reach a safe drinking altitude the captain will turn off the no chugging sign and it will be safe to stagger about the cabin."
5. OopsTube: Looks Like Google Bought the Wrong Online VideoTube
Let's crunch some numbers and do some very basic math.
- Google last week agreed to pay $1.65 Billion for YouTube, an on-demand video file-sharing service.
- How will they monetize it? No one is quite sure.
- Meanwhile, here are a couple of interesting, though seemingly unrelated, business factoids from CNN's (weirdly similar to Anderson Cooper) Glenn Beck, who is currently hosting a 589-part, four-year investigative reporting series called Porn: America's Addiction!:
- Pornography makes more money than professional football, baseball and basketball combined.
- Overall, the porn industry in the U.S. is a $12 billion dollar
- There are 4.2 million porn sites in the U.S. that have been visited by Beck (assuming CNN takes fact-checking seriously).
- Those porn sites generate $2.5 billion annually in revenue.
- Now, how is this related to Google's purchase of YouTube? By simple math.
- Minyanville has learned from CNN Special Porn Correspondent Glenn Beck that there is apparently a porn-themed web site called PornoTube that does the same thing YouTube does, except with porn.
- Calm down and dismount from your high horse for a minute to just look at the numbers.
- Online porn generated $2.5 billion in revenue last year.
- YouTube generated approximatelty $50 million in revenue last year.
- Therefore, by my calculations, if YouTube is worth $1.65 billion then PornoTube is worth approximately $8.73 to $11.46 trillion.
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