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Five Things You Need to Know: Americans Told to Brace Themselves for Soft Landing, Fed Flagged for Excessive Celebration, AutoGlut, Overconfident Fed Fans Leave Game Early, Miss Late Fourth Quarter Drama, Minyanville Home Energy Conservation Guide


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. Americans Told to Brace Themselves for Soft Landing

Here's your soft landing. The economy turned in its slowest growth in three years during the third quarter, expanding at a 1.6% annual rate, according to the Commerce Department.

  • The seasonally adjusted growth rate for the third quarter of 1.6%, expectations were for 2%, compared to the second quarter's 2.6% increase.
  • The "good" news in the report is that personal consumption expenditures (PCE) increased 3.1% in Q3 compared to 2.6% in Q2, further evidence that the rollover in housing has not yet impacted consumer spending.
  • The core PCE index increased 2.4% in the past year, up from 2.2% year-on-year growth in the second quarter.
  • Hey, that's the fastest pace since the second quarter of 1995.
  • Meanwhile, investments in housing declined by 17.4%, the largest decline since 1991 as housing subtracted 1.1 percentage points from Q3 growth.
  • And so we see why this "Gridlock Gang" Fed is so... gridlocked... split between hawks and doves: Stagflation.
  • "Wait just a second... I thought you were in the secular deflation camp," someone (Read: A Minyanville editor) just said.
  • Correct. And stagflation is simply the bridge between cyclical inflation and the resumption of secular deflation.
  • Brace yourselves for the soft landing.

2. Fed Flagged for Excessive Celebration*

The bottom line this morning is the financial media spin saying: "The Fed will now be closely watching to see whether this "slowdown" gathers momentum or if this GDP report is the pause that refreshes."

  • No they're not. They spiked the ball and did an endzone dance on Wednesday afternoon.
  • Hence today's flag.
  • The Fed statement that "Going forward, the economy seems likely to expand at a moderate pace," is about as clear as it gets.
  • Meanwhile, note the impact the auto sector had on growth in the third quarter.
  • Motor vehicle output added 0.7 percentage points to growth and consumer spending on cars added 0.4 percentage points.
  • Why is that significant? See Number Three, below, while we prepare for the best field field position we've had since the end of the first quarter.

* Note: Penalty will be assessed on kickoff.

3. AutoGlut

AutoNation said it expects to order about 30% fewer vehicles from the Big Three auto makers this quarter due to a vehicle glut, the Wall Street Journal reported this morning.

  • AutoNation (AN), the nation's largest chain of car retailers by dealerships, said it expects to order about 30% fewer vehicles from the Big Three auto makers in the fourth quarter because of a vehicle glut, the Wall Street Journal reported.
  • Did they really use the word "glut"? That can't be good for growth.
  • Moreover, AN was sharply critically of the way the "Big Three" (pardon the anachronism) reports inventory, which they say is misleading and "dramatically understates" vehicles on dealer lots.
  • "The drop in ordering by AutoNation, which is often seen as a bellwether for U.S. car dealers, raises questions about whether the Big Three will reach their inventory goals, or if they will have to cut production again in the first half of 2007," the Journal says.
  • Bottom Line: With housing peeling off 1.1 percentage points from growth, and the trade deficit hacking away another 0.6 percentage points, while the auto sector surprises to the upside by adding 0.7 percentage points, we'll go out on a limb and say that for Q4 growth we can anticipate the following:
    - The housing subtraction from growth will "stabilize" but not improve
    - The trade deficit will not improve
    - The contributions to growth from the auto sector will evaporate
  • Again, field position following the penalty-lengthened kickoff is shaping up to be pretty good.

4. Overconfident Fed Fans Leave Game Early, Miss Late Fourth Quarter Drama

The University of Michigan Confidence survey for October came in at 93.6 vs. 92.7 expected, as Fed fans leave the stadium early to resume their raucous tailgate party.

  • You know what Dow 12,000 gets you? If nothing else, a pumped up consumer.
  • The University of Michigan consumer sentiment index inched higher to 93.6 in late October from 92.3 earlier in the month.
  • That's the highest level since July 2005.
  • The current conditions index is at its highest level since the first quarter.
  • Well, perhaps we're gluttons for punishment, but there's still a good 13 minutes left in the fourth quarter.

Maybe you don't want to tear the
goalposts down just yet.

5. Minyanville Home Energy Conservation Guide

OPEC is cutting production quotas. The cold winter months are nearly upon us. And we Americans are going to spend more than $160 billion this year to heat, cool, light and live in our homes.

While our homes are more efficient today than they were 30 years ago, considerable opportunity remains for greater home energy efficiency and the associated benefits. To help households across the country reduce their home energy bills, Minyanville has prepared the following guide:

  • A large percentage of heating and cooling efficiency is lost through doors and windows. Board up your home's windows with plywood and seal all doors to prevent energy seepage.
  • During cold winter months try to sleep on the ceiling, because heat rises.
  • The human body is a very efficient heating and cooling system. Instead of central air conditioning and heating, just get a bunch of human bodies.
  • Take a cue from nature and gain 200 lbs of insulating, warming fat for the winter. Later, portions of this fat can be used to create candles and heating oil.
  • Window unit air conditioners are very inefficient because they blow out hot exhaust when in use. During the cold winter months, turn your air conditioner around backwards so the hot air blows in, not out.
  • Move your family somewhere warm in the winter, cold in the summer, just right during the fall and spring. Become a meteorologist to help plan the moves. Charter a private jet to avoid long airport delays.
  • Be alert for anything burnable that your neighbors may leave unattended.
  • Be conscious of where you set your thermostat. Because the body's normal temperature is 98.6 degrees, it is best to set your home's thermostat to 98.6 degrees for consistency.
  • To stay cool at night during the dog days of summer, sleep in your grandfather's cryogenic tank and set the thawing system for February.
  • It probably takes much less energy to heat a car than it does to heat a house because cars are smaller. To save on home heating costs, sleep in your car in the garage with the engine running.
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