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Five Things You Need to Know: FOMC Minutes, Dollar Doom Hyperbole, Give Government Chance to Solve Nation's Problems, When It's Raines We're Poorer, Plunk Factor


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. FOMC Minutes Pre-Release Party

At 2 p.m. today the Federal Reserve will release minutes from the October 24 Federal Reserve Open Market Committee meeting. You may recall that the Oct. 24 meeting was the third consecutive lone dissent from Richmond Fed President Jeffrey Lacker. The minutes of this meeting may show just what it is Mr. Lacker sees that the remainder of the FOMC does not.

Although seemingly inconceivable (more on that word later) Minyanville has somehow obtained a partial transcript of the FOMC minutes.

Ben Bernanke, Chairman: (Inaudible) From the Caribbean, specifically the Cayman Islands, as you all well know.
Timothy Geithner, New York: I love the Caymans!
Jeffrey Lacker, Richmond: I don't.
Janet Yellen, San Francisco: What about labor costs, though? Unemployment fell to 4.4 percent in October, the lowest level since May 2001.
Donald Kohn, Board of Governors: Yes, good point, any upward movements in inflation would be very adverse to the economy, and labor costs appear to have begun to accelerate.
Jeffrey Lacker, Richmond: I disagree.
Janet Yellen, San Francisco: Well, the broadest measure of compensation in the nonfarm business sector increased 6.7 percent over the past year. Though, seeing as he dissents, Mr. Lacker may prefer to focus on the employment cost index (ECI), which increased only 3.3 percent over the past year.
Jeffrey Lacker, Richmond: No, I don't like the ECI either.
Timothy Geithner, New York: Man, I love the Caymans.
Frederic Mishkin, Board of Governors: I think what Jeff sees is the growing odds of a recession next year according to the Wright Model which, I might add, was based in no small part on my very own research.
Jeffrey Lacker, Richmond: No, I disagree with the Wright model.
Ben Bernanke, Chairman: At least inflation expectations remain well anchored.
Jeffrey Lacker, Richmond: Not from my perch they don't.
Timothy Geithner, New York: Speaking of perches, did you know the Grand Cayman Parrot is native only to Grand Cayman?
Sandra Pianalto, Cleveland: We are not entirely out of the woods with respect to the housing risk, but I do not expect conditions in the housing market to spill over into the broader economy in a meaningful way. I fully expect the economy to continue to grow at a moderate, but sustainable pace.
Jeffrey Lacker, Richmond: I don't.
Timothy Geithner, New York: I've never been to the Caymans in December.
Susan Bies, Board of Governors: I don't know, Susan, I'm encouraged that recent weakness in housing does not appear to have spilled over to other sectors...
Jeffrey Lacker, Richmond: I'm not.
Susan Bies, Board of Governors: ...but some further softening may yet lie ahead for the residential real estate market.
Jeffrey Lacker, Richmond: No it won't.

2. Rubin, Volcker Face Off in Dollar Doom Hyperbole

Robert Rubin, Treasury secretary under President Bill Clinton, and former Federal Reserve Chairman Paul Volcker faced off in forecasting dollar doom yesterday at a dinner in New York, competing to see who could more dramatically describe the forthcoming dollar collapse.

  • Here's what we already knew: Foreign investors now own about half of the $4.3 trillion of Treasuries outstanding.
  • Now, if these investors were to lose confidence in U.S. policies the dollar could collapse. Collapse!
  • Meanwhile, the U.S. Dollar Index is already down 26 percent since 2001, and this year alone it is down 7.4 percent against the euro.
  • Why would these investors lose confidence in U.S. policies now?
  • According to Rubin, failure by the U.S. government to shrink its budget deficit may spook the central banks, hedge funds and others who have been buying Treasury notes.
  • "It seems almost inconceivable that this will continue indefinitely,'' Rubin said, according to Bloomberg.
  • Volcker, on the other hand, avoided using the word "inconceivable" and instead opted for "incredible."
  • "It's incredible people have gone on so long holding dollars,'' Volcker said.
  • Final Score: Inconceivable def. Incredible (6-0, 6-1, 6-2) in straight, hyperbolic sets.

3. Rubin Urges Americans to Give Government Chance to Solve Nation's Problems

Speaking of Rubin, last Thursday he called for raising taxes, saying, "You cannot solve the nation's fiscal problems without increased revenues," according to Bloombeg.

  • "You cannot solve this nation's fiscal problems without increased revenue,'' Rubin told members of the Economic Club of Washington last week.
  • Really? We find that very hard to believe because Federal tax revenues have tripled since 1962, increasing by more than $1.5 trillion.
  • Yet, we still seem to have these... these... fiscal... difficulties. Why is that?
  • Probably because Federal spending has quadrupled since 1962, increasing by more than $2 trillion.

4. Fannie Mae: When It's Raines We're Poorer

Franklin Raines, former chief executive of Fannie Mae (FNM) who was ousted two years ago in the mortgage giant's accounting scandal, will receive $2.6 million from the company under a deal that resolves a pay dispute, according to the International Herald Tribune.

  • Raines left Fannie Mae with a $19 million severance package in December 2004.
  • However, he had been in negotiations with the company and an outside arbitrator, maintaining that he was owed more money under his employment contract.
  • A report issued in May by the agency that oversees Fannie Mae and the Office of Federal Housing Enterprise Oversight, said company employees manipulated accounting to hit quarterly earnings targets so that senior executives could pocket hundreds of millions in bonuses from 1998 to 2004.
  • That sounds crazy... so crazy it actually worked!
  • Raines earned more than $90 million from 1998 to 2003, according to OFHEO's report - including some $52 million in bonuses directly tied to the company hitting earnings targets, the IHT reported.
  • This is so appalling it's almost... what's that word again? Ah, yes, Inconceivable.
  • So, to sum up, Raines makes $90 million from Fannie Mae between 1998-2003, gets forced out in 2004 with a $19 million severance package, then claims he was owed another couple of million under his employment contract which the company agreed to pay.

5. Plunk Factor

To attract new customers in a crowded market, credit-card issuers are pitching cards with an array of "unique" features, according to the Wall Street Journal.

  • Credit-card companies are creating unique cards aimed at winning the coveted "top of wallet" position, the Wall Street Journal reported.
  • After years of double-digit balance growth, the card industry is maturing, according to the Journal, so card companies are working aggressively to steal customers from competitors.
  • Meanwhile, because U.S. consumers already carry more than 1.5 billion credit, debit and gift cards, the battle for top placement among issuers is heating up.
  • J.P. Morgan Chase (JPM), one of the nation's largest issuers, is offering "Battlestar Galactica" fans a fiery red, outer-space-themed card.
  • American Express (AXP) is replacing its high-end Centurion plastic cards with hand-crafted versions made of titanium.
  • The new cards weigh 0.53 ounce compared with 0.17 ounce for a typical plastic card, prompting company executives to describe the heft as providing "plunk factor" when tossed onto a table, the Journal said.
  • Speaking of "plunk factor," Minyanville has learned Visa will soon introduce a new credit card that will be permanently attached to your leg with a ball and chain.

Does this restaurant accept the old ball and chain?

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