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Five Things You Need to Know: Fed Whips Inflation Now, Minute-by-Minute, Say Again?, TICs Data... New and Improved, Angry Mob of Late-night Vigilante Comedians Vows to Relentlessly Mock Suspected Killer

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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. Fed Whips Inflation Now

Consumer prices fell more than expected in October with underlying inflation slipping to its lowest gain since February.

  • The consumer price index decreased by a seasonally adjusted 0.5 percent for a second consecutive month, the Labor Department said, below expectations for a decrease of 0.3 percent.
  • Excluding food and energy, core consumer prices rose 0.1percent, after rising 0.2 percent in each of the prior three months.
  • That takes year-on-year inflation down to 2.7 percent from September's 2.9 percent.
  • Of course energy prices fell. Everyone expected that. But what about the two categories where the Fed is still sniffing around for inflation, Autos and Housing (rents)?
  • The PPI showed a sharp decline in wholesale auto prices, but some had postulated that because carmakers are in the midst of changing model years prices are not yet showing up in autos.
  • Sorry, new vehicle prices (the reports says about 42 percent of the new vehicle sample consisted of 2007 models) came in 0.2 percent lower than in October 2005. The index for used cars and trucks decreased 1.2 percent in October and was 0.9 percent lower than in October 2005.
  • The index for housing was unchanged in October at 0.0 percent, but within shelter, the
    indexes for rent and owners' equivalent rent each increased 0.4 percent, a level in-line with most expectations considering plummeting energy costs.
  • Apparel declined 0.7 percent, offset only slightly by medical care, which rose 0.3 percent, and education, which rose 0.2 percent.





2. Data Dependent, Minute-by-Minute

Yesterday afternoon in the FOMC minutes from the October 24 meeting, the Fed made clear they intend to remain "data dependent" but more focused on potential upside risks to inflation than downside to economic growth because they believe "downside risks to economic activity had diminished a little."

  • Oops. It's not clear from the minutes (or the data) why, exactly, they believe that.
  • More recently the San Francisco Fed and a number of Wall Street firms have taken down GDP estimates for 2007 or the current quarter or both.
  • GDP this year has gone from 5.6% to 2.6% to 1.6%. Fourth quarter GDP has been a pretty consistent downside surprise for the past six years.
  • As for the inflation focus, today's CPI should put that to bed. But even prior to that it was still not particularly clear where the Fed is finding this ongoing concern about an inflation upside surprise.
  • Perhaps it's due to the trimmed mean PCE inflation rate.
  • But according to statistics from the Dallas Fed, the 12-month trimmed mean PCE has hovered consistently around 2.5-2.7% since April.
  • The six-month trimmed mean PCE fell sharply for the first time this year between August and September, from 3% to 2.7%.
  • And one-month trimmed mean PCE plummeted from 2.7% in August to 1.7% in September.
  • Looks like we're running low on inflationary pressures, a condition pessimists refer to as "secular deflation."





3. Say Again?

Wait, what was that about a concern over rising labor costs again? Earlier this week the San Francisco Fed was the latest arm of the Federal Reserve to voice concern over rising labor costs. As with underlying inflation (now defeated) and slowing economic growth (no longer a concern, according to Fed minutes), the Fed is the only one concerned about rising labor costs. Those who actually sign the paychecks (hint: employers) sure aren't.

  • Earlier this week the San Francisco Fed voiced a concern over rising labor costs in their monthly FedViews report.
  • "With labor markets fairly tight, labor costs appear to have begun to accelerate," the FedViews noted.
  • Meanwhile, for those who actually sign the paychecks for workers, concern over rising labor costs is apparently... not so much.
  • The National Association of Independent Business (NFIB) small business optimism
    index rose to 100.7 in October.
  • Notably absent from the small business polling was widespread concern over labor costs, however.
  • According to the report, a seasonally adjusted 14 percent of the owners reported increasing employment in October, an average of 3.1 workers per firm.
  • Nine percent reported workforce reductions averaging 3.5 workers.
  • Interestingly, while eighty-three percent of those owners who hired or tried to hire a worker reported few or no qualified applicants for the positions they were trying to fill – conditions typically associated with a tight labor market - wage inflation was non-existent. Apparently, you can't get something for virtually nothing.
  • The percentage of firms planning to raise worker compensation rose to 18 percent from 16 percent last month, but the percentage of firms raising worker compensation fell to 23 percent, the lowest level in four months.
  • What about a concern over the future cost of labor? After all, the Fed is supposedly looking ahead. Well, only 4% of the respondents said future labor costs were a concern, slightly lower than the 5 percent who said it was a concern last year.
  • Finally, what about inflation in general, is it a concern? According to the report:
    "Since April, the net percent of owners raising average selling prices has declined
    ten points, from 26 percent to 16 percent. In simple terms, inflation is all
    about firms raising prices and the percent of owners doing this has declined
    substantially."
  • We'll take that as a No.


4. TICs Data... New and Improved

This morning the Treasury released the September Treasury International Capital (TICs) report unveiling a new format that added data on foreign holdings of short-term dollar securities as well as other assets.

  • Net inflows of capital into the United States fell in September to $53.7 billion from August's $97.1 billion.
  • September's inflows were not sufficient to cover the U.S. trade deficit of $64.3 billion for September.
  • Foreigners sold U.S. Treasuries in September amounting to $374 million, the first net outflow since February 2003.
  • In August, net inflows to U.S. Treasuries were $44.15 billion, according to the new Treasury reporting format.
  • Net official capital inflows, which include operations by foreign central banks, fell slightly to $11.8 billion from August inflows of $14.7 billion.
  • You know, if the Fed is looking for something to worry about, how about this? The first net monthly U.S. Treasuries outflow since 2003.


5. Angry Mob of Late-night Vigilante Comedians Vows to Relentlessly Mock Suspected Killer.

OJ Simpson, who was acquitted in 1995 of murdering his ex- wife and her friend Ron Goldman but later found liable for the deaths by a jury in a wrongful-death suit filed by the Goldman family, "has been mocked relentlessly by late-night comedians, particularly for his vow to hunt down the true killers," according to the Associated Press.

  • To understand this peculiarly American form of wild West justice (most late-night comedians are located in the American west, near Los Angeles), we must go back to the early days of frontier late-night comedian vigilantism, all the way back to 1995.
  • The world of late-night comedy was a different, more reckless place in the mid 1990s.
  • It was not uncommon in those days for a late-night comedian to take justice into his own hands and viciously mock a suspected murderer or corrupt politician.
  • Shortly after Simpson's acquittal of the murders in 1995, an angry mob of late-night comedians vowed to wage a relentless campaign of vigilante mockery against Simpson.
  • Now, more than 10 years later, the news that Simpson will soon release a book tentatively titled "If I Did It" has rekindled the flickering flames of frontier comedy justice, creating a bonfire of mockery that this suspected (though acquitted) killer likely won't soon forget.
  • In many ways, the mid 1990s was a more innocent time in America; a time when folks knew that no matter if a jury finds you innocent of butchering two people, there remain serious comedic consequences to your actions.
  • In the old days you could escape prison, but there was no running from the long arm of the punchline.


Simpson sentenced to life
in punchlines by vigilante
late-night comedians.

No positions in stocks mentioned.

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