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Five Things You Need to Know: Housing is Stabili... Oops, The Worldwide Conquest of Inflation, But Wait, There's More!, Speaking of Secular Deflation..., Crowds and WikiPower


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. Housing is Stabili... Oops

Home builder confidence in November spiked higher for the second consecutive month, surging two points to 33.

  • Last month the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) exploded by one point from 30 to 31.
  • This back-to-back explosion in the NAHB HMI prompted NAHB President David Pressly to note that "we look for sales to stabilize and gradually move up in the coming months."
  • Prior to the staggering two-month surge in the HMI, the index had "flattened out a bit," from 72 in June 2005 to 30 in August of this year.
  • Meanwhile, before the "Housing Stability" party could even tap the kegs, the stupid Housing Starts data this morning plunged 14.6% last month to a six-year low.
  • Also, the tee-totaling Building Permits data had the temerity to tell the Housing Stability party to turn the music down, falling 6.3% to the lowest level in nine years.

2. The Worldwide Conquest of Inflation

Speaking at the Cato Institute Monetary Policy conference in Washington D.C. yesterday Fed Governor Randall Kroszner took a victory lap in the war against inflation, declaring a "conquest of worldwide inflation."

  • In the United States and in virtually every country around the world, inflation has declined over the past 25 years, and in most countries dramatically so.
  • As Kroszner notes in his speech, the volatility of inflation and expectations of future inflation have also fallen significantly.
  • What do you call this turn of events? Inflation falling worldwide. Volatility of inflation falling globally. Volatility of inflation expectations falling globally.
  • If you are Kroszner, you call it, "the conquest of worldwide inflation."
  • And who or what is responsible for this worldwide conquest of inflation? Why, central banks, of course!
  • "[G]lobalization, deregulation, and financial innovation, in part spurred by experiences of high inflation in the 1980s, have fostered currency competition that has led to improved central bank performance and, hence, the recent conquest of worldwide inflation," Kroszner asserts.

3. But Wait, There's More!

Much more. According to Fed Governor Randall Kroszner during yesterday's endzone dance over whipping inflation, "When governments resort to printing money to finance their spending, inflation rises and nominal assets lose their value. This loss of value is also known as the inflation tax."

  • Whoa, easy there fella, you'll hurt your arm reaching around to pat yourself on the back so vigorously.
  • We'll grant you this: the transparent and fully outlined 17 consecutive 25 basis point Fed funds rate increases that were recently concluded allows that statement to fly over the heads of most... without question.
  • Hey, look everybody, the Fed isn't printing money and they're not resorting to the inflation tax!
  • True enough, they're not printing money.
  • But during the 17-consecutive rate increases credit expansion didn't pause for one moment.
  • So while it's true on the face of things to say the Fed isn't resorting to the inflation tax by "printing money," Fed policies have done little if anything to slow credit expansion.

4. Speaking of Secular Deflation....

General Motors (GM) announced it will offer discounts of up to $2,000 on many vehicles in its latest campaign to boost sales, according to the Financial Times.

  • GM's latest campaign excludes its upscale Cadillac, Hummer and Saab brands.
  • Dealers will be given discretion to decide on discounts for each model.
  • The "Red Tag" incentives are scheduled to run to January 2.
  • A GM official said the incentives were not inconsistent with its strategy of narrowing the gap between sticker and transaction prices.
  • Promotions such as the Red Tag event are widely blamed for contributing to the recent woes of GM and its Detroit-based rivals, Ford and DaimlerChrysler's Chrysler division, the FT said.
  • They have also caused reductions in trade-in values.
  • Meanwhile, IRN, a Michigan-based consultancy, forecasts that US light-vehicle sales will fall to 16.3m units in 2007 from 16.6m this year and almost 17m in 2005, the FT said.
  • And GM's January-October sales were 9.4 per cent lower than the same period last year.

5. Crowds and WikiPower

In a move that could shake up the book industry, publishing giant Pearson PLC is joining with two top business schools to create a business book authored and edited by a "wiki," according to the Wall Street Journal.

  • A "wiki," pronounced either WICK-ee or WEE-kee depending on how nerdy you are, is essentially a form of collaborative writing that usually takes place through a Web site.
  • The term may refer to a specific site, as in Wikipedia, or to a type of software that makes collaborative authorship possible.
  • According to the Journal, the wiki book, produced by a community of business experts and managers, will be called "We Are Smarter Than Me."
  • Seriously.
  • The book's collaborative writing Web site, the Web site, went live a month ago.
  • The book's wiki leaders expect business consultants and executives to contribute to the book site, which, like Wikipedia doesn't pay writers for their work.
  • WeAreSmarter expects to close submissions to the book by the end of the first quarter next year and turn it over to paid ghostwriters to turn it into a 120-page business book aimed at the fast-growing airport bookstore market.
  • It will go on sale next fall, the Journal said, with a list price of $25.99.
  • Joe Wikert, executive publisher with John Wiley & Sons Inc., predicts that the book's quality will be high. "The community won't allow it to be garbage," he told the Wall Street Journal.
  • Ah yes, the power of the community: We are smarter than me. Although the "wiki" concept seems "fresh" and "innovative," it's really just a simple matter of leveraging the power of the Internet and technology to enhance the dynamics of the collective decision-making prowess of the crowd.
  • Take a look at these other successful "wikis" in history:

WikiSalem Witch Trials

WikiSlave Traders

WikiAstronomers: "The world is flat, so careful where you sail that thing."

Spanish Wikinquisitioners: "Just spreading the good word."

Wikinvestors: "Stock market has reached permanently high plateau."

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