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Five Things You Need to Know: ISM, Question: The Dollar - How Low Can it Go?, Answer: The Dollar, Probably Not Much Lower, Home Depot Leveraged Buyout?, All Wines Are Not Created Equal


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. ISM

The Institute for Supply Management's factory index fell to 49.5, from 51.2 in October. Goldilocks just woke up, saw the three bears, and ran screaming into the forest.

  • A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
  • Economic activity in the manufacturing sector failed to grow in November for the first time following 41 consecutive months of growth, the ISM reported in their Report On Business.
  • New Orders and Production both ended growth cycles at 42 months during November.
  • Manufacturing activity declined to its lowest level in 42 months as the PMI fell to 49.5 percent.
  • The last time the PMI registered below 50 percent was April 2003 (46.5 percent).
  • Among noteworthy comments from various industries in the report:
    "Business has softened in the past 60 days. Down about 20 percent." (Fabricated Metal Products)
    "Housing market slowed down." (Furniture & Related Products)
    "We have hit another slow period in receiving new contracts. Quoting activity is fair." (Machinery)
  • Meanwhile, how about commodities reported to be in short supply? Only Titanium made the list.
  • Minyanville Professor Lance Lewis noted on the Buzz & Banter this morning that the Fed has NEVER raised interest rates when the ISM is below 50.
  • "That's bad news for the dollar, and good news for gold," Lewis added.

2. Question: The Dollar - How Low Can it Go?

Minyan "Rhino" yesterday asked, "The question in my mind is this: If foreign central banks are diversifying their reserves, maybe not even the outright selling of dollars but, say, just not buying them (and Treasuries for that matter), how is that dollar bullish? Given the record current account and trade deficit, as well as a potential explosion in the Federal budget deficit, caused by a slowing economy and a drop in corporate tax receipts, it just does not seem possible that the dollar can do anything but go down. Does it?"

  • Between the reasons Minyan Rhino outlined above, this morning's recessionary ISM report, and all the reasons noted in Five Things back on Nov. 10, almost nothing makes more sense in this market than a falling dollar.
  • Now I was dead wrong in my belief earlier this Fall that the dollar had possibly made a bottom.
  • Fortunately, the move below 84.75 on the Dollar Index was a warning that my view was incorrect. (The current downside objective is 82.)
  • However, I am wary of things that make such obvious sense as the pending collapse of the dollar.
  • Why would the dollar not collapse?
  • Minyanville Professor Scott Reamer explained the view we shared yesterday afternoon on the Buzz & Banter:
    "Three words: Deflationary Credit Contraction. Bongs get bid, risky assets get sold, corporate spreads widen significantly, commodities get sold, and the US Dollar gets bid."
  • Meanwhile, as the dollar nears the downside price target of 82 this morning, Professor Reamer notes that the dollar has reached a three-year extreme in bearish sentiment.

3. Answer: The Dollar, Probably Not Much Lower

In addition to the bearish sentiment extremes and nearby, approaching technical targets for the dollar, what other evidence do we have to indicate that the real contrarian position in this market is dollar bullish?

  • Well, there's this, the newest cover of The Economist magazine:
  • Meanwhile, remember this back on Dec. 4, 2004? Six months later the dollar index was 8.6% higher.
  • Even now, nearly two years later, the dollar index is actually 2.43% higher than it was when this "Disappearing Dollar" cover appeared.

4. Home Depot Leveraged Buyout?

The New York Post reported that private investors, including Kohlberg Kravis Roberts & Co. and Texas Pacific Group, are considering a $100 billion buyout of Home Depot (HD).

  • BusinessWeek reported that Deutsche Bank Securities analyst Mike Baker in a client note said private equity investors could give current shareholders a premium price while still earning good returns with a Home Depot buyout.
  • For example, the buyout shops could pay $45 per share, the analyst wrote, giving shareholders about a 20 percent premium to Thursday's close, the magazine said.
  • Sure, Home Depot has some free cash flow and could definitely support some extra debt, which private equity loves.
  • There's also the consideration that taking a company private gets away from increasingly stringent regulations and requirements.
  • But does it really make sense?
  • Minyanville Professor John Succo on the Buzz & Banter this morning says, No.
  • "MY firm's thoughts are that an LBO for HD (or any retailer) makes little financial sense," Succo wrote. "The only positive factor going for such a deal is that HD has virtually no debt. But it has little in the way of hard assets, and thin margins, which makes an LBO very dangerous."
  • Uh, yeah. We're just worried about what this may mean for Tony Stewart.

Tony Stewart to possibly drive the number (private) Kohlberg Kravis Roberts Bentley private equity limousine in next season's Nextel Cup races.

5. All Wines Are Not Created Equal

By now everyone knows that drinking wine carries health benefits. But apparently not all wines are created equal.
British scientists have discovered that traditional red wines from France and Italy are best at protecting your health, according to The UK Times Online.

  • The health benefits of wine are known to derive at least in part from a group of antioxidant chemicals called polyphenols, which protect the condition of the blood vessels.
  • A new study, published in the journal Nature, has now identified that one particular group of polyphenols, known as polymeric procyanidins, offer the greatest degree of protection to human blood-vessel cells, the Times reported
  • British scientists have discovered that red wines from France and Italy boast the highest concentrations of these chemicals.
  • The traditional wine-making techniques used in these two regions probably explain much of their higher procyanidin content, scientists say.
  • But don't throw away those other wines just yet!
  • Minyanville undertook a comprehensive study and comparison of various wines beginning at about 8:25 p.m. last night and concluding sometime around 3:45 a.m.
  • Below are the results of our comprehensive and exhaustive study.

Minyanville Health Benefits Wine Tasting Survey
Wine Tasting Notes Health Benefits

1995 Chateauneuf-du-Pape (France)

Medium bodied Rhone red made from Syrah, Grenache and other grape varieties; floral, fruity aromas with moderate finish. Rustic wine can improve with age.

Improves overall cardiovascular health; prevents kidney stones; cuts stroke risk; high in antioxidants.

MD 20/20, November 21, 2006, Detroit.
Possibly distilled from Lucky Charms marshmallow mash; sugary mouthfeel followed by intense burning sensation in nostrils; suffocating finish. May contain agents to numb sensitive teeth and gums. Dizziness; some nausea (improves with vigorous belching).

1998 Vino Nobile Di Montepulciano (Italy)

Faint bouquet, attractive fruit flavors, not too ripe, compensates for lingering burning sensation on tongue from prior MD 20/20 tasting. Not too tart, but with some kind of spicy acidity that may or may not be related to the MD 20/20. Hard to tell. But giving it the benefit of the doubt.

Improves overall cardiovascular health; prevents kidney stones; cuts stroke risk; high in antioxidants.

Night Train Express (Vintage Unknown)
Bouquet forced us to check bottle to make sure it wasn't Liquid Plumber. Slight nuttiness on the palate made us all agree we wanted to fight someone very soon. Meehan smashed his tasting glass against the wall and pressed his hands against his head while rocking back and forth unsteadily. You better make sure you have some health benefits you keep looking over here, rubber neck.
1998 Vin Santo del Chianti Classico (Italy)

Tastes like Night Train. Seriously. Or the finish on the Night Train is so overwhelming we can't tell anymore. Hey baby, do you know how to use a whip? Spyder just passed out. We could use some chicken wings over here, sweetheart. Hopefully, severe fever. Is it hot in here, or is it just you?

YES! THAT IS WHAT I AM TALKIN' ABOUT! Farley just set that dude's tie on fire!

I'm just tryin' to say "hi" to your pretty wife, you fat...

Hey, tell Col. Sanders back there we're still waiting on those chicken wings.
Just bought two packs of cigarettes and a can of Skoal.
Olde English 800
See, most people don't know this, but the English inverted... inventious... invented malliquor... malt lucker. They did it. I don't know what means that the 800. Price? Did that price on the 800? Price? Spended! How very spended on mall lixir. I had a shoe. I had a shoe in beginning. See my shoe?

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