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Five Things You Need to Know: New Home Sales Plunge Continuing to Stabilize, News Flash: China Stockpiling Natural Resources!, Well, Well, Well..., True or False?, Worst Brand Extensions of 2006


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. New Home Sales Plunge Continuing to Stabilize

Sales of new homes in the U.S. rose more than forecast last month, showing a 3.4 percent increase, the Commerce Department reported.

  • Economists had expected sales to rise to a 1.018 million rate in November from a previously reported 1.004 million, according to the median of 50 estimates in a Bloomberg News survey.
  • Sales of new homes were still down 15 percent in November from the same month last year, however.
  • The supply of unsold homes at the current sales pace fell to the lowest since May.
  • The supply of homes at the current sales rate dropped to 6.3 months' worth from 6.7 months' worth in October.
  • Even with the decline last month, the number of unsold homes remains near a record high.
  • But what about prices?
  • The median price of a new home rose 5.8 percent in November to $251,700 from $237,900 a year earlier, today's report showed, the biggest year-over-year increase since June.

2. News Flash: China Stockpiling Natural Resources!

China will use its foreign exchange reserves to increase its stockpiles of natural resources, including oil and minerals, the official Xinhua news agency quoted Vice-Premier Zeng Peiyan as saying.

  • "We will...establish a mineral resources reserve mechanism and use the relatively large foreign exchange reserves to increase the country's reserves of strategic resources," Zeng said, according to XFN-Asia.
  • The comments by Zeng, a former head of the National Development and Reform Commission, are the closest that any Chinese official has come to acknowledging that China's foreign exchange reserves are to be put to other uses.
  • China has 12 percent of the world's known mineral reserves, ranking third after the United States and Russia, according to the International Herald Tribune.
  • "By 2010, we hope to form a number of important strategic mineral resources bases in the west and make breakthroughs in exploration work in the eastern and central parts of the country,'' the official Xinhua News Agency quoted Zeng as saying.
  • Zeng's public comments are news, but we recently reported that China certainly is making definitive plans to step up its trading activity in its forex reserves.
  • The State Administration of Foreign Exchange (SAFE), the agency under the central bank which manages the reserves, has recently embarked on a recruiting drive for additional trading staff.
  • Although the exact amount of reserves held in U.S. dollars are a closely guarded state secret, it is estimated that China has 70% in US dollar-denominated assets.

3. Well, Well, Well...

China's already wide income gap is increasing, according to a report by the Chinese Academy of Social Sciences (CASS), the Financial Times reported.

  • The think tank report is the latest by governmental or international groups to conclude that economic inequality is rising rapidly in China, despite the continued growth in the economy and the millions of people who have been lifted out of poverty.
  • Meanwhile, Hu Jintao, China's president, has pledged to promote "social equality."
  • Although the government has abolished an agricultural tax and pledged to expand the social security network in both rural and urban areas, it is under considerable pressure to announce more ambitious policies.
  • Based on a survey of 7,140 households, the CASS report concluded China's Gini coefficient – a measure of income distribution where zero means perfect equality and 1 is maximum inequality – reached 0.496 this year, the FT said.
  • In comparison, income inequality figures are 0.33 in India, 0.41 in the US and 0.54 in Brazil
  • So, China, looks like becoming an economic superpower without producing vast levels of income inequalities and destroying the middle class isn't as easy as you thought. Ha!

4. True or False?

An old market saw, oft-repeated to justify short-term "profit-taking," is that there is no such thing as bad capital gains. True or false?

  • It depends. Capital gains from actual profits are good. Capital gains distributions from ETFs can sometimes be bad.
  • Holders of four of ProFunds so-called "ultra" funds received capital-gains distributions last week ranging from $3.80 a share to $6.80 a share on their fund holdings.
  • The ProFunds "Ultra Funds" seek to produce 200% of the daily returns of the benchmark indices they track.
  • Although the ETFs are targeted toward sophisticated investors, it is unusual for an ETF to pay out large capital gains.
  • Steve Cohen, managing director at ProFunds, told the Wall Street Journal that the ultra ETFs' distributions reflect the funds' goal of doubling the returns of their benchmarks, while other ETFs aim to match only their targets.
  • "We use instruments that have different tax characteristics than stocks," Cohen told the WSJ, citing futures contracts and swaps as two examples, the newspaper reported.

5. Worst Brand Extensions of 2006

Play-Doh perfume, developed for Play-Doh's 50th anniversary and featuring that "eau-de-Play-Doh-fresh-out-of-the-can-scent," was voted among the worst brand extension of 2006, according to an annual survey of marketing professionals.

  • Results from TippingSprung's third annual survey of brand extensions, produced in collaboration with marketing newsweekly Brandweek, revealed which extensions are most effective, which have potential to dilute the brand, and what makes some brands more extendible than others.
  • Voted among the best brand extensions:
    - American Red Cross emergency radios
    - Nathan's Famous Hot Dog Treats for dogs
    - Budweiser barbecue sauce
  • Joining Play-doh Perfume among the worst brand extensions:
    - David Hasselhoff "Malibu Dave" surfing apparel
    - SpongeBob SquarePants organic edamame
    - Minyanville's Hoofy and Boo 2003 Ca"bear"net Sauvignon wine (Rated 3 by Wine Spectator).

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