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Five Things You Need to Know: Whither the Yen? Yes.; Corn: Getting High on the Hog; Golden Corn?; Daily Housing Plummeting Update; Loan Shark Bill of Rights


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. Whither the Yen? Yes.

The question is, why?

  • Despite a 25 basis point rate hike by the Bank of Japan on Wednesday, the yen fell for a fourth consecutive session, reaching a record low versus the Euro and continuing to weaken against the dollar.
  • The face-value reason for the continued weakness of the yen is Bank of Japan governor Toshihiko Fukui's perceived dovish comments following the rate hike.
  • "We will continue supporting the economy with accommodative monetary conditions backed by very low interest rate levels," Fukui said, according to XFN-Asia.
  • But, he noted, "We'll increase interest rates gradually, and as much as possible, to recover the function of interest rates."
  • "It is a delicate situation," he added, presumably without the slightest hint of irony.
  • As noted yesterday, given the wide spread between interest rates in Japan versus the rest of the world, the carry trade is hardly in jeopardy.
  • Meanwhile, care to guess who may be on the wrong side of the yen's recent movements?
  • According to Bloomberg, Honda Motor Co. (HMC) president Takeo Fukui (no relation) yesterday expressed surprise over the yen's continued weakness saying, "We have to watch the moves" of the currency.
  • Fukui said Honda is prepared for a yen move to 100 to the dollar. The yen is currently at 0.8244.
  • Honda, like Toyota (TM), derives a large portion of its profits from overseas production and sales, so the company should be helped by a weak yen and can hedge against a stronger yen... as long as the currency's movements aren't large and unexpected. Hmmm.

2. Corn: Getting High on the Hog

Here's an interesting note on food costs and corn. If corn prices stay at $4 a bushel, it will cost Smithfield Foods (SFD) an extra $300 million a year, the company's president and chief executive officer said yesterday, according to the Virginia Pilot.

  • Smithfield CEO C. Larry Pope said the company will raise prices this year to offset the high cost of corn.
  • Corn prices rose 81% in 2006, largely due to increased demand related to ethanol.
  • The jump in corn prices, Pope said, would push the cost of raising hogs to $50 a head - up from about $40 each, the article said.
  • Smithfield raises about 14 million hogs a year.
  • As of October, according to Bloomberg, Smithfield also became the top U.S. turkey producer with its $325 million acquisition of the Butterball brand from ConAgra Foods (CAG).
  • Corn accounts for about 70% of the cost of producing turkeys.

3. Golden Corn?

Back in April we looked at a number of commodities in terms of both dollars and gold. The question was, "How much, say, corn, can a dollar or an ounce of gold buy today versus seven years ago?"

  • Not surprisingly, you got far less bang for your buck in commodities terms back in April (and even today) than you did in 2000.
  • At that time, however, corn was one of the few commodities where an ounce of gold could buy more bushels back in April 2006 than in 2000.
  • In other words, when we checked in April, an ounce of gold could buy 260 bushels, compared to only 141 bushels in 2000. The view at that time was corn was undervalued in gold terms relative to almost all other commodities.
  • Of course, since April, corn is up from about $2.85 a bushel to more than $4.25 a bushel.
  • Updated in gold terms, today an ounce of gold buys a measly 154 bushels of corn - still slightly more than the 141 you could buy back in 2000, but a long way from April's 260 bushels.

Corn, weekly

4. Daily Housing Plummeting Update

Don't worry, we're not going to waste a lot of time on this except to note the following:

  • First, Toll Brothers' CEO Robert Toll offered this gloomy assessment of the probabilities that housing is, to quote the minutes of the most recent Federal Reserve Open Market Committee meeting, "leveling out.": "There are too many soft markets at this stage of the selling season to call a general upturn in the new home market.''
  • TOLL this morning reported that profits year-over-year fell 67% and that the company expected to deliver 6,000 to 7,000 homes during 2007, as opposed to December's forecast of 6,300 to 7,300.
  • Meanwhile, in today's New York Times, "Lofty Hopes, Suspended," there's an interesting story about Florida real estate suggesting it's not just the subprime market that is facing difficulty.
  • We liked especially this quote: "In spite of the problems, Mr. Matera, for one, believes that real estate is a safer investment than stocks. "I would rather have a house that I can't sell at the moment than a stock certificate," he said. "I still have a house. It's not what an owner of Enron stock can say."
  • For some reason that kind of optimistic faith in the inherent value of real estate over stocks reminds of the following: "You can buy more real estate in a day than you can sell in a lifetime."

5. Loan Shark Bill of Rights

Under siege by state regulators, payday lenders unveiled voluntary consumer protections Wednesday, according to the USA Today.

  • Payday lenders offer short-term loans to consumers that typically must be repaid within a couple of weeks, or by their next paycheck.
  • The problem, according to state regulators, is that many cash-strapped borrowers repeatedly roll over their payday loans, incurring fees that range from 300% to 1,000% annually.
  • According to the USA Today, the payday loan industry is now a $40 billion a year business and there are today more payday outlets than McDonald's restaurants in the U.S.
  • OK, so what are these voluntary consumer protections revealed by the by the payday lenders yesterday? Find out in a brief Minyanville slide show.


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