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Five Things You Need to Know: CPI = Can't Placate Investors; Tighten Up; "Mutual Benefit"; Copper Top?; My Goodness, My Guinness, My Irish, My Innocence


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. CPI = Can't Placate Investors

Investors (and subprime lenders) hoping for a Fed easing will no doubt be disappointed by today's hotter-than-expected Consumer Price Index.

  • Similar to yesterday's Producer Price Index, the Consumer Price Index came in a bit hotter-than-expected.
  • The core (excluding food and energy) reading came in at 0.2% month-over-month.
  • This leaves the year-over-year core CPI at 2.7%.
  • While that matches the reported expectations, there had been a growing "whisper consensus" leading up to today's report that expected the year-over-year number to actually come down a bit, perhaps to 2.6%, on anything less than 0.2% m/m print.
  • Despite the reported jump in utilities prices yesterday as reported in the Producer Price Index, Owners' Equivalent Rent (OER) (which accounts for about 25% of the core CPI) came in at a greater than expected 0.3%.
  • Remember, utilities prices hold an inverse relationship to OER.
  • Consequently, the unexpected rise in OER is very likely due to an infection stemming from an open housing market wound.
  • People gotta live somewhere, even if they walk away from their mortgage obligations.
  • Demand for rental housing puts upward pressure on rents, even if utilities costs are rising, which theoretically, according to the BLS calculation, should mitigate OER pricing pressures.

2. Tighten Up

After today's Industrial Production and Capacity Utilization report, we'll soon find out of th e Fed, like Archie Bell and the Drells, doesn't only sing, but can indeed dance just as good as they walk.

  • Industrial production increased 1.0 percent in February after January's 0.3% decline.
  • "We're gonna tighten up."
  • That's the largest rise since November 2005.
  • Meanwhile, the rate of capacity utilization for total industry in February rose 0.6 percent, to 82.0 percent, a level 1 percentage point above its 1972-2006 average.
  • All major market groups except construction supplies recorded production increases in February.
  • "Let's do the tighten up."
  • It is extremely doubtful the Fed will actually "tighten up" at the FOMC meeting next week, but the economic numbers coming in the past two days will almost certainly keep them singing along to Archie Bell and the Drells.

3. "Mutual Benefit"

We've been writing for months about the imminent arrival of China's new forex agency that will be trading some yet-to-be-determined amount of that country's $1 trillion in forex reserves.

  • How much will of the reserves will they be trading?
  • What will the new agency be trading?
  • Is China gearing up to abandon the dollar?
  • In his typically cryptic manner, Chinese Premier Wen Jiabao "reassured" currency investors at his annual press conference, saying that the new agency's investments "would not have any impact on U.S. dollar-denominated assets," the Financial Times reported.
  • He managed to do this without providing either a timetable for the agency's establishment or any detail about how much of the country's reserves would be allocated toward "diversification."
  • "I know the question you are asking," Wen said, "is whether our establishing this new company to develop outward investment will affect US dollar assets."
  • According to the FT, Wen said, "I know the question you are asking, is whether our establishing this new company to develop outward investment will affect US dollar assets."
  • Wen did, however, acknowledge that China has large amounts of U.S.-dollar assets, which he said, seriously, were bought "on the basis of mutual benefit."
  • If we were in any way cynical, we would view that statement not so much as a "reassurance" as the Financial Times suggests, but as an outright threat.
  • But that's only if we were cynical.

4. Copper Top?

Whatever happened to that Copper collapse everyone has been expecting?

  • We're not sure.
  • At the end of January Copper was down to $2.60 a pound.
  • Everything seemed to be going so well.
  • Now Copper is back at an 11-week high after rising by the most in eight months.
  • China - the second largest producer behind Chile - trimmed output even as demand for the red metal is reportedly rising there.
  • Copper stockpiles tracked by the London Metal Exchange declined 0.8%, the lowest since January 23.
  • As well, we noted yesterday on the Buzz & Banter a technical breakout for Freeport McMoRan (FCX).

5. My Goodness, My Guinness, My Irish, My Innocence

Tomorrow marks the annual celebration of the Catholic feast day which celebrates St. Patrick, the patron saint of Ireland. Although for Meehan and myself, the St. Patrick's Day holiday began in late December (we call it St. Patrick's Quarter), most will celebrate the holiday tomorrow, here in New York City with a parade.

  • For me, St. Patrick's Day brings to mind two things.
  • The first, a touching memory of St. Patrick's Day from my early adulthood:
    When I was a wee lad, maybe 19 or 32, my da set me down for a little chat.
    "Son," he said, reaching one hand into the breast pocket of the thick tweed jacket he always wore, "I have something for you."
    He slowly took his hand out of his jacket and produced a shiny silver flask. It looked very old.
    "Here," he said, "take it."
    "But da, I couldn't," I protested.
    "No, son, I want you to have it. I'm finished with it. Take it," he insisted.
    I took the silver flask from his hand and felt its weight in my own. It was lighter than I expected. In fact, it was much lighter than I expected. I shook it a few times. Something was terribly wrong. It seemed completely empty!
    Quickly, I twisted open the knob on the top and and turned the flask upside down. Nothing! Not a single drop! It was bone dry.
    Furious, I dove across the table at my old man; and so began one of the worst rows my da and I ever had. Imagine such a thing. A father giving his son an empty flask!
  • The second thing that comes to mind is a pint of Guinness.
  • Conventional wisdom is that Guinness, which some consider to be the national beer of Ireland, contains far more alcohol and calories than, say, Budweiser.
  • Some people say it gets you drunk faster and is like a meal in and of itself.
  • But is that really true? Let's look at the facts:
    A 12 ounce bottle of Bud contains 5% alcohol, 143 calories and 10.6 grams of carbohydrates.
    - Twelve ounces of Bud Light has 4.2% alcohol, 95 calories and 6.6 grams of carbohydrates.
    - And both Bud and Bud Light can be turned green using dye.
  • By comparison, 12 ounces of Guinness Draft has just 4% alcohol, lower than both Budweiser and Bud Light.
  • Guinness also has only 125 calories, 18 fewer than Budweiser, only 30 more than Bud Light.
  • Guinness has 10 grams of carbohydrates, .6 fewer than Bud, only 3.4 more than Bud Light.
  • Also, due to its deep, black color, it is impossible to turn it green with dye.

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