Five Things You Need to Know: Today's Soup Du Jour of the Day; China: The Conversation; Is It Spreading Yet?; Copper... Again; What's in a Car Name? A Lot!
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. Today's Soup Du Jour of the Day
Pardon me, waiter, but there's a fly in my ointment! Actually, there are a couple of flies in my ointment.
- Although the market is apparently unconcerned, up 1% as we write, there are a number of potential flies in the ointment for this, our winter of our discontent.
- First up at 1 p.m. today is the NAHB index.
- On Tuesday we get Housing Starts and the Fed begins its two-day interest rate meeting.
- And on Friday we get existing-home sales.
- The NAHB index today is probably the most important release outside of the Fed decision, because it contains March data and should paint a picture of homebuilders' attitudes toward current conditions.
- The key question is how are subprime sector problems affecting builders.
- Optimists insist that the subprime market is only a tiny fraction of the $6 trillion mortgage-backed securities market.
- That's true, but last year subprime mortgages accounted for nearly a full 20% of all new originations.
- For more on whether subprime problems are spreading see today's Number Three.
2. China: The Conversation
China raised interest rates over the weekend, boosting the benchmark lending and deposit rates by 27 basis points, to 6.39% and 2.79%, respectively.
- Here's the positive spin from Hoofy the Bull:
"Excellent! The economy in China is vigorous and healthy!"
- Here's the negative spin from Boo the Bear:
"Economy in China? What economy in China? They have a population of 1.3 billion, but only 15% can afford a microwave oven."
- "Sweet, thanks for the idea. I'm going long microwave oven sales in China. That's a lot of pent up demand!"
- "Good luck with that, because I'm long Chinese government paramilitary operatives who will be needed to quell the tensions caused by the inability of 85% of their citizens to afford microwave ovens. Don't they give those away just for filling out an adjustable-rate-mortgage application here in the U.S.?"
- "Say what you will, but the fact so few have something as simple as a microwave is the very reason there is opportunity in China... and a smoking hot economy."
- "The average middle class income in China is a paltry $5,000. China's "consumer economy" is roughly the size of Italy's. I'll stick with Gucci loafers and an occasional espresso, thanks."
- "Sure, that $5,000 sounds small, but in China it's the equivalent of four times as much as here in the U.S. So, while you're buying Gucci loafers I'll be barefoot in my Ferrari."
- "Great, so the Chinese consumer's $5,000 is equal to the U.S. consumer raking in a whopping $20,000 a year. In that case I'll skip the loafers and donate $350 to a food bank instead."
- "If the average middle class income for America's 300 million people were $20,000 I'd agree with you and donate the whole Ferrari to a foodbank. Double that number to the expected 600 million Chinese citizens bringing home $20,000 a year by 2020, however, and then tell me we're not getting at least a little bit closer to a domestic consumption-driven economy. And that's the goal."
- "I'll worry about that when increasing Chinese bus fares from five yuan to nine yuan doesn't cause 2,000 people to riot and burn buses and police cars. Even the Chinese government admits there were 23,000 "mass incidents" of protest last year, which means there were probably closer to 50,000 incidents."
- "You're a real worrywart."
- "Somebody has to be."
- "Paging Dr. Buzzkill!"
- "Diagnosis: Blind Optimism!"
3. Is It Spreading Yet?
About 1.1 million foreclosures are likely to result from jumps in monthly payments on adjustable-rate home-mortgage loans made in 2004 through 2006, according to a study by First American CoreLogic, the Wall Street Journal reported.
- CoreLogic analyzed 8.4 million adjustable-rate loans made between 2004 and 2006 and estimated that 1.1 million of them, or 13%, totaling $326 billion, will end in foreclosures.
- Although 1.1 million sure sounds like a lot, because, well, it is a lot, the director of research for CoreLogic tells the WSJ that the foreclosures will likely be spread out over six to seven years and therefore won't be enough to damage the overall economy.
- Whew, that's a relief.
- Hold on. Waiter! There's another fly in our frickin' ointment here! (We're beginning to dislike this restaurant.)
- The CoreLogic estimates are based on an extraordinarily rosy assumption: that home prices over the next five years will remain level with December 2006 prices.
- On the even brighter side, should home prices rise by 10% the foreclosures would be cut by more than half, CoreLogic says.
- But what if home prices drop by 10%, the WSJ asks?
- Then foreclosures would jump from 1.1 million to 1.9 million.
- Meanwhile, traveling adventurer and financial guru Jim Rogers last week said he believes house prices may drop 40-50% in some areas.
- Speaking of China (OK, sorry, but our seque generator is broken), did you know that 90% of owners of new homes in urban Chinese areas are on adjustable rate mortgages?
4. Copper... Again
Ran across an article on Bloomberg this morning suggesting that the China rate hikes may slow demand for copper. That's putting the cart well before the horse.
- China is indeed the world's largest copper consumer.
- On the surface it makes sense that stemming Chinese growth could lead to less demand for copper, but the "growth" China is targeting is something else: excessive loan growth and speculation.
- If the People's Bank of China were really targeting investment in the country's infrastructure and manufacturing capacity, it would take more direct measures to slow investment growth.
- China's annual economic growth rate is 11%, while the central bank is looking to "cool" it down to 8%.
- Meanwhile, BHP Biliton, the world's largest mining company, said that the copper market will be "tight" in the second quarter, partly due to rising Chinese demand.
- Why else? Take a look at the chart from a presentation on the BHP Biliton Website:
- And here's the BHP Biliton chart showing monthly Chinese copper demand:
5. What's in a Car Name? A Lot!
Thecarconnection.com asks, "Is the name of a vehicle all that important? Isn't gas mileage far more important? And safety?"
- Turns out that while vehicle sales success depends on many things, Thecarconnection.com notes that names, especially, help formulate an emotional connection to a car.
- That emotional connection translates into better brand recognitions and better sales.
- The article notes that Ford's new boss, Alan Mulally, "threw out some of the alphanumeric names and brought back the old-time religion - words - words like Taurus and Sable."
- The article says successful car companies such as Toyota and Honda, Hyundai, and Kia are selling Civics and Camrys and Sonatas and Sorentos, "not vehicles named for lines of code in a Linux application."
- That list makes up some of the most successful car brands of 2006. But what about the least successful care brands? What's in a name for them?
- Fortunately for you, Minyanville has identified the least successful and now discontinued car names of 2006.
- Don't look for these brands to be hitting showroom floors ever again:
Least Successful Auto Brand Names of 2006
Chrysler Triage MiniVan
GM Subprime Pickup
Ford Gerald R
Hummer H3 Pet Crusher
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