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Five Things You Need to Know for Tuesday


What you need to know (and what it means).


Five things you need to know to stay ahead of the pack on Wall Street.

1. Wall Street Gets Case of the Bens

Last night Fed Chairman Ben Bernanke delivered a speech, boldly titled "Reflections on the Yield Curve and Monetary Policy," at the Economics Club of New York. What did he say? And what does it mean?

  • Wall Street's focus on his speech was for clues to his views on the yield curve "conundrum."
  • The "conundrum" is why, after 15 consecutive rate hikes, long-term rates are unusually low.
  • Mr. Bernanke repeated his assertion, first made explicit more than a year ago in a speech (The Global Saving Glut and the U.S. Current Account Deficit) that a global savings glut explains both the U.S. current account deficit and the low level of long-term interest rates worldwide.
  • There was very little new in last night's speech. Mr. Bernanke again argued that the yield curve did NOT seem to be forecasting an economic slowdown.
  • What was new was Bernanke's opening the door to a couple of factors possibly explaining the yield curve conundrum:
    1) Demand for more long-term bonds from pension funds
    2) Diminished issuance of U.S. long-term bonds
  • The immediate takeaway from the speech in terms of press coverage is that the speech provides evidence the Fed will continue raising rates.
  • Perhaps more important than what WAS said, however is what was NOT said; namely, there was no mention of inflation targeting, and there were no gaffes or deviations from the present direction of Fed policy.

2. PPI

Alas, poor inflation, we thought we knew ye.

  • This morning the Producer Price Index (PPI) fell 1.4%, the largest plunge in wholesale prices since a 1.4% fall in April 2003.
  • Expectations were for an overall fall of just 0.2%.
  • Wait, what IS the PPI, anyway?
  • The PPI measures the average change over time in the prices received by domestic producers for their products.
  • Beyond the headlines, the core PPI, which excludes food and energy, was up 0.3%.
  • Producer prices for finished goods in the energy sector decreased 4.7% last month, after remaining flat in January. Gasoline fell 11.0%. Natural gas dropped 4.1%.
  • Food prices declined by 2.7% in February.
  • Raw materials prices dropped by 9.2% in February.
  • Yesterday, the CRB Index once again fell back to the 320 level.
  • Meanwhile, a look at commodities-linked currencies such as the Australian dollar and Canadian dollar show they are trading at 17- and 22-month lows respectively.
  • Although inflation in the UK saw a pickup recently for the first time in five months, in Hong Kong inflation fell from 2.6% in January to 1.6% in February.

3. Putin on the Ritz

Russian President Vladimir Putin announced plans Tuesday to step up energy supplies to China.

  • Putin and his Chinese counterpart, Hu Jintao, met for the fifth time in less than a year and pledged to promote political and trade ties and step up energy supplies with a gas pipeline opening within five years.
  • The gas pipeline will deliver up to 2.8 trillion cubic feet of gas annually.
  • China wants to secure access to Russian oil and gas.
  • Russia and China want to spur investment and double last year's $29-billion in trade by 2010.
  • China is a leading buyer of Russian oil, which for now is delivered by railway tank car, and is the top foreign customer for Moscow's arms industry.
  • The two sides have actively developed a political alliance to counterbalance what they say is U.S. dominance in global affairs.
  • Of course, one man's counterbalance is another man's one-sidedness.
  • Recently, the U.S. has stepped up ties with India to "counter-balance" China's dominance in the region.

4. Finoogle Finance?

Today Google (GOOG) announced what most already knew was coming, the opening of a new finance section on its web site.

  • The area ( will offer stock quotes, charting, company news and is designed to compete with Yahoo's Yahoo finance.
  • The company says one new twist from Yahoo's service is a sample of blog postings by amateurs about individual companies.
  • Yahoo Finance is the top in the financial news and information category, with 12 million unique visitors in February, followed by MSN Money with 10.9 million and CNN Money with 8.5 million, according to Nielsen/NetRatings.
  • Google says it has no plans to hire its own business writers.
  • Google said that unlike other groups, it will patrol user postings for profanity and violations of Securities and Exchange Commission rules.
  • For now the site does not feature advertising, the company's primary source of revenue.

5. What if Fredo Ran the Family?

Electronic Arts Inc. said it has started shipping its new The Godfather videogame for retail launch March 21 in North America.

  • The Godfather puts gamers inside the world of 1940s New York as an up and coming gangster seeking to build their own mafia empire.
  • As one of the most anticipated games, Godfather will carry heavy expectations for EA (ERTS).
  • Last July's warning of a delay sent the stock down 5%.
  • Sources have EA spending anywhere between $10 and 40 million to produce the title
  • A 360 version is not slated till end of 2006.
  • EA has cut the price to $40 from $50 as next-generation games start to pressure current-generation titles.
  • Scarce Xbox 360s and the delay of the PS3 could be a positive as the PS2 and Xbox is still the go-to system for many users.

No positions in stocks mentioned.

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