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Five Things You Need to Know for Wednesday


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. The End is Near!

Friends, we know you're tired. We know you're weary. But have no fear, the end is near. It's time. It's time to get things right, with the man in charge at the Federal Reserve.

  • Yesterday the Federal Reserve released the minutes of its first meeting with Chairman Ben Bernanke at the helm.
  • According to the minutes, most Fed members believe the Fed is very close to concluding this cycle.
  • What is difficult to understand for those of us on the outside, however, is this:
    "Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near."
  • In our view, that statement puts the FOMC on par with event-driven Fed Funds futures traders!
  • Meanwhile, before the Fed minutes were released, San Francisco Fed President Janet Yellen was largely credited with "leaking" the gist of the minutes in her speech yesterday when she noted, "Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy." Sounds very familiar.
  • Among other highlights:
    - The Fed is generally pleased with the slowdown in housing, which the market now perceives to be "a good thing."
    - The Fed remains concerned primarily, at least publicly, with an adherence to core CPI figures and labor market pressures as inflationary "tells." Interestingly, recent ISM data shows commodities are not in short supply (despite the continued market moves in raw materials).
  • As a quick sidebar, outgoing (at the end of April) Fed Vice-Chairman Roger Ferguson noted in a speech at a conference on systemic risk on Monday that, "If inflation seems contained and the prospects for economic growth are good, then it's unclear why the policy maker should set aside these direct signals in preference for signals from asset prices that may or may not be out of line with their historical relationships to fundamentals."
  • However, he concluded in the same speech that, "Prudent central bankers must be forward-looking, searching for developments that might become significant problems under some circumstances."
  • The Bottom Line: The Bernanke Fed appears to be laying the groundwork for a role as a hands-on activist Fed. The Ferguson comments have been blandly interpreted by some to mean: The Fed shouldn't target asset prices. We believe it means something closer to this: The Fed shouldn't target asset prices after the market reacts, but before.

    The End is Near

2. CPI

The latest government figures on the Consumer Price Index were released about a half-hour ago.

  • U.S. consumer price index rose 0.4% in March.
  • Prices were higher across the board, with only natural gas, new vehicles and education prices declining in the month.
  • (Speaking of new vehicles, a recently revised Fed study found that model changes from auto manufacturers and rebate programs introduced in 2001 are not fully reflected in the CPI).
  • Ok, now back to your regularly scheduled CPI program.
  • The core CPI, meanwhile, increased 0.3%, a tick higher than the 0.2% gain expected.
  • The CPI has risen 3.4% in the past 12 months, down from 3.6% last month.
  • The core rate is up 2.1% year-over-year, the same as last month.
  • Minyanville Professor Scott Reamer directed our attention to the following Bloomberg chart of the CPI from 1916 to present.
  • "It always interests me to look at the long term chart of inflation in the United States since the Federal Reserve was created in 1913. Even more so when official CPI statistics come out as they just did. This chart, detailing the 95%+ decline in the value
    of the US dollar since the Fed was created, speaks volumes. And not in a good way.

    CPI 1916 to Present

3. Remember Weimar!

German producer prices continue to rise at their fastest pace in two decades.

  • The price German firms pay for industrial products rose 5.9% in March compared to a year earlier, driven by rising energy costs.
  • This matched the 5.9% annual rise seen in February although, on a monthly basis, prices rose a further 0.5%.
  • At 2.1%, German consumer price inflation is above the 2% limit recommended by the European Central Bank.
  • Producer prices are now rising at their fastest annual rate since 1982, as firms face rising energy costs, according to the BBC.
  • The ECB has raised interest rates twice since December 2005, from 2% to 2.5%, and many analysts expect another rise in May, largely due to inflationary pressures coming out of Germany, Europe's largest economy.

    The Weimar Wallet

4. Hu Are You?

We've kept you up-to-date on what exactly Chinese President Hu's visit to the U.S. this week means, but what about the man himself? Who is Hu?

  • Hu Jinatoa, the President of the People's Republic of China and General Secretary of the Communist Party of China, was born in 1942.
  • He has a degree in Hydraulic Engineering and worked for a power station, Sinohydro Engineering Bureau, and the Construction Department of Gansu as a secretary, before being promoted to deputy director of Gansu's Ministry of Construction in 1980.
  • In 1982, Hu was transferred to Beijing and appointed as secretariat of the Communist Youth League Central Committee.
  • After being appointed Party Chief of the Tibet Autonomous Region from in 1988, a time of political instability and rising demands for Tibetan independence, Hu was responsible for a political crackdown in early 1989 that lead to the deaths of several Tibetan activists.
  • By 1998 Hu had risen to the position of Vice-President of China and was directed to play a more active role in foreign affairs.
  • In China, Hu is perceived to have a more egalitarian style than Jiang Zemin.
  • Still, he has not wavered from his course as a pragmatist and hard-liner.

    Hu Jintao

5. Check out my new Cornbread Camry! It gets over 70 miles per gallon of soup beans.

Toyota announced it intends to sell ethanol--powered cars in the U.S. by 2008.

  • The company has previously resisted ethanol technology amid worries about the impact of highly corrosive ethanol on rubber seals in the engine, the Financial Times said.
  • President Bush has offered subsidies to ethanol as a way to cut America's reliance on oil imports, while US carmakers have seized on the fuel as a low-cost way to gain "environmentalist" credentials.
  • But (and isn't there always a but?) D'oh! A study by Oregon-based CNW Marketing Research concluded this month that the cost of energy used to produce a hybrid vehicle's components, especially its electrical system, was far higher than for petrol-powered vehicles!
  • Ethanol (E85) is a fuel made from plants such as corn or sugar cane.
  • Currently, fewer than 1,000 of the nation's 170,000 filling stations currently sell E85.


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