Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Five Things You Need to Know: PPI, Housing, What me worry? We (heart) Libya, Surf City


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


Minyanville's five things you need to know to stay ahead of the pack on Wall Street:

1. Producer Price Index

The Producer Price Index came in with a headline number of 0.9% compared to 0.8% expected.

  • The higher-than-expected headline number was largely due to energy.
  • Excluding energy (which is silly to do, but here you go) the PPI came in at 0.1%.
  • Gasoline prices jumped by 12.3%.
  • Energy prices overall were 4% higher.
  • Processed foods and feeds prices fell by 0.4%.
  • What does all this mean? For that answer, we turn to... housing data.

2. Housing Data

Housing starts came in below the 2 million level for a second month in a row, falling to 1.849 million compared to expectations of 1.96 million.

  • The 7.4% decline was more than expected and follows yesterday's NAHB (National Association of Home Builders) Index data falling to its lowest level since mid-1995.
  • Interesting. Housing starts continuing to fall, down 20% since January - the largest decline in a decade - builder confidence collapsing to 1995 levels?
  • In a situation like this, we find it helpful to AWWAGD (Ask What Would Alan Greenspan Do?).
  • Simple. You Cut. You Cut rates, and you cut rates hard. You take rates down 75 basis points in the span of 10 months between March 1995 and January 1996 after ratcheting rates up 300 basis points for 30 months.
  • Wow!!!, you say. 300 basis points in 30 months?! I'll bet that will never happen again.
  • If by "never happen again" you mean "won't happen again until June 2003 when the Fed hikes a total of 300 basis points over the 32 months between then and May 2006, well, yes, we suppose it will "never happen again."
  • Bottom Line: Weak housing trumps energy-induced PPI boost, stocks enjoy a temporary reprieve... at least until tomorrow's CPI.

Housing Starts

3. What, me worry?

Corporate Bonds, the New Treasuries
by Alfred E. Neuman, Manager, Magnus Alpha Delta (MAD) Fund

Dear Investor,

Good news! Our proprietary corporate bond price models suggest corporate bonds have reached a permanently high plateau, bolstered by super-duper management at virtually every company whose bonds we buy, and low-low every day interest rates! The economy is, in a word, totally excellent, and we expect this secular trend of super-duper awesome management and low-low every day interest rates and totally excellent economic performance to continue forever.

To illustrate our expectations, below is a chart of the spread between investment grade corporate debt versus Treasuries. Remember 2002? Just after Enron collapsed? The spread between investment-grade corporate bonds and Treasuries was 2.46%! Today, that spread is 0.87%.

Spread, investment-grade bonds/US Treasuries (Expected)

At the MAD Fund we are savvy risk managers. We are aware (and you should be too) that there are risks to our projected displacement of US Treasuries for investment-grade corporate bonds. Such risks include, but are not limited to:

  • Hell freezing over.
    - Although we are confident that global warming predictions are based on junk science, we recognize that should the atmospheric conditions change more than expected, it is possible that global warming could result in, ironically, hell freezing over, thereby putting our investment thesis at risk.
  • Corporate Pensions.
    - Somebody said something about pension risks. What was it? We forget. Oh wait, something about companies being behind in their pension obligations and that 47% of investment-grade companies have a deficit of 20% or more in their defined benefit plans. Our analysis concludes: "Whatever!"
  • FASB.
    - This FASB thing is about requiring companies to include pension liabilities on their balance sheets. If passed, the new rules would erase $537 billion in shareholder equity. Yeah, right. Like that's going to happen. Last time we checked, Senators and Congressmen buy investment grade bonds too!

In conclusion, we believe the biggest risk to our thesis is that we are too conservative in our bullish corporate bond thesis!

Alfred E. Neuman

4. We Libya!!!

Moammar Gadhafi loads up the truck and he moves to Beverly! Hills that is! Movie Stars! Swimming Pools!

  • Come and listen to a story 'bout a man named Gadhafi, poor dictator, barely kept his country fed.
  • Then one day he was shooting at some food, when up from the ground come a bubblin' crude!
  • Oil that is. 1.6 million barrels per day. In the OPEC top 10. 40 billion barrels in proved reserves, but possibly the second largest undiscovered oil in the world.
  • Well, the first thing you know Moammar's a billionaire, the U.S. says, "Dictator? Who cares?"
  • "You got oil and that's what we really need," so they moved to Tripoli and opened up an embassy.
  • Set a spell. Take your shoes off. Ya'll come back now, y'hear?

Beverly Dictator

5. Surf City, USA

"Surf City USA" is officially in Southern California, according to a federal agency that granted this town exclusive trademark rights despite challenges from northern rival Santa Cruz, according to the Associated Press.

  • The U.S. Patent and Trademark Office has awarded Huntington Beach three official registration numbers that permit it to use the designation "Surf City USA" in ads and on beachwear.
  • Huntington Beach has battled Santa Cruz for years over the right to use the designation, "Surf City."
  • Surf City was taken as a name after the 1963 hit song by Jan and Dean that boasts "two girls for every boy."
  • Dean Torrence, who co-wrote the song, lives in Huntington Beach and has said he backs his hometown's claim.
  • "Surf City" - minus the "USA" - is not trademarked, according to the AP, and is the actual name of cities in New Jersey and North Carolina.


Minyanville contributors may trade securities that are discussed on the site, both before and after the articles are published and/or may have a position in such securities for either personal or firm account(s). Minyanville contributors will indicate whether he or the firm has a position in stocks or other securities in any of the companies he discusses in an article. He will not disclose his or the firm's ownership of any securities issued by companies that are not discussed in an article. The disclosures will be accurate as of the time of publication of an article and may change at any time thereafter without notice to the reader.

The information on this website reflects an analysis of market conditions by Minyanville contributors and should not be interpreted as or deemed to be a recommendation to any investor or category of investors to purchase, sell or hold any security. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Minyanville contributors will not respond to requests for individual and specific investment advice.

The views expressed on this website are solely those of the writers whose articles appear on this site and do not necessarily reflect the views of the Fund or of any other person except where expressly indicated.

Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos