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Five Things You Need to Know: FOMC Minutes, Euroflation, SENSEX, India Physical, Frog Slime


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. FOMC Minutes

Today at 2 p.m. marks the release of the much anticipated minutes of the Federal Open Market Committee's May 10 meeting. Consensus estimates are for a 23.7% increase in intra-meeting solemnity.

  • From the minutes of the March 27-28 meeting, the first which Ben Bernanke chaired, the committee said that "some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," but reiterated that it "would respond to changes in economic prospects as needed to foster its objectives."
  • The key change between the March 28 Fed statement and the May 10 Fed statement was this:
    - March 28: "The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives."
    - May 10: "The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives."
  • Since May 10 there has been much discussion about what that addition to the language, "the extent and timing" and "data dependency," really means.
  • Chairman Bernanke has insisted many times that he would like Fed policy-making to be "more transparent."
  • Unfortunately, what has become most transparent is the Fed's seeming uncertainty over how to manage what has become a multi-tiered inflation risk to the economy.
  • Moreover, the Fed speakers are at a loss to (at least publicly) explain why government figures are showing that, with energy stripped out, inflation is actually lower now that it was at the onset of the last recession. Consumers would likely find such an explanation interesting.
  • Ex-energy CPI is now 2.2% year-on-year. The National Bureau of Economic Research's dating of the last recession was March 2001. In March 2001 it was 2.8% year-on-year.

2. CPI + M3 = 50 Basis Points?

Eurozone inflation has risen a higher-than-expected 2.4 percent in May, topping the Eurozone's 2% "comfort level" for a 15th month, while M3 grew 8.8 percent in April, and accelerated to a 10.5 percent annual pace.

  • First, what is this... how do you say?... Ah, yes, M3?
  • M3 is the broadest measure of "money" and is used by the European Central Bank as an "anchor" for evaluating inflation.
  • In the U.S., we have no need for such things as M3, which was abolished in March, because, as the Fed notes, "M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years."
  • M3 money supply expansion in the Eurozone has exceeded 4.5 percent, the level the ECB says is non-inflationary, every month since May 2001.
  • Consumer-price increases in the euro region averaged 2.4 percent in May, above the ECB's limit for a 15th month.
  • The acceleration of M3 in Europe combined with the above-target inflation means the ECB will almost certainly raise rates at its next meeting on June 8 from 2.5% to 2.75%, but now there is increasing speculation that the hike may be as much as 50 basis points.

3. If You Don't Like the Effect, Don't Produce the Cause

The SENSEX was down as much as 5% at one point today before closing off a mere 3.6%. Financial columnists struggled to explain the decline even after "better-than-expected" GDP data.

  • "Data showing India's economy grew a robust 9.3 per cent in the January-March quarter failed to boost market sentiment," the Financial Times said.
  • Newspaper and reporting is a very linear process. That is how it is taught. Who, what, where, when and, ultimately, why, are the questions journalists are trained to answer.
  • Unfortunately, financial markets are non-linear. So applying the very linear journalistic questioning process will nearly always fail to provide a satisfactory description of market movements.
  • Minyanville Professor Scott Reamer has written about the bias toward a "deterministic view" of financial markets that dates back to Newton and the power his laws suddenly thrust into the hands of man. "Newton's laws, in applying to all objects everywhere and at all times, served to reinforce the idea that the world was governed by a set of immutable natural laws whose continued application and refinement would allow man to have nearly limitless control over his environment," he wrote in April of last year.
  • If markets are not deterministic, and are instead non-linear, then something like GDP, or CPI, or any other "particle" of data will not effectively cause a market to move.
  • What happens, however, especially in financial reporting, is that the appearance of a certain particle of data, or statement, near a market movement will appear to have caused that movement when in fact the appearance is random and non-predictive.
  • Of course, this non-linear behavior is precisely why it is far easier to describe market movements than it is to predict market movements.

4. Bling Blung

Physical gold sales from South Africa's Rand Refinery to India, the world's largest consumer pf physical, have fallen 20% this year, according to India's Financial Express.

  • Do Indian physical buyers know something that we common speculators do not?
  • Sales of small gold bars have remained relatively stable, but higher prices have reduced volumes, according to Chris Kenny, director of global markets at the refinery.
  • Additonally, scrap gold metal is being recycled to produce jewelery, cutting down on the need for newly mined gold.
  • "One issue is how much of this is delayed purchasing and how much is canceled. Gold jewelery faces a lot of competition from other luxury goods, precious stones, to some extent platinum, so it's under attack," Kenny told the Financial Express.
  • From a bullish standpoint, demand for gold for jewelry purposes has long been very price sensitive. What is important to note, is the relative stability of the sales of small gold bars.

5. Frog Slime and You

First, ask yourself a few simple questions:

- Do you sometimes feel weird?
- Are you intensely fearful of any specific situations or things (e.g., death, clowns)?
- Do you frequently belch?
- Have you ever experienced nausea, general discomfort, squeaky shoes?
- Are you concerned about your weight, hair, body odor?

If you answered 'Yes,' 'Maybe,' or 'No' to any of the questions above, then Brazil would like to sell you frog slime to combat your disease/disorder.

  • Fernando Katukina, chief of an indigenous Brazilian tribe that lives without running water or electricity, possesses slime from a poisonous tree frog, called the kambô, that may have possible medical uses.
  • According to the International Herald Tribune, scientists theorize that isolating peptides from the frog's slime and then reproducing them for medicines will allow them to successfully treat hypertension, stroke, and other illnesses, possibly even including irrational clown fear and frequent belching.
  • Scientists have studied the kambô before, decades ago in fact.
  • Some of the compounds from the frog's poison have even been patented in other countries.
  • Brazil's government sees the frog slime as a steppingstone to significant advances in its own research and development in pharmaceuticals, particularly pharmacogenomics - the combined use of genetics and pharmacology.
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