Five Things You Need to Know: Fannie Loses Free Lunch, Copper, Ethanol, Hummers and Five Men Named Slim
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. No More Free Lunch for Fannie, Freddie; Cost of Doing Business to Rise
- In July the Federal Reserve will stop providing intraday credit to Fannie Mae (FNM) and Freddie Mac (FRE).
- The Fed two years ago said it would end an agreement to provide credit to the government-sponsored enterprises (GSE's) for payments on their debt securities made through the central bank.
- Those payments have been as much as $80 billion a day.
- A report on the New York Fed's Website, "Alternative Arrangements for the Distribution of Intraday Liquidity," says that intraday credit "indirectly'' boosts money in the banking system.
- What that means is that banks will now have to borrow more from the Fed to meet their own funding needs.
- "Once the Fed discontinues its provision of daylight credit to the GSEs, the overall amount of intraday funds is likely to shrink,'' report author James McAndrews wrote. "As a consequence, the average cost of intraday liquidity for banks may well rise as banks make greater use of daylight overdrafts and incur the associated fees.''
2. New Copper High on Own Supply Woes
BHP Biliton Ltd. (BHP) today said demand for copper continues to outpace current supplies due to production restraints and disruptions.
- Melbourne Australia-based BHP Biliton is the world's largest mining company.
- John Crofts, BHP's base metals marketing director, said a copper surplus many expected to show up later this year or in early 2006 looks increasingly doubtful for 2007.
- Copper prices have doubled from levels of a year ago and this morning reached a new high, above $3.50 a pound.
- Copper prices have risen by 60% this year alone.
- An escalation in the volume of speculative trading, and the growing use of commodities as a diversification for pension funds away from equities and bonds, has contributed to the price increase.
- Investments in commodities may reach more than $120 billion by 2008 from $80 billion last year, Barclays Plc estimated last month.
- Crofts said he can't predict when demand from investment funds will end.
3. Brazilian Ethanol Program a Model for China
China is seeking a possible trade deal with Brazil that would allow it to replicate that country's success with ethanol, the Asia Times reports. Why Brazil? Read on, McDuff.
- In 1975, Brazil imported about 85% of its oil needs.
- Now, Brazil is one the world's largest ethanol producer and its ethanol program is the largest commercial application of biomass alternative energy use in the world.
- China, with its reported 10% growth rate and increasing crude oil imports, recognizes it must find a way to reduce its reliance on imported energy.
- According to a 2004 report, Brazil's ethanol program over the course of 22 years resulted in hard currency savings of $1.8 billion USD per year and replaced 200,000 barrels of gasoline per day.
- For Brazil's ethanol program to be cost effective, it was estimated in 2004 that the price of oil needed to be around $30/bbl. Today crude oil is $71/bbl.
4. Between the Haves and Have Nots, a Hummer Idles
Despite oil priced over $70 a barrel, General Motors said sales of its Hummer SUV were up 231 percent in April.
- What is wrong with people, don't they know gas is approaching record highs?
- According to a story from the Baltimore Business Journal, Larry Tyne, a Hummer salesman at a dealership near Baltimore says, "Sales are just fine because the people who are buying them aren't concerned about gas prices."
- National Hummer sales nearly tripled from 2,220 sales in March 2005 to 6,125 in March 2006, according to research by Autodata Corp.
- Meanwhile, JD Power & Associates said 25% of the vehicles sold this year from January to March were eight-cylinder engine vehicles.
- The Hummer full-size SUV gets about 13 miles per gallon.
- A person who drives an average of 40 miles per day will spend $3369 a year in Hummer fuel costs.
- By comparison, a person who drives an average of 40 miles per day will spend $973 a year in VW Jetta fuel costs.
- Bottom Line: The Hummer is a way of saying, "I can afford the gas."
5. Minyanville Takes "A Closer Look" at Five Slims You Need to Know
This morning it occurred to us that we need one more thing to make today's "Five Things You Need to Know..." not "Four Things You Need to Know..." So we asked ourselves, "Why are there so many famous people named "Slim"? The answer is, we don't know. Be that as it may, below are Five Slims You Don't Necessarily Need to Know, But Which Might Be Useful in the Context of a Weird Trivia Game.
- Iceberg Slim: Born Robert Lee Maupin, Iceberg Slim was a former pimp-turned-writer whose books were popular in the early 1970s. His first work, Pimp: The Story of My Life, was a fictionalized autobiography.
- Carlos Slim: The world's third richest man, Carlos Slim has a fortune reported to be worth $30 billion, and which includes a Latin American Telecom empire. Lately, he has been traveling Mexico preaching economic reforms, though he is not a candidate in the upcoming July 2 presidential election.
- Memphis Slim: John Chatman was a world famous blues pianist from, naturally, Memphis. Like Carlos Slim, Memphis Slim was not a pimp. He was reportedly "a big man with a big voice" so the name Memphis "Slim" was likely a product of late night irony.
- Vanilla Slim: Bob Armstrong's memoir about his life as a white pimp in San Francisco.
- Filmore Slim: Former pimp-turned blues singer Clerence Sims, also starred in the 1999 documentary American Pimp.
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