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Five Things You Need to Know: Including China Tightens Belt, Reverse Pscyhologery, Lobster Safety, Ask a Father

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

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Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. China Tightens its Belt

China's central bank today ordered banks to set aside more money as reserves. Why?

  • Earlier this week we learned that China's urban fixed-investment through May rose a whopping 30.3% year-on-year.
  • That sounds good, right? Yes, it does sound good. Urban fixed-investment is, after all, what many have suggested is behind China's voracious appetite for raw materials. But... and there's always a but... China understands that this kind of growth is unsustainable.
  • Too much growth, especially when it is derived from the excess availability of low-cost capital... as is China's, creates excess capacity. And excess capacity can result in
    (gulp) deflationary pressures.
  • So, China's urban fixed-investment is rising at a 30.3% clip year-on-year. What's our reference point? How hot is too hot? Consider that China's target for urban fixed-investment for 2006 has been reported to be 18%. So we're nearly double that.
  • To fight this, China's central bank today raised the reserve ratio for commercial lenders by 0.5 percentage points effective July 5, bringing the reserve requirement up to 8%.
  • And yesterday, the People's Bank of China said it will target the most active lenders by issuing them bills, an additional attempt to reduce liquidity in the interbank system.
  • This is essentially a way to take away some of the commercial bank's money to be lent out.
  • Bottom Line: Liquidity is being reduced.


2. US Adopts Policy of Reverse Psychologery

Yesterday the US indicated it would not fight the efforts of Asian nations to create an Asian currency unit, following more than a decade of opposition.

  • Japan has been pushing the idea of an Asian Currency Unit (ACU) loosely modeled on the European Currency Unit, the precursor to the euro.
  • Although the proposal has been met with much skepticism in the region, it is noteworthy that in early May (as outlined here in Five Things), Japan, China and Korea all agreed to begin joint research on the ACU.
  • At that time, Timothy Adams, U.S. Treasury under-secretary for international affairs, told the International Herald Tribune "We don't oppose it. I have no concerns about this issue."
  • More recently, as reported in today's Financial Times, Mr. Adams further clarified the U.S. position on a potential Asian Currency Unit: "we do not see the ACU as a competitor to the dollar."
  • Really? A single currency among Asian countries, which are highly dependent on the US dollar as THE defining currency of the global economic system, would not be a competitor to the US dollar? Interesting.
  • A cynic might suggest that the real basis for the US "lack of concern" is the widespread belief that a single currency agreement among Asian nations is impossible since, among other things (including the issue of monetary sovereignty), the interests of the central banks of China and Japan are very different.
  • But that's what they said about the Euro... back in 2000... when the US dollar index was around 1.20... and the Euro had plummeted to 84.


3. We Love Lobsters... Especially in Garlic Butter!

Whole Foods Market (WFMI) today said it would immediately stop selling live lobsters because it was concerned about their treatment, according to Reuters.

  • Whole Foods said continuing the sale of live lobsters was inconsistent with its commitment to the humane treatment and quality of life for animals.
  • The decision was made after a seven-month review of its lobster procurement process.
  • Chief Executive John Mackey in a statement said "the door is open" for Whole Foods to resume selling live lobsters if it learns of improvements in how the animals are treated.
  • Whole Foods said it would continue to sell raw and cooked frozen lobster products, however.
  • So, to sum up, a GROCERY STORE, a place that SELLS DEAD ANIMALS AS FOOD, is concerned about the humane treatment of animals. Wouldn't one way, and some might say a more effective way, to be more humane to animals be to STOP EATING THEM!?


4. Amazon.com Grocery

Amazon.com has begun selling groceries on its website. Also books. And some lobsters.

  • Amazon.com has launched a beta site that sells groceries on its web site; about half the items are organic products.
  • Most products are available for bulk purchase only, rather than as single items, which will likely make the storage of the live lobsters more difficult for those without incredibly large aquarium tanks.
  • The online grocery business has been a difficult venture to make work; several have tried and failed and very few have been able to successfully sell live lobsters online.
  • Webvan Group filed for bankruptcy protection in 2001.
  • Perhaps (and here, we speculate) this was due to difficulties in the transportation, storage and shipping of live lobsters?


5. Five Questions for Father's Day

When I was a wee lad, maybe 19, 22, my da set me down for a little chat.
"Son," he said, reaching one hand into the breast pocket of the thick tweed jacket he always wore, "I have something for you." He slowly took his hand out of his jacket and produced a shiny silver pint flask. It looked very old. "Here," he said, "take it."
"But da, I couldn't," I protested.
"No, son, I want you to have it. I'm finished with it, and now It's all yours," he said.
I took the silver flask from his hand and felt its weight in my own. It was lighter than I expected. In fact, it was much lighter than I expected. I shook it a few times. It seemed completely empty! Quickly, I twisted open the knob on the top and and turned the flask upside down. Nothing! Not a single drop! It was bone dry. Furious, I dove across the table at him, and so began one of the worst rows my da and I ever had. Imagine such a thing. An empty flask!
Anyway, not sure where we were going with all of this, except that with Father's Day approaching we thought it might be a good idea to ask some very important questions to a very important father

Minyanville's Five Important Questions for an Important Father

I'm short S&P futures into a positive analog day. What should I do?
I spent my whole life trying not to be careless. Women and children can be careless. But not men.
Do you see a trade up to 1280 on the SPX? And do you recommend playing both sides here with the expanding volatility?
No... how a man makes his living is none of my business. But this proposition of yours is too risky. All the people in my family lived well the last ten years, I won't risk that out of greed.
The transition from low vol to higher vol has whipsawed a lot of traders. What is the best way for a trader to adapt to a changing market environment?
I never wanted this for you. I work my whole life - I don't apologize - to take care of my family, and I refused to be a fool, dancing on the string held by all those bigshots. I don't apologize - that's my life - but I thought that, that when it was your time, that you would be the one to hold the string.
Do you think Tattaglia's call for a bottom in the SPX is right? Or should I be more worried about Barzini's projection for a new market low by mid July?
Tattaglia's a pimp. He never could've out-fought Santino. But I didn't know until this day that it was Barzini all along.

Do you have any advice for finding the right balance between trading and life?
Do you spend time with your family?
Yes.
Good. Because a man that doesn't spend time with his family can never be a real man.
Thank you for your time, Godfather.
Someday - and that day may never come - I'll call upon you to do a service for me. But until that day, accept this as a gift on my daughter's wedding day.

Position in ES/U6

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.

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