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Five Things You Need to Know: Inflation, (Dis)inflation, Stagflation, Taking Our Head for a Spin, Wal-Mart Giving the Store Away... $25 a Pop


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. Inflation

According to the Wall Street Journal, fueled by everythig from fuel demand to drought conditions, wheat and corn prices are rising to what could be their highest annual average price level in a decade.

  • According to the WSJ the Agriculture Department said it expects the annual price of wheat to average about $4 a bushel, up 17% from last year and sharply higher than the 10-year average of $3.19.
  • In addition, the ethanol industry's increasing demand for corn is lifting prices there as well.
  • The Agriculture Department said its new forecast for the average annual price of corn is $2.45 a bushel, up 24%.
  • The rising prices for grains is beginning to show up in the food aisles as food makers face higher input costs.
  • Since Food and Energy make up 23% of the CPI, the combination of higher energy prices and rising food prices will likely push up the headline rate.
  • Hmm, that means the Fed may find itself caught behind an even tighter rock (slowing growth) and hard place (rising prices).

2. (Dis)Inflation

But is the news really all that grim? Sure, food prices are rising, but there are growing areas of (dis)inflation out there, right?

  • According to Bloomberg, Dell is about to embark on a bitter price war with tech rivals due to falling margins from weak European sales growth and aggressive pricing from Hewlett-Packard.
  • And last month GM announced it was bringing back (for a short time, they say) zero percent financing for six years on many of its cars.
  • This morning the USA Today reported on undercurrents of disinflation in, of all places, Healthcare.
  • A Michigan HMO says it will give workers at small companies who agree to pursue healthier lifestyles a break averaging 10% on their health insurance.
  • In Washington state, Premera Blue Cross in June began offering midsize employers two free years of health risk management and health "coaching" for workers.

3. Stagflation?

But then there is this: the Household Debt Service and Financial Obligations Ratios from the Federal Reserve.

  • The data show that debt-service payments as a share of personal income rose to 13.9% in the first quarter of this year, from 13.8% in the fourth quarter of 2005.
  • Eh, well that's not so bad, is it?
  • Well, actually, it's a new all-time high.
  • And it reminds of something Minyanville Professor Bennet Sedacca has been harping on over on the Minyanville Buzz & Banter: The Wall Street Creep.
  • What's the Wall Street Creep again? It's the effect of oil prices rising from $30 to $76 a barrel combined with short-term rates rising from 1% to 5.25%.
  • Meanwhile, Merrill's David Rosenberg this morning noted that adding up interest payments, food, energy and medical expenses totals nearly 60% of discretionary income... from under 55% when the Fed tightening cycle began.
  • Wall Street Creep indeed. Dorothy, we'd like you to close your eyes, click your heels together and repeat three times, Fed, Rock, Hard Place. Fed, Rock, Hard Place. Fed, Rock, Hard Place.

4. Stop. Our heads are spinning.

Nanjing Automobile Group, a Chinese auto manufacturer, plans to resurrect the British MG auto brand, which was formerly an asset of the bankrupt MG Rover Group, and build a newly designed MG sports car in Oklahoma. Say again?

  • Nanjing Automobile Group, a Chinese state-owned automaker, said it is joining with two U.S. investment funds to build vehicles under the storied British marque MG at a new plant in Oklahoma, according to Forbes.
  • Nanjing Auto bought the MG brand name and production lines for £53 million at last year's sale of bankrupt MG Rover.
  • Production at the new Oklahoma facility is expected to begin in late 2008.
  • The MG brand was a popular sports car brand in the 1930s through the 1960s, but labor woes and consolidation in the British car industry hurt the carmaker in later years.
  • MG closed its last US dealership in the 1980s.
  • So a Chinese car manufacturer will be building a British sports car in Oklahoma? Clearly we've fallen into some type of globalization space-time wormhole.

    MG Dream Car?

5. Wal-Mart Goes (Slightly) Upscale

In a dramatic shift for retailing giant Wal-Mart, the company has announced it is going slightly upscale and now only "selling" products which cost more than $25 and giving away to shoplifters anything which costs less than $25.

  • According to the New York Times, internal documents obtained from Wal-Mart indicate the company will no longer prosecute first-time shoplifters for stealing merchandise worth less than $25.
  • The changes in Wal-Mart's theft policy are described in 30 pages of documents that were provided to the New York Times by, a group backed by unions that have tried to organize Wal-Mart workers in the United States.
  • Wal-Mart says the change will allow it to focus on theft by professional shoplifters and its own employees, who together steal the bulk of merchandise from the chain every year.
  • In the past, the company has aggressively prosecuted all shoplifters under a zero-tolerance policy.
  • According to the Times, at some of Wal-Mart's 24-hour stores the police make up to six arrests a day prompting a handful of departments to hire an additional officer just to deal with the extra workload.
  • Below are a few examples of how the new Wal-Mart policy shift will work.

When shopping at Wal-Mart, if we suddenly find we need a water polo ball, we have two choices. We can opt for the expensive one...

Or the potentially "free" one...

Suppose we decide we need a personalized gift that the whole family (over 21) can enjoy? We can choose the expensive one...

Or, we can decide on something more personal that is potentially "free"...

Below, a highly symbolic fragrance dichotomy. We can choose the scent of Paris, rather expensive...

Or, we can choose to smell like Brittney, which is, curiously, potentially "free."

No positions in stocks mentioned.

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