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Five Things You Need to Know: Mighty Dollar Bill, Citi's Dirty Boulevard, PPI-CPI-Bernanke Eye, Reset, What's Your Major?


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. The Mighty Dollar Bill

Suddenly, the U.S. dollar is trading at a two-week high... a flight to "safety"?

  • With geopolitical tensions spiking (among other things we will get to momentarily), the U.S. dollar is suddenly enjoying a new lease (and we mean "lease" in the starkest financial sense) on life.
  • Why the love? Well, first of all, we remain... at least for now... the world's reserve currency.
  • That means that when the going gets tough around the world, our dollars are the go-to guys for, ahem, financial stability.
  • So that's it? Reserve currency, war, flight to the safety of the greenback?
  • Not quite. First, last Friday the Bank of Japan formally (if not absolutely effectively) ended their quantitative easing policy, raising the overnight call rate to .25%. The result was a Yen sell off.
  • Moreover, later this week Federal Reserve Chairman Ben Bernanke will likely put on a hawkish "inflation-fighting" face when he speaks to Congress on Wednesday and Thursday.
  • A hawkish Fed (perception thereof anyway) should merge with global tension to help give a bid to the dollar, despite the Fed Funds futures now showing only about a 52% chance of an August 8 rate hike.
  • How hawkish can the Fed be with, according to the USA Today at least, 60% of economists surveyed saying they should not raise rates on August 8? See number three.

2. Dirty Boulevard in the Citi

No matter how one tries to dress it up, the Citi (C) earnings report was a miss.

  • Citigroup (C) reported 2Q EPS of $1.05 on revenues of $22.18 bln.
  • First call expectations were for $1.06 on revenues of $22.53 bln.
  • Citigroup CFO Sallie Krawcheck said the firm is seeing net interest margin pressure and that recent global events are taking a toll on the company's business lines.
  • She also noted that this slowdown is occurring earlier than expected from traditional summer slowdowns.
  • The miss comes despite two record investment banking quarters.
  • Profit jumped 26 percent to $1.72 billion in the corporate and investment banking division and revenue rose 31 percent to $6.76 billion, the second- highest level in the company's history.
  • The stock has opened down 1.5% to $46.85.
  • Meanwhile, looking at the stock on a technical basis, a point & figure chart (.5x3 scale) shows C has broken a double bottom (its second consecutive technical sell signal since May) and violated trendline support.
  • The downside price objective based on the previous June sell signal yields a target of $44.50.

3. PPI, CPI, Bernanke Eye

Full week ahead on the economics front.

  • Tomorrow at 8:30 a.m. EST we get the Producer Price Index for June with the consensus looking for a 0.3% total rise and 0.2% core rise.
  • Wednesday at 8:30 a.m. we get the Consumer Price Index for June with the consensus looking for a headline and core increase of 0.2%.
  • Later Wednesday morning Federal Reserve Chairman Ben Bernanke delivers the first day of a his two-day Humphrey-Hawkins testimony before the Senate Banking Committee.
  • The Humphrey-Hawkins testimony on the heels of PPI and CPI will set the tone for inflation/stagflation/deflation watching as the data will significantly influence the hawkish/dovish posture Bernanke will be able to present.

4. Ready, Set, Reset

More than $2 trillion of U.S. mortgage debt is due for an interest rate "reset" over the next couple of years. According to the New York Times some could find their payments doubling.

  • According to Freddie Mac, lenders will adjust about $500 billion in mortgages this year and $700 billion next year. A good portion of those loan resets are interest-only loans.
  • An interest-only mortgage allows the homeowner to "pay interest only" for the loan's initial period, usually 5-10 years.
  • In 2003 only 10.2 percent of all mortgages were interest-only. According to the Times, the research firm Loan Performance reports that 26.7 percent of all loans were interest-only last year.
  • While interest-only loans have been traditionally used by people who expect to live in a house for only a short time, perhaps due to a pending job transfer or expected relocation, the Times reports that interest-only loans have risen in popularity in recent years due to increasing home prices and have therefore become, by default (intentional pun), "affordability products."
  • The risk is financial overextension for many households and exposure of the weakest mortgage loans on the books of lenders.
  • The upside, and yes there is one according to some optimists, is that the reset could provide a boom to the mortgage refinancing industry.
  • Of course, someone more pessimistic (me) might point out that what is good for the refinancing industry (for now) does not necessarily solve the longer-term problems of financial overextension and inflated real estate prices... it only defers it to later.

5. What's Your Major?

According to data from The Princeton Review, Business Administration and Management is the number one major reported by colleges.

  • Each year The Princeton Review collects data from colleges about their academic offerings.
  • Colleges are not only asked which majors they offer their undergraduates but which majors have the highest undergrad enrollment.
  • Checking in at number one is Business Administration and Management.
  • The top five is rounded out by Psychology, Elementary Education, Biology and Nursing.
  • Completing the top 10 are Education, English, Communications, Computer Science and Political Science.
  • But here's the real question: does the popularity of these majors reflect future insight among undergrads, or is it "rear-view" education investment along the lines of mutual fund popularity among retail investors?
  • Well, for comparison's sake let's see what the popularity of college majors 30 years ago for the class of 1976 looked like.

Most Popular College Majors of 1976*

1. Business Administration and The Man
2. Pre-Club Med
3. Betamax Science
4. Synthetic Leisure Suit Design
5. Municipal Bongwater Waste Treatment Administration
6. Strobe Technology
7. Streaking
8. Comparative Hallucinogenics
9. CB Radio Broadcasting
10. Organizational Looting Management

* Class of 1976 majors were obtained by Minyanville through a complex, scientific self-survey of majors we completely made up.

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