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Five Things You Need to Know: This is Exactly What the Market Needed


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. "This is exactly what the market needed."

The Producer Price Index comes in well below expectations this morning, with the universal consensus being: "This is exactly what the market needed."

  • The producer price index for finished goods rose 0.1% in July, below the 0.3% gain expected, the U.S. Labor Department said.
  • The core PPI - which excludes food and energy prices - fell 0.3%, the first decline since October.
  • This is good, right? Well, look at the actual numbers. Prices for finished goods other than food and energy showed an outright decline, 0.3% in July. Isn't that a sign that demand for finished goods is decreasing?
  • Also, a closer look at the figs show the 12-month change in the prices for finished goods still rising at a 4.2% annual rate.
  • Meanwhile, look at prices for intermediate goods, those goods in the earlier stages of processing.
  • Intermediate goods rose 0.5%, after a 0.7% rise in June. But here's the kicker, the 12-month change in intermediate goods is rising at an 8.9% annual rate.
  • Doesn't the spread between finished goods and intermediate goods suggest an inability to pass through costs? And isn't that DEFLATION?
  • Well, let's look at the data, courtesy Scott Reamer:

Below is a chart plotting PPI finished goods vs. intermediate goods from 1990.

  • So, now that it appears the Fed has finished fighting inflation, which is the same thing as saying the Fed has finished fighting itself, we should expect to see an attempt to resume the reflation efforts. Exactly what the market needed. Indeed.

    2. This, too, is exactly what the market needed.

Inflation in the UK moderated a bit, by 0.1% from June, a clear sign of moderating inflation, and exactly what the market needed.

  • The office for National Statistics (ONS) said the consumer price index rose by 2.4 pct in the year to July, down from the nine-month high of 2.5 pct in June.
  • The dip was in-line with expectations, though the majority of headline writers noted: This is exactly what the market needed.
    Pound falls as UK inflation dips in July
    - UK inflation pressures ease in July
    - UK inflation pressures ease in July
  • What explains the dramatic one-tenth of one percent plummet in inflation? Heavy discounting of furniture and home furnishings.
  • Seriously, you can't make this kind of stuff up. Meanwhile, food prices, driven by beef, reached prices not seen since the 1996 BSE crisis.
  • Exactly what the market needed.

3. Doesn't matter. Because I'm telling you, dude, this is exactly what the market needed.

Have you ever taken a look at what the Fed calls the Senior Loan Officer Opinion Survey? Because, dude, I'm telling you, this is exactly what the market needed.

  • "The July 2006 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months," the report says.
  • So, what does the survey say?
  • A couple of things. First, banks have seen a falloff in demand for mortgages at a pace not seen since the first quarter of 2000.
  • Second, domestic and foreign institutions said they had eased lending standards and terms on commercial and industrial (C&I) loans somewhat further.
  • Third, domestic banks actually tightened lending standards on commercial real estate loans over the previous three months.
  • Meanwhile, according to Merrill's David Rosenberg, data from the National Association of Realtors shows that the mortgage payment needed to buy a median price home rose 19.3% year-on-year in June.
  • Tightening lending standards AND affordability decreasing? Exactly what the market needed, dude.

4. Yet again, this is simply more of exactly what the market needed.

Wal-Mart's (WMT) quarterly net fell 26%, the first quarterly profit fall since 1996.

  • Wal-Mart earned $2.08 billion, or 50 cents a share, after taking an $863 million loss on its decision to get out of the retail business in Germany following nearly nine years of losing money in Europe's biggest economy, the Wall Street Journal reported.
  • The company also noted it is seeing sales disruptions at stores undergoing remodeling.
  • The company maintained its earnings guidance for the third quarter of 59 to 63 cents per share, and of $2.88 to $2.99 for the full year.
  • But wait, let's go back to this Germany thing for a moment. Nearly nine years of losses?
  • Reminds me of an old market saying: It's ok to be wrong, but not ok to stay wrong.

5. Seriously, this is totally, exactly what the market needed.

Apple Computer has laid legal claim to the word "pod," arguing that other companies that use the word as part of their product names risk infringing the trademark of its iPod music device.

  • Lawyers acting for Apple have in recent days written to at least two companies that use the word "pod" asking them to drop the word from their product names, according to the Financial Times.
  • The success of the iPod has led to widespread adoption of the word "Pod" in many items that are not produced by Apple.
  • Even actions have been derived from the word "pod," for example, the term "podcasting."
  • The wider extent of the legal challenge remains unclear, but companies using the word "pod" are concerned about Apple's aggressive legal challenges.
  • Go ahead, laugh it up laughy Apple pod lawyers. Just remember, those cease and desist letters you write on that, what's it called? What's that big computerish machine's name? I forget. Oh yeah, that's a big Mac you're drafting those letters on, isn't it? Big Mac. That rings a bell. Where have I heard that name before? Big Mac. Hmmm....

Apple Mac? Better let the attorneys settle this one.

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