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Five Things You Need to Know: Binge Borrowing, Ohio Taxpayers Open Mortgage Lending Branch, Global Tightening Continues, Rates Heading Higher?, Advertise Here and Everywhere


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. Binge Borrowing

According to an article in this morning's Wall Street Journal, companies are borrowing money at the fastest rate in years to fuel leveraged buyouts, capital expenditures, stock buybacks and dividend payments.

  • Nonfinancial companies saw their debt rise 6.3% in the 12 months that ended in the first quarter to $5.5 trillion, the article says.
  • That's the fastest growth in five years.
  • Net borrowing as a percentage of pretax profits for U.S. nonfinancial companies rose to 36% in the first quarter, up from 32% in the past two years and the highest level since the second quarter of 2002, according to Moody's.
  • Of course, taking on added debt is only a problem if the economy slows, profits drop and record profit margins decline and we know from the recent Fed actions that... uh, hmmm. Hold on a second. Isn't the Fed on "pause" because of fears the economy is slowing, which may in turn hurt profits and cause a contraction in profit margins?
  • And doesn't the spread between the costs of finished goods versus intermediate goods (See Five Things Finished Goods vs. Intermediate Goods chart) suggest a demonstrable five-year inability to pass through costs to consumers?
  • And if consumers are already in "cut-back" mode due to sluggish wage growth and sluggish jobs growth, doesn't that put increased pressure on corporate profit margins and profits above and beyond a long-term inability to pass through increased costs?
  • If the Fed is right about slowing economic growth, then taking down debt here seems like the wrong move.
  • And if the Fed is wrong about slowing economic growth, then they're also probably wrong about inflation, and doesn't that mean taking down debt here is the wrong move?

2. Ohio Taxpayers Open Mortgage Lending Branch in State Capital

The Ohio Controlling Board has approved $1.2 million in grants to help prevent the foreclosure of more than 300 houses, according to

  • One million dollars of the $1.2 million will go to Neighborhood Housing Services of Cleveland Inc. as the organization joins with 11 other nonprofits to establish a foreclosure-prevention fund.
  • The Ohio Home Rescue Fund is designed to help about 333 low- and moderate-income families that are in the danger of foreclosure, reported.
  • According to the real estate information firm RealtyTrac Inc., Ohio had the 6th-highest foreclosure rate among the states in June.
  • During the Great Depression, as foreclosures increased, crowds became fed up with seeing neighbors kicked off their farms and out of their homes and began to appear at auctions to scare away potential bidders through threat of physical violence.
  • The effect was that the neighbors of families about to be foreclosed upon were allowed to buy back their property at pennies on the dollar due to lack of bidders.
  • Of course, this didn't reduce the debt of the families, just as the Ohio State Taxpayer Mortgage Lending Program doesn't reduce the debt of the families involved, but it serves the very same purpose.

3. Not Our Way, Norway, Iceland

Norway's Central Bank and Iceland's Central Bank each tightened interest rates yesterday.

  • Norway's Central Bank hiked their key interest by 25 basis points to 3%.
  • Iceland's Central Bank hiked their key interest rate 50 basis points to 13.5%.
  • These are the ninth and 10th global central bank tightening moves so far this month.
  • Norway is fighting excess liquidity and an economic boom fueled by oil prices.
  • Norway is the third largest global exporter of crude oil behind Saudi Arabia and Russia.
  • Iceland is struggling to fight inflation that reached 8.6% in August.

4. Rates Heading Higher?

Are interest rates poised to head higher? According to several of Tom DeMark's price exhaustion techniques, the probabilities suggest that we soon see rates on the 10-year creeping higher.

  • In my trading I make extensive use of Tom DeMarks's TD-Sequential (TM) and TD-Combo (TM) price exhaustion indicators to identify high probability price exhaustion levels.
  • What is the TD-Sequential indicator? TD Sequential (TM) has two components:
    - TD-Setup, which compares the closing price with the close four price bars earlier.
    - A "buy" setup consists of nine consecutive closes less than the close four price bars earlier.
  • Once the TD-Setup is perfected, TD Countdown begins:
    - TD-Countdown compares the close with the low or high two price bars earlier and is completed after 13, though unlike TD-Setup they need not be consecutive price bars.
  • The TD-Combo indicator has the same TD-Setup rules, but the TD-Countdown rules are more rigid.
  • The 10-year Yield Index (TNX) completed a TD-Sequential and TD-Combo "buy" setup on August 8.
  • The chart below shows a completed TD-Combo "buy" signal as of yesterday's close.

    10-year Yield Index (TNX) (TD-Sequential (TM) sell signal on June 21, TD-Combo (TM) buy signal yesterday).

5. [This and All Spaces Now Available for Advertising]

Face it, the checkout line at the grocery is boring. Sure, you got your People Magazine and your National Enquirer, but beyond that... well, nothing but the mind-numbing, soul crushing, painful void of existence. Who needs that?! At the grocery!

  • Clearly, what we need are more advertising distractions.
  • Enter Frank Cox, president-CEO of EnVision Marketing Group, a firm with a patented system to print digital, photo-quality ads directly on grocery store conveyor belts.
  • "Conveyor belts have never been on anybody's radar screen for marketing," Cox told Ad Age recently.
  • "But a store with eight to 10 checkout lanes, well, you're talking about 100 square feet of wasted ad real estate."
  • Cincinnati-based Kroger Stores (KR) is the first national retailer to test checkout lines with the ads in a few dozen of its stores.
  • So far no national brands have signed up for the ads. Instead, shoppers see hometown ads with photos of local real-estate agents. Seriously.
  • Well, sure beats being alone with one's thoughts.
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No positions in stocks mentioned.

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