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Five Things You Need to Know: The Real Elephant In the Room, Daily Deflation Datapoint, One Man's Junk..., Saudi Arabiwho?, EmethBay


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 Real Elephant In the Room

The rapid deterioration of the real estate market over the past 12 months has caught many homeowners and builders off guard, the Wall Street Journal reports this morning.

  • The WSJ this morning notes that for years real-estate brokers and home builders have promised that soaring real estate prices would eventually find a soft landing.
  • The evidence suggests otherwise (see Five Things here and here.)
  • "It's too early to say how hard the landing will be, but at a minimum it will be bumpy for many people who need to sell homes," the newspaper optimistically notes.
  • Wait, that's what you call optimism?!
  • Very much so. The real elephant in the room that almost no one is willing to talk about is not a real estate slowdown... it's a real estate collapse.
  • "I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy," Toll Brothers CEO Robert Toll said.
  • Perhaps that's because for the first time in our history housing IS ITSELF the macroeconomic element that will this time take the remainder of the economy down... not the other way around.
  • Real estate and real estate-related economic activity for the past five years has accounted for almost 2 percentage points of the 3.5% average annual GDP, according to Merrill's David Rosenberg.
  • Every rose has its thorn.

Every rose has its thorn
Just like every night has its dawn
Just like every cowboy sings his sad, sad song
Every rose has its thorn

2. Daily Deflation Datapoint

The Wall Street Journal also reports this morning that in a bid to lure customers, more banks are dropping their ATM fees.

  • PNC Financial Services Group (PNC) is today expected to announce that it will start reimbursing ATM fees for customers who get cash at competitors' automated-teller machines starting Sept. 1, according to the WSJ.
  • The move follows similar announcements made by Commerce Bancorp and Washington Mutual.
  • Of course, the cost of using ATMs has been on the rise for most, the article notes.
  • Tony Hayes, managing director at Boston-based Dove Consulting, told the newspaper that over the last five years, the cost of using an ATM has increased by 20%.
  • Until now.
  • But wait, isn't fee revenue supposed to be sacred for the banking industry?
  • It is... at least until customers become just risk averse enough to balk at $2 ATM fees and other assorted "costs of doing business."
  • And in the banking world, risk aversion + increased competition = deflation.
  • The real mystery is how banks have managed to get away with their fee structures for so long.
  • "Hey, here's a good idea: Let's charge the customers for access to their own money!"

3. One Man's Junk, Another Man's Treasure

Here's the dilemma: You got a bunch of high-risk, high-yield debt to sell, and the people who know you best are too risk averse to touch it. What do you do? You unload it on strangers, of course. They'll never know the difference!

  • More than two dozen Asian companies have turned to Europe and the U.S. to raise a record $9.5 billion of high-risk, high- yield securities they were unable sell at home, according to Bloomberg.
  • An Asian company called Fortescue Metals Group Ltd. managed to sell $2.1 billion of notes to build an iron mine.
  • It was, so far, the biggest sale by an Asian company with ratings below Baa3 at Moody's Investors Service and BBB- at Standard & Poor's.
  • Funds are too scarce to meet the needs of non-investment- grade companies in a region that is growing at 7.9 percent a year, according to International Monetary Fund estimates, the Bloomberg article says.
  • Megaworld Corp., the Philippines' third-largest builder, turned to foreign investors because the local debt market wasn't big enough to meet its needs, according to the story.
  • Investor demand is so strong that UTI Bank Ltd. in Mumbai received almost $1 billion of orders this month for a $150 million sale of 7.25 percent bonds maturing in 2021, Bloomberg says.

Meanwhile, Minyanville has learned of the following upcoming junk bond sales currently being marketed to American funds:

- Ulaanbaatar Superbig Profitable Corp., $250 mln., 8% bonds maturing "right on time," according to the company.
- Scratchy and Itchy Product Mfg. Ltd. of Karachi, $500 mln., 8.25% bonds maturing in 2397.
- The Mumbai Undertaking of Great Advantage But Nobody to Know What it Is Company, $750 mln., 7% bonds maturing in the future.

4. Russia Overtakes Saudi Arabia in Oil Production

Recently-published OPEC statistics show that Russia has overtaken Saudi Arabia as the biggest producer of oil in the world, according to

  • OPEC statistics show that since 2002 Russian companies have periodically surpassed the Saudis from time-to-time as the world's biggest oil producers.
  • The latest figures, however, suggest Russia may now be entitled to lay claim to the number one spot in world oil production.
  • According to OPEC, in June 2006 Russia extracted 9.236 million barrels of oil, which is 46,000 barrels more than Saudi Arabia.
  • The statistics also showed that Russian production in the first half of this year increased to 235.8 million tons, a year-on-year improvement of 2.3 percent, the article noted.
  • Of course, Russia may be assisted by the fact Saudi Arabia is subject to OPEC output restrictions.
  • According to the article, Russia is currently operating near capacity and will be able to manage output increases of up to only 2 percent a year between now and 2009.

5. You can get it on EmethBay!

States are developing Internet registries to publicize the names of people making or selling meth, creating the first online marketplace for the drug.

  • According to the USA Today, Tennessee, Minnesota and Illinois have approved plans to create Internet meth registries.
  • Meth registries are being considered in Georgia, Maine, Oklahoma, Oregon, Washington state and West Virginia too.
  • The registries generally include the names, birthdates and offenses of convicted meth manufacturers, dealers and traffickers.
  • The dates of their convictions and the locations of their crimes also are included.
  • Officials in Minnesota and elsewhere say residents and landlords will be able to use the registries to check for meth availablity in their communities, avoiding time consuming street shopping and word-of-mouth trafficking.

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