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Five Things You Need to Know: Bernanke Offers 10,000 Greenspan Puts, Psychology of Deflation, Ask Japan, Future of the Stock Market?, Full Metal Ford

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What you need to know (and what it means)!

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Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Bernanke Offers 10,000 Sep. 1300 Greenspan Puts On the Bid!

This morning out in Jackson Hole, Wyoming Federal Reserve Chairman Ben Bernanke is speaking to fellow central bankers at the Jackson Hole symposium.

  • This year's theme for the symposium is "Global Economic Integration: What's New and What's Not."
  • Seriously.
  • Chairman Bernanke isn't revealing any market-moving news (Hi, Minyan Maria!), as was expected to be the case.
  • Meanwhile, Bloomberg this morning has an interesting piece out worth a read: "Bernanke, Back at Jackson Hole, Grapples With House-Boom Legacy."
  • The gist of the article is that while last year Alan Greenspan opened the symposium by saying the Fed was paying closer attention to the rising values of assets such as stocks, bonds and homes, as low interest rates encouraged more risk-taking, Bernanke has steadfastly maintained his academic view that "asset prices are indicators and not something to target,'' at least according to John Silvia, chief economist at Wachovia.
  • According to Bloomberg, after a speech on Feb. 24, three weeks after succeeding Greenspan, Bernanke said that ``it's generally a bad idea for the Fed to be the arbiter of asset prices.''
  • So it seems Bernanke is offering 10,000 Sep. 1300 Greenspan Puts on the bid.
  • But we would note that while the Fed Chairman takes in the "free" premium for those contracts, the rest of America is eying the bid on the other side of the 40% net worth tied up in their house. It's a nervous standoff. Depending on who budges first, those Greenspan puts may morph into the Bernanke Home Equity Line of Credit extension.


    Central bankers terrorized by credit-hungry elk in Wyoming!


2. The Psychology of Deflation

It begins as a simple standoff. The bidders hold their bids. The sellers hold their offers. Activity lurches to a stop... until someone blinks. Of course, I'm talking about real estate, right? No. I'm talking about restaurants.

  • In the face of a meltdown in same-store sales and falling customer counts, some of the biggest names in casual dining are cutting prices, according to the USA Today.
  • "This is unprecedented," Paul Avery, COO of OSI Restaurant Partners (OSI), which includes the Outback Steakhouse brand, told the newspaper.
  • Beginning in November, Outback plans to cut prices across its menu.
  • T.G.I. Friday's has a new appetizer menu with limited-time discounts up to 50%.
  • And so the deflationary toothpaste tube gets a bigger squeeze.
  • This is the psychological aspect of deflation we think the market has yet to fully grasp.
  • Faced with widespread rising prices in the 1970s, consumers pushed purchases forward, virtually across the board.
  • Faced with rising prices in just a few segments of the economy today, the consumer cuts back. And they cut back fast.
  • Unprecedented indeed.


3. Deflation: How Entrenched is it? Ask Japan.

Japanese core CPI for July came in at 0.2%, less than half the 0.5% expected.

  • The CPI data also followed major revisions to the CPI - the data now that core CPI actually fell in January and April where before they were seen to have risen.
  • The new calculation method shaved around 0.5 percentage points off year-on-year changes in data for overall Japanese CPI from January, a government official said, while economists had expected a downward revision of 0.2 to 0.3 percent, according to Reuters.
  • Meanwhile, Reuters poll showed eight out of 20 market players and analysts expect the BOJ to raise rates to 0.5 percent by the end of the year from the current 0.25 percent, while two now rule out the possibility of another hike before the end of the fiscal year in March.
  • The Japanese Government Bond market spiked higher on the news with 10-year yields falling 9 basis points to 1.695%, the lowest level since March 14.
  • The 10-year U.S. Treasury Note also saw a brief dip in yields below 4.8% before giving back most of that gain in the early opening for equities.
  • Ok, a rise is a rise. It's not exactly deflationary. But it emphasizes the difficulty in shifting time preferences and changing consumption and spending behavior once a secular psychological trend is in place.


4. The Future of the Stock Market?

The USA Today reports that more than 80 formerly public companies have gone private this year, on pace to be the busiest year since at least 2000. Hey old public friend, where ya going?

  • Ford (F) made headlines yesterday (more on that below) with noise the beleaguered behemoth may consider going private. Meanwhile, the option of going private is being considered by more and more companies.
  • More than 80 formerly public companies have gone private this year, on pace to be the busiest year since at least 2000, according to USA Today.
  • The total value of the deals, $136.5 billion, is already a record and well above the $94.7 billion of 2005, the newspaper reports.
  • Why are all these companies going private now?
  • One answer is related to financial disclosure, corporate governance costs related to being a public company in the wake of the Sarbanes-Oxley Act of 2002.
  • While small and mid-size companies are among those public companies most likely to consider going private, as the Ford news yesterday suggests, even very large companies are actively studying the possibility.
  • "Going private" transactions have typically involved public companies with undervalued stock.
  • According to a 2004 paper available on the SEC website, called "Going Private: A Reasoned Response to Sarbanes Oxley?", certain kinds of companies become public orphans following an IPO.
  • "The common characteristics of corporate orphans is that they have minimal public float, minimal or no "promotion" from an investment bank that provides regular coverage and institutional commentary, the trading volume is sparse, and institutional investors are rare," the authors write.
  • The conclusion in 2004 was that, "Upon reasoned reflection, therefore, it is not surprising that so few transactions returning public issuers to private status have actually occurred."
  • D'oh! As the USA Today stats suggest, reasoned reflection is now beginning to tip toward the conclusion that going private is a reasoned response to Sarbanes-Oxley.
  • What does this mean? Below, we pull a page from the future:

The Future of the Stock Market:


5. Ford Metal Jacket?

According to the Detroit Free Press, Ford insiders are floating the possibility that the company might go private. While a move to take the company private might seem to be a panacea for the beleaguered auto behemoth's woes, we're not so sure. Below we take a look at one possible scenario of what could happen if Ford decides to "go private."


"I am Gunnery Sergeant Hartman, your senior drill instructor. From now on you will speak only when spoken to, and the first and last words out of your filthy sewers will be sir. Do you maggots understand that?"

"Sir, yes sir!"

"Do you think I'm cute Private Ford; do you think I'm funny?"

"Sir, no sir."

"Then wipe that disgusting grin off your face."

"Sir, yes sir!"

"Well any time sweetheart!"

"Sir, I'm trying, sir."

"Private Ford I'm gonna give you three seconds; exactly three-freaking seconds to wipe that stupid looking grin off your face or I will gouge out your eyeballs!"

"Sir, I can't help it, sir."

"Pontius Pilate on a Popsicle Stick! What is that? WHAT IS THAT PRIVATE FORD?"

"Sir, a jelly doughnut, sir!"

"A jelly doughnut?!"

"Sir, yes sir!"

"What is your major malfunction Private Ford?"

"Disastrous healthcare legacy costs and a deflationary automotive sales environment, sir!"

"Private Ford has dishonored himself and dishonored his platoon. I have tried to help Private Ford. I have failed. I have failed because YOU have not given Private Ford the proper motivation! So, from now on, whenever Private Ford messes up, I will not punish him! I will punish all of YOU! And the way I see it, ladies, you owe me for ONE JELLY DOUGHNUT! NOW, GET DOWN ON YOUR FACES!"

Yeesh. Maybe being a public company isn't so bad after all!

The new 2008 Ford Excursion?

No positions in stocks mentioned.

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