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Five Things You Need to Know: Yu So Crazy, We Are Shocked!, Wages? We Don't Need No Steeking Wages, Labor Day, Trust Me I'm an Economist


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. Yu So Crazy!

Overliquidity in the U.S. dollar is behind China's latest economic overheating problems, a Chinese banking regulatory official said in an interview published in Monday's edition of the central bank-backed Financial News, according to Dow Jones Newswires.

  • Yu Xuejun, director of the China Banking Regulatory Commission's Shenzhen department, said the U.S.'s easy money policy between the start of 2001 and the middle of 2004 helped to inflate asset prices globally and pushed China's foreign exchange reserves higher.
  • "China, in reality, has become the biggest victim of the global overliquidity of the U.S. dollar," said Yu.
  • The Federal Reserve's easy money policy encouraged excessive demand for China assets, Yu asserted.
  • Moreover, he said, "because the excessive liquidity flowing in (to China) originally comes from abroad, the decisive power to control it doesn't rest in the hands of (China's) central bank."
  • Ok, so some crazy Chinese central banking wonk over in Beijing is saying the U.S. Federal Reserve engaged in overliquidity between 2001 and 2004. Big deal.
  • We'd like to see him try and say something like that on this side of the pond where people could shrug and say "so what" right to his face.

So what.

2. "I'm shocked, shocked to find that gambling is going on in here!"

Sunday's New York Times expressed grave concern that the recent boom in corporate mergers may be producing illicit trading by those with foreknowledge of the event. Say it ain't so, Joe.

  • An analysis of the nation's biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public, the New York Times reported.
  • For those "savvy speculators" who purchased shares during these periods of unusual trading, quick gains of as much as 40 percent were possible. 40 percent!
  • conducted the study for the NYT, looking at mergers with a value of $1 billion or more for a 12-month period ending this past July.
  • Of the 90 big mergers in the period, shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed.
  • According to the Times, some economists and academics asserted that insider trading is "essentially a victimless crime" as they took out a crisp, new $100 bill, rolled it up, set it on fire and pressed it to the end of their giant Cuban cigars from which they took a deep long drag and blew smoke rings into the air, quietly chuckling to themselves.

    You know what else is a victimless crime?
    Opening up a can of whoop-ass on smart-alec
    economists and academics who believe insider
    trading is a victimless crime.

3. Wages? We Don't Need No Steeking Wages!

The current economic "expansion" has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers, the New York Times reports this morning.

  • Check it out, Joe Worker, while you're busy toiling away for the man you may have failed to notice that your median hourly wage has declined 2 percent since 2003 after factoring in inflation. That is, unless you have tried to buy something for the past couple of years.
  • As a result, wages and salaries now make up the lowest share of U.S. gross domestic product since the government began recording the data in 1947.
  • In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department.
  • Eh, so what. I'm sure you're making it up on the back-end in, say, employee benefits.
  • Oops. Actually, total employee compensation - wages plus benefits - has not been this low since 1966.
  • Meanwhile, the New York Times says, corporate profits have climbed to their highest share of GDP since the 1960's.
  • Now you can read these datapoints from the Times any way your want. Haves vs. Have Nots. Elites vs. Blue Collars.
  • You might even say, "Hey, somebody over there at the Times is itching for a class war!"
  • Hmmm, why is that, do you suppose? Why a class war now? After all, this data has been turning grim since the late 90s. The trend for wages and salaries as a percent of GDP has been declining for more than a decade. Why does it matter now?
  • Maybe it's because a darkening social mood is finally catching up to the data.

Eh, so what.

4. Here's A Quarter, Call Someone Who Cares (But add 40% to adjust for inflation if you want a dial tone).

With the long weekend Labor Day Holiday approaching, and as the subtext (stagnant wage growth) for the coming class war hardens beneath the surface, we thought we'd ask an obvious question: Hey, whatever happened to labor unions, the last refuge for the working man?

  • According to Department of Labor statistics, labor union membership in 2005 was 12.5% of all wage and salary workers, unchanged from 2004.
  • Meanwhile, in 1983, the first year data was available, labor union membership was 20.1%.
  • Labor unions are dead. Who needs 'em.
  • Don't worry, they'll be back. Labor unions thrive under the same conditions and the same forces that cause us to suddenly, after more than a decade, wonder where our hard earned money is coming from... and going.
  • In 1929, on the eve of the Great Depression, the richest one-fifth of families received over half of all income going to families.
  • By 1949, the richest one-fifth of all families received just 42.7 percent of all family income.
  • By 2000 census figures showed that the measure had again risen to its highest level since the run-up to the Great Depression.
  • This is not supposed to be a commentary on whether such vast income inequality is good or bad. We're agnostic. Rather, it's simply to point out that income inequality and the rise and fall of labor unions are closely related socionomic events.

5. Trust Me, I'm an Economist

An investigation by Tim Harford, who presents the new BBC2 series "Trust Me, I'm an Economist," has found that Starbucks reportedly has a "secret ploy" to get customers to spend more money!

  • The marketing ploy is known as 'product sabotage' Metro UK reports.
  • According to the investigative series, cash registers at Starbucks have a button for the smallest drink, 8oz, and a third cheaper beverage that is simply not listed to customers, so they do not know it exists.
  • Coffee companies hide or downplay the cheaper drinks in the hope that customers will buy something pricier, Harford said.
  • Why? Why are they hiding the cheap stuff?
  • According to Harford "the most lavish drinks generate the highest profits."
  • Aha! Another company trying to eke out a profit on the backs of their customers.
No positions in stocks mentioned.

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