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Five Things You Need to Know: Easy B, BoE Come on Down!, The Dividend, Ford Recalls All Cars Ever Made, Why Do U.S. Lawmakers Hate Freedom?


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. Easy B? Not so much.

The European Central Bank (Easy B) today raised its key interest rates to 3%, the fourth increase in eight months.

  • While the ECB rate hike was expected by all the economists surveyed by Bloomberg, the larger fear is that the move is too little, too late.
  • Inflation has remained above the ECB's preferred 2% target for 18 consecutive months.
  • Money supply growth is near a three-year high.
  • Energy prices are, well, you know.
  • And the European economy is seeing its strongest growth in six years.
  • European Central Bank President Jean- Claude Trichet, he of the "permanently alert" inflation watch, said more interest rate increases may be "warranted," Bloomberg said.
  • "We will continue to monitor very closely all developments so as to ensure risks to price stability do not materialize," Trichet told reporters in Frankfurt.
  • Cool.

2. Bank of England, come on down! You're the next contestant on The Price is High.

While the Easy B hike was expected, the Bank of England today surprised many by unexpectedly raising its key rate for the first time in two years to 4.75%.

  • According to Bloomberg, the decision to raise rates was expected by just 8 of the 46 economists surveyed.
  • Growth in Europe's second-biggest economy reached the fastest pace in two years last quarter and inflation in June moved above the bank's 2 percent target for a second month.
  • So far this year, the BoE had been the odd man out in terms of global central bank tightening.
  • A total of 15 central banks worldwide raised rates in July, according to Bloomberg.
  • 17 raised rates in June.
  • Meanwhile, the BoE is facing its own version of potential stagflation. Rising unemployment (claims for benefits rose to the highest level in four years in June) coupled with rising prices (energy supplier Centrica PLC said last week it will raise gas prices for consumers by 12.4% and electricity prices by 9.4%) has already dampened consumer spending, which fell to 0.3% in the first quarter from 0.8% in the prior quarter.
  • BoE, come on down!

3. And now for something completely different: The Dividend

Dividend-paying stocks outperformed non-dividend-paying stocks by nearly 4% in July and more than 8% year-to-date, according to Standard & Poor's.

  • A story in the USA Today notes that dividend-paying stocks are up 4.3% vs. a decline of 3.3% for non-payers through the end of July, citing data from Standard & Poor's.
  • One of Minyanville's favorite market thinkers, Raymond James' Jeff Saut, told the newspaper that in an increasingly violent market investors have yanked a page from Ben Graham's book, "The Intelligent Investor," and are looking for stocks which pay dividends, and therefore which provide a "margin of safety."
  • S&P 500 stocks, on average, are yielding 1.9%, the article notes.
  • Meanwhile, 200 companies in the index have this year increased their dividends, versus 207 at this time last year.
  • What is The Dividend? Look, don't snort at such a simple question. It's fair to ask considering that by 1998 the dividend yield on the S&P 500 had declined to 1.4% versus 6.7% in 1982.
  • The dividend is a payment made by a company to its shareholders. Think of it as compensation for risk of ownership.
  • But why, then, do so many companies avoid paying dividends? Simple, because they know better than you do how to invest your money. Just kidding. Sort of.
  • After more than 20 years of increasing risk appetites, the thought process among most investors about dividends is that companies which pay them have simply run out of good ideas for future investments.
  • In the coming years of risk aversion, companies which avoid paying dividends will likely be viewed much differently.

4. Ford Recalls All Cars Ever Manufactured

In addition to quietly reporting a second quarter loss of $253 million dollars, more than double what most on the Street expected, Ford also announced it was recalling 1.2 million vehicles because of a defect that could result in a vehicle fire.

  • The recall covers all F-Series pickups, Explorers, Excursions, E-Series trucks, and includes vehicles manufactured from 1994 through 2002.

Below, Ford vehicle owners line up for repairs as
part of a recall affecting more than 1 million vehicles.

5. Why Do U.S. Lawmakers Hate Freedom?

A little more than three years since the cafeterias that serve members on Capital Hill replaced french fries with "freedom fries" to protest France's refusal to join the U.S. "Coalition of the Willing," french fries are now back on the menu in Washington. This begs the question, "Why do U.S. lawmakers now hate freedom?"

  • House Republicans renamed fries and "French" toast "freedom fries" and "freedom toast" in 2003 to protest at France's opposition to the war on Iraq.
  • The move followed the lead of a North Carolina restaurant whose owner said he got the idea from similar protest action against Germany during World War I, the BBC reported.
  • During WWI, sauerkraut was renamed "liberty cabbage" and frankfurters became "hot dogs."
  • Meanwhile, around the globe, other countries have renamed a few "freedom" foods of their own. Iran recently banished "pizza" from that country's language, opting for "elastic loaves."
  • And in parts of Europe the bland dairy product we know in America as "American Cheese" is called "Imperialist Processed Biscuit Spread."
  • Why do French-loving U.S. lawmakers now hate freedom? Je ne sais pas, citizen serf. Just know that here at Minyanville we are right now sitting down to a buffet of raw freedom fish on hand-molded packs of liberty rice, carefully dipping them in little bowls of patriot sauce using wooden liberty sticks. We got your back, fellow freedom lover.

Freedom Fish

No positions in stocks mentioned.

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