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Five Things You Need to Know: The Core PCE Price Index, So What?, Alcoa: We Meant to Do That, Detroit: Less Than Zero, My Goodness, My Guinness


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. Core PCE Price Index

The closely-watched core PCE price index (PCEPI), or as some refer to it, the PCE deflator, or as others refer to it, the PCE price deflator, or as still others prefer to call it, the Implicit Price Deflator of Personal Consumption Expenditures, excluding the volatile food and energy components, rose just 0.1% in July, the smallest gain since December.

  • Sweet, now what in the world did you just say?
  • The PCE, which is referred to by many different names to create mass confusion, anger and, ultimately, indifference, is, according to the Bureau of Economic Analysis, a measure of the prices paid by persons for domestic purchases of goods and services.
  • There are actually two measures. One is an overall market- based PCE measure, and the other is a market- based PCE measure that excludes "volatile" food and energy components.
  • The month-to-month increase in core PCE price index came in below expectations (economists expected 0.2%).
  • Nevertheless, the year-on-year core PCE price index grew by 2.4% in July, above the 2.3% growth in June.
  • The Fed closely watches this index, they say. Their comfort range, according to past comments by FOMC voting member Janet Yellen, among others, is a 1-2% range.

2. So What?

Consumer spending doubled the 0.4% increase that had been expected in July, rising by 0.8%, while the personal savings rate was a -0.9% in July, compared to a -0.7% in June.

  • The personal savings rate fell to -0.9% in July, the lowest since last August.
  • It also marks the 16th consecutive month of a negative U.S. personal savings rate.
  • That's the longest period of negative savings since the Great Depression.
  • Meanwhile, good luck finding a news release on the Internet or the newspapers that is able to successfully report the personal savings rate.
  • Here is an example of the Google News number one story on the personal savings data: "The personal savings rate fell to 0.9% in July, the lowest since August."
  • It's too bad that is wrong.
  • From the BEA news release: "Personal saving as a percentage of disposable personal income was a negative 0.9 percent in July."
  • Yeah, that's NEGATIVE 0.9%. Not 0.9%.
  • But so what. More than a few economists insist the personal savings rate understates real savings and wealth.
  • What does the BEA say? "Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods."
  • Clearly, the government needs to change the way this data is collected.
  • If for no other reason than to make us feel better about ourselves.

Personal Saving Rate Graph

3. Alcoa: We Meant to Do That

American aluminum giant Alcoa may face a rival for global dominance if a tentative merger of two Russian aluminum companies and a major Swiss commodity trader comes to fruition this fall, according to the New York Times.

  • Under the deal, Rusal, Russia's largest aluminum operator, would merge with its smaller domestic competitor, Sual, along with the Swiss commodity trader Glencore International, which was founded by Marc Rich.
  • A merger would give Russia a second corporation that is the world's largest in its industry.
  • Russian natural gas producer Gazprom is the world's largest in the natural gas industry.
  • The combined company would produce about 4 million tons of aluminum a year, more than the 3.55 million tons Alcoa reported in 2005, the Times said.
  • The century-old Alcoa has said its global growth strategy is not focused on maintaining a No. 1 position in the industry, but rather on meeting its internal goals to maintain profitability.
  • The fall to number two for Alcoa is a bit more than simply a symbolic tumble.
  • According to Bloomberg, Russia's stock market is approaching $1 trillion in value, largely because of their oil and natural gas industries, a first for an "emerging market."
  • That is still only a fraction of the value of the U.S. stock market, but in 10 years if, say, energy were to supplant financials as the largest weighting in just the S&P 500, one wonders how fractional that value would be then?

Chris asks Toddo a Question

Hey Toddo, thanks, uh, thanks a lot for being on my show, man. I really, really appreciate it.

It's my pleasure, Chris.


Of course, it's no problem at all.

Wow, thanks, man!

Ok, did you have a question?

Oh, a question, yeah. Uh, hey Toddo? Do you remember on that show yesterday? On, uh... C... Cspan?

You mean CNBC?

Right. CNBC. I'm sorry, man. God, I'm such an idiot!

No, no, it's ok Chris. Go ahead. What's your question?

So, do you remember on that show yesterday? On CNBC? And you said that thing about Nationalations?


I mean Nationalization. Right. I'm ruining this!!!

Seriously. Chris. You're doing great. Go ahead, ask the question.

Ok. I'm sorry. So, Toddo, on that show yesterday? CNBC? Do you remember when you said that that thing about, uh, Nationalization? And about how we need to watch for hoarding commodities?

Sure, Chris. I said we should keep an eye on the fight for natural resources. Watch for countries as they increasingly hoard commodities in the fight for natural resources.

Yeah! So, do, do you remember when you said that?

Uh... yes, I do remember that.

That was awesome!!!

4. Less Than Zero

Along with 0% financing offers auto makers are layering on other new perks, including low rates for up to six years, additional cash bonuses on top of low rates and extending the deals to people with subpar credit, according to the Wall Street Journal.

  • Car companies first turned to 0% financing after GM's "Keep America Rolling" campaign following the September 11 terrorist attacks.
  • Tomorrow Chrysler Group will begin offering 0% financing for up to 72 months through September 30, the WSJ said.
  • GM, which was already offering 0% financing for 36 months and $1,000 bonus cash on pickup-truck sales in Texas, California and Florida, on Tuesday began offering $500 to $1,500 cash back on many 2006 and 2007 models.
  • The Ford, Lincoln and Mercury brands are offering 0% financing for up to 72 months for 2006 models.
  • The program, which ends Sept. 5, is also extended to customers with "good but not great credit," Ford says, according to the WSJ.
  • Meanwhile, without the benefit of 0% financing, the Japanese auto industry's output last month rose 8.2% year-on-year, increasing for the ninth month in a row.
  • Sure, the Japanese can make a good car, but can they run a multi-tiered HMO/PPO managed care organization with a split-level, rolling tenured copay provision, and a separate and independent care-sourcing POS indemnity tracking network model for hundreds and hundreds of thousands of current and former employees?

    America: Still number one in crippling auto maker-related healthcare costs!

5. My Goodness, My Guinness

Diageo, the world's biggest alcoholic, says it has no plans to sell off its Guinness brand, despite a drop in sales in the Irish Republic, the BBC says.

  • Despite declining sales of "the black stuff" in Ireland, Diageo says it has no plans to dump the famous Guinness brand.
  • Guinness sales in Ireland are down 3% over the year.
  • Diageo boss Paul Walsh told the BBC that Guinness retained a high profile in the UK thanks to its advertising campaigns and sponsorship of rugby union.
  • Still, Guinness remains Ireland's best-selling beer.
  • Contrary to popular myth, Guinness alcohol content is 4% per 12-ounces with 125 calories, compared to, say, Australia's Foster's which is 5.1% alcohol per 12-ounces with 156 calories.
  • Which is why Guinness is served by the pint, not in 12-ounce servings.

* Correction: In our haste this morning, we referred to Diageo as "the world's biggest alcoholic." That is incorrect. The correct sentence should read: "Diageo, the worlds biggest alcoholic drinks group." We regret the error.

No positions in stocks mentioned.

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