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Five Things You Need to Know: Pause That Refreshes, Consumer Credit, What We Want vs. What We Need, Del Boca Pension Shortfalls Vista, Uncle Carl Goes to the Museum


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 Pause that Refreshes?

Listen. What's that sound? It's the sound of our blender churning out an FOMC cocktail. The pause that refreshes?

  • The Labor Department this morning reported that labor costs as measured by unit of output rose at a 4.2% clip, far higher than expectations of 3.7%.
  • That's up from a 2.5% rate in the first quarter and is the fastest gain for unit labor costs since a 5.1% rate of increase in the fourth quarter of 2004.
  • But wait, there's more. Productivity, the amount of output per hour of work, slowed to 1.1% in the second quarter, down from 4.3% in the first quarter.
  • So let's throw everything together into the blender and make an economic cocktail:
    - Three parts housing slowdown (inventory at 9-year high, affordability at 15-year lows).
    - Two parts slowing productivity growth.
    - Two parts rising unit labor costs.
    - One part nearly 70% of (weak) employment adds this year accounted for by the magic birth/death model.
    - A dash of consumer credit.
    - Garnish with a desperate desire for credibility.
  • Mmmm, tastes bitter but with just a touch of sweetness. A slight hint of fruit but also strangely salty. Overall, very drinkable, yet somehow briefly repugnant. What to call it. Hmmm, what to call it. How about: Stagflation Smoothie!

Stagflation Smoothie:
Weird Color, drinkable yet repugnant.

2. Consumer Credit

Consumer Credit numbers late yesterday afternoon showed that borrowing by U.S. consumers accelerated in June.

  • The jump in consumer credit numbers revealed that once again it was revolving debt - credit cards - that led the way, up 9.8% in June versus a 3.2% rise in nonrevolving debt, such as car loans.
  • Revolving debt grew $6.6 billion to $820.7 billion.
  • Meanwhile, last month's release showed that in May households increased their revolving debt by $1.9 billion, or 11%, the largest increase since October 2004.
  • Here's the bullish slant: people believe they can sustain an increased level of debt service.
  • Here's the bearish slant: higher energy costs, among other things, are forcing people to turn to credit cards to maintain consumption levels and lifestyles.
  • Macro Mavens' Stephanie Pomboy notes that last week National City reported that delinquencies doubled. As well, Cash America, a payday loan/pawnbroker/cash advance franchise, said business is booming. "The dramatic decline in transaction deposit balances strikes me as a profound indication of cash-flow issues," she said.

3. What We Want vs. What We Need

Yesterday afternoon I took a look at four charts, two from folks selling things we need, and two from folks selling things we want. Looks like the folks selling things we need are winning. I think that says all we need to know about consumer appetites for credit.

  • People selling things we want:

    (TGT) Yikes, Dude

  • Tiffany & Co. (TIF) Sorry, Muffy, two words: Cubic Zirconia

  • People selling things we need:

  • Chevron (CVX) Lookin' good, Billy Ray!

  • Exxon Mobil (XOM) Feelin' good, Louis!

4. Del Boca Pension Shortfalls Vista (Was: Del Boca Vista, Phase Three)

According to the New York Times, Barclays Global Investments has calculated that if America's state pension plans were required to use the same accounting methods as corporations, the total value of pension benefits promised future retirees would grow 22%, to $2.5 trillion. We're rich! We're rich!

  • Barclays Global Investments estimates that if state pension plans were required to use the same accounting methods as corporations, the total value of pension benefits promised future retirees would jump 22% to 2.5 trillion. Sweet!
  • Whoa, not so fast there Grandpa Green Acres. Turns out only $1.7 trillion has been set aside to pay those benefits. Dang.
  • In January, the board that writes the accounting rules for governments announced that it was looking for ways to tighten the rules for public pensions.
  • Public plans are not governed by the federal pension law, the Employee Retirement Income Security Act, that companies must follow. They are not covered by the Pension Benefit Guaranty Corporation, so if they come up short, they must turn to the taxpayers.
  • Bottom line: Cancel Del Boca Vista Phase 3 Condo Purchase. Scrape together deposit for this little place down the road from the grandkids:

Del Boca Pension Shortfalls Vista retirement
community. Phase three. Enjoy.

5. Uncle Carl Goes to the Museum... in a Manner of Speaking

Millions of people are flocking to see "Body Worlds" and similar exhibitions displaying preserved, skinless human Chinese corpses with their well-defined muscles and sinewy tissues, creating a ghastly new underground mini-industry in China, the New York Times reported.

  • "With little government oversight, an abundance of cheap medical school labor and easy access to cadavers and organs - which appear to come mostly from China and Europe - at least 10 other Chinese body factories have opened in the last few years," the New York Times reported this morning.
  • These companies are regularly filling exhibition orders, shipping preserved cadavers to Japan, South Korea and the United States.
  • Good lord, has social mood become so dark that we require public displays of human corpses to drag us off the couch and out to a museum?
  • Let's think about Uncle Carl for a moment. Not sure what happened to him.
  • But would we be flocking to museums featuring Western cadavers?
  • A hundred Uncle Carls posed in various tableaux of daily living?
  • Or do we prefer the more "alien-looking" Asian cadavers because they remind us less of Uncle Carl?

I'll go out on a limb here with the obvious:
It's undignified. And wrong.

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