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Five Things You Need to Know: (Mis)Behavior of Markets, OPEC, Mi Casa/Su Casa, Home Depot Turns Office Depot, Asian Tiger Sleeping

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We remember.

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

1. (Mis)Behavior of Markets

Gold futures for December are off 2.24% this morning and at one point were below $600. Silver for December is off 3.29% this morning. Why?

  • News reports are blaming the following for lower gold prices; take your pick:
    1) Iran/EU talks and general improvement of geopolitical tensions.
    2) Drop in crude oil prices below $70 bbl.
    3) Firmer U.S. dollar.
  • But wait, the dollar is off 14 basis points this morning.
  • Crude is down nearly 15% from July 14.
  • The U.S. Dollar Index is lower by .17 since July 14.
  • Silver is actually up 5% since July 14, as is the S&P 500.
  • On Friday afternoon it was reported that "Wall Street rebounds as oil prices fall." However, this morning, with Crude off another 1.4%, SP futures are lower by 5.
  • The point is that markets are non-linear and their movement is rarely tied to specific news events.
  • "Correlation does not mean causation. Just because a particular piece of news is commensurate with a price move in a security (even statistically significant ones) does not mean that that is the reason for the change," Scott Reamer wrote back in March.
  • That lack of correlation is not so important to most traders as long as the visual and logical appeal of the stock/crude relationship remains intact... until it doesn't. Like this morning.
  • Scott wrote, "It's dangerous to trade purely on news. It's dangerous too to assume all the other traders out there are governed by rational calculations. They aren't." Pretty good advice based on what we're seeing so far this morning.


2. OPEC

As noted above, crude oil prices are lower by nearly 15% since the middle of July. How far lower oil prices drop is a question OPEC ministers discussed at their meeting in Vienna today.

  • OPEC ministers agreed to maintain current oil production levels at their Vienna meeting, the Financial Times reported.
  • Oil prices have tripled in the past five years, but have declined quickly in the past six weeks.
  • The six-day losing streak for crude oil is the longest losing streak in three years.
  • Still, Ali Naimi, Saudi Arabia's energy minister, shrugged off the fall in prices, calling it "a blip", the FT reported.
  • Rafael Ramirez, Venezuela's energy minister, said cuts in production would be needed at the end of the year or in early 2007 if the downward trend in oil prices continued.
  • Members of OPEC (the Organization of Petroleum Exporting Countries) account for 40 percent of the world's oil exports.
  • Opec's next scheduled meeting is in Nigeria in December.


3. Mi Casa, Su Casa?

Economists say Spain's real-estate boom is coming undone, and they worry the market is headed for a hard landing that could have repercussions for the rest of the economy, this morning's Wall Street Journal reported.

  • See if this sounds familiar:
    - Incomes are no longer rising, but home prices continue to soar.
    - Interest rates have started to head higher.
    - Housing starts continue to climb, jumping 15% in the first half of the year.
    - Meanwhile, inventory levels of new and existing homes on the market are climbing as well.
  • Welcome to Spain; been there, doing that.
  • Housing prices have more than doubled since 1997, the WSJ reports.
  • Nearly four million new homes have been built since then.
  • The boom has had a trickle-down effect that spread to just about every corner of the economy, which has been expanding on average 3.2% a year since 1995.
  • Here's the problem, however: "Since 2000, the year the boom kicked into high gear, 20% of the four million new jobs created in Spain have been in construction," the WSJ notes.
  • Adding fuel to the flames, consumer spending makes up 60% of the Spanish economy.
  • And Spanish homeowners doubled their debt levels -- to 120% of income -- during the boom, the WSJ says.
  • Still not enough to worry about? Consider that 98% of Spain's mortgages were variable-rate during that period.


4. Home Depot Becomes Office Depot

Sweet. Wait, did you say Office Depot? Don't we already have one of those?

  • Buried near the bottom of a New York Times story over the weekend on yet another homebuilder warning of sagging profits was a note on a strategy shift for Home Depot.
  • The home-improvement retailer plans to focus on increasing sales to builders of offices and apartments, chief executive Robert Nardelli said.
  • Home Depot's professional builder unit grew from almost nothing to around 12 billion in sales this year, the Times reported.
  • That makes up about 13 percent of total revenue, and Home Depot says it expects it to account for 20 percent of sales by 2010.
  • "The division provides revenue that is less tied to the residential housing market, so it is more stable than the company's main market of homeowners and contractors," the Times said.


5. Japan Lagging

Right when everyone re-discovers the Asian tiger of Japan, economic growth in the second quarter comes in at a 1% annual pace.

  • Japan's economy expanded at a 1 percent annual pace in the three months ended June 30, the Cabinet Office said in a report released in Tokyo today, according to Bloomberg.
  • The median forecast of 20 economists surveyed by Bloomberg News was for 1.2 percent growth.
  • The yen dropped against the euro by the most since May.
  • Speculation is growing that the Bank of Japan may lag the European Central Bank in raising interest rates this year, pressuring the currency after hitting a one-month high against the euro.
  • Meanwhile, a government report showed machinery orders fell the most in almost 20 years in July.
  • Orders for core private sector machinery dropped a seasonally adjusted 16.7%.
  • Expectations were for a decline of 5.5%.
  • The Nikkei 225 was down 1.78% overnight.
No positions in stocks mentioned.

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