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Five Things You Need to Know: Inflation Indecreasing, Lacker's Dissent, I'm CEO, Coup D'hoorah!, Gangsta M.B.A.


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. Inflation Indecreasing, Says Fed

Inflation pressures may increase going forward and decrease going forward, the FOMC said yesterday in the statement accompanying their decision to leave interest rates unchanged. Here's what you need to know going forward about the Fed stance on inflation.

  • The Fed statement said, "The prices of energy and other commodities have the potential to sustain inflation pressures," and that "inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices."
  • So clearly the Fed remains extremely worried about energy prices both contributing to and not contributing to inflation.
  • The Fed also notes that it is "data dependent" since "The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."
  • Let's look at energy and commodities data.
  • Between the June 28-29 Fed meeting and the August 8 meeting, crude prices rose 5%. Natural gas was up a whopping 22%. The CRB Index was up about 4%.
  • Between the August 8 meeting and yesterday's meeting, crude prices fell 19%. Natural gas prices fell 30%. The CRB Index declined by 14%.
  • Meanwhile, there was a significant but subtle change in the wording of yesterday's release.
  • In the August 8 statement the Fed was satisfied that "economic growth had moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices."
  • Yesterday, however, the Fed noted that "the moderation in economic growth was continuing, partly reflecting a cooling of the housing market."
  • Where did "gradual" go?
  • According to the NAHB Housing Market Index it went from 57 to 30 in January, nearly a 50% decline in how NAHB members rate the general conditions of the housing market.
  • On a sidenote, the traffic of prospective buyers component has been cut in half year-over-year, and after ranging at about break-even (50) for most of last year fell below 40 in April and below 30 in June. For the past two months it's come in at 22.

2. Lacker's Dissent

The Richmond Fed's Lacker dissented for the second consecutive time in yesterday's FOMC meeting, which might seem on the surface a bit unusual. The question is, why?

  • Here is the text from the August 8 meeting where Lacker's dissent at that time was explained:

    "Mr. Lacker dissented because he believed that further tightening was needed to bring inflation down more rapidly than would be the case if the policy rate were kept unchanged. The inflation outlook had deteriorated in the intermeeting period; the recent surge in core inflation had persisted and appeared to be broad-based, while the revision of the national income and product accounts indicated a recent upswing in compensation and unit labor costs. Although real growth was likely to be somewhat lower in coming quarters, in his view it was unlikely to moderate by enough to bring core inflation down. He noted, moreover, that real short-term interest rates had fallen in the intermeeting period and were still low relative to rates typically associated with sustained expansions."

  • Based on his reasons for the dissent in August, Mr. Lacker appears to have had little choice in dissenting this time given that core inflation came in for August at 0.2% resulting in a year-on-year rise from 2.7% in July to 2.8% in August.
  • It would also seem that he is:
    1) not a believer in the "as real estate goes; so goes economic growth" story, and
    2) not a believer that the collapse in energy prices and the CRB Index are secular trends, and therefore may be likely to reduce inflationary pressures going forward, as today's statement indicated.
  • How unusual is it for a FOMC member to dissent twice in a row?
  • The last time a FOMC voter dissented in two consecutive meetings was when Dallas Fed President Robert McTeer voted against raising rates in the June and August 1999 meetings.

3. Facebook Founder: I'm CEO... Bitch

Facebook Inc., the start-up behind the social-networking site is reportedly in talks to sell itself to Yahoo for an amount that could approach $1 billion, the Wall Street Journal reported.

  • In addition to Yahoo, Facebook has previously been in talks with Microsoft and Viacom during the past year.
  • The battle for Facebook, which was founded by 22-year-old chief-executive Mark Zuckerberg, continues to heat up among big technology companies looking to extend their influence on the Internet, the WSJ reports.
  • It's a perfect fit. After all, Facebook, and its rival MySpace, are Online hangouts for the much coveted "Young People" demographic.
  • The "Young People" demographic is highly coveted by big companies who are apparently attracted by a large group of people who have no interest in spending money at sites such as Facebook and MySpace, and who instead prefer to use the technology provided by these companies to create personal Webpages, post their most intimate thoughts, feelings and photographs, and chat with one another.
  • But that has not stopped advertisers from driving a significant stream of revenue to the site.
  • Based on online ad sales, Facebook will likely soon top $100 million in annual revenue, say people familiar with the matter, the Journal said.
  • Facebook reportedly has 9 million users, according to the research firm NetRatings Inc.
  • According to the Journal, chief-executive Zuckerberg once distributed business cards that read, "I'm CEO... bitch."

4. Thailand's Coup D'hoorah!

After an initial few hours of uncertainty, fund managers now believe the "bloodless" coup in Thailand may prove a "boon" to the market over the long term, the Wall Street Journal reports.

  • "A new government could be the incentive that has long been lacking in this market," Shane Oliver, Sydney-based head of investment strategy and chief economist at AMP Capital Investors, told the Journal.
  • Hong Kong research-and-securities firm CLSA Ltd. raised its recommended Thai holdings in an Asia portfolio, excluding Japan, to 4% from 3%
  • The governor of Thailand's central bank, Pridiyathorn Devakula, said the change in government should help the country's economy move forward, the WSJ reported.
  • Here's what I'm thinking: A dedicated coup fund focused on investing in countries with newly deposed governments.
  • Let's look at other leaders who came to power via coups:
    Muammar al-Qaddafi, leader of Libya
    Teodoro Obiang Nguema Mbasogo, President of Equatorial Guinea
    Lansana Conté, President of Guinea
    Blaise Compaoré, President of Burkina Faso
    Zine El Abidine Ben Ali, President of Tunisia
    Omar Hassan Ahmad al-Bashir, President of Sudan
    Yahya Jammeh, President of The Gambia
    Pervez Musharraf, Chief of Army Staff and President of Pakistan
    François Bozizé, President of the Central African Republic
    Ely Ould Mohamed Vall, Chairman of the Military Council for Justice and Democracy in Mauritania
  • That list reads like the Dow Jones of dictators.
  • As an investor in the Coup Fund you can look forward to quarterly letters such as this:

Dear Investor-

The third quarter posed significant challenges for the Coup Fund. First our chief quantitative strategist was kidnapped in early May in Tunisia by leftist insurgents. We suffered a 3% loss in June due to forex losses involved in the ransom. (The kidnappers refused to accept payment in US dollars.) Next, we seized (Ha ha! Inside Coup Fund joke!) what we thought was a low-risk opportunity in The Gambia for tapioca futures but suffered a loss because our head trader misinterpreted the Wolof word for "sell" as "double down."

Nevertheless, we remain convinced that our strategy will see us through difficult times. We have recently added the following new and improved risk control measures:

- 14 armored Hummers
- Infrared goggles and personal safety flares for fund employees
- One (1) Wolof language dictionary

Make no mistake, investor. At the Coup Fund we recognize that tough times call for a disciplined strategy of militaristic control and defense. We are well aware of the investors in our fund out there plotting, plotting, plotting against us. Always with the plotting. We have improved our defenses, however, and any attempt to marshal forces against us will be met with swift and uncompromising action. We have instructed our security detail to imprison the authors of any redemption letters.

Our leadership may seem harsh, but it is carried out with your best interests as an investor in mind.


His High General Marcus Aurelius Weatherford
Chief Investment Officer
The Coup Fund

5. Gangsta, M.B.A.

MBA students are the biggest cheats of all graduate students, with 56 percent admitting to misdemeanors such as using crib notes in exams, plagiarism and downloading essays from the web, the Financial Times reported.

  • A survey of 5,300 graduate students from 54 colleges and universities in the US and Canada to be published in the Academy of Management Learning and Education journal says 56% admit to using crib notes in exams, plagiarism and downloading essays from the web.
  • It's not so much the cheating that's a problem, according to the author of the report, Donald McCabe, professor of management and international business at Rutgers University. "What surprises me is how willing these students are to admit to it."
  • The most significant reason for cheating, he believes, is that students see their peers being dishonest.
  • McCabe believes the strongest deterrent is for business schools to have a stronger honor code in place.
  • Below is an example of the current honor code in place at a top Northeastern business school noted for its M.B.A. program:

    M.B.A. Honor Code
    They say I walk around like got an "S" on my chest
    Naw, that's a semi-auto, and a vest on my chest
    I try not to say nothing, the DA might want to play in court
    But I'll hunt a rival CEO down like it's sport
    Front on me, I'll cut ya, gun-butt ya or bump ya
    You getting money? I can't get none with ya then see ya
    I'm not the type to get knocked for D.W.I.
    I'm the type that'll kill your connect when the crude price rise
    Gangstas, they bump my wingtips them they know me
    I grew up around some CPA's that's not my homies
    Hundred G's I stash it, the mack I blast it
    D's come we dump the diesel and battery acid
    This flow's been mastered, the ice I flash it
    Audit me, I'll have your mama picking out your casket
    I'm on the next level, Breitling baguette bezel
    Benz pedal to the metal, hotter than a tea kettle, blood
No positions in stocks mentioned.

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