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Five Things You Need to Know: Data Dependent?, Mythbuster Buster, Non-Confirmation, Careful What You Say..., Show Intel


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. Data Dependent?

A couple of interesting data points out this morning. Of primary interest is the sluggish consumer spending number.

  • Consumer spending rose 0.1 percent last month, less than forecast and the smallest gain since November 2005.
  • Economists expected a rise in consumer spending of 0.2%, following July's heady 0.8% rise.
  • Meanwhile, the Fed preferred inflation measure, the core PCE year-over-year reading, came in at 2.5%, the biggest year-over-year gain since April 1995.
  • Fed officials, including Fed Chairman Ben Bernanke, have said they are comfortable with a year-over-year PCE reading in the 1-2% range.
  • The PCE year-over-year rate has been at 2% or higher every month this year.
  • It's been above 2% (the supposed top-of-the-range for Fed comfort) every month since March.

2. Mythbuster Buster

Yesterday Tony Dwyer penned a piece on Minyanville taking a "mythbusting" look at the correlation on a 12-month lag between the NAHB Housing Index and the S&P 500.

  • I first came across the NAHB Index/SPX 12-month lag chart in commentary from Merrill's David Rosenberg on August 21.
  • Tony Dwyer's piece yesterday morning noted that while since 1997 the NAHB Index and SPX are correlated (on a 12-month lag) by 0.79 (1.00 is perfect correlation), that data going back to 1985 shows that between 1985 and 1997 there was statistically zero correlation between the 12-month lead in the NAHB Index and the SPX.
  • "In addition, there were periods of nearly perfect inverse correlation," he writes.
  • Rather than busting the "myth" that housing leads the SPX by 12-months, however, the prior period of zero correlation is in reality Mr. Rosenberg's primary point: that since 1997 what was formerly a statistically weak (occasionally even inverse) correlation has grown increasingly correlated owing to the growing influence that the real estate market has exerted on the overall economy since 1997, and especially over the past five years.
  • Also, according to Merrill:
    - Real estate has accounted for 70% of the rise in household net worth since 2001.
    - Over 40% of private sector jobs created since 2001 have been housing-related.
    - Consumer spending and residential construction together has been responsible for 90% of the growth in GDP since 2001.
  • That housing has been increasingly not just a key driver of the economy but THE key driver of the economy over the past decade and increasingly over the past five years is without question.
  • What remains to be seen is what segments of the economy, if any, can pick up the slack.
  • For now the stock market seems unconvinced that housing as an economic driver will have the impact that bonds think it will. I'll side with bonds in that debate.

3. Non-Confirmation (who is leading whom?)

While everyone is focused on the Dow Jones Industrial Average's potential record high, let's look instead at the S&P 500's recent breakout above the May 5 high. After all, the Dow is a mere 30 stocks. The S&P 500 is more than 30 stocks. A lot more.

  • What we find interesting is the SPX's breakout in absence of both the NDX and RUT.
  • Also note the lag of foreign stocks here as well.
  • Year-to-date performance:
    DAX 10.74%
    RUT 8.81%
    S&P 500 7.28%
    NDX 1.00%
    Nikkei -0.54%

4. Careful What You Say...

Yesterday the Senate approved broad new measures on the interrogations and trials of terrorism suspects.

  • Few will bother to read the bill in its entirety, but here it is anyway.
  • The bill establishes procedures for military commissions and gives the President and the Secretary of Defense sole authority to define who is an "Unlawful Enemy Combatant."
  • "(4) UNLAWFUL ENEMY COMBATANT- The term `unlawful enemy combatant' means an individual engaged in hostilities against the United States who is not a lawful enemy combatant.
  • What is a Lawful Enemy Combatant?
  • `(3) LAWFUL ENEMY COMBATANT- The term `lawful enemy combatant' means an individual who is-
    `(A) a member of the regular forces of a State party engaged in hostilities against the United States;
    `(B) a member of a militia, volunteer corps, or organized resistance movement belonging to a State party engaged in such hostilities, which are under responsible command, wear a fixed distinctive sign recognizable at a distance, carry their arms openly, and abide by the law of war; or
    `(C) a member of a regular armed force who professes allegiance to a government engaged in such hostilities, but not recognized by the United States.
  • The question, then, is what are hostilities?
  • In a global war on terror, a war without end, might hostilities be pretty much anything the President and Secretary of State deem them to be?
  • For example, could anything said or written which might cause someone to doubt the stability of the U.S. currency be theoretically construed as a form of hostilities?
  • Could anyone who questions the structure and soundness of the Federal Reserve and the U.S. banking system be said to be engaged in hostilities?
  • What if someone suggests replacing dollars with gold, which is not recognized as legal tender in the U.S.?
  • Am I engaged in hostilities by even pointing this out?

5. Show Intel

Earlier this week Intel CEO Paul Otellini announced a new contest, offering $1 meeeeelion dollars for someone to design a stylish desktop computer.

  • Intel is looking for a designer who can incorporate its new Core2 Duo processors into a " Viiv technology-based... small, stylish" PC.
  • The "grand prize winner" gets $300,000 to use toward manufacturing costs, and $400,000 to use in co-marketing the computer with Intel.
  • So, you say, I got some computer ideas. Where do I start?
  • Sorry, the contest is only open to companies, which means there is already a winner.

The winning Apple entry in the Intel computer-design contest.

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No positions in stocks mentioned.

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