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Five Things You Need to Know: Fell on Beige Days, Tomkins Square Part Riots, Millionaires Feeling the Pinch, Dollar Not Collapsing as Planned, Burger King to Add 15 Law-Related Jobs

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What you need to know (and what it means)!

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

1. I Fell on Beige Days

Just when every report seemed to greet us with a smile, sunspots have faded and now we've seemingly fallen on black days, according to the Federal Reserve's Beige Book report on economic activity. What a difference a month makes. Below are the highlights.

  • "Consumer spending increased slowly in most Districts, weighed down by sluggish sales of vehicles and housing-related goods," the report says. (More on sales of housing-related goods below in Number Two.)
  • "Persistently high energy prices are perceived to have crimped consumer demand in general."
  • A tale of two real estate markets: "Housing markets and home construction activity weakened throughout the nation, but commercial real estate and construction strengthened in most Districts."
  • "Relatively flat or declining home prices were noted in the New York, Richmond, and Kansas City Districts, and decelerating prices were reported in the Philadelphia and San Francisco Districts. The high end of the market was described as particularly weak."
  • But we already knew that stuff. After all, we're the ones out there doing the shopping, spending, and (un)saving.
  • Instead, there are two aspects we want to focus on going forward: Pricing Power and Credit Standards.
    - Pricing Power: "Manufacturers found little ability to pass through higher costs into the prices of manufactured goods." The report noted that the exception was energy-intensive goods and services in the San Francisco district. But the bottom line is a continued inability to pass through higher costs from manufacturers.
    - Credit Standards: "Credit standards were reported to be steady to slightly tighter," the report noted. "Overall credit quality was generally described as good, and delinquency rates were little changed in most Districts, though a few noted scattered increases."
  • It's early. But this is how a credit bubble unwinds: Pricing power evaporate, credit standards begin to tighten, delinquencies rise and Bob's your uncle, what appeared to be inflationary (rising energy and raw materials costs) becomes deflationary as the ability to consume comes under pressure forcing an adjustment in the prioritization of expenditures.


2. Tomkins Square Part Riot?

Speaking of a lack of pricing power, shares of Tomkins Plc, the world's biggest maker of car wiper blades and timing belts, fell the most in 14 years after the company said profit will miss targets on slumping U.S. demand for its auto parts and home fittings, according to Bloomberg.

  • London-based Tomkins Plc fell as much as 16% after the company said 3Q profits will fall short of analyst estimates.
  • What does a UK company have to do with the U.S. consumer?
  • Tomkins gets two-thirds of its sales from the U.S. where it makes air- conditioning systems and bathroom fixtures for houses.
  • The company also supplies parts to Ford Motor Co. and General Motors.
  • According to Bloomberg, Tomkins makes one in four U.S. bathtubs.
  • Well, they're car-related, so the slowdown in sales is natural given the weak condition of American auto makers, right?
  • No, the slowdown is as much building related as auto related. "North America has slowed down markedly at a time when building activity would normally accelerate,'' Tomkins said.


3. Millionaires Feeling the Pinch Too!

Clearly, those clinging to the lowest rungs of the consumption ladder are feeling the pinch. We can see that in everything from the stagnant household wage growth over the past five years to the lack of job growth seen in everything but the birth/death adjustment figures. But what about millionaires? They still have the green light to go shopping, right? Maybe not.

  • The Spectrem Millionaire Investor Index measures the investment outlook of households with $1,000,000 or more in investable assets.
  • The index peaked at 23 in February of this year.
  • It's reading in August? 1. That's right... one.
  • Meanwhile those just outside the millionaire range are reportedly faring even worse.
  • The Spectrem Affluent Investor Index, which measures the investment outlook of households with $500,000 or more in investable assets, also fell to its second-lowest level at -5.
  • "Millionaire and Affluent investors alike cited oil and gas prices, the Iraq War and housing and real estate as their greatest concerns," Investment News reported.
  • The rich, they are just like us.


4. Dollar Not Collapsing as Planned

It seems the U.S. dollar is not collapsing as planned. Instead, it's making higher bottoms and this morning is up .52 to $85.62. Meanwhile, China last night issued an unusual "high-level" warning about forex reserves, according to the China Post.

  • China's forex reserves, already the biggest in the world, hit 954.5 billion dollars at the end of July, up by nearly a third from one year earlier, according to the China Post.
  • To keep a stable exchange rate, Beijing has to constantly buy up the dollars coming into the system with yuan which in turn boosts liquidity in the local financial markets.
  • And while Beijing doesn't really want increased liquidity in the system, they seem unsure about what exactly to do about it.
  • China still needs investment growth of around 20 pct a year because of the infrastructure requirements at the country's current stage of development, a government advisor said in comments published today, according to XFN-Asia.
  • The central bank has raised lending rates twice this year, along with commercial bank deposit reserve requirements, to control monetary and credit growth.
  • Meanwhile, Fan Gang, the newly appointed non-government member of the monetary policy committee under the People's Bank of China, noted in the same article that that the low income status of around 80 pct of the labor force means that any policies designed to boost consumption are unlikely to work in the short term.

US Dollar Index



5. From Burger King to Burger Surf?

Apple is well-known for suing virtually anyone who uses the word "pod" to describe a product. So it remains something of a mystery why the fast food franchise Burger King has chosen to debut "The New Frypod." Dude, you are so going to be sued.

  • Recently Burger King has rolled out the "Frypod," a french fry container shaped to fit in your car's cupholder.
  • Sweet! the morning drive time just became the morning fry time.
  • The only question is, why?
  • Not only does Apple aggressively pursue anyone it believes dilutes the iPod brand, but Steve Jobs is reportedly a vegan.
  • Burger King, consider yourself sued.

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No positions in stocks mentioned.

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