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Five Things You Need to Know: Up Through the Ground Came a Bubble in Crude


Oil that is, black gold, Texas Tea.


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

1. Consumer Price Index

The consumer price index (CPI) rose 0.6%, according to the Labor Department, the most since November. The core CPI, which excludes food and energy, increased 0.2%. As expected energy was the main driver, jumping 4.4% last month. Gasoline prices rose 5.7% and fuel oil spiked 10%.

The headline number came in a little higher than expected, but core CPI was basically in line and Fed funds futures are still only slowly beginning to price in the possibility of September rate increase, that despite a parade of Fed heads ratcheting up the hawkish tone lately.

And while consumer sentiment tracked by the University of Michigan preliminary report that was released today shows consumer confidence at its lowest level since 1980, inflation expectations remain largely in check and actually ticked down slightly last month.

The bottom line is the reality of inflation doesn't match the Fed's rhetoric. Sure, food and energy are tremendous strains on household budgets, especially impacting those who are weakest financially and are least able to absorb those cost increases.

The obsession with inflation will continue into the second half of the year when the CPI picks up steam due to a combination of seasonality and higher energy prices, but by the fourth quarter we'll begin to see Act II of debt deflation, this time working its way from Main Street to Wall Street rather than the other way around.

2. Inflation vs. Deflation

A Minyan noted that Merrill's (MER) David Rosenberg had an interesting comment this morning on inflation vs. deflation.

While the media is busy reporting on airfares increasing due to capacity cuts and new fees to combat higher fuel costs, wireless plans are getting cheaper. According to USA Today, Sprint Nextel (S) and Verizon (VZ) are both rolling out cheaper wireless plans.

But guess what, as Rosenberg points out, wireless communications makes up a larger share of the CPI than airfares, 1% versus 0.7%.

3. Up Through the Ground Came a Bubble in Crude

Oil that is, black gold, texas tea. Well, the first thing you know ol' Jed's a millionaire!

Speaking of bubbling crude, saw an interesting brief on Bloomberg this morning noting that oil is now up nearly 700% from the Nov. 2001 low of $17.75. That's more than the Nasdaq dotcom bubble increase of 640%. This bubble too shall pass. And then it will be time to say goodbye to Jed and all his kin.

4. Department of As-Expected: Foreclosures Rise

Foreclosure filings rose 48% from a year ago and bank repossessions more than double in May, according to the latest report from RealtyTrac. One in every 483 U.S. households received a foreclosure filing during the month, the highest monthly foreclosure rate since RealtyTrac began issuing its report in January 2005.

Bank repossessions (REOs) accounted for 28 percent of the total activity and the biggest increase among the three types of foreclosure filings tracked in the report. REOs were up 35 percent from the previous month and 158 percent from May 2007, RealtyTrac said.

The Countrywide (CFC) Foreclosures blog (see their REO charts here) does a great job of tracking REO's. Why are REO's worth tracking? Because these properties - bank owned properties - are the least price sensitive. An increase in REO's translates into further downward pressure on prices.

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iPhone Bait?

The NY Post today reports on a Brooklyn gang using Craigslist to lure victims by offering discounted Apple (AAPL) iPhones. According to the article, the gang posted ads on Craigslist promising discounted bulk sales of Apple's phone, in one case offering 10 for $2,000. When the buyers showed up at desolate locations in - seriously - Flatbush and Flatlands, the gang robbed them at gunpoint.

If it sounds too goo to be true...

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No positions in stocks mentioned.

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