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Five Things You Need to Know: Consumer Spending; ISM; Foreclosures Add to Housing Price Pain; Bear Stearns' Cayne Embroiled In Sticky Icky Icky Situation; Bear Stearns: Up In Smoke


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


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

1. Consumer Spending

While everyone was waiting around this morning for the PCE Index, a key inflation measure, the real news came in the form of consumer spending data.

  • The "key data" we were supposed to be worried about was the price index for personal consumption expenditures, or PCE Index.
  • The Fed reportedly "closely watches" the "core PCE," which excludes food and energy, and year-over-year the core PCE was in-line with expectations at 1.8%.
  • Fed officials have stated their "comfort level" with core PCE is 1-2%.
  • So why the fireworks? Consumer spending.
  • September consumer spending increased just 0.3%, following a downwardly revised 0.5% in August, the Commerce Department reported.
  • Adjusted for inflation September consumer spending was an anemic 0.1%.
  • It's not this data point alone that has the market off balance.
  • Its the combination of anemic consumer spending, outsized headline PCE Index inflation (up 2.4% in September), declining home values and problematic consumer confidence.

2. ISM

Remember a couple of days ago when we were told yet again that housing problems just haven't spilled over to the broader economy? Well, we're going to ignore that and take the risky position that manufacturers of construction equipment, furniture and appliances are indeed part of the "broader economy."

  • The Institute for Supply Management's factory index fell to 50.9, the lowest in seven months, from 52 in September.
  • The drop was worse than expected.
  • Economists had forecast a decline to 51.5, according to Bloomberg.
  • Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, noted that "It does appear that the impact of the slow down in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength in new export orders."
  • One area we look at in the ISM each month is the Commodities Reported in Short Supply.
  • Frequently, during past inflationary episodes, commodities show up in short supply here.
  • But that has simply not been the case over the past few years.
  • Today, only Methanol and Sulfuric Acid are reported in short supply.

3. Foreclosures Add to Housing Price Pain

U.S. home foreclosures doubled in the third quarter from a year earlier, according to the latest data available from RealtyTrac.

  • There were 635,159 foreclosure filings in the quarter, or one for every 196 households, including default notices, auction notices and bank repossessions, the firm said.
  • Meanwhile, the rising foreclosures is further pressuring home prices, and despite the old cliche "All Real Estate is Local," data shows declining home prices is a national phenomenon.
  • According to S&P/Case-Shiller home price data, not one of the 10 major cities tracked has shown price appreciation for four consecutive months.

4:20 Bear Stearns' Cayne Embroiled In Sticky Icky Icky Situation

The Wall Street Journal this morning takes Bear Stearns CEO James Cayne to task for, among other things:

  • Playing golf and bridge during the summer even as two Bear Stearns hedge funds were losing money.
  • Cayne reportedly spent 10 of 21 workdays out of the office in July.
  • Disappearing during August conference calls with investors.

Eh, so what. Almost all CEOs play golf and bridge. BUT, after successfully employing a trump coup in contract bridge do they kick back and twist up a big fatty? :

  • "After a day of bridge at a Doubletree hotel in Memphis, in 2004, Mr. Cayne invited a fellow player and a woman to smoke pot with him, according to someone who was there, and led the two to a lobby men's room where he intended to light up. The other player declined, says the person who was there, but the woman followed Mr. Cayne inside and shared a joint, to the amusement of a passerby," the Journal reported.
  • "Asked more generally whether he smoked pot during bridge tournaments or on other occasions, Mr. Cayne said he would respond only "to a specific allegation," not to general questions.
  • So that's what they mean by Cayne's "blunt style."

Cheech and Cayne

5. Up In Smoke

Well, we have to hand it to Kate Kelly over at the Wall Street Journal. In this morning's story about Bear Stearns CEO James Cayne, she managed to crank out 16 straight paragraphs before outing the dude as a bridge-playing, pot-smoking freak! Sixteen paragraphs! The sheer discipline it must have taken to do that is beyond our comprehension.

On the other hand, it is the Wall Street Journal and they are, after all, professionals. But so are we. Minyanville has compiled the following list of handy Bear Stearns pot-laced quips for your usage. Use them on your friends at Bear. Or just cut and past them into IM if it's easier.

  • Bear Stearns Announces Stock Spliff!
  • Cayne to Leave Bear Stearns After End of Quarter... Bag
  • Bear Stearns' Cayne Says Credit Markets Returning to NORML
  • Dude, Where's My CEO?
  • Thai Skunk Downgraded at Bear Stearns; Master Kush KC33 Raised to Strong Buy
  • Bear Stearns Quarterly Yield Now 28 Bong Hits
  • Analysts Dazed and Confused by Bear Stearns Quarter
  • Bear Stearns' Cayne Pitches One Hitter, Says Will Now "Only Smoke On Weekends"
  • Report: Bear's Cayne Feels Like Everybody in Board Room Looking at Him
  • Bear Stearns Announces Half Baked Plan to Exit Subprime Mortgage Business

Or, if you prefer Bloomberg headline format:

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