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Five Things You Need to Know: Data Co-Dependency; Put It in a Letter; We Regret to Interrupt This Celebration; Saving Versus Spending; Double Or Nothing? Make That Double and Nothing


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. Data Co-Dependency

You know, we're going to drop everything right here and now and get right into facilitation mode, enabling the Fed in their wrenching data-dependency.

  • First, consumer prices: The Consumer Price Index rose 0.6% in March, according to the Labor Department.
  • The headline number matched most consensus expectations for a 0.6% increase.
  • Excluding Food and Energy, Core CPI rose 0.1%, less than the 0.2% expected.
  • Some key data elements worth pulling out:
    - Owners' Equivalent Rent rose 0.3% while rent came in up 0.3% from last month's 0.4% reading
    - Clothing prices fell 1%, the sharpest decline since September 1999
    - Medical care prices increased 0.1%, the slowest gain since August 2005
    - Food prices increased 0.3%
    - Energy prices rose 5.9%, led by gasoline's 10.6% increase
  • The Core CPI is up 2.5% over the past 12 months.
  • Separately, the Labor Department said the average weekly earnings for U.S. workers fell 0.1% in March.
  • Meanwhile, in other economic data, Housing Starts showed a slight upside surprise coming in up 0.8% compared to forecasts for a decline of 1.6%.
  • The headline sounds good, but the bottom line is housing starts are down 23% year-over-year and U.S. building permits are down 26% year-over-year.
  • In fact, let's take a look at the chart of Single Family Housing Permits monthly going back to 1959 for some perspective.
  • The chart below is courtesy of Ron Griess', an excellent source for economic data of all kinds.

    Single Family Housing Permits, Monthly from 1959

2. Put It in a Letter

Thanks to an unexpected surge in inflation Bank of England Governor Mervyn King (their equivalent to our Federal Reserve Chairman) will be forced to write a public letter of explanation.

  • Consumer prices in England are now rising at a 3.1% year-over-year clip, the highest since 1997.
  • This takes the inflation reading more than 1% above the Bank of England's stated target of 2% - remember the BOE is an inflation targeter.
  • This surge in inflation will now force Bank of England Governor Mervyn King to write a public letter to Chancellor of the Exchequer Gordon Brown to explain the rise and outline plans to stop it.
  • This letter business sounds crazy to us here in the U.S. where the Federal Reserve responds to outsized inflationary (or deflationary) pressures with a parade of speakers spouting gibberish and nonsense about this and that and inflation expectations accompanied by an endless string of ifs, ands, or buts and woulda-coulda-shouldas about one thing or another.
  • So, why the letter? What will it say? When will we see it?
  • From "Remit for the Monetary Policy Committee of the Bank of England and the New Inflation Target" set forth in December 2003 by Gordon Brown to BOE Governor Mervyn King:

  • The BOE left its benchmark rate unchanged for a third consecutive month in April.
  • It begins its next two-day meeting on May 9.
  • Meanwhile, expect more fireworks surrounding the minutes of the April decision, which will be released tomorrow at 9:30 a.m.

3. We Regret to Interrupt This Celebration

But now for something slightly disturbing.

  • The S&P 500 is now at its highest since 2000. Ow! Someone just fired a champagne cork at us.
  • Anyway, below we take a look at the S&P 500 with the S&P 500 Bullish Percent chart overlaid behind it.
  • The decline in February occurred shortly after the bullish percent index reached 80%, a very high-risk level.
  • What is important here, however, is that the S&P 500 is now breaking above the February high, while the S&P 500 Bullish Percent is well below February levels.
  • This is a negative divergence.
  • In a nutshell, it means that fewer S&P 500 stocks are accounting for this move higher and participating in the bullish party.
  • Fewer participants means a more vulnerable index.

4. Saving Versus Spending

Think for a moment where the world's largest shopping center is located. Bloomington? Dallas? Maybe Miami? Try Dongguan in South China, a city of six million people.

  • But what happens when you build the world's largest shopping mall but no one comes?
  • That's what China is currently finding out.
  • The shopping mall, situated on 220 acres, includes an indoor amusement park and replicas of cities such as Milan and Venice.
  • Developers expected to attract 100,000 shoppers a day, the minimum it would take to keep the shops from appearing deserted, but instead attract a little more than 10,000 a day.
  • "They did this mall all wrong,'' Stephen Liu, a Hong Kong businessman told Bloomberg. "
  • They never found out if there were enough people to fill it. All the Chinese in this town are factory workers, they can't afford to shop here.''
  • China currently holds seven of the world's 20 largest shopping malls.
  • But private consumption in China accounts for just 35% of GDP, according to Bloomberg.
  • That's half the figure in the U.S.
  • Meanwhile, the Chinese presently save about half their income, while we in the U.S. save about negative 1.2% of our income.

    U.S. Personal Savings Rate

5. Double Or Nothing? Make That Double and Nothing said yesterday that the number of U.S. homes entering foreclosure in the first quarter of 2007 has doubled from a year ago.

  • In the first quarter of this year, owners of 168,829 homes received notices that lenders had filed for foreclosure due to failure to pay loans or liens.
  • That compares to 83,154 in the same period last year, reported.
  • The largest rise was in Riverside County, CA, which had a 172% increase in homes entering the foreclosure process.
  • Other areas of the country showing large increases were Clark County, NV, which includes Las Vegas (143%); Los Angeles County, CA, (92%); Miami-Dade, FL (90%); and Cook County, IL, which includes Chicago (44%).
  • Mortgage payment delinquencies are running at a four-year high.
  • Of course, them's just numbers, man! They don't mean nothing.
  • Yesterday the Feds, bankers and mortgage industry officials met in Washington to work on keeping "deserving borrowers with high-risk mortgages in their homes."
  • The meeting lasted seven hours at FDIC headquarters in Washington.
  • Sheila Bair, chairman of the FDIC, hosted the meeting with officials from the Treasury Department, the Federal Reserve, the Securities and Exchange Commission, executives of Fannie Mae and Freddie Mac, executives from big mortgage lenders such as Countrywide Financial and Wells Fargo & Co., and officials from Wall Street firms such as Morgan Stanley and Bear Stearns.
  • "It's going to be a very challenging task. ... We're not going to be able to save everybody," Bair said, according to the AP.
  • But, she added, regulators can "jawbone" and try to serve as catalysts for financial institutions to make changes.
  • Sweet.
  • Bottom Line: If you pay taxes, you can expect to soon own part of a home... even if you rent.

    Why don't you just take our entire paychecks directly, use what you need, and then send us back whatever is left over.

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