Five Things You Need to Know: Where's Hoofy?; Meme of the Moment: Inflation; Too Broke to Sell; Sweet Leaseback's Baadasssss Song; Minyanville Turns Five
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. Where's Hoofy?
Despite headlines that blare such awfulness as this...
- CITIGROUP SAYS PROFIT DECLINED 60% - (BN)
- PIMCO'S GROSS SAYS FALLING HOME PRICES TO DRIVE MONETARY POLICY FOR YEARS - (BN)
- WEAKER DOLLAR STINGS CONSUMERS (WSJ)
...the reality is that stocks are up year-to-date. The S&P 500 is up 7.6% so far this year, the Dow Jones Industrials up 11.5%, and the Nasdaq Composite leading both of those stock indexes, up 11.8%. U.S.-based credit crunch, global credit turmoil, subprime meltdown, it seems those are simply sideshow attractions to the main show, the U.S. equities market.
But where, exactly, is the bull? Although the main U.S. stock indexes look great on the surface, if we dig a little deeper things begin to get a bit murkier. Homebuilders are down 43% year-to date. Certainly no surprise there. But what if we told you that Banks are down almost 12%, Retail stocks off more than 5%? And that Insurance and Transportation sectors are also decidedly negative?
One of the most common market mantras is: "As go the finanicals, so goes the market." After all, financials make up about 20% of the S&P 500. But this year at least, the stock market appears to be doing just fine without that chunk of weighting.
So where is the performance coming from? Biotech, Defense, Healthcare, Metals and Mining, Energy and Telecom.
2. Meme of the Moment: Inflation
Inflation - the meme of the moment. It's even made the pages of Newsweek, the magazine where investment themes go to die, which is not a critique of Newsweek because popular news magazines, by definition, purpose and mission only cover news stories at moments of maximum saturation.
- We write mostly about deflation here and sometimes about stagflation, which is the transition from cyclical inflation to deflation, but mostly about deflation.
- Most of the emails we receive read like this: "
- "C'mon man, take your head out of the sand and look around! Inflation is everywhere."
- "Where do your kids go to college? Because tuition for my kids is going through the roof."
- "Do you get free gas or something?"
- "Wake up! The government is purposefully disguising inflation through their bogus numbers."
- We're sympathetic to these views because, believe it or not, because we too have found ourselves paying more for things such as education, healthcare, energy and food.
- But the hysteria over inflation is beginning to tautologize itself.
- The argument is basically becoming this:
- Inflation is being ignored by the Fed and is making inflation worse, which threatens to make inflation even worse as inflation gets worse.
- To be clear, the cyclical inflation we have been experiencing does not itself sow the seeds for... still more inflation.
- In a weird, geeky way, we kinda wish it did because then we would be on the verge of discovering something akin to perpetual motion.
- Instead, this cyclical inflation is simply sowing the seeds of deflation.
- How does that work?
- Well, take a look at housing - a macro event that we like to remind is a symptom, not a cause - in today's Number Three... Too Broke to Sell...
3. Too Broke to Sell
According to the Chicago Tribune a new wrinkle in the housing sector is beginning to appear - sellers without enough money to close.
- "Wait, you mean buyers without enough money, not sellers, right?"
- No, we mean sellers.
- How does that work?
- For homeowners with very little equity, especially those who in recent years bought homes with mortgages covering 95-100% of the purchase price, the cost of closing is simply too high.
- The Chicago Trib gives the following example from a recent transaction involving a a home transacting for $410,000:
- The seller had to cover $1,800 in title insurance, $75 water-certification fee, $900 in tax stamps to Chicago and Illinois, $550 attorney fee, $40 processing fee, all of which drove the cost to the seller to close to $3,400.
- That didn't even include the $6,000 in pro-rated property taxes for which the seller was responsible.
- And then there's the commission.
- A 5% commission on the $410,000 house sale comes to $20,500.
- "If you're listing a house for $410,000 and the mortgage is $390,000, you've got a problem," a Realtor told the Tribune.
- Like a sore throat foretelling a battle with influenza, housing is a symptom of the coming bout with deflation.
4. Sweet Leaseback's Baadasssss Song
Meanwhile, from the Department of "How Bad Is It?" comes this:
- It's the good ol' fashioned "Leaseback."
- Wait, doesn't this mean that Lennar's existing business now consists largely of building homes to sell to itself?
- Kind of.
- The way it works is this: Lennar will "sell" you a home, then immediately lease it back from you and use it as a model home.
- Sounds weird, doesn't it?
- Unless you are a gambling addict, yes - mostly because the process of a leaseback might be more familiarly known to most of us as the process involved in pawning a watch or cashing a check at a payday loan shop.
- Imagine that we have opened a pawn shop.
- Lennar is basically taking their watch (model home) to our pawn shop, selling it to us for, say, $50, then turning around around and offering us, say, $5 a week for 12 weeks to let them use the watch.
- They should just take the money and go to the racetrack instead.
The Lennar Betting System: Always split two-story, brick houses and double down.
5. What You Need to Know About Minyanville's Five-Year Anniversary
Today marks the fifth year anniversary of the debut of Minyanville.com. Below are a few things you need to know about Minyanville; who we are, what we do, and where we're going.
- Minyanville founder and CEO Todd Harrison today breaks down the tale of the Ville here, but there area few things you should know about what the Ville is and where we're going.
- Our content is produced to provoke thought, not shape it, which is why we don't offer investment advice, but investment thought.
- There are three core content initiatives we are currently pursuing:
1) News and Views: where you are reading this article at Minyanville.com right now
2) Buzz and Banter/Premium Products: real time trading and investment analysis and content for professional and active traders and investors.
3) Hoofy and Boo's News & Views: animated content designed to infotain.
- Our Minyanville "professors" (so-called because they hope to educate, not preach) provide the content for News and Views and the Buzz and Banter, and are read in 110 countries.
- In addition to those core content initiatives, there is the University of Minyanville education content.
- Minyanville's education initiatives were established from a founding tenet of improving financial literacy and establishing a presence in academic institutions.
- Early work included applied research into the negative influences of market intimidation, and the effect of Minyanville's real time vicarious (observational) learning platform on college student financial market awareness. Thus far, three papers resulting from this research have been published in peer-reviewed academic journals.
- Last, but certainly not least, is the Minyanville MVKids initiative.
In the fall of 2007, Minyanville will launch "Minyanland" (TM) in concert with the Kaboose family network and the NCEE.
This immersive entertaining platform will be the first kids site and social network dedicated to learning about finance through a multi-player gaming environment..
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter