Five Things You Need to Know: Give the Consumer Credit; What's the Opposite of Resilience?; Timing is Everything; House Group Aims to Blow Dry Hair by Jumping Off Top of Building Rather Than Jumping Off Top of Bridge; It's Apparently Not Simply Organic
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay head of the pack on Wall Street:
1. Give the Consumer Credit
You have to give the consumer some credit. No, seriously, you have to. Because that's apparently how they're paying their bills.
- Consumer borrowing increased in March by the most in four months according to the Federal Reserve's Consumer Credit figures.
- Consumer credit (non-mortgage loans) to individuals increased $13.5 billion, or 6.7% at an annual rate, to $2.425 trillion, the Fed said.
- Economists were expecting a more modest increase of $4 billion.
- Use of revolving credit, primarily credit cards, rose at a 9.2% pace in March.
- That was up from a 2.9% growth rate in February and was the biggest increase since November.
- Perversely, this is good news for the economy because it shows consumers are willing to do whatever it takes to keep on paying their bills and buying stuff, even if it means turning to higher interest credit cards.
- According to the Associated Press, consumer borrowing is a sign of "resilience."
- "Consumers boosted their borrowing in March at the fastest pace in four months, showing resilience in the face of rising energy prices and a painful housing slump," the Associated Press reported.
- While using the term "resilience" to describe a jump in consumer borrowing largely made up of credit card debt itself violates most tenets of logic, that was only the beginning.
- "Consumer spending is indispensable to a healthy economy," the AP rightly said.
- Then the article followed the "consumer showing resilience by borrowing at the fastest pace in four months" observation with this: "The economy grew at an anemic 1.3 percent pace in the January-to-March quarter, the weakest in four years."
- So consumers "showed resilience" by borrowing at the fastest pace in four months... while the economy grew at its slowest pace in four years?
- We don't think this is resilience at all. It's desperation.
2. What's the Opposite of Resilience?
Something like this: You run a business highly levered to the cost of fuel, which is rising quickly, and attempt to pass some of your increased costs along to your customers. That attempt fails after only five days.
- An attempt by air carriers to raise prices has failed for the third time this year.
- Last Thursday Continental (CAL) and American (AAR) raised fares $5 each way as a test of pricing power just ahead of the busy summer travel season.
- Jet fuel prices have risen 33% over the past four months.
- News of the price increase sparked some optimism among fans of airline stocks.
- The AMEX Airline Index (XAL) was up 1.1% last Thursday and finished up 2.5% for the week.
- That optimism may have proved misplaced.
- Continental has already rolled back the cost increases on many of its routes after both Delta (DAL) and Southwest (LUV) refused to match the fare increases.
- You know, if only the airlines could tap into the huge wave of consumer borrowing via credit cards. Oh, they already do that? Interesting.
3. Timing is Everything
So which are you: A year-over-year economics fan, or a month-over-month fan?
- We ask because whichever you choose may determine your mood this morning.
- According to Foreclosures.com, the number of homeowners entering the foreclosure process in April more than doubled year-over-year.
- Foreclosures.com, which gathers data from county courthouses nationwide, also said the number of homeowners in all three phases of foreclosure rose last month year-over-year.
- Grim stuff, eh?
- Or perhaps you're more of a month-over-month person?
- then let's start all over.
- According to Foreclosures.com, the number of homeowners entering the foreclosure process in April dropped 14.3% month-over-month!
- Foreclosures.com, which gathers data from county courthouses nationwide, also said the number of homeowners in all three phases of foreclosure fell by double digit percentages month-over-month!
- Feel better? Then skip this next part.
- "Remember that a big chunk of today's foreclosures are a result of the subprime mortgage mess-too-easy credit, creative financing, and generally granting loans to people who couldn't afford them," said Alexis McGee, president of Foreclosures.com.
- "Until all those overextended homeowners work through their financial problems, foreclosure numbers overall will continue to rise," she added.
4. House Group Aims to Blow Dry Hair by Jumping Off Top of Building Rather Than Jumping Off Top of Bridge
A bipartisan group of House lawmakers is planning to challenge a deal struck by House Financial Services Chairman Barney Frank (D., Mass.) and the Treasury on regulatory supervision of Fannie Mae (FNM) and Freddie Mac (FRE), according to the Wall Street Journal.
- At the heart of the amendment is whether the regulator will monitor the safety and soundness of the companies' portfolios based on the risks those holdings pose to the companies themselves, or the risk they pose to the broader economy.
- Legislation approved by the committee in March gives the regulator authority to establish standards governing the FNM and FRE portfolios based on "any potential risks posed by the nature of the portfolio holdings," the WSJ said.
- The newly proposed amendment, however, would reduce that control to standards governing their portfolios based on risks posed to the companies only.
- The Journal says the new amendment would benefit FNM and FRE by giving the new regulator less discretion to limit their mortgage-related holdings.
- Those holdings now total a combined $1.4 trillion.
- According to the Journal, Treasury is concerned the changes could dilute the purpose of the bill.
- According to us, any problems Fannie's and Freddie's portfolios pose to the companies are problems also posed to us by extension.
- They have $1.4 trillion in holdings!
- Your choice for dry hair: the top of the building or the top of the bridge.
5. It's Apparently Not Simply Organic
In a letter to Wal-Mart (WMT), the Wisconsin Department of Agriculture, Trade and Consumer Protection stated they'd found numerous instances of conventional food products improperly labeled as organic by the retail chain.
- Wisconsin authorities told Wal-Mart's legal counsel that "use of the term 'Wal-Mart Organics' in combination with reference to a specific non-organic product may be
considered to be a misrepresentation and therefore a violation" of Wisconsin state statutes.
- The Cornucopia Institute, a governmental and corporate organic industry watchdog, had filed complaints with Wisconsin regulators and the USDA after finding numerous incidents of fraudulent organic labeling in Wal-Mart stores in five states from Texas to Minnesota.
- According to a release from the Cornucopia Institute, Wisconsin regulators said that they had reached an agreement with the company under which steps would be taken to prevent future organic food misrepresentations.
- At issue is whether consumers can be assured that the organic products they're buying are truly organic.
- The USDA's National Organic Program has long been criticized as being too cozy with corporate agribusiness, understaffed and lacking strong management and effective organizational direction to protect and promote the organic industry, the Cornucopia Institute says.
- Wal-Mart in April began backing off its push into the organic food space after determining its customer base wasn't as interested in organic food as previously thought.
- When this issue first heated up back in January Minyanville interns ventured to nearby Wal-Mart stores to see if they could find any Wal-Mart products potentially mislabeled as "organic."
- The results, below, were eye opening.
Potentially mislabeled organic items at Wal-Mart:
- Uncle Ernie's Organic Barbecue-Flavored Pork Rinds
- Sizeburn's Organic Pesticide and Rodent Spray
- Evergreen Organic Lawn Paint
- Dudley's Organic-Flavored Organic Rib Rub Crystals With Extra Organic
- Sparkmaster Organic Jumper Cables
- The Sealit Organic ShrinkWrap Machine ("The Organic Flavor Saver")
- Haynes Organic Recyclable Mens Briefs
- AquaMarine Organic Fishing Rod and Reel Set with Organic Glare Reduction Sunglasses
- Hungry Granny's Organic Frozen Fishsticks
- Pork Friendly's Combination Organic Meat Puppet Kid's Play Set and Summer Sausage Hors D'oeuvres Tray
- Uncle Ernie's Organic Barbecue-Flavored Pork Rinds
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