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Five Things You Need to Know: E "Wait and" CB Holds Rates Steady; Factory Orders Decline; Housing Showing Signs of a Tunnel at the End of the Light; Family Dollar Getting Stretched Thin?; Bush Urged to Appoint Mortgage Czar


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. E "Wait and" CB Holds Rates Steady

European Central Bank President Jean-Claude Trichet said the ECB is waiting to see whether the global financial-market turmoil will slow economic growth before deciding
on the future path of interest rates, Bloomberg reported.

  • The European Central Bank held its benchmark interest rate steady at 4%.
  • ECB President Jean-Claude Trichet said that given uncertainty emanating from the U.S. subprime mortgage crisis "additional information is needed before monetary conclusions can be drawn."
  • Meanwhile, in London, the Bank of England decided to leave its key interest rate unchanged at 5.75%.
  • The Bank of England move was largely expected, although heading into today's meetings there was growing speculation the ECB might move top cut rates.

2. Factory Orders Decline

U.S. factory orders fell in August by the most in seven months, the Commerce Department said.

  • Orders dropped 3.3% last month, worse than the 2.8% decline that most economists had expected.
  • The decline was led by a plunge in demand for commercial aircraft, which fell 39.9%, although orders were also weak in numerous other industries ranging from autos to industrial machinery and home appliances.
  • Business investment plans also appear to be softening.
  • Bookings in August for capital goods excluding aircraft and military equipment (important because this is a key measure of future business investment) - also called capital expenditures) fell 0.5% after rising 0.9%.
  • Interestingly, in the Bloomberg article on Factory Orders, the word "housing" was mentioned four times, and three times in both Wall Street Journal and Reuters articles.

3. Housing Showing Signs of a Tunnel at the End of the Light

Traders on the Chicago Mercantile Exchange expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis by Tradition Financial Services the Wall Street Journal reported.

  • Some markets, such as Florida, are expected to decline by 28% and in parts of California by as much as 15%.
  • Even New York is expected to see declining of as much as 12% over the next four years.
  • The CME contracts, based on movements in the S&P/Case-Shiller house price indexes, have been trading since May 2006 but were recently changed so that traders could bet on prices as long as 60 months into the future, the Journal reported.
  • Still, trading is very light, the Journal said, only about 20 contracts per day change hands.

    Graphic: Wall Street Journal

4. Family Dollar Getting Stretched Thin?

Family Dollar Stores (FDO), the retailer known for selling items priced $1 or less, said
fourth-quarter profit rose 17% despite the impact of rising energy and food costs on its low-income customers.

  • In August the company slashed its earnings forecast due to weaker-than-projected sales.
  • "Volatile energy costs and other inflationary pressures have impacted the spending capacity of low and low-middle income consumers," Howard Levine, chairman and CEO, said in a prepared statement.
  • Gross profit margin rose to 33.1% from 32.4%, despite increased pressure from low-cost competitors such as Wal-Mart (WMT) and Dollar General.

5. Bush Urged to Appoint Mortgage Czar

Lawmakers yesterday called for the Bush administration to appoint a federal "mortgage czar" to coordinate a government response to the nation's growing number of home foreclosures, Reuters reported.

Democratic leaders on Capitol Hill believe the czar, a Slavonic term which means "male monarch or emperor," is needed to squash the increasingly unruly mortgage rebellion among serfs in the coastal fiefdoms.

U.S. mortgage delinquencies have soared in recent months, and about 1.7 million home loans will go into foreclosure this year and next, according to Moody's. Senate Majority Leader Harry Reid, D-NV, said, "If we do not act, subprime lending could end up eliminating more homeowners than it created, and the number of Americans foreclosed out of their homes could exceed the number of Americans from the Gulf Coast forced out of their homes by Hurricane Katrina."

The first acting "czar" was Bulgarian Czar Boris I, appointed in 913 after a makeshift imperial coronation by the Patriarch of Constantinople. Similar to today's growing unrest among mortgage serfs in the United States', Czar Boris I is best remembered for having suppressed an open revolt in all of Bulgaria's administrative districts, ruthlessly executing 52 boyars along with their entire families.

It is unclear whether the new "mortgage czar," if appointed, would have the power to execute revolting mortgage defaulters and their families, but history shows rebellions can often be crushed by the mere threat of a czar's swift and uncompromising iron fist.

One exception was the short--lived 14-year rule of Russian Czar Mikhail Yaroslavich, also known as the Grand Prince of Vladimir. Czar Mikhail Yaroslavich was ultimately killed in the Horde by Yuri Danilovich's servants, one reason why finding someone to serve as "mortgage czar" may prove more difficult than lawmakers anticipate.

White House spokesman Tony Fratto, asked about the appointment of a "mortgage czar," said, "We have a housing czar. His name is Alphonso Jackson." Fratto's comments raise the unnerving possibility that the appointment of a "mortgage czar" could spark an all-out bloody and vicious battle between the reigning "housing czar" and future "mortgage czar." Historians point to 894, the last time a similar territorial battle between competing czars took place. In that decade long war, Czar Simeon I of Bulgaria, the son of Czar Boris I, defeated the Byzantines while attempting to create a large Eastern European Empire. Legend has it that Simeon I died of heart failure at the exact hour that Romanos decapitated a Simeon I statue many miles away.

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