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Five Things You Need to Know: Economic Deceleration Contained to Overall Economy; GM Losses Contained to Auto Sales and Subprime Lending; No Worries!; What Exactly Is a Moratorium?; Hey There, Little Filly!


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. Economic Deceleration Contained to Overall Economy

U.S. job growth in April slowed to 88,000, less than the 100,000 economists expected. And that's actually the good news.

  • The bad news is related to the comical shenanigans of the Birth/Death Model.
  • The Birth/Death model contributed 317,000 adds.
  • That's not a typo. That's 317 thousand adds.
  • According to Minyanville Professor Scott Reamer, since 1999 there has been only one other month in which the add was bigger, January 2004.
  • For some perspective, in the 36 month period ending March 2002 - 36 months - the total adds from the birth/death model were 353,000. Over 36 months.
  • Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs.
  • Last year it added 964,000 jobs.
  • The kicker is that the Bureau of Labor Statistics refuses to allow academics and commercial economists access to the models they use for the birth/death additions.

2. GM Losses Contained to Auto Sales and Subprime Lending

General Motors' (GM) first-quarter earnings fell nearly 90% due to heavy losses related to subprime lending at GMAC, the carmaker's financial services arm.

  • Here's what passes for "good news" over at GM:
    The net loss from GM's core North American automotive operations was "only" $42 million.
  • Woo hoo!
  • GMAC reported a first-quarter loss of $305 million earlier this week, compared with earnings of $495 million a year earlier.
  • ResCap, the company's home-lending unit, lost almost a billion dollars.
  • As if that's not sad enough, do you have any idea what the company's best markets are?
  • Emerging markets. The Asia-Pacific region, Latin America, Africa and Middle East divisions accounted for nearly one-third of the GM's vehicle output.
  • Latin America, Africa and Middle East were by far the largest contributors to GM's earnings, reporting a record first-quarter profit of $201 million, according to the Financial Times.
  • So, think about this for a moment:
    America's largest car maker, number five in the Fortune Global 500, employing 335,000 people, is now almost entirely dependent on emerging markets just to remain operational.
  • Oh, one last thing before we forget. Where exactly do all those consumers in emerging markets get their money?
  • Pick up a random object on your desk and look where it was made.
  • That's right. They get it by exporting things to U.S. consumers and getting dollars in return.

3. No Worries!

We are clearly deranged. Clearly. Because we seem to be the only people who find it remarkable that the THIRD RICHEST STATE IN AMERICA by per capita income finds it NECESSARY to call for a MORATORIUM ON HOME FORECLOSURES.

  • The Governor of Massachusetts implemented a foreclosure moratorium this week to prevent distressed homeowners borrowers from losing their homes.
  • The Governor said mortgage lenders should consider the possibility of moving struggling borrowers into fixed-rate loans or re-adjusting the terms on current mortgages.
  • But wait, it's not just Massachusetts, the third richest state in the country based on per capita income, that is having trouble dealing with the foreclosure crisis.
  • The number of foreclosures nationally jumped 47% in March from a year ago, according to RealtyTrac.
  • According to the National Conference of State Legislatures, there are more than 100 bills at the state level nationwide that have either been introduced or already passed to deal with lending abuses and foreclosures.
  • Minnesota is trying to lessen the impact by spending $11 million to acquire foreclosed properties and reselling them to people with low incomes.
  • Colorado lawmakers are considering a consumer protection bill that makes mortgage brokers responsible for pushing borrowers into loans they cannot afford.
  • Ohio has introduced a new program that will be funded by the sale of $100 million in bonds to help about 1,000 homeowners refinance their loans.
  • Look, foreclosures don't happen in healthy economies.
  • When things are going well, people have a tendency to pay their mortgages on time.

4. What Exactly Is a Moratorium?

Good question.

  • Moratorium comes from the Latin word, morari, meaning "to delay."
  • In legal terms, a moratorium is a legal act to postpone for a specified time period the payment of debts and obligations.
  • The authorization is called a "moratory law."
  • For the record, and to speak to Number Three above (which at first read probably came across a bit shrill_, the reason we are so concerned about rising foreclosures and states calling for moratory laws is because by their very nature moratory laws are only required and called for during times of severe and unusual borrower stress.
  • Debt moratoriums on a national basis are typically associated with countries that have most recently declared debt moratoriums: Peru, Brazil, Argentina, Mexico.
  • The United States declared a debt moratorium of its own during the Great Depression in 1931 with respect to its World War I debts.

5. Hey There, Little Filly!

While tomorrow is the Kentucky Derby, the most exciting two minutes in sports, today is Kentucky Oaks Day, a one mile and one-eighth race for three-year-old fillies; the prettier, female companion to the Kentucky Derby.

  • The first Kentucky Oaks race was held on Wednesday, May 19, 1875.
  • The race was one of four stakes races created by Churchill Downs founder M. Lewis Clark.
  • The other three races were the Kentucky Derby, the Clark Handicap, and the Falls City Handicap, all of which are still held at Churchill Downs even today.
  • Like the Derby, the Kentucky Oaks has been held each year since 1875 without interruption.
  • While there is not an official "filly triple crown" the Oaks is the first of three races that make up an unofficial triple crown. The other two races are the Black-Eyed Susan, traditionally held the Friday before the Preakness, and the Acorn Stakes, traditionally held the Friday before the Belmont Stakes.
  • Now the important stuff. Whom do we bet in the Oaks today?
  • The favorite in the race is a horse called Rags to Riches, listed in the morning line at 5-2.
  • We're going to go in a different direction, however, and take a shot with Mistical Plan (shown in photo) at 12-1.
  • Throw in her arch rival Octave, maybe add a little Autobahn Girl, and now we have a trifecta ticket.
  • Also, to read Kevin Depew's 2007 Kentucky Derby Analysis click here.

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