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Five Things You Need to Know: The Economy is Surging, So Where Are All Our Freaking Yachts?; Housing Containment Still Spreading; Cutback City Reports Quarterly "Train Wreck"; $3 Gas?; Now Japan Targeting Hedge Funds (Woooooo-oooooo-oooooo!)


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. The Economy is Surging, So Where Are All Our Freaking Yachts?

We got some good, old-fashioned table-poundingly excellent economic data this morning. The Institute for Supply Management manufacturing index rose to 54.7% in April from 50.9% in March, the highest level since May of last year.

  • Yes, that's right, factory activity showed a big jump in April, hitting a one-year high as the U.S. economic expansion continues on unabated.
  • Readings over 50% in the index mean more firms reported business getting better than worsening.
  • The ISM beat expectations for a reading of 51%.
  • According to the ISM, the report shows the overall economy "grew for the 66th consecutive month."
  • So where is our freaking yacht?
  • Well, for one thing, while the economy is busy expanding... so too are prices paid.
  • Commodities reported up in price were: (The number of consecutive months the commodity is listed is indicated after each item.) Aluminum (5); Caustic Soda; Chemicals; Cobalt; Copper (2); Copper Based Products; Corn (2); Corn Based Products; Corrugated Containers (2); Diesel Fuel (2); Fuel (2); Gasoline; Natural Gas (3); Natural Rubber; Nickel (6); Soybean Oil; Stainless Steel (4); Steel (2); Steel - Structural; and Titanium - Plate.
  • Commodities reported going down in price were: "No commodities are reported down in price."
  • Incredibly, while all these respondents are worried about all these goods rising in price, take a look at all the commodities reported to be in short supply:
    Commodities in Short Supply:
    No commodities are reported in short supply.
  • Well isn't that a mystery of modern science!
  • Manufacturers are worried about rising materials prices, especially metals and energy, yet supplies are apparently abundant!
  • That makes it quite tough to push forward costs to consumers... not that they would pay the higher costs anyway. (See today's Number Three).

2. Housing Containment Still Spreading

Where are all our yachts? Why, they're parked right there in front of our pending home sales, silly! Pending sales of U.S. homes fell by 4.9% in March, the National Association of Realtors said.

  • The NAR's pending home sales index was down 10.5% from March 2006 and is at its lowest level since March 2003.
  • David Lereah, the NAR's "chief economist," and of the 2006 book, "Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market," and the 2000 book (seriously), "The Rules for Growing Rich : Making Money in the New Information Economy," said he predicts home sales will be relative sluggish in the second quarter, but sees a "modest uptrend" on the horizon for the second half of the year.
  • Incidentally, Lereah is reportedly joining Move Inc. as executive vice president, effective in mid-May.
  • Lereah will also act as chairman and partner of a new business entity under Move Inc. that will launch in the third quarter of 2007.
  • Move, Inc., formerly Homestore, Inc. creates online resources and tools to help consumers throughout the moving process.
  • This makes good sense.
  • See, once the foreclosure process is complete and the sale or auction date is set by the judge, the former owner of the property will receive from a Marshal a copy of what is called "The Execution of Ejectment."
  • Upon being served the ejectment notice, the former homeowner will have anywhere from 24 to 48 hours to leave the property.
  • On the day and time on the notice of ejectment, the Marshal will show up with... you guessed it... movers!
  • Movers are in many ways the critical component in the successful completion of any foreclosure!
  • Congratulations to Lereah on joining Move Inc.!

3. Cutback City Reports Quarterly "Train Wreck"

Minyanville's Jeff Macke on the Buzz & Banter this morning noted what a "train wreck" of an earnings report Circuit City (CC) delivered last night. "Circuit City was simply a train-wreck last night," he wrote. See? Like we said.

  • Jeff Macke is one of the savviest retail analysts we know.
  • Over a year ago, while everyone... OK.... while WE were busy declaring the consumer (and by extension retailers) dead, he was busy warning that Private Equity makes being short beaten down retailers a loser's game.
  • So when he notes problems and weakness in retail from both a seasonal and a structural standpoint, we pay attention.
  • Regarding Circuit City, Macke noted that the company missed in a huge but not very specific way, blaming weak big-screen TV sales.
  • "We've talked about the consumer being seasonally and structurally soft enough to expose the weaker players in retail... CC's results are more or less exactly what I meant," he said.
  • Meanwhile, he noted retailers' first quarters just ended yesterday (or last Friday, in many cases).
  • "That means we'll start seeing the warnings coming in this week and next, not to mention weak-looking April SSS next Thursday."
  • As we noted yesterday, a clear warning sign emerged from the Personal Consumption Expenditures report.
  • Real consumer spending actually fell 0.2% last month.
  • Speaking of Jeff Macke, have you seen his long-lost twin?

    Television's JeffMacke of CNBC's Fast Money and Dennis Hof of Carson City, Nevada's Bunny Ranch
  • Click here for the latest version of Minyanville's Separated at Birth

4. $3 Gas?

That's Nothing. We Drop That Much in Change in the Couch Each Night!

Meanwhile, speaking of the consumer cutting back, the national average price for a gallon of regular gasoline was $2.971 as of Monday, up more than 10 cents from a week ago and the highest since August according to the Energy Department.

  • A separate survey from auto club AAA found the U.S. average was $2.953 as of Monday, up nearly 30 cents from a month ago according to the USA Today.
  • The record for gas prices in the U.S. dates to the post-Hurricane Katrina spike that pushed gas prices to $3.069 (not adjusted for inflation).
  • The record, adjusted for inflation, however goes back to March 1981 when gasoline prices hit $3.223 in today's dollars, the newspaper said.
  • Wow, should we be worried? Hahaha. Get serious. This is 2007. We don't "do" worry anymore.
  • "The shock value of $3-a-gallon gasoline is over. We've seen that before," Richard Moody, chief economist at Mission Residential in Austin told the USA Today.
  • Now, taken at face value that sounds kind of... well, ridiculous... almost Pollyanna-ish. But wait, there's more.
  • Moody notes that incomes have gone up in the past year, helping most drivers bear the added costs.
  • Talk about taking things at face value. Let's take a closer look at how this "income" boost is playing out in reality.
  • Below are two charts courtesy of Ron Griess'
  • First, here's a chart of Personal Income put in the context of its longer-term trend.

  • Second, here's what we think may be a far more important chart showing Personal Outlays as a Percentage of Disposable Personal Income. Before we get all excited about the "boost" in income helping us all bear the costs of higher gas prices, let's keep in mind where exactly we're coming from in terms of current outlays relative to disposable personal income.

  • So, back to Moody's point. Incomes were up 0.7% last month, and they are running at about a 9% annual rate for the first quarter, and more than 5% year-on-year, but real personal spending still decliner 0.2%?
  • What does that say about the consumer's perception of his and her balance sheet?

5. Now Japan Targeting Hedge Funds (Woooooo-oooooo-oooooo!)

Japan's Financial Services Agency (essentially that country's version of our Securities and Exchange Commission) said it would begin monitoring hedge funds operating there, the latest country to step up regulatory initiatives against the dark, mysterious, secretive, inscrutable, obscure, cryptic, mystifying, totally impossible to understand and impenetrable world of hedge funds. (Whisper "hedge funds" and then say "woooooo-oooooo-oooooo" while making spooky hand gestures.)

  • Beginning in September Japan's FSA will ask hedge funds (woooooo-oooooo-oooooo) to file annual reports regarding the amount of assets they have under management.
  • According tot he Wall Street Journal the FSA will also seek information about the strategies hedge funds (woooooo-oooooo-oooooo) are using.
  • The FSA's move is the latest regulatory initiative among growing global concerns about the role of hedge funds (woooooo-oooooo-oooooo) in capital markets.
  • Ed Balls, England's Economic Secretary to the Treasury, last week called on finance minister of the G8 to implement a global system for monitoring investment banks' exposure to hedge funds (woooooo-oooooo-oooooo).
  • And last month U.S. Sen. Charles Grassley of Iowa proposed legislation that would require hedge funds (woooooo-oooooo-oooooo) to register with U.S. Securities and Exchange Commission.
  • For more on the ramifications of these regulatory attacks against hedge funds (woooooo-oooooo-oooooo) we turn to Hoofy & Boo's News & Views.

No positions in stocks mentioned.

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