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Five Things You Need to Know: GDP, PCE, BEA, FOMC, GRE, LSAT, MRI and... Wait, These Are Just Random Acronyms; FOMC: Core vs. Headline Inflation?; Reality-Based FOMC Statement?; Meme of the Week: "Growing Risk-Aversion"; Hedge Fund Fashion!

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What you need to know (and what it means)!

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Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. GDP, PCE, BEA, FOMC, GRE, LSAT, MRI and... Wait, These Are Just Random Acronyms

First, the data. Gross Domestic Product was revised upward to 0.7% in the first quarter from a previously estimated 0.6%. The upward revision was a far cry from the previous quarter's 2.5% increase, and was the weakest growth for GDP since 2002. That's the good news.

  • Although no one really cares about GDP growth anymore - the focus is today on inflation - there were a couple of things worth pointing out in the GDP revision.
  • First, the growth was largely due to more exports.
  • Second, there were downward revisions in consumer spending, business investments and residential investments.
  • Be that as it may, the real focus today is on Core Personal Consumption Expenditures, AKA PCE, the Fed's so-called "preferred measure of inflation."
  • The Core PCE Deflator (a fancy name for what is basically just an index of prices for all domestic purchases excluding food and energy - more on the exclusion in a moment) was revised upward to 2.4% for the quarter, which takes the year-over-year rate to 2.3% from 2.2%.
  • The upward revision was primarily due to an increase in prices for physician services.
  • The overall price index for Personal Consumption Expenditures rose at a seasonally adjusted rate of 4.2%.
  • That's at least a little bit closer to what Minyanville Professor Bennet Sedacca writing on Minyanville's Buzz and Banter this morning estimated to be his "personal inflation rate - including gas, food, education, healthcare - of about 7%."
  • And this brings us to today's Number Two...


2. FOMC: Core vs. Headline Inflation?

Today the Federal Reserve Open Market Committee will conclude its two-day meeting with an announcement at 2:15 p.m. What are we watching for?

  • There have been a couple of overriding themes making the rounds lately with respect to Fed policy.
  • The first, as alluded to in today's Number One, has to do with core inflation vs. headline inflation.
  • We mentioned this last week when looking at "Inflastagdeflation."
  • A growing consensus believes inflation is understated. This argument goes:
    General price level measurements are either being manipulated, or are failing, or are simply false; we are facing a dramatic buildup in inflationary pressures. Look at what you are spending each month on food and gas prices - both of these are showing increases with secular tailwinds, so focusing on "core" inflation as the Fed does - a reading that excludes food and energy - is neglecting the most important inflation story of the past 30 years.
  • And as if on cue, sentiment is shifting toward the view that the FOMC may today change the policy statement ever so slightly to at least acknowledge higher energy and food prices.
  • We doubt the Fed will move that far in their language, even with today's Core PCE reading in the bank.
  • Instead, we see the customary acknowledgment of "elevated" core inflation, "high level of resource utilization," and perhaps an addendum that the "adjustment" in the housing sector is lingering longer than expected.


3. Reality-Based FOMC Statement?

Every time the FOMC meets and releases a statement we're among those pointing at the statement and wondering, "How can they say those things?" It's an entertaining cocktail party exercise to be sure. But what if the FOMC really stated what they believe may be happening in the economy? Would we want that? Doubtful. After all, part and parcel with the Fed's self-mandated mandate is "managing inflation expectations" and controlling psychology to avoid "confusion" and "market turmoil." No surprises! So today, just for imagination's sake, we take a look at what a reality-based FOMC statement might look like.




4. Meme of the Week: "Growing Risk-Aversion"

According to the Financial Times, a number of pulled bond issuances and loan deals this week are highlighting a "growing risk-aversion" among investors amid rising global interest rates and nervousness about credit markets.

  • Call it the "Meme of the Week."
  • US Foodservice, the American division of Ahold, a Dutch supermarket group, postponed its $650 mln bond offering.
  • Arcelor Finance put plans for its euro-denominated benchmark bond issue on hold, citing turbulent market conditions.
  • And today Carlyle Group, a private-equity firm, cut the initial public offering of a mortgage bond fund.
  • Just something to be aware of.
  • In a credit-fueled boom, the worst punishment is tighter lending standards and less money in motion.


5. Hedge Fund Fashion!

So this is what it's come to. When asked to account for the current mood in men's fashion and what looks like newly set markers for giddy excess, Richard David Story, editor of Departures, the magazine for American Express premium cardholders, simply said: "Hedge funds, hedge funds, hedge funds," according to the New York Times.

  • "To judge from all the $700 cotton poplin trousers (Bottega Veneta), $250 flip-flops (Hermès) and $20,000 satchels in matte tobacco crocodile (Tod's) on offer, the fractional-jet-share crowd has coffers so deep that there'll be plenty left over for chronographs or John Currin paintings," gushed a Times fashion writer.
  • "It's more cool now to be refined," said Massimiliano Giornetti, the young Ferragamo designer. "It's cool to wear a jacket again on the weekend and in the evening and in your spare time."
  • Looking good, Billy Ray.
  • Feeling good, Louis.
No positions in stocks mentioned.

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.

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