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Five Things You Need to Know: Meme of the Moment: Food Inflation; Disappearing M3; A Matter of Timing; That's News To Us; A New Gilded Age!


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. Meme of the Moment: Food Inflation

This whole food inflation meme is really picking up steam now... just in time for Bernanke's Humphrey-Hawkins testimony and consumer and producer price index data this week.

  • This morning the United Nations is warning that, due to higher food prices, it can no longer afford to feed the 90 million people it has helped for each of the past five years on its budget.
  • Over the past three months the Food Inflation headlines in the FT alone have been nothing short of grim:
    Nestlé chief fears food price inflation - Jul-05
    Fish 'n' chip prices leap as shortages bite - Jul-08
    Premier Foods warns of higher UK bread prices - Jul-09
    Commodities boom makes itself felt in the supermarket - May-23
    Fears over food price inflation - May-23
  • Even China - once our chief enemy for exporting deflation - now finds itself facing possibly 4% inflation due to rising food prices, and in the strange new position of Chief Inflation Exporter.
  • Now, we don't have any idea what inflation is going to do next, or whether we should be as desperately worried about food inflation as everyone (and we do mean everyone) else - but we do find it disconcerting that an apparent market consensus has been reached so quickly.
  • Being such poor predictors ourselves, we would simply point out that the growing hysteria about food inflation has a strangely uniform ring to it.

2. Disappearing M3

An interesting article buried inside the Financial Times on Friday said the European Central Bank has decided to take "a more pragmatic approach to its analysis of monetary data." How so? By downgrading the use of money supply data.

  • What does "downgrade" mean?
  • It means they are reducing the importance of M3 data.
  • The ECB last Thursday apparently concluded that the annual growth rate of M3 might "overstate the dynamism of the underlying rate of monetary expansion."
  • Might overstate the "dynamism" of the underlying rate of monetary expansion? That is very funny.
  • Since 1999 the ECB has looked at money and credit growth as distinct forecasting tools separate from other economic data.
  • Now, according to the FT, the ECB has reduced its reliance on M3 data because the "fast growth in M3, the broad money supply, has seemingly borne little relationship to eurozone inflation, which at 1.9% remains exactly within the ECB's target of an annual rate "below but close" to 2%."

3. A Matter of Timing

Even funnier than the European Central Bank's tortured logic in its decision to reduce their reliance on M3 is the timing of the decision itself.

  • Less than a month ago, European central Bank President Jean Claude Trichet called the Fed on the carpet for not using M3.
  • In fact, at the time we found Trichet's aggressive tone noteworthy enough to write about it in Five Things.
  • On June 22 Trichet, correctly in our view, said that while prolonged periods of low and stable inflation make it more difficult to interpret changes in M3, "the long-run relationship between money growth and subsequent inflation is still in the data.''
  • This is true "not only for the euro area, but also for the United States, where the stability of such a relationship has been most strongly questioned in the past,'' he said.
  • Perhaps not coincidentally, the ECB previously viewed M3 expansion above 4.5% as "inflationary."
  • Yet M3 has expanded more than 4.5% in every month since May 2001, and as of May is rising at a 10.7% annual rate - the highest in 24 years!
  • Meanwhile, in the U.S., where the Fed took the downgrade of M3 a step further - by actually abolishing the official tracking of it - according to John Williams' Shadowstats Web site, ongoing M3 growth is now above 13% - a 33 year high - and at levels not seen since the mid 1970s.

4. That's News To Us

Most teenagers and adults 30 and younger are not following the news closely at all, a new report titled "Young People and News," has concluded.

  • The research report from the Joan Shorenstein Center on the Press, Politics and Public Policy at Harvard, says young Americans are "estranged" from the daily newspaper.
  • According to the study, only 16% of young adults surveyed aged 18 to 30 said that they read a newspaper every day and only 9% of teenagers said that they did.
  • Gotta be the Internet's influence, right?
  • Perhaps not. The survey found that teenagers and young adults were twice as likely to get daily news from television than from the Web... if at all.
  • The study notes that some news surveys have overestimated either the amount of news young adults consume or the capacity of non-traditional media to take up the slack from young people's flight from traditional news sources.
  • Moreover, even though young people say they believe the newspaper is more educational than other media, they still do not use it as their news source.
  • A 2004 survey reported that about 20% of young adults regularly get their news from Jon Stewart's The Daily Show... as opposed to this...
  • You know, now that we think about it, we really wouldn't have a problem with all young adults getting their news from Jon Stewart's The Daily Show.

5. A New Gilded Age!

Hey, did you see The New York Times on Sunday ran a front page feature on The New Gilded Age? Of course not, because as Number 4 just pointed out - you don't read newspapers! No worries, we'll fill you in.

  • First, what's this about a so-called "Gilded Age"?
  • According to the Times, the Gilded Age took place before World War I - when powerful enterprises, dominated by men who grew immensely rich, ushered in the industrialization of the United States.
  • Only twice before over the last century has 5% of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution, the Times noted.
  • Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash... and today.
  • Who are these Industry Titans today, and how did they get that way?
  • "Very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter's "unique talent" for baseball," the Times says.
  • "I think there are people, including myself at certain times in my career, who because of their uniqueness warrant whatever the market will bear," offered private equity fund manager Leo J. Hindery Jr. in response that he may not justify the vast amount of money he is paid to be an Industry Titan.
  • "[Derek] Jeter makes an unbelievable amount of money," said Mr. Hindery, who now manages a private equity fund, "but you look at him and you say, 'Wow, I cannot find another ballplayer with that same set of skills.'"

A Tale of Two Titans

This man has "flair for business."

While these men apparently have a "flair for poverty."
Might the difference between them be as much about luck as about "talent"?

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