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Five Things You Need to Know: Hang Seng Index in Stunning Collapse!; Consumer Food for Thought; Why Does Henry Blodget Hate America?; Microsoft Unveils Updated Zune; Bank Announces Risky Ad Scheme to Target Wealthy Customers


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:


Hang Seng Stock Index Falls 2.6%; Now Up Only 37% Year-to-Date

HONG KONG -- Stocks in Hong Kong collapsed 2.6% in heavy trading as the benchmark Hang Seng Index plunged to 27,479, its lowest level since September 28, 2007. The crash effectively erased all of the gains of the previous day's stock market session, and was the worst performance for Chinese stocks since the Shanghai Composite Index collapsed 6.5% in late May and the notorious "Shanghai Surprise" in February.

The 8.8% "Shanghai Surprise" decline on February 27 wiped out a total of seven days' worth of stock market gains, forcing many investors who had intended to retire immediately on that week's massive stock market investment gains to wait more than a day-and-a-half to get back to even. Following the massive selloff in the Shanghai Composite Index on May 30, it took that index more than seven days to recover.

The massive decline in the Hang Seng caught Chinese stock investors by surprise and many expressed their fear stocks may not recover anytime soon. "Oh dear God, when will this bear market ever end," said one investor who wished to remain anonymous. "At this rate I'll be forced to work well into my 30's," one teenage investor cried bitterly. "Those are supposed to be the golden years!"

The disastrous plunge in the Hang Seng was blamed on comments by former U.S. Federal Reserve Chairman Alan Greenspan, who yesterday said the Shanghai market has "all the characteristics of a bubble."

In May Greenspan accurately predicted the massive selloff in Chinese stocks a full week before the ruinous five-day long bear market kicked off, saying there's going to be a "dramatic contraction" in Chinese equities and that the surge on the Chinese stock market was "unsustainable." Although Greenspan at that time did not go on to add that the Shanghai Composite Index would rise by another 50% after collapsing for five days in late May, there is no question among Greenspan watchers that he probably meant to say that.

"What Dr. Greenspan meant by "unsustainable" was quite clear," a long-time Greenspan watcher told Minyanville. "He meant that on May 23, with the Shanghai Composite up more than 50% for the year, that such a rise was simply not sustainable, and that after the index more than doubles from the point at which it is unsustainable (as it has since then, up more than 100% year-to-date) that it would no longer be able to sustain that unsustainable sustainability, which has now proven to be not the case, which is something Dr. Greenspan actually predicted earlier when warning of the bubble in Chinese stocks in early February, late May, and again yesterday, which will only add to his legacy of remarkably accurate predictions dating back to his earlier predictions of market predictability and sustainability, or lack thereof, both in terms of forecasting the global advances for markets that may be, or not, counter-cyclical to the long-term cycle of cyclical advances and declines rotating around an uptrend in downtrending stocks and bonds with interest rates cushioning any long-term productivity gains, or losses, while keeping inflationary pressures, and disinflationary globalization outcomes along the Philips Curve in perpetuity as monitored and stabilized by central banks and monetary policy as it pertains to pricing structures for the total economy as a long-term contributor to net globalization benefits that should continue to both weigh on, advance, pressure, and build up in the systemic pipeline of equities and, by extension, bond market prices, interest rates and further adjustments to central banking policies that are conjoined by, and disengaged from, internal and external events that are both endogenous and exogenous to systemic stability and positive, and negative, outcomes thereby," he added before spontaneously combusting and disintegrating into a pile of ashes.

2. Consumer Food for Thought

Interesting article in the Wall Street Journal today looks at one of the key issues we've been focusing on as a result of consumer cutbacks: the inability for producers of just about anything to pass on higher costs.

  • What is so interesting about this article is that it concerns not consumer electronics companies or clothing and apparel retailers, but food companies.
  • Yesterday, Dean Foods (DF) lowered its profit forecast for the second time this year as consumers reportedly are turning to lower-cost, private-brand labels rather than accept the company's higher prices for Dean-branded milk.
  • According to the Journal, it's not just a Dean-related issue, however, as makers of everything from chewing gum to baked goods are reportedly feeling the sting of consumer cutbacks.
  • Sara Lee (SLE) has raised the price of its bread by 6.5% since the start of the year, yet its bread sales volume dropped 7.4%, the newspaper reported citing a note from JP Morgan (JPM).
  • And spice company McCormick & Co (MKC) said recently that difficulty in passing along high commodity costs to its restaurant customers squeezed margins in the third quarter.

3. Why Does Henry Blodget Hate America?

Former Merrill Lynch (MER) analyst Henry Blodget, famous for his 1998 prediction that (AMZN) would rise to $400, yesterday wrote that he believes Google (GOOG) could reach $2,000 a share within 10 years.

  • A mere $2,000 a share? For Google?
  • Blodget's prediction of $2,000 a share of Google implies a market cap of just $750 billion dollars.
  • That begs the question: Why does Henry Blodget hate America?
  • I, on the other hand, do not hate America, and so I am challenging Blodget's bearish price target of $2,000 a share for Google and making my own bold price target prediction.
  • I believe that Google, the world's largest manufacturer of Internets, will eventually be worth $1,013,278.23 a share, which I believe also, and not coincidentally, happens to be a Fibonacci number.
  • Blodget wrote that he believes his $2,000 price target is justified on a macro level because "in every technology wave, the market leader usually ends up amassing more power, wealth, and market capitalization than the leaders in the prior wave, often by a startling magnitude."
  • I believe that too, but more. A lot more. $1,011,278.23 more to be exact (also a Fibonacci number).

4. Microsoft Unveils Updated Zune

Microsoft (MSFT) has completed an update of its slow-selling Zune digital music player in a move the company hopes will vault it to second place behind Apple's (AAPL) dominant iPod.

  • Microsoft upgraded the original hard-drive Zune model with 80 gigabytes of memory and a 3.2-inch screen, while cutting the size.
  • The new, updated Zunes will go on sale in mid-November at $149 for a 4-gigabyte device and $199 for an 8-gigabyte model.
  • In addition to the cosmetic updates, the company has created a MySpace-style social-networking site to make absolutely clear how far behind the curve the company is in terms of marketing its digital music player.
  • According to the New York Times, J Allard, the Microsoft vice president who oversees design and development for consumer products, said the social networking site will appeal to Zune owners and "people who had not bought the device," which is fortunate since the latter category includes just about everybody in the world.
  • Microsoft said it had sold about 1.2 million units of the original device in the last year, less than 3% of Apple's iPod sales.

    Microsoft's Allard and Bill Gates with the new Microsoft Zune iPod competitor.

5. Bank Announces Risky Ad Scheme to Target Wealthy Customers

In a bold move, Bank of America (BAC), the nation's largest bank, will next week introduce an advertising campaign designed to lure wealthy customers.

  • According to the New York Times, the bank plans to kick off a $25 mln advertising campaign next week targeting the wealthy.
  • The new campaign is anchored by two themes: "the new face of wealth" and "wealth management for today's wealth."
  • A third theme, "Wealth management of wealth for the wealthy by wealthy bankers to increase wealth of the wealthy," was reportedly scrapped at the last minute because all the words couldn't fit on one magazine advertising page.
  • The themes are designed to appeal not just to the growing class of ultrawealthy customers, but also the "rapidly expanding class of ordinary millionaires," according to the Times.
  • Among the television spots planned is one that features a serene voice saying: "She owns a house in Palm Beach. A villa in St. Bart's. A condo in Sun Valley. And yet a piece of her still lives on a cul-de-sac in Ohio."
  • Presumably, the cul-de-sac piece would be the one that Bank of America's new customers are desperately trying to hide by burying it under the pool at their villa in St. Bart's, along with their embarrasing public high school diploma, rough peasant's hands and thick Appalachian ankles.
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