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Five Things You Need to Know (Live at Buddakan) Double LP: 10 Things You Need to Know - Featuring Housing, Consumer, China, Food Inflation and More


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. "The Red and the Black"

Home price declines in the 20 metropolitan areas tracked by the S&P/Case Shiller report appeared to be bottoming in March if one turned the chart upside down and then closed one eye while holding it over an open flame long enough for it to incinerate.

  • The reality is that declines in home prices, far from "stabilizing" or "bottoming," actually accelerated in the 12 months ended in March, dropping 1.4% versus a revised 0.8% in the year-ended February.
  • Nationally, home prices also fell 1.4% in the first quarter from the same period last year, the first decline since 1991, Bloomberg reported.
  • Thirteen cities showed a year-over-year decrease in prices for the month, led by a 8.4% drop in Detroit and a 6% drop in San Diego.
  • Among cities bucking the trend were Seattle, up 10%, and Charlotte, up 7.4%.
  • Meanwhile, S&P/Case-Shiller's 10-city composite index, which has a longer history, decreased 1.9% in March from a year earlier.

2. "The Weight"

Despite the weight of a housing slump and gas prices, consumer Confidence increased unexpectedly in May, coming in at 108 versus expectations for an increase in 104.8.

  • The Conference Board reported its Consumer Confidence Index rose to 108.0 in May, from a revised 106.3 in April.
  • The Present Situation Index increased to 136.1 from 133.5 in April.
  • The Expectations Index also edged up, to 89.2 from 88.2.
  • Lynn Franco, Director of The Conference Board Consumer Research Center, said, "The short-term outlook remains cautious, and rising gasoline prices are having a negative impact on consumers' inflation expectations. All in all, confidence levels continue to suggest growth, albeit at a slow pace."
  • Consumers' outlook for the next six months remains cautious.
  • While those anticipating business conditions to improve increased to 15.1% from 13.8%, those expecting business conditions to worsen, increased to 10.1% from 9.7%.
  • The percentage of consumers expecting their incomes to increase in the months ahead declined to 17.7% from 18.4% in April.
  • The percentage of consumers expecting a 7 of diamonds to go with their 5, 6, 8 and 9 of diamonds, remained steady at 63%.

3. "I'm So Tired"

By Friday, we'll be tired too... because while there are a handful of things to watch on the calendar the first part of this holiday-shortened week, Friday is the day for economic releases.

  • No fewer than 18 separate pieces of economic data are slated for Friday.
  • What happens leading up to then, for both bonds and equities, is likely to be related to positioning ahead of those releases.
  • On the slate:
    - 8:30 Personal Income (Apr): 0.3% cons
    - Personal Spending (Apr): 0.4% cons
    - PCE Deflator y/y (Apr): 2.2% cons
    - PCE Core m/m (Apr): 0.2% cons
    - PCE Core y/y (Apr): 2.0% cons
    - Change in Non-Farm Payrolls (May): 138k cons
    - Unemployment rate (May): 4.5% cons
    - Change in Manufacturing Payrolls (May): -15.0k cons
    - Average Hourly Earnings m/m (May): 0.3% cons
    - Average Hourly Earnings y/y (May): 3.7% prior
    - Average Weekly Hours (May): 33.8 cons
    - 10:00 Pending Home Sales m/m (Apr): 0.3% cons
    - ISM Manufacturing (May): 54.0 cons
    - ISM Prices Paid (May): 73.0 cons
    - University of Michigan Confidence (May F): 88.0 cons
    - 10:30 EIA Natural Gas Report
    - 16:00 Total Vehicle Sales (May): 16.4 mln cons
    - Domestic Vehicle Sales (May): 12.6 mln cons
  • Batten down the hatches.

4. "London Calling"

The European Central Bank plans to revamp its communication strategy and stop using "code words" to signal interest rate changes when the current tightening cycle ends, the Financial Times reported.

  • Axel Weber, Germany's Bundesbank president, told the FT the ECB intends to drop the use of "code words" in communicating central bank policy.
  • The phrase "strong vigilance" has been repeatedly used by the central bank in recent months to indicate a future tightening bias.
  • "When I talk to market people and to the general public, code words are probably the least helpful part of the communication ... In an economic environment with conflicting signals, it helps to lay out and communicate the broad-based analysis from which we draw our conclusions," he said.
  • Mr. Weber also made it clear the ECB would not follow the US Federal Reserve and the Bank of England in releasing minutes of its interest-rate setting meetings, the article noted.
  • Once a parliament or government has taken a decision, "it is publicly announced and justified. I'm quite pleased that we don't rely on delayed minutes but communicate in real time," Weber said.
  • Naturally, this entire story can be interpreted as code for "Help! We're boxed in by our own policy statements!"

5. "If You Don't Like the Effects, Don't Produce the Cause"

Following a surge in the price of pork, a staple meat in the Chinese diet, the Chinese government announced it will take immediate measures to keep the meat affordable.

  • The price of pork in China has risen from 14 yuan ($1.80; 92p) to 17 yuan within a few days, state media report.
  • The BBC reports that in Shanghai pork has risen to its highest level in 10 years.
  • The rising cost of corn is also blamed as a contributing factor.
  • Premier Wen Jiabao called on local governments to offer subsidies to pig farmers and increase feed supply.
  • In China, the world's largest consumer of pork, widespread disease and the rising cost of raising live pigs have pushed up prices, fanning fears of a broader surge in inflation.
  • It's not that food inflation is of any concern here, of course, we're just basking in the warm glow of schadenfreude, which is code for "Hasn't happened here yet."

6. "Houses in Motion"

If only barely in motion. New home construction in the U.S. may take until 2011 to return to last year's level, according to an economist for the National Association of Builders.

  • David Seiders, chief economist for the National Association of Home Builders, said monthly construction starts would need to jump by 21% to reach his benchmark for full recovery, a process that may take another four years, according to Bloomberg.
  • There were 1.53 million construction starts in April, the Commerce Department reported last week.
  • At the height of the housing boom in January 2006 there were 2.29 million construction starts, Bloomberg said.
  • Meanwhile, as new constructions remain sluggish, inventory continues to build... and prices continue to drop.
  • The current inventory of unsold homes is the largest since the National Association of Realtors began counting them in 1999 and house prices have suffered the steepest drop since the Great Depression.

7. "Take Some... Leave Some"

Speaking of housing, the Florida legislature plans to convene a special session in mid-June that could result in more than $30 billion in property-tax relief over the next five years, the Wall Street Journal reported.

  • Thanks to the housing boom, the average annual property-tax bill in the U.S. was $1,132 per person in 2005, up 13% from 2000 in inflation-adjusted terms, according to data from the Commerce Department.
  • The boom was so strong that in many areas housing prices rose too fast for local tax assessors to keep up, the WSJ said.
  • Now, tax assessments are catching up just as market prices are declining, a double whammy for homeowners facing increasing mortgage payments due to resets, or homeowners now trapped in residents with property tax bills edging them out of their comfort zone.
  • But that's the homeowners problem.
  • Here is the dilemma for states:
    Reducing property-tax revenues threatens budgets of cities and counties.
    However, a property-tax cut could stimulate the economy by leaving homeowners with a bit more money in their pockets.
  • Florida doesn't have a personal income tax, and its cities and counties depend heavily on property taxes to pay for services such as police and firefighters, the Journal noted.

8. "(Don't Fear) The Reaper"

In a move the Blackstone Group prays is not a trend, A Beijing court on Tuesday sentenced to death China's former food and drug safety chief for accepting more than $800,000 in bribes from pharmaceutical companies.

  • Zheng Xiaoyu, director of China's State Food and Drug Administration, was convicted of taking bribes and dereliction of duty, according to state news agency Xinhua.
  • The court said Zheng, "sought benefits" for eight pharmaceutical companies by approving their drugs and medical devices, Xinhua said.
  • One antibiotic approved during Zheng's tenure was withdrawn from the market last year after 10 patients died, according to the USA Today.
  • According to the newspaper, some online commentators doubted that the death penalty will affect China's "deeply entrenched system of graft."
  • What does this have to do with the Blackstone Group?
  • Nothing, we would guess. As long as those private equity investments work out as planned there shouldn't be any problems.
  • It's only a $3 billion investment by the Chinese.
  • Seriously, we wouldn't worry about it. Forget we said anything.

9. "Won't Get Fooled Again"

We ran across an interesting piece in the Weekend Financial Times over the, uh, weekend, about the use of astrology to predict the movements of financial markets.

  • Henry Weingarten, a US fund manager, is a financial astrologer who uses planetary movements to predict the performance of currencies, indices and other assets such as commodities, the FT notes.
  • Weingarten studies the horoscopes of countries, stock markets, companies and currencies by calculating how the planets were aligned at their time and place of birth, and comparing this to present or future positions, according to the article.
  • According to the article, "He brought in a colleague - a successful retired fund manager - and as a test they took $40,000 to trade commodities using astrological charting. Four months later they had $2.9m of capital."
  • Interesting, because last year we tried a similar move, taking our $432.88 in capital and using it to trade stocks based on astrology.
  • Four months later we had amassed margin calls worth more $14,000!
  • To us, this made little sense because our horoscope the day we began trading read:
  • Looking back, we now realize that had we only looked at our horoscope the day before we began trading, the margin calls could easily have been avoided.

10. "Double Trouble"

The Double LP. Which is it? A signifier of a band's artistry and creativity; a masterpiece that won't tolerate the squeeze into two half-hour sides of vinyl? Or a case of bloated excess; a lack of proper editorial control and conviction? This is number 10, so you decide. We're going with bloated excess, personally.

  • The first double album stretches all the way back to 1950 when Benny Goodman's "Live at Carnegie Hall" was released.
  • Makes sense; it was an attempt to capture a lengthy performance and place the listener in the moment. "You weren't there, but now you are."
  • Other than capturing a live performance, why the double album?
  • Vinyl LPs were limited to a half-hour to 45 minutes, so anything beyond that - the Beatles' White Album, the Rolling Stones' Exile on Main Street, Pink Floyd's The Wall - necessitated two LPs with four sides.
  • CDs have almost made the double album extinct... almost.
  • Many double albums now fit on one CD.
  • Consequently, most double albums (read: CDs) these days are attempts at stylized virtuosity, a stab at extra "artistry", perhaps even pretentious - The Mars Volta's Frances the Mute (2005), for example, fits on one CD... or three (3) LPs.

    11. Special Bonus Track

    If you've made it this far we figure you need some kind of reward for your efforts. Each item in today's 10 things is a song from an important double lp. Name the LP's that correspond with the 10 things and you'll get to choose your own excellent critter t-shirt, just in time for summer. Oh yeah, send the answers here.

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