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Five Things You Need to Know: IMF Warns of "Serious Crisis"; But Wait, There's More; Consumer Borrowing Increases; The Real Lender of Last Resort; Misfortune Cookies

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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. IMF Warns of "Serious Crisis"

Rodrigo Rato, outgoing managing director of the International Monetary Fund, warned that the credit squeeze was a "serious crisis" that was not over yet and would curtail growth worldwide, the Financial Times reported.

  • "Policymakers should not think that the problems will stay at the desk of the bankers," Rato told the FT.
  • "Problems are going to come to the real sector, come to the budgets – that is something we keep telling people."
  • The outgoing IMF chief said many of the big emerging markets are growing rapidly, but "to what extent they will keep that momentum will depend on how long the slowdown is in the US and Europe."
  • Wait a minute, did we say, "outgoing" IMF director?
  • Indeed we did, which admittedly takes some of the sting out of Rato's warnings.
  • It's a bit like when you take a new job, get drunk at your celebratory party, and blab to everyone about how your old firm is horrible and will probably collapse into bankruptcy without your genius to rely on anymore.


2. But Wait, There's More

Outgoing IMF Director Rodrigo Rato also told the Financial Times the U.S. dollar is now "undervalued" on many measures, a statement which the FT gushed is "an unusually bold assessment."

  • Is it? Is it really an "unusually bold assessment"?
  • We're not so sure.
  • First, the U.S. dollar index is down more than 2% in the past 30 days alone, and down nearly 6.5% year-to-date.
  • Over the past 18 months it's down 14%.
  • And now we're seeing the inevitable stories rushing to embrace the decline as positive for business.
  • Bloomberg boasts "Weak Dollar Boosts Growth Without Fueling Inflation."
  • "The dollar is in a quasi-sweet spot,'' Joseph Quinlan, chief market strategist at Bank of America (BAC), told Bloomberg.
  • "It's dropped enough that it's creating an earnings upside for U.S. multinationals, while I expect many foreign companies to hold the line on prices they charge U.S. consumers.''
  • Too bad those those are two different and unrelated things: earnings upside for multinationals, and domestic pricing power.


3. Consumer Borrowing Increases

The Federal Reserve on Friday reported that consumer credit rose at an annual rate of 5.9% in August, the biggest increase in three months.

  • The increase in consumer credit was led by an 8.1% increase in revolving credit, which is the category that includes credit cards.
  • Non-revolving credit, which includes auto loans, also rose at a faster pace, increasing 4.7% annualized, compared with 3.1% in July and 4% in June.
  • Overall, consumer credit rose by $12.2 billion to a record $2.469 trillion.
  • As we noted in Friday's preview, consumers are increasingly turning to their credit cards - the lender of last resort - to replace home equity loans as a source of ready cash.
  • But is it really true that credit cards are the lender of last resort? Let's move to today's Number Four.


4. The Real Lender of Last Resort

Another category of lender has surged in popularity in recent years, payday loan shops, which are perhaps truly lenders of last resort.

  • The Center for Responsible Lending estimates that payday lenders cost American families $4.2 billion every year.
  • Payday loans typically charge fees equal to 400% APR.
  • Payday lenders earn most of their profits by making multiple loans to cash-strapped borrowers.
  • That's easier than it sounds since the CRL estimates that 75% of payday customers are unable to repay their loan within two weeks and are forced to get a loan "rollover" at additional cost.
  • "Trapped on the "debt treadmill", many consumers get a loan from one payday lender to repay another," the CRL says.


Lender of Last Resort Eases Loan Restrictions

Wow. Looks like I'm a little light this week, guys.

So, you ain't got the dough?

He ain't got the dough.

Mr. G useda not like people who ain't got the dough. Very upsetting for Mr. G.

Upsetting. No good.

That was then. Now, Mr. G, he's turned over a new leaf, see?

Yeah, a new leaf.

Mr. G says he's comfortable with an extension.

Comfortable. With an extension.

But in return he's gonna need some assurance.

Yeah, he's gonna need insurance.

Yeah he - No, assurance.

That's what I said. Insurance.

No, a-ssurance. You said in-surance.

Whatever.

It' s not whatever. They mean two totally different things.

They can mean two different things, but I think in this context they mean pretty much the same thing. Assurance. Insurance. Same thing!

It's not the same thing!

It's the same frickin' thing!

Listen, Mr. G wants assurance about the payback. Not insurance on the payback. Assurance is assurance; comfort. Mr. G likes comfort. Insurance is like a hedge. They're different.

Alright. I see what you mean. Sorry.

Fuggedaboutit . Ok, so like we was sayin', Mr. G wants some assurance.

Yeah, he wants assurance.

He wants to know you're gonna play ball.

Like Mickey Mantle.

He wants to - did you say Mickey Mantle?

I said Mickey Mantle.

Who are you, Frank Deford? Mickey Mantle. Why don't you say somebody from this century?

You say one word about the Mick. One word. I dare you.

It ain't got nothin' to do with Mickey Mantle, it has to do with relevance.

One word.

Never mind. So Mr. G wants some assurance that you're gonna play ball.

Play ball. Like Daisuke Matsuzaka.

Who?

That pitcher for the Red Sox. He's got this pitch called the gyroball.



I saw it in the Times.

Mr. G don't want nobody playin' ball with a gyrowhatever. Mr. G wants people playin' regular ball.

Mr. G don't like curve balls.

No he don't.

Mr. G don't even like sliders.

That's enough.

Anybody even throw Mr. G a changeup, he's askin' for it.

Shut up!

Sorry.

Anyway, the point is Mr. G turned over a new leaf, and so now he don't want the money if you ain't got it. He just wants some assurance.

I don't have the money, like I said. But I got plenty of assurance.

Ok, good. Then we're done here.

Yeah we're done here.


5. Misfortune Cookies

"Today is a disastrous day. If you can't beat 'em, join 'em."

"It's over your head now. Time to get some professional help."

"Perhaps you've been focusing too much on yourself."

So read the fortunes now being opened by thousands of people across the country just wrapping up a Chinese lunch with a fortune cookie manufactured by Wonton Food in Queens, according to the New York Times.

  • "We wanted our fortune cookies to be a little bit more value-added," Bernard Chow, marketing coordinator at Wonton Food, told the Times.
  • Wonton Food, the largest fortune cookie maker in the country, produces about 4.5 million cookies a day, according to the Times.
  • Wonton has a catalog of 10,000 fortunes, and about a quarter of them are in rotation at any given time, the article said.
  • It introduced 600 new ones several months ago, including about 150 in the popular "fortune-telling" category.
  • Although the "unusual" fortunes are certainly novel, there's perhaps something socionomically significant about the appearance now of darker fortunes.
  • As we transition to a darker social mood, expect it to infect everything... even Chinese fortune cookies.
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No positions in stocks mentioned.

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