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Five Things You Need to Know: PCE + GDP = Accelerating Inflation and Slowing Growth; Let the Lawsuits Begin!; NOW It's a Crisis!; Vanity Fair Predicts Market Top; Best Hedge Fund Name Ever!


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. PCE + GDP = Accelerating Inflation and Slowing Growth

This morning's price index for personal-consumption expenditures, excluding food and energy, rose 0.3% in February compared to a month earlier, and the year-on-year rate climbed to 2.4%, the highest since September and well above the Fed's reported "comfort zone" of 1-2%.

  • The month-over-month increase in core PCE is the fastest in five years.
  • The personal spending numbers in the report, up 0.6%, has some chanting "Durable Consumer" and "Economic Resilience" this morning, but a closer look shows that most of the increase in personal spending was related to gasoline and higher gasoline prices.
  • Spending on durables was flat, compared to a 1% increase in January.
  • Spending on food and clothing was also flat.
  • July Fed Funds fell to 94.82, implying a 28% change of a rate cut.
  • Although this all spells: Fed. In. A. Box.
  • Stagflation is actually the Fed's friend here... at least as long as demand for credit remains.

2. Let the Lawsuits Begin!

DLJ Mortgage Capital, a New York-based unit of Credit Suisse (CS), has reportedly filed lawsuits totaling $30 million against three subprime mortgage lenders.

  • The lawsuits claim the lenders failed to honor obligations relating to loans it purchased from them.
  • In two of its claims, DLJ is seeking to force Sunset Direct Lending and Infinity Home Mortgages to buy back mortgage loans that suffered from payment problems soon after DLJ bought the loans.
  • Citing contractual agreements that require loan repurchases after such "early payment defaults", DLJ is seeking almost $24 million of buy backs from Sunset and $3 mln from Infinity, the Financial Times reported.
  • DLJ is suing NetBank for $4 million worth of payments.
  • Sunset Direct Lending CEO Bob Howard said he would dispute DLJ's claims, the FT reported, but said early payment defaults were a problem.
  • "I can't believe there is a soul that has been dealing in mortgage sales to Wall Street that hasn't run into early payment default problems," Mr. Howard told the FT.

3. NOW It's a Crisis!

While there has been growing concern over mortgage foreclosures nationally, no one has been quite ready to declare a mortgage crisis... until now.

  • Million dollar homes in foreclosure!
  • Now it's a crisis!
  • According to this Reuters article, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground.
  • In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, says nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office.
  • In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, according to RealtyTrac.
  • California, with 3,384 foreclosures of higher-scale homes since December, is leading the nation, followed by Florida and New York, according to RealtyTrac.

4. Vanity Fair Predicts Market Top

According to a brief in BrandWeek, there appears to be some correlation between record ad pages for the magazine Vanity Fair and tops in the stock market.

  • Vanity Fair's latest issue, the March 2007 Hollywood Edition, which hit newsstands the week of Feb. 26, checked in at 500 pages.
  • The magazine helpfully noted, "It's Our Biggest Issue Ever!"
  • Before the March 2007 issue, the previous record for Vanity Fair ad pages was the April 2001 issue, 430 pages.
  • This raises the question: Which magazine's record ad pages predicts a stock market bottom?
  • Minyanville combed our periodical archives to come up with the answer.
  • Turns out whenever Financial Collapse (our favorite magazine) reaches record ad pages, a stock market bottom is pretty close at hand.
  • Check out the March 23, 2003 issue:

5. Best Hedge Fund Name Ever!

DealBreaker this morning notes that notorious former Amaranth trader Brian Hunter's new hedge fund, Solengo, is actually the name of a wine:

  • Our first thought was, "Man, that's pretentious."
  • Our second thought was, "Does anyone have a corkscrew."
  • Our third thought was, "Well, if we're so smart, what would we name our hedge fund?"

    Miyanville Proposed Hedge Fund Names
    Plato Grande
    Big Swinging Balzac Fund
    Funkentelechy Partners

    Astroglide Fund
    Renaissance Technologies
    Nights of White Castle
    Redemptions Limited Partners
    Boot 'N Rally
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