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Five Things You Need to Know: Good Headline vs. Bad Headline; Repudiation of Debt; On the Outskirts of Housing Containment; Speaking of Housing Investments; Meanwhile, On the Other Side of the Planet


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay head of the pack on Wall Street:

1. Good Headline vs. Bad Headline

It's the battle of the headlines. Do you want the good one or the bad one first?

  • OK, "good" headline first:
    "Price Gains Ease"
  • The Fed's "preferred" measure of inflation, the core Personal Consumption Expenditure Index, came in flat for March versus an expected increase of 0.1% the Commerce Department reported.
  • If you are a "good news person" you will focus on the core PCE's unchanged month-over-month rate.
  • However, if you are a "bad news person" you will likely note that the year-on-year change in core PCE is 2.1%, still above the Fed's so-called "comfort range."
  • Now for the "bad" headline:
    "Real Consumer Spending Weakest Since September 2005"
  • Personal spending in the U.S. rose at 0.3% versus the 0.5% increase expected.
  • When adjusted for inflation - real consumer spending - it actually fell, however, declining by 0.2%.
  • In a nutshell, that's why "this time is different."
  • In the face of rising prices, consumers don't push forward purchases to "beat the increase." Instead, they cut back.

2. Repudiation of Debt

Speaking of cutting back, interesting article on debt appeared in the New York Times over the weekend: "Turning to Churches or Scripture to Cope With Debt."

  • "As Americans have run up non-mortgage debt of more than $2.4 trillion, churches and Christian radio stations are supplementing their spiritual counseling with financial counseling," the New York Times notes.
  • More than 39,000 churches have used debt reduction programs created by Crown Financial Ministries.
  • That's right, 39,000.
  • "I wanted to focus on getting out of credit card debt," Anna Broster told the Times. "We live week to week, with no budget."
  • So this is the point in the credit cycle where the accumulation of debt begins to fade from fashion and the repudiation of debt grows in seriousness.
  • According to the stock market this doesn't matter... yet... but it will.
  • The Fed's master plan only works if people are willing to take on more debt.

3. On the Outskirts of Housing Containment

Minyan Scott down in Florida made sure we saw this interesting article in the Palm Beach Post about what happens as housing problems spread: "Builder Wants Out of Land Deal."

  • The story sounds positively bubblesque.
  • Home builder Lennar (LEN) wants out of a contract to buy 1,219 acres in western Palm Beach County, the newspaper says.
  • Lennar says the deal is tainted by the corruption conviction of former County Commission Chairman Tony Masilotti.
  • Lennar notified Palm Beach Aggregates (the seller) back on Feb. 15 that it was pulling out of the deal, a month after Masilotti pleaded guilty in federal court, the Palm Beach Post says.
  • The dispute is now headed for private arbitration.
  • If that's not bad enough, check out some of the grim details.
  • Lennar told development regulators last summer that it was scuttling its plans for the property due to the deterioration in the housing market.
  • What changed? The price of the property.
  • Palm Beach Aggregates lowered the price of the property by $100 million - from $300 million to $200 million, plus bonuses depending on the company's lot sales - to lure Lennar back to the deal.
  • Now, even that reduced price isn't enough to keep the deal afloat.

4. Speaking of Housing Investments

The National Association of Realtors said the number of homes sold for investment purposes plunged by 28.9% last year.

  • The NAR said 22% of all homes purchased last year were for investment purposes, down from 28% in 2005.
  • Vacation-home sales rose 4.7% to a record 1.07 million homes in 2006.
  • Primary residence sales fell 4.1%.
  • So who buys investment homes?
  • Investment home buyers last year were a median age of 39 and earned an income of $90,000, the NAR said.
  • Finally, here's an interesting factoid:
    The typical investment property cost $150,000, down 18.3% from 2005.

5. Meanwhile, On the Other Side of the Planet

A Chinese securities regulator warned investors there about stock market risks, according to the China Daily.

  • "There are risks in the stock market and you should think carefully before entering," Fan Fuchun, vice chairman of the China Securities Regulatory Commission told investors at a forum on financial reform in Nanjing.
  • China's stock market are up 40% so far this year following on the heels of 2006's 130% gain.
  • And investors are flocking to the market in record numbers.
  • Last month over four million new A-share trading accounts (considered a pretty good proxy for retail investor involvement) were opened, compared with the 3.08 million for the whole year of 2006, according to statistics.
  • Steven Sun, an HSBC equities analyst, told the Financial Times last week: "At the height of the last bubble [2000-01], we saw investors opening two million accounts a month, which is half the current rate."
  • Meanwhile, overnight China raised banks' reserve ratio to 11 percent, the seventh hike since last July.
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