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Five Things You Need to Know: PPI/Retail Sales; The "Sweet Spot"; Homebuilder Turnaround Canceled; The Rich Got Skills!; Point/Counterpoint


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. PPI/Retail Sales

Prices paid to U.S. producers rose more than forecast in September, according to data from the Labor Department.

  • The Producer Price Index for finished goods rose 1.1% in September versus August's 1.4% decline, the report said.
  • The core PPI, which excludes food and energy, was up just 0.1%, however, good news for the Fed.
  • And then there were Retail Sales, which the Commerce Department reported were up 0.6%.
  • Excluding autos, retail sales rose 0.4%.
  • The numbers were far from broad based, however.
  • Sales were up in 0.9% electronics, but this category should be perpetually asterisked as the Grand Deflationary Price Discounting category.
  • Sales were weaker in clothing, sporting goods, general merchandise, furniture and department stores.
  • Nevertheless, for the Fed the data is just good enough to retroactively justify their prior 50 basis point rate cut and allow the FOMC to worry less about which way they turn on Halloween; the so-called "sweet spot."
  • Which leads us to today's Number Two.

2. The "Sweet Spot"

Ah, yes, the data shows the economy right there in the sweet spot: benign core inflation and just enough consumption to fuel just enough economic growth.

  • Of course, the inflation bears are arguing even as we type that core inflation is ignoring worsening headline inflation that is siphoning discretionary spending off from non-discretionary spending.
  • Meanwhile, the "Sweet Spot" advocates continue to point to the rising stock market as all the evidence we need that 'the market" likes what the Fed is cooking.
  • So who is correct?
  • First let's look at the charts of the more important Consumer Price Index measures of Energy and Food and Beverages.
  • As this long-term chart shows, there's a very good reason for the exclusion of volatile energy prices from policy actions related to short-term interest rates.
    Chart courtesy of

  • Personally, I would not want a central bank making guesstimates about what to do with short-term interest rates with energy included.
  • Of course, I don't want a central bank making short-term interest rate decisions in the first place, but that's my own Utopian problem and a separate discussion.
  • Part of the dilemma for the U.S. central bank is that food costs may be rising for long-term secular reasons; the idea that a growing middle class in populous countries such as China and India (even relatively tiny growth relative to overall population) has introduced a new layer of competition for food resources.
  • Add the unintended consequences of government intervention in energy markets to increase biofuel production and we have a cyclical burst of food inflation on top of long-term secular food inflation.
    Chart courtesy of
  • Now, look at the following CPI charts for apparel, recreation, durables and transportation.
    Charts courtesy of

  • These charts certainly support the thesis that we are experiencing long-term deflation in things we want, inflation in things we need.
  • The only controversy is Why.
  • Most central bankers say it is due to globalization.
  • The good effects of globalization, they say, are lower prices.
  • The bad effects are increased global competition for natural resources.
  • An alternative view, however, takes it a step further to ask why we have this so-called miracle of "globalization" in the first place?
  • We may very well look back and see that globalization is simply the result of a rather unique arrangement where we borrow money from people who can only loan it to us if we take that borrowed money and give it back to them as payment for products they produce that we are consuming.
  • On a smaller scale that type of arrangement typically results in jail time for the executives running it.
  • But maybe this time will be different.
  • Of course, none of that has anything to do with the stock market, and that in and of itself confuses the debate.
  • As we noted yesterday, we hate to see economics intrude on stock prices since they so rarely have anything to do with one another.

3. Homebuilder Turnaround Canceled

Beazer Homes (BZH) reported an almost-impossible-to-believe 68% of its prospective home buyers canceled their orders in the company's fiscal fourth quarter.

  • The cancellation rate was almost double the 36% of customers who canceled orders in the third quarter.
  • Beazer is one of the homebuilders to outline their results from September when the credit-market turmoil was at its peak.
  • Of course, Beazer's pain may be more severe than other builders' because it focuses heavily on entry-level buyers who relied on the shrunken market for subprime mortgages, Bloomberg reported.

4. The Rich Got Skills!

The richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, according to the Wall Street Journal.

  • The wealthiest 1% of Americans earned 21.2% of all income in 2005, up from 19% in 2004 and surpassing the previous tech-boom peak of 20.8% set in 2000.
  • The bottom 50% earned 12.8% of all income, down from 13.4% in 2004.
  • The data was culled from the IRS from a large samples of tax returns.
  • According to the Journal, academic research suggests the rich last had this high a share of total income in the 1920s.
  • President Bush responded to the report in an interview with the Journal yesterday saying, "First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps."

5. Point/Counterpoint

As President Bush noted, income inequality in this country is largely due to a "skills gap" between those who are rich and those who are poor. For a closer look at this widening "skills gap," Minyanville Presents: Point/Counterpoint

I Am Simply More Skilled Than You

By Edward Stentmantle Van Fauntlethorpe

Let's face the facts. My tremendous wealth, the value of which places me squarely among the top 1% of all income earners in America, is a reflection of my skill set. In plain terms, I am simply more skilled than you.

I have worked hard to get where I am. Whether it was the years spent learning Latin and Sanskrit at the Cheshire Wentworth Pre-Kindergarten Preparatory Academy, or all those summers spent learning management skills at my father's Italian vineyard, or the opportunities I forged for myself at Brown, and later at Harvard in Business Management School, it's difficult to say.

Of course, being tremendously wealthy carries its own set of responsibilities. In addition to earning seven figures introducing investment bankers and real estate developers to one another at high level cocktail parties, I supervise a staff of more than 15 people who together manage our three properties, take care of the paperwork on our various trusts and investment vehicles and see to it that the children are fed, clothed and provided for emotionally.

These are skills my family has instilled in generations of Van Fauntlethorpes dating back to the English conquest of Wales in the 1200s. One doesn't develop the skill to appreciate a fine 1968 Bordeaux overnight, just as one doesn't learn how to effortlessly manipulate a Ferrari through the Swiss alps without discussing acceleration techniques with the great-great nephew of the man who practically invented high-performance clutching for grand prix auto racing.

Naturally, the measure of a man is not by the size of his bank account. We are not vulgarians. My great grandfather, a swordsman of no small repute, once told me that the true measure of a man is his skill in the collective arts of chess, fencing and countryside skeet shooting. I have found that to be largely the case in my various encounters among my peers. Ultimately, we go to the grave with our skills having been displayed upon a great stage of peer-to-peer competition. The true judge will be the monuments, institutions and plaques left behind imprinted with our name.

You Are More Skilled Than Me In Everything Except Maybe Armed Robbery

By About 5'11" Tall With Dark Hooded Sweatshirt and What May Have Been A Revolver, I Was Too Scared to Look to Confirm

It is difficult to refute the fact that your skills in the areas you mention are far greater then mine. I certainly didn't attend a kindergarten preparatory academy. But what about armed robbery? I have a feeling I may be slightly more skilled at that than you are. While you're thinking about it, give me your wallet.

Also, your watch.

I admit, I'm not much on wine. I prefer a cold Bud, and wouldn't know a fine 68 Bordeaux if it was right under my nose. Speaking of wine, what size shoe do you wear? 9 1/2? What a coincidence! Me too. Now, give me your shoes.

The weird part about it is I've never even seen a real Ferrari in person, but is that your BMW 7 series parked outside? Keys please! Hope it's an automatic, I don't know anything about high performance clutching techniques!

You know, I guess in the end what it all comes down to is you taking your pants off, lying down on the ground and counting to 1000 before getting up while I drive away in your car with your wallet, watch and shoes.

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