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Five Things You Need to Know: Consumer Prix Fixe Index; Inflation: Trimmed and Mean; Great Expectations; A Tax On Both Your Houses; U.S. Authorities Disappointed to Learn Anti-Counterfeit Agreement With China Counterfeit


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. Consumer Prix Fixe Index

The Consumer Prix Fixe Index rose 0.7% in May, up from April's 0.4% rise and the largest increase since September 2005 when the Labor Department first realized a prix fixe menu would allow the restaurant to avoid any unwelcome a la carte inflationary pressures.

  • The surge in the headline Consumer Prix Fixe Index is but a minor problem, and we will notify the maître de at once.
  • As far as the table d'hote is concerned, the Core Consumer Prix Fixe Index - which actually excludes the volatile price of the meal itself - rose but a mere 0.1%. Ce n'est rien!
  • In other words, only the included 20% gratuity is showing inflationary pressures, mes amis.
  • True, compared to a year ago the overall menu shows a 2.7% increase, but the core menu, which again, excludes the cost of the food itself, is rising at a mere 2.2% year-over-year!
  • Mais naturellement, that is down from the 2.3% level in April.

2. Inflation: Trimmed and Mean

Each month after the release of the Consumer Price Index by the BLS, the Cleveland Fed releases a weighted median CPI. Why the different release? What does it mean?

  • The BLS technique for measuring core inflation is to exclude certain prices in the calculation of the index.
  • Why? Because measuring the general level of prices nationwide is difficult, of course, and nonmonetary events (bad weather or crop damage, for example) can create "temporary" inflation in certain items, thereby skewing the overall price picture.
  • We wouldn't want the Fed to "whip inflation now" just because wet conditions in the plains states caused the price of wheat to go limit up for three sessions would we?
  • This is the rationale behind the BLS core CPI which excludes food and energy data.
  • Therefore, the Cleveland Fed calculates a weighted median CPI that has a higher statistical correlation with past money growth than other inflation measures, and which they hope will result in improved forecasts for future inflation.
  • Below is the CPI and Median CPI release for May.
  • This month it is largely in line with the BLS CPI.
  • The Median CPI year-over-year continues to run hotter than the BLS measure, however, which probably explains the surge in one-year forward consumer inflation expectations we'll look at in today's Number Three.

3. Great Expectations

The Reuters/University of Michigan's preliminary index of consumer sentiment declined to 83.7 this month from 88.3 in May - that's the lowest reading since last August.

  • The chart of Personal Spending shows the usual consumer love affair with getting rid of dollars...
  • ... getting rid of dollars even before they arrive in their bank accounts as the chart of Personal Savings illustrates...
  • Meanwhile, the talk about benign core inflation is apparently the one thing consumers aren't buying.
  • Consumer one-year inflation expectations increased sharply, to 3.5% - also the highest since last August - up from 3.3% in May.
  • Optimistically, consumers expect inflation to rise just 3% over the next five years, which is actually down from May's 3.1% expectation level.

4. A Tax On Both Your Houses

Senator Max Baucus (D-MT) who leads the Senate Finance Committee, and Senator Charles E. Grassley (R-IA), yesterday introduced a bill that would tax as corporations all publicly traded partnerships that derive most of their income by managing other people's assets - in other words, Blackstone and Fortress Investment Group.

  • If the bill passes, investors could potentially cut 15%-to-20% of Blackstone's $40 billion valuation, the New York Times estimates.
  • On an annual basis, the new tax policy could reduce the firm's net earnings by as much as $250 million, the newspaper said this morning.
  • The Baucus-Grassley bill will certainly force other private equity firms and hedge funds to take a step back and reconsider any plans to go public.
  • Now why in the world would politicians in both parties be so interested in putting the hammer down on public private equity firms and hedge funds?
  • After all, don't those guys pay lobbyists to handle this kind of stuff!?!?
  • The answer is quite simple.
  • Following the lead of former Ohio Representative Michael Oxley, co-author of the wide-ranging Sarbanes-Oxley Act, who now acts as a consultant to help businesses find loopholes in the law he helped write, Baucus and Grassley are clearly thinking ahead.
  • Those tax loopholes aren't going to just find themselves you know.

    Hoofy and Boo take a closer look at Sarbanes Oxley

5. U.S. Authorities Disappointed to Learn Anti-Counterfeit Agreement With China Counterfeit

Washington DC - In a sharp blow to U.S. authorities' efforts to crack down on counterfeit goods streaming into this country from China, customs agency officials on Friday learned that an anti-counterfeit agreement signed by China is actually itself a counterfeit.

"This is certainly a disappointment," a customs official who wished to remain anonymous told Minyanville. "We naturally assumed the agreement was the real thing, but when we got back to the states one of our translators discovered it was just a rental car agreement," the official said.

China has long been a leading source of illegally copied goods ranging from designer clothes to DVDs and music. China accounted for about 80% of the 14,775 shipments of counterfeit goods seized at U.S. ports last year, according to Customs and Border Protection.

This episode marks the first time Chinese piracy has branched out from counterfeit designer goods to counterfeit anti-counterfeit agreements. "The worst part about it is we apparently agreed to the full coverage rental insurance even though we were already covered by our individual policy," the customs official added. "What a waste of money."

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