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Five Things You Need to Know: All About the Consumer; Pump of Pain; Got Milk? Did You Say Milk Futures?; Buffett Looking to Spend a Little Cash


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. All About the Consumer

Although it's Fed week with the U.S. Federal Reserve meeting on Wednesday, this week really stacks up to be All About the Consumer.

  • Today at 3 p.m. we get Consumer Credit for March.
  • This report released by the Fed each month tracks the dollar value of consumer installment credit outstanding.
  • We're always a bit surprised by how little attention the Consumer Credit report gets in the financial media.
  • We are, after all, a consumption-driven economy, and this report should give us a first glance at how rising gasoline prices (see today's Number Two) and rising food inflation (see today's Number Three, also Greg Weldon's piece from last Friday) are affecting consumers.
  • Note the chart below, courtesy of Ron Griess', showing the month-over-month decline in consumer credit outstanding, and the declining rate, annualized, of 7.96%.
  • Most economists are predicting an increase to $4 billion from February's $3 billion.
  • And don't forget Retail Sales later this week.
  • A number of high profile retailers have reported disappointing sales expectations, including Sears (SHLD) and Target (TGT).

2. Pump of Pain

The national average for gasoline prices has hit a new record high, according to the Lundberg Survey, and this relates directly to consumer spending.

  • Gasoline prices have surged to a record nationwide average of $3.07 per gallon, nearly 20 cents higher than two weeks earlier, according to the Lundberg Survey released on Sunday.
  • That exceeds the previous record of $3.03 from August 2006.
  • The recent increases are due mostly to refinery problems, Lundberg said according to the Associated Press, noting there have been at least a dozen additional partial shutdowns in the U.S. and internationally that cut refining capacity.
  • One of the nation's largest refineries, a BP PLC plant in Indiana that processes more than 400,000 barrels of oil per day, will not be operating at full capacity for several months due to unexpected repairs, the AP reported.
  • Be that as it may, take a look at the daily chart below showing unleaded gas futures, basis June.
  • While the contract is up 38% year-to-date, note there are two pending DeMark sell signals using TD-Sequential and TD-Combo.
  • Perhaps a respite is on the way.

3. Got Milk?

Greg Weldon wrote an interesting piece on food inflation here this past Friday. He was mostly discussing corn and soybeans, but those aren't the only foodstuffs going up in price at the supermarket. Check out the prices for milk.

  • Ken Bailey, a dairy expert at Penn State University's College of Agricultural Sciences, predicts an overall 8% increase for whole milk, from an average of $3.07 a gallon to about $3.35 in October, according to CNNMoney.
  • Here in New York, however, milk prices last week rocketed 60 cents higher to $3.54 a gallon, a 20% increase.
  • Why the price hikes for milk?
  • Think ethanol. Seriously.
  • Corn prices have driven up feed prices for livestock farmers, putting upward pressure on the cost of milk, beef, pork and any number of other items for the dinner table.
  • That's why they call it a price chain.
  • Of course, like gasoline, now that milk prices are hovering near the front page of news sites, a respite may soon be forthcoming on that front as well.
  • Check out the daily chart below for near-month milk futures with a DeMark sell signal now in place.

4. Did You Say Milk Futures?1).jpg" width="125" align="right" />

Yes. Milk futures.

  • The Chicago Mercantile Exchange has offered a variety of cash-settled dairy futures products since 1996.
  • Milk is big business. How big?
  • $35 billion dollars at year at wholesale, according to the CME.
  • Cows produce milk 2-3 times a day 365 days a year.
  • Dairy manufacturers take this milk and turn it into a finished product with a wide array of uses, from drinking to cheese to butter to dried milk powder.

5. Buffett Looking to Spend a Little Cash

Speaking at his company's annual shareholder meeting in Omaha over the weekend, Berkshire Hathaway's Warren Buffett said he would love to find a way to spend $40 billion on an acquisition.

  • "I would hope something would come along where I would have to sell something that I like to buy something huge I like even better,'' Buffett said.
  • Berkshire Hathaway has about $46 billion in cash.
  • The disclosure by Buffett seems well calculated.
  • Whitney Tilson, a managing partner at T2 Partners, which owns $30 million in Berkshire shares and options, told Bloomberg, "He's shouting from the rooftops: `Bring me enormous deals. There's no deal that's too large for us to look at."
  • Tilson said that if a $40 billion acquisition did come along, Berkshire would likely need to raise about $10 billion in cash.

Mr. White tells Mr. Orange how to structure a good, old-fashioned leveraged buy-out.

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