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Five Things You Need to Know: Disinflation vs. This Inflation; Home Sales Not Collapsing in Nine States!; Sorry!; Are Our Money Market Funds Safe?; MV's Worst of the Worst College Rankings


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. Disinflation vs. This Inflation

Consumer prices in the U.S. rose 0.1% in July, the smallest gain in eight months, the Labor Department reported.

  • The core CPI, which excludes food and energy prices, rose 0.2%, matching June's increase.
  • For example, the Wall Street Journal says, "U.S. consumer prices softened last month on falling energy prices while clothing and medical care posted sharper gains, suggesting the recent disinflationary trend may have come to an end."
  • Bloomberg, however, took the following approach, "Consumer prices in the U.S. rose 0.1 percent in July, the smallest gain in eight months, signaling the Federal Reserve may view inflation as less of a threat."
  • Looking inside the data, energy prices declined 1%, month-over-month, led by a 1.7% decline in both gasoline and natural gas prices.
  • Upward pressure, however, was seen in food prices, medical care prices and even clothing prices.
  • So the WSJ is concerned the "disinflationary trend" is nearing an end, while Bloomberg is concerned a new disinflationary threat is now developing.
  • Which to believe?
  • We're siding with Bloomberg on this one.
  • Take a look at the following updated charts, courtesy of Ron Griess'
  • First, Food is certainly rising, now at a cyclically high level from which it has declined (1997, 2004):
  • Meanwhile, here's downward pressure in Durables:
  • And is Recreation pointing to a slowdown in consumption?
  • Finally, check out CPI all items and the Core. This doesn't appear to suggest anything remotely along the lines of an end to the "disinflationary trend."
  • Again, we believe the Fed's greatest fear is deflation, not inflation.

2. Home Sales Not Collapsing in Nine States!

Sales of existing homes didn't fall in nine states during the April-June quarter, the National Association of Realtors said.

  • The good news of home sales not collapsing in nine of the 50 U.S. states was tempered, however, by reports that year-over-year existing home sales fell 11%.
  • As well, the national median existing single-family home price was $223,800 in the second quarter, down 1.5% year-over-year.
  • Lawrence Yun, NAR senior economist, said the price trends are "encouraging."

3. Sorry!

Goldman Sachs (GS) Chief Executive Officer Lloyd Blankfein apologized to VTB Group CEO Andrei Kostin for an analyst's "sell'' recommendation on the Russian bank's shares, according to Bloomberg.

  • Ok, so here's the story according to Bloomberg:
    Goldman analyst Jernej Omahen last week started coverage of VTB, saying in a note to clients that "we see better value elsewhere.'' Meanwhile, Blankfein told Kostin on a phone call he didn't "share that point of view."
  • So what's the big deal?
  • Can't a big-time investment bank CEO disagree with one of the analysts his firm employs?
  • Of course he can. Differing opinions are what make a market.
  • Although things begin to get a bit murky when the CEO doesn't so much disagree with the rating as apologize for it.
  • Did we mention that, according to Bloomberg, Goldman is adding 25 apologists bankers in Moscow this year to tap what it considers the country's "huge potential'?
  • Oh, we just did? Sorry!

4. Are Our Money Market Funds Safe?

Yesterday's news that Sentinel Management Group, an alternative cash manager for Commodity Trading Advisors, institutions and accredited investors, was seeking to halt redemptions in one of its supposedly very liquid funds, raises the question, can this happen to us?

  • First off, Sentinel was not an "money market fund," although the firm was invested in some securities that other money market funds invest in.
  • This led to concern that some money market funds may also be vulnerable.
  • Standard & Poor's warned yesterday that it might downgrade several issuers of commercial paper backed by residential mortgages.
  • S.& P. highlighted four issuers of commercial paper for possible downgrading.
  • According to the New York Times, these issuers were:
    - Broadhollow Funding, set up by American Home Mortgage, a lender that filed for bankruptcy last week
    - KKR Atlantic Funding Trust and KKR Pacific Funding Trust, two affiliates of the buyout firm Kohlberg Kravis Roberts
    -Ottimo Funding, an affiliate of Aladdin Capital Management
  • The issue is how much of this asset-backed commercial paper is held in traditional money market funds.
  • But this is a small segment of the asset-backed commercial paper market, and an even smaller segment of commercial paper as a whole, which is actually itself a subset of overall money market investments.
  • So, are money market funds safe?
  • That depends. Safe from what?
  • Money market funds are not the same as dollars. Remember, there is no such thing as a free lunch. Anything that pays you for the use of your money - and money market funds pay you a yield for the use of yours - is not the same as a risk-free investment.
  • Low risk is not the same as no risk.
  • Every money market fund prospectus has the following disclaimer:

  • They have it for a reason.

5. MV's Worst of the Worst Colege Rankings

Later this week the much-anticipated (or loathed) U.S. News and World Report College Rankings for 2008 will be released.

  • U.S. News' 2008 college rankings will be released online Aug. 17 and will arrive at newsstands Aug. 19.
  • The rankings, although intended as a quick snapshot of where colleges stand among their peers, have over the years become quite controversial.
  • New this year, 61 college presidents have "dropped out" of the college rankings game, citing among other things, concerns that the rankings:
    - imply a false precision and authority that is not warranted by the data
    - obscure important differences in educational missions
    - encourage wasteful spending and gamesmanship in institutions' pursuing improved rankings
  • Even though some schools say they'd prefer to drop out altogether, U.S. News will continue ranking schools that don't fill out the survey, the group says.
  • Meanwhile, Minyanville has taken the liberty of creating our own college rankings system.
  • Look, let's be honest.
  • After the initial 25 job interviews and your first full year on the job, nobody much cares where you went to school.
  • The goal then is not to go to the best school, but to make sure you don't go to the worst school.
  • To help you in your mediocritic learning endeavors, Minyanville has created MV's Worst of the Worst Colege Rankings.
  • Where do you stand among your college-going peers? As Jeff Saut would say, that depends on where you sit. Let's hope you're not sitting in class at any of these schools.

Minyanville's Bottom Colege Rankings
The worst of the worst

1. Spellchekc Laerning Acadamy
2. Grifter College at Belmont Park
3. Abacus Applied Technology
4. University of Kegstand
5. Sloth
6. Homeschool Junior College at Home in Your Spare Time
7. West Virginia Institute of Whittling
8. Trump Condominium College
9. SWU Advanced PhD Program
(Sidewalk University, Advanced Pimp and Hustler Degree Program)


No positions in stocks mentioned.

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