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Minyans in the Mountains III

2006-08-10T18:00:00.000-04:00

Minyans in the Mountains III officially begins tonight at 7:30pm in Vail, Colorado. Faithful Minyans have been converging on the Vail Cascade Resort & Spa over the past few days with the main event now only hours away.

Tonight's agenda features the Cocktail Reception and Opening Keynote Address with Michael Santoli. Sign-ups are pouring in and the breakout sessions are filling up fast, but there will be plenty of room left for our delayed Minyans.

For those of you who could not make it: please keep your eyes on this Blog for photos and updates and, starting tomorrow, be sure to tune into CNBC for live coverage of Minyans in the Mountains III.

Five Things You Need to Know: ...Text Messaging

2006-08-07T10:14:00.000-04:00

By Kevin Depew

www.minyanville.com

5. Incoming: Text Message

Apparently, while text messaging is popular overseas, it's not really catching on here in the States, according to Business 2.0 magazine.

Text messaging - or SIMS, as it's more commonly known overseas - is widely popular overseas, but has yet to really catch on in the U.S., the article says.
Users in Ecuador send on average more than 200 SIMS messages a month.
Americans send only an average of 50 messages each month, however.
The article notes that what's so weird is that while Americans may be 10 times as wealthy as Ecuadorians - they have a paltry per capita GDP of $4,300 compared to $42,000 here in the U.S. - they send four times as many text messages! What gives?!
Why would Amer... uh, pardon me for a moment, looks like I'm getting a text message...

Read all of Pepe's Five Things

Being Contrarian With Jos. A. Bank

2006-08-04T09:31:00.000-04:00

By Vitaliy Katsenelson
www.minyanville.com

Jos. A. Bank (JOSB) is up close to 6% after reporting truly unbelievable sales numbers for July: same store sales were up 16% and total sales were up 28%. July's performance has validated my view on the stock that you are about to read.

What does it really mean “being contrarian?” Doing the opposite of what everybody else is doing, all the time? What if you agree with what everybody else is doing? Should you disagree for the sake of being contrarian?

“Being contrarian” means being able to think and act independently of the crowd and not be swayed by the crowd thinking. It means to stay on your own autonomous thinking track, independently of the direction the crowd is taking, even if it requires going against the crowd. It means not accepting (though respecting) the market’s wisdom unconditionally, but attempting to develop an opinion of your own.

Yogi Berra’s saying “In theory there is no difference between theory and practice. In practice there is,” could not be more true when it comes to contrarian investing. In theory it is easy to be able to think and act independently; however, in practice it becomes a very lonely and trying experience. Emotions that we don’t experience in the theoretical state overcome us in "the in-the-practice-state."

Investing in Jos. A. Banks requires the investor to be a contrarian. Wall Street hates the stock for sending share price from the mid 40s in April 2006 to the mid 20s. The stock is trading at a pitiful 12 times forward earnings. The stock has been slaughtered as Wall Street did not care for the earnings miss in the first quarter coupled with higher inventories.

At this price, the market expects no growth from the company, but the market could not be more wrong. Here is why:

In December of 2005, JOSB delivered 20% same store sales; management has likely expected this trend to continue and has built up a significant amount of fall inventory. However, weather was not on the company’s side, the spring ended up being warmer. The 20% same store sales comps of December did not come through in the following months and that, coupled with warmer springs, sent management on a fall close discounting spree. Management admitted that it was too aggressive in discounting fall merchandise, with the benefit of hindsight it did not have to do that.

It is hard to tell what the next quarter will look like, but that would be focusing on the trees in the forest and not on the forest. However, the future (the forest) appears to be bright for this company. I recognize that managing business involves making decisions under uncertainty. In the first quarter, management made a mistake, I believe that mistake will have little consequence in the long-term fundamental picture of JOSB.

Inventory is Not An Issue

Retailers live and die by their inventory; it is the lifeblood of their retailing business. Too little inventory means the company doesn’t have enough goods to sell, too much inventory means the company has to heavily discount merchandise in order to clear the inventory. So here is the perceived bad news about JOSB – its inventory days have almost doubled over the last six years from 173 days to 334 days. It is twice the amount of its most comparable competitor, Men’s Warehouse (MW) whose inventory days have stayed in a very stable range of 153-169 days over the same time frame. That is just bad, isn’t it? On the surface, inventory numbers look terrible.

Over the last six years since the new management team has taken the reins of Joseph A. Banks, it has intentionally increased inventories per store. Why am I not worried about high inventory levels? Not all inventories are created equal. Inventory increases at a grocery retailer, like Kroger (KG) may lead to higher spoilage and thus lower profitability. Teen apparel retailers, like American Eagle Outfitters (AEOS) and Abercrombie and Fitch (ANF) need to have a fairly high inventory turnover, as teen preferences for the size and location of holes in their jeans could change with Britney Spears' new CD. However, when it comes to men’s apparel, the men’s tastes rivals the speed of the ice age. Blue shirts and stripe suits have been in fashion as long as...well, forever.

Instead of looking at JOSB's inventory as a risky, unstable assets which may have to be discounted by the retailer to clear the shelves (which is usually is the case for other retailers), one should look at it as an investment in long term assets, not unlike investment in store improvements. Though increasing inventory per store is counter intuitive for retailers that strive to achieve Wal-Mart (WMT)-like inventory efficiency, JOSB customers come to the stores only once or twice a year. The company wants to...

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Five Things You Need to Know: The Ghost of Greenspan...

2006-08-01T10:25:00.000-04:00

The Ghost of Greenspeak
By Kevin Depew
www.minyanville.com

The chief executive of Penguin Publishing's parent company Pearson, said yesterday that Alan Greenspan had agreed to allow a ghost writer to help give his memoirs more "pace," the Times Online reported.

Dame Marjorie Scardino, chief executive of Penguin’s parent company Pearson, said yesterday that Alan Greenspan had agreed to allow a ghost writer to help to “make [his memoir] more pacey — because Alan is an academic.”
Dame Marjorie said, however, that the former US Federal Reserve Chairman is proving to be “a diligent author” who will definitely help his publisher to make a return on the $8.5 million spent to secure the rights to produce his memoir.
After a daring early-morning raid that did not involve the use or injury of small animals, Minyanville has uncovered a rough draft of a paragraph from Mr. Greenpsan's unedited memoirs:

Alan Greenspan's Unedited Memoirs, opening paragraph:
"We may not be able to usefully determine at what point my contributions as Federal Reserve chairman and, later, ad hoc economic advisor, will slow or even reverse, but it is evident that the greater the degree of international flexibility, the less the risk of a crisis. Should globalization continue unfettered and thereby create an ever more flexible international financial system, history suggests that current account imbalances will be defused with modest risk of disruption."

The Ghost of Greenspeak

Yeesh. After reading the excerpt above, I see what Dame Marjorie means. Good lord, Sir Alan Shake Spear-me-in-the-brain so I don't have to read one more word of that horribly boring prose! That text is dry as West Texas dust! It's as exciting as a fly in an ice cube! Greenspan doesn't need a ghost writer, he needs a ghost rememberer! Ok, enough. Even though I got plenty more of those, I'll stop because you get the point: dude needs a ghost writer.

Below is the same Alan Greenspan memoir paragraph massaged by potential ghost writers!

Alan Greenspan's Memoirs, as ghost written by Herman Melville:
"Call me Ishmael. Although my real name is Alan Joseph Greenspan. Some years ago - never mind how long precisely - having little or no money in my purse, and nothing particular to interest me no shore, I thought I would sail about a little and see the watery part of the world, and periodically adjust short term rates to manage inflationary pressures and the occasional bout of undesirable declines in the general rate of inflation."
Alan Greenspan's Memoirs, as ghost written by Richard Wright:
"Brrrrrrriiiiiiiiiinngg!
An alarm clock clanged in the dark and silent room. A bed spring creaked. A woman's voice sang out impatiently:
"Alan, shut that irrationally exuberant alarm clock off!"
A surly grunt sounded above the tinny ring of metal. Naked feet swished dryly across the planks in the wooden floor and the clang ceased abruptly. So far there is little evidence to undermine the notion that most of the productivity increase of recent years has been structural and that structural productivity may still be accelerating."
Alan Greenpan's Memoirs, as ghost written by Thomas Pynchon:
"A screaming comes across the sky. It has happened before, but there is nothing to compare it to now. It is too late. The evacuation still proceeds, but it's all theatre. The federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging. There are no lights inside the cars. No light anywhere."
Alan Greenspan's Memoirs, as ghost written by Hunter S. Thompson:
"We were somewhere around Barstow in 1998 on the edge of the desert when the drugs began to take hold. I remember saying something like "I feel a bit lightheaded; financial intermediation, although it cannot alter the underlying risk in holding direct claims on real assets, can redistribute risks in a manner that alters behavior." And suddenly there was a terrible roar all around us and the sky was full of what looked like huge bats, all swooping and screeching and diving around the car, which was going about a hundred miles an hour with the top down to Las Vegas."
Alan Greenspan's Memoirs, as ghost written by Franz Kafka:
"Someone must have been telling lies about Alan G., for without having done anything wrong he was arrested one fine morning. His landlady's cook, who always brought him his breakfast at eight o'clock, failed to appear on this occasion. That had never happened before. G. waited for a little while longer, as the conceptual share of the value added in our economic processes expands further, the ability to think abstractly will be increasingly important across a broad range of professions. Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual-based economy."

Read All of Pepe's "Five Things"

Clearance Sale On U.S Homes!!

2006-07-31T11:27:00.000-04:00

By Greg Weldon
www.minyanville.com

The National Bank of Slovakia tightened monetary policy last Tuesday by a unanimous 7-0 vote, taking their official short-term interest rate higher by 50 basis points, taking the two-week repo-rate to 4.5%, following hard on the heels of the ‘surprise’ rate hike enacted by the Hungarian Central Bank on Monday (key rate up by 50bp to 6.75%.).

Note the tenor of the commentary offered by National Bank of Slovakia Vice Governor Martin Barto:

“The bank’s board expects that monetary policy tightening will have to continue in the coming months. We cannot rule out further increases in interest rates for the rest of 2006.”

The rate hike is just the last in a series of moves designed to provide support for the depreciating Slovak Koruna (Crown) which has included significant direct foreign exchange intervention. We note the sizable decline in Slovakia’s FX Reserves since the end of June, during which time the NBS has ‘spent’ over $3 billion in support of the SKK, amid a reserve contraction from $16.15 billion to $13.06 billion.

The Slovak CB is not the only global monetary authority that is taking a more aggressive stand against currency depreciation and rising rates of inflation, as we note that the Bank of India hiked their official reverse-repo rate last Tuesday, jacking it by +50 bp to 6.0%.

Moreover, after an average monthly increase in India’s official foreign exchange reserves of more than $3 billion over the last year, thanks to currency intervention growth has ceased and reserves have fallen by (-) $1.5 billion since the middle of May.

And the People’s Bank of China is making more noise related to a more aggressively hawkish monetary stance amid intensified speculation that the CB will not only hike short-term interest rates in the near future, but also, that they will begin to take a more serious approach to manipulating the value of the CNY to the upside, in order to assist in the fight against inflation.

Indeed, the Chinese Yuan is making new post-revaluation highs and is now clearly established ‘above’ the psychologically important 8 Yuan per US Dollar level.

Observe the push to new lows in the USD versus the Chinese Yuan as evidenced in the daily chart on display below.

Against a global backdrop that has, and continues to become increasingly dominated by central bank monetary tightening, our focus is the potential exacerbation of the parallel, intensified erosion taking place in the US Housing arena.

The latest macro-data offered in the US is clear on this point, as demand for homes wanes and the supply of unsold homes soars. Data scalpel in hand, we carve away at the data released by the National Association of Realtors (NAR), and the National Association of Home Builders (NAHB).

NAR, Existing Home Sales fell (-) 1.3% in the month of June, driving the year-over-year rate further into negative territory, posted at minus (-) 8.9%, down from the (-) 6.6% y/y decline seen in May, and the (-) 5.7% pace of y/y erosion witnessed in April.
NAR, Median Existing Home Price up +0.9% y/y, the lowest in over a decade, as home price reflation vanishes into thin air, relative to the +6.0% y/y pace of home price appreciation posted just one month ago, in May.
NAR, Median Existing Single-family Home Price up +1.1% y/y, evaporating from +6.4% y/y price appreciation posted in May.
NAR, Existing Condo Sales down by a sizable (-) 5.5% during the month of June, taking the y/y rate of Condo sales to a deeply negative (-) 14.6% pace of decline, more than double the (-) 6.6% y/y pace of sales deflation posted in May.
NAR, Median Existing Condo Price deflated by (-) 1.0% during the month, taking the y/y price change from positive to negative, as defined by the (-) 2.1% y/y decline posted for June, versus the rise of +1.9% y/y seen in May.
NAR, Supply of Existing Condos for Sale rose to a whopping 8 months worth of sales, a NEW RECORD HIGH, up from 7.7 months posted in May, and almost twice as many as seen in June of last year, when the figure was pegged at 4.2 months.
NAR, Supply of Existing Homes for Sale rose by a huge +3.8% during the month of June alone, taking the total supply of unsold existing homes to a NEW RECORD HIGH of 3.73 million. Further, the number of homes for sale spiked to 6.8 months worth of sales, up from the 6.4 months worth of sales posted in May and sharply higher than the 4.4 months worth of sales posted in June of last year.

Indeed, the number of Existing Homes for Sale measured in months worth of sales reached its highest level since July of 1997, and, more impressively, has risen by more than one million homes over just the last twelve months, a nominal increase of nearly 40%!!!

No wonder then, that Home Builder’s sentiment is...

Read the full Article

Earnings Season Randoms: Vicor, Cypress Semi, Plantronics, Sirf, Mueller Water

2006-07-26T10:33:00.000-04:00

By Fil Zucchi
www.minyanville.com

Vicor (VICR) gave me fits yesterday, after reporting a surprisingly bad quarter and saying that customers pulled the plug on demand. Not a shocker when it comes to PC related products, but a “canary in the coal mine” when it comes to customers in the capital equipment side of things. Was the CEO blowing smoke about the deteriorating macro environment, just to cover his tracks? Maybe, but I always viewed the guy as a straight shooter. What am I doing with this? I was long 80% of a position from $17.00 and I bought the rest yesterday at $11.00. It was either average down or cut bait, and in the scheme of my other positions, and perhaps falling back on some bad old habits, I chose the former. As you can tell from the tone of my writing, my level of conviction is not exactly high.
Cypress Semi (CY): T.J. Rodgers continues to deliver on the profit promise. No warnings signs from him (and if they were there you can rest assured he’d tell you), but this exchange was “interesting”:

Analyst :. . . it looks to me like the revenue guidance might be conservative, especially given the growth coming from SunPower. Can you comment on that and why you're looking for less turns in the September quarter?

TJ Rodgers: “We have 87% of the quarter booked from day one, our turns are consistent with the quarter, but this has been going, good news, for six quarters now. And like all of you, the questions today are clearly, how long will this last and how long will it be good type questions? We also wondered, we see no signs whatsoever, and therefore, we're giving you a number we believe we can make.” (Emphasis added)

Are folks starting to wonder if the party can last? Are they seeing something that suggests that it should not be lasting?

Read the full article at minyanville.com

Cajoling The Markets

2006-07-21T08:48:00.001-04:00

By John Succo
www.minyanville.com

The comparison of what Mr. Bernanke said to Congress..."the housing market slowdown appears to be orderly decline"...to what the CEO of DR Horton (DHI) said..."sales are falling off the Richter scale"...should say a lot of how the government attempts to cajole markets.

The company "senses there are three to four quarters of inventory adjustments ahead for homebuilders."

From the flawed statistics they release to their subjective commentary, I can't believe anyone still listens to them.

Government intervention and control of markets has a very negative cumulative effect. Easy credit allows unproductive companies to survive when they should not. It interrupts the system from cleansing itself which creates stronger growth in the future. Our economic growth becomes more and more dependent on speculation. All that stability investors "feel" is...

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What Options Are Telling Me

2006-07-19T15:16:00.000-04:00

By John Succo
www.minyanville.com

I am pretty busy selling deltas (stock) up here against our positions. Wells Fargo (WFC) has rallied 3.3% today yet they crush volatility in option prices. This is a major move in stock and the reaction of people always amazes me. But it is really due to call selling from overwriters.

Just like a major increase in option prices tend to make markets rally (as explained), a crush in volatility sets up the market to fall back. Again, much of this rally is due to a sort of short covering where those long expensive puts panic and "puke" them out.

And it starts over and over again, a process that tells a lot if you look between the lines. Options are telling me that people are now more worried about missing a rally than anything.

All this in a backdrop where central banks are more...

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Random Thoughts

2006-07-17T13:49:00.000-04:00

By Todd Harrison
www.minyanville.com

Minyans must remember that the geopolitical issues aren't the root cause of the big picture malaise. We've got massive structural imbalances, a bloated consumer and all kinds of issues to digest in a complicated financial mess. Please keep this in mind if your risk is out-sized and you need to re-balance your book.
With that said, Sky News is reporting that would agree to a ceasefire if Hezbollah withdraw from the Israeli border area (citing an Israeli official). IF that happens (and I'm not sure how plausible it is), we'll likely see a relief rally. It is then, while the screens are green, that we'll have an opportunity to reposition our risk.

To catch the rest of Todd's Random Thoughts, Read the full Article

Random Thoughts

2006-07-11T15:36:00.000-04:00

By Todd Harrison
www.minyanville.com

Social Security?
CRB 330-334 remains an uber-important double secret support zone for commodity land. If they break that shake, you'll start hearing the word "deflation" on a lot more lips.
We've seen a lot more option selling than option buying as we edge into earnings. As Professor Succo would say, that's a complacent 'theme.'
Outside of specific nibbles (such as JP Morgan puts under BKX 108), I'm typing with one hand and sitting on the other. This, despite my earlier sense that the S&P 200-day was fraught with fragility.
A view from afar? I can tell you, after a week abroad, that the dollar is hurtin' for certain and the collective perceptions of the USA aren't what they used to be. Not a shocker, given my long-standing and oft-communicated vibes, but worthy of a mention nonetheless.
Snaps to Minyan Matt Ford for the upcoming publication of "Threat, Intimidation and Student Financial Market Knowledge: An Empirical Study" in the Journal of Education for Business. I am a co-author of this academic study--which is sorta cool--but Matty deserves the group hug. He's doing great things with UMV so if you've got college age Minyans--or would like to include your school in our syndicate--please get involved. That's how we grow!
And that sure beats the other side of the literary ride!

To see the rest of Todd's Random Thoughts, Read the Full Article at minyanville.com

Can AOL Catch Google and Yahoo?

2006-07-10T13:31:00.000-04:00

By Kevin Wassong
www.minyanville.com

When I started at J. Walter Thomson in 1998, I sat down with the then world wide COO to talk about interactive advertising and JWT’s position in the market. In terms of interactive, he said to me, “…this is a race for our lives. It used to be that we were looking at our competitors, running right behind them (Ogilvy, BBDO, McCann), but now they are so far in front of us that we can’t even see them anymore. Your job is to get us back into that race.” This is exactly what I did at JWT’s digital arm until leaving the firm at the end of 2004.

In the late 1990’s AOL was one of, if not THE leader in online advertising, garnering the lion’s share of ad dollars being spent on line. The man leading the charge was Meyer Berlow. A hard nosed/shrewd ‘player’ in the media space. He was one of the first meetings I set up as the head of JWT’s interactive division. I knew Myer from an earlier agency I had worked at in California, but Myer had now climbed to the top position at AOL as President for Global Marketing solutions and he could sell advertising. Most of the big fish, Unilever (UL), Proctor & Gamble (PG), all the Automotive manufacturers bought the AOL pitch, hook, line and sinker. In the post Berlow era, AOL lost its drive for the advertising and focused on subscriber growth – does anyone remember the CDs they’d receive in their newspaper offering “25 Hours of AOL FREE!” If I had a nickel for each of those CDs I’d be retired today!

To see Kevin's analysis read the full article at Minyanville.com.

Minyan Mailbag

2006-06-28T10:28:00.000-04:00

Anonymous said...

Great Blog and Great Site! Quick question: in regards to the paid subscription for Minyanville.com, what benefits (other than "buzz and banter") does a subscriber get over a non-subscriber?

Thanks in advance!

We said...

Subscriber's gain access to the Buzz and Banter, Minyanville's signature product. Aside from the great community we take pride in at Minyanville, The Buzz and Banter is truly our bread and butter. We have so many brilliant contributors here, many of whom are executives of their own hedge funds and research firms. With nearly 100 posts per day, they are able to relay their insights to your desktop via the Buzz and Banter in real-time. By following the flow of the markets via the buzz, you'll get actionable investing ideas and learn how to be a more fiscally fit investor.

Also, in furthering our community at the ‘Ville, we are working to generate new networking opportunities among subscribers so we can not only learn about our fellow Minyans, but learn from them.

I’d say you get what you pay for, but you get more. Plus a Free Trial never hurts.

Monday Morning Quarterback

2006-06-26T12:08:00.000-04:00

www.minyanville.com

Good morning and welcome back to the flickering pack. On the heels of my quick Colorado jaunt—and before I scoot to jury duty this morning to satisfy my civic responsibilities—I wanna scribble some dribble as we begin our fresh five session set. As I’ve been sans screens for a few days (and will likely be in a similar situation for a few more), I share this fare with hopes that some beneficial vibes resonate. These are critically important times in the land of flickering ticks and take me at my word that I’ll be back in the saddle—and back on the Buzz—as quickly as I can.

The Denver Chronicles

I hosted two town hall chats on Thursday, the first with the good folks at the CFA and the other with the kind peeps of the AAII. While the former were decidedly professional and the latter was skewed to the individual subset, I walked both through my process of metric assimilation when viewing the financial dew. In doing so, I ranked the four pillars of our metric mix in the following order, offering vibes on each that I must summarize due to the space constraints of this column.

Structural: We spoke about the “dollar vs. asset class” dynamic, offering visual validation that gold, crude and stocks have traded “monolithically” against the greenback. We touched on the simultaneous ‘flations and the higher costs of things we need coexisting with the lower cost (and pricing pressure) of things we want. We discussed the difference between legitimate economic growth and debt induced demand, how total debt in our country is more than 300% of GDP and how that will manifest in the years ahead. And we monitored the compression that’s prevalent in our derivative-laden financial fabric and discussed how that’ll play out in the current state of globalization.

To see the rest of Todd's pillars, read the full article

Good luck today.

R.P.

Have You Heard the Buzz?

2006-06-22T08:44:00.000-04:00

We recently launched a new and improved version of our most coveted product, The Buzz and Banter. "The Buzz" provides real time market analysis from 30 of the brightest minds on Wall Street. Access relevant, interesting, and witty commentary from the industries most respected prefessionals, conveniently at your desktop.
Learn more at www.minyanville.com.
Access the Buzz and Banter at minyanville.com/buzzlanding

Phantom of the Market

2006-06-21T12:25:00.000-04:00

By Todd Harrison
www.minyanville.com

On the heels of a hellacious six week span, the bovine held their ground yesterday and planted seeds of a much needed "higher low." The ability to create a technical catalyst or, at the very least, hold the June lows is the first step towards putting this process of price discovery behind us. As anyone within spitting distance of the mainstream media can tell you, it hasn't been the best of times for financial assets. Stateside Equities, Europe, Asia, India, Stockholm, metals, crude--it's synchronized swimming at its finest, monolithic movement that has been a mirror image of the U.S dollar. I've long opined that our Federal Reserve must make a choice between a strong dollar or firm asset classes. That script is being screen tested each day as we sift through the other side of globalization.

While I was quite cautious into the May 10 FOMC meeting, I've been buying dips in the metal and energy complex and balancing my portfolio with a spate of autumn puts in the financial sector. For those with an active eye, I've set my short side "stops" above BKX 108 and XBD 205, which is technical resistance for the banks and brokers. The risk to that approach is that charts take a back seat to structural forces when the wheels fall off the wagon. Indeed, if we're to assimilate the four primary metrics of fundamentals, structural, technicals and psychology--in the context of a bubble of hedge funds chasing quarter-end performance--it's quite possible that the path of maximum frustration will flummox those reliant on traditional trading approaches.

I won't pretend that all is well in the world or that the worst is behind us. I'm simply looking to shake shekels from the tree and pocket them before the Phantom returns to his rightful home. Who is this Phantom I speak of and what does he want? For me, it's a simple yet unpleasant answer...
Read the full article

Five Things You Need to Know: Rent, In(de)flation, Close Encounters, Ford Meets Lassie, Magna Carta

2006-06-15T11:54:00.000-04:00

By Kevin Depew
www.minyanville.com

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

All About the Rent!

While everyone has a handle on "core inflation," and rising gasoline prices, and so on and so forth, few seem to be focused on a key component of CPI, Owners' Equivalent Rent. Oh, hey there, Mr. Roper! What, Chrissy didn't give you the check? I'm sure she just forgot.
The core CPI yesterday came in with its third 0.3% monthly increase.
Look at the numbers: year-on-year inflation is now up 4.2% from 3.5% previously. Yikes!
However, while one key element in the inflation rise is (naturally) energy, another perhaps more important component is Owners' Equivalent Rent (OER), up 0.6% on the month.
What is OER? OER measures the rent homeowners can obtain for their houses. OER makes up a whopping 30% of the core CPI.
Why is OER rising? Partly, because potential home buyers are now finding it easier to rent than buy houses.

The National Multi Housing Council reports that affordability in the nation's hottest housing markets has been eroding for some time and US rents overall are up 5% year-over-year.
Meanwhile, in South Florida vacancy rates are so low that some landlords are raising rents as much as 28 percent, according to McCabe Research & Consulting, the Wall Street Journal reported earlier this week. That sounds like inflation, right? Read on...

Alas poor Inflation. I knew him, Horatio.

"A Modest Rise Still Amplifies Inflation Fears," the New York times reports. Special Bonus: The Times article mentions Paul Volcker and Alan Greenspan in back-to-back paragraphs!
Hard to blame them. The core CPI yesterday came in with its third 0.3% monthly increase, all but guaranteeing a Fed rate hike of another 25 basis points at the June 29 FOMC meeting.
Year-on-year inflation is now up 4.2% from 3.5% previously.

We looked at OER above. Sure enough, rents are rising. But, according to Merrill's David Rosenberg, OER is also rising due to a more bizarre and complex factor: natural gas prices.
Falling natural gas prices have, ironically, added to the increase in OER because the government subtracts utility prices from the calculation.

According to Rosenberg, if you exclude the OER component, then core CPI rose a mere 0.17%. (Yo, that's a typo, right? You meant 1.7%.) No, that's not a typo. 0.17%.
So, while the market is reportedly focused on inflation, Minyanville's Todd Harrison this morning noted the real Phantom of the Market: Deflation. "Who is this Phantom I speak of and what does he want? For me, it's a simple yet unpleasant answer, the type of discussion that nobody wants to have until we actually see his shadow. He is Deflation; painful, all-consuming, watershed Deflation."
The risk is that if we are at the end of the credit cycle, and what appears to be inflation is simply the result of secular monetary hyperinflation from central banks, then the inevitable unwind of that credit cycle - a saturation of risk appetite becoming risk aversion and a decrease in time preferences - will find the Fed possibly raising rates into the teeth of a deflationary unwind. Just thinking out loud here.

C'mon Everybody! Ford Needs Our Help!

Speaking at the Competitiveness Forum, Ford's president of the Americas Mark Fields asked the federal government for help to "level the playing field" for domestic automakers in the U.S. market.
Hey Lassie!
Woof!
What is it Lassie? What's wrong?
Woof!
Ford? What about Ford?
Woof!
Ford fell in a well?
Woof!
Oh, Timmy fell in a well. But what about Ford, Lassie? Is Ford in trouble?
Woof!
What!?! Ford's gonna close 14 plants and lay off somewhere between 25,000-30,000 workers! What do we do Lassie?!
Woof!
Ford wants us to level the playing field? What does that mean? Handouts? Bailouts?
Woof!
Oh. Tax credits.
Woof!
No!!! Oh Lassie, don't tell me Ford's healthcare costs have crippled the company!
Woof Woof!
Ok, Lassie. You run back to Ford and tell them first thing, stop making all those useless cars. Second close all the plants, they're not going to need them. Third, get them to change their name to Ford HMO... and round up as many doctors and nurses as you can! I'll go get the taxpayers!
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The State of the Art

2006-06-14T12:48:00.000-04:00

By Todd Harrison
Minyanville's News & Views

Editor's Note: This is a revamped look at the the state of the financial arena. This article was originally published last year and has been updated to reflect current market trends. Enjoy!

"It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another." Gordon Gekko

You don't have to be a big hitter to see that Wall Street has forever changed. What was traditionally an exclusive club of power players and money makers became a household hobby when technology made enablers of the mainstream. In the storied history of the financial markets, the rate of change has been nothing short of remarkable. The last ten years revolutionized an industry once known for clubby relationships and handshake agreements. The next ten years will forever alter the structural DNA as the old guard chases an ever-evolving digital world.

When I started at Morgan Stanley, I arrived at my turret while the skies were still dark and transcribed our derivative positions by hand. As ancient as it sounds, the risk management approach was that arcane. We "paired" single stock positions into hand-written strategies in an attempt to manage the complex components of our collective risk puzzle. That meticulous process was standard practice on the Street as traders relied on an acquired acumen and scribbled T-accounts to base million dollar decisions. It was an innocent approach to an intricate machination, where inefficiencies were commonplace until arbitrage emerged to capture risk-free returns.

I remember when we started pricing over-the-counter products and would "win" business by 30, 40 or 50 volatility points (a subjective assignment of valuation). Customers could "collar" their stock and lay off risk without the requisite footprints and we gladly facilitated the orders. Technology companies also awoke to write naked puts in lieu of stock buy-backs. If their short options were exercised, their cost basis was cheaper than it would have been in the open market. If not, the premium expired worthless and the income slipped through a tax-free loophole. Microsoft did it. So did Dell. Intel too. They were happy campers and our firm was a profit machine as the wheels of capitalism continued to grease a seamless coexistence. In time, as other sell-side players entered the market, the relative edges rounded and...
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R.P