Archive for 2008

• What Recession?
  Eddy Elfenbein, May 2nd, 2008 at 11:15 am

  An editorial from the New York Sun:

  The common definition of a recession is two consecutive quarters of negative economic growth, as we reminded readers in a January 24, 2008, editorial, “Recession Looms?” Well, despite the determination of politicians in Washington to deliver a “stimulus” to counter a recession, despite the persistence of the huffing and puffing from Paul Krugman about how the economy is about to go into a recession, despite the harrumphing of even the likes of Alan Greenspan, somehow the recession is proving elusive.
  That is certainly the indication from the Department of Commerce, which yesterday announced that the gross domestic product in the first quarter of 2008 grew at a seasonally adjusted annualized rate of 0.6%. That’s a real rate of growth, which means that the economy grew faster than inflation, which was itself not negligible. It was the same real growth rate that the government measured in the fourth quarter of 2007.
  We’d like to see stronger growth, like, say, in the third quarter of 2003, when the economy started to get the feel of the Bush tax cuts and grew at an astonishing seasonally adjusted annualized rate of 7.5%. Or the year that began in April of 1983 and ended in March of 1984, when President Reagan’s supply-side measures began to work their incentives and when the American economy grew consistently at a supercharged rate of more than 8%.
  But two consecutive quarters of 0.6% growth is not bad, when measured against, say, the fourth quarter of 1990 and the first quarter of 1991, when real GDP shrank at an annualized rate of 3% and 2%. That was negative growth, not merely slow growth. Another genuinely bad patch was in spring and summer of 1980. In the second quarter of 1980, growth was negative 7.8%.
  What we’re seeing now — a national unemployment rate of 5.1% in March, a stock market whose indexes are up nearly 5% for the month of April — does not a recession make. In the early 1980s, we saw double-digit unemployment rates. In the early 1990s, the unemployment rate reached 7.8%. A 5.1% national unemployment rate is not a recession. There may yet be a recession, but Mr. Krugman & Co. will have to wait a bit more.
  This is not to minimize the pain or hardship felt by those who have been affected by the job losses on Wall Street, who face losing their homes in a foreclosure proceeding, or who have been affected by the flight of manufacturing jobs overseas. But the American economy and the capitalist system and open markets are remarkably robust.
  President Bush has now presided over 26 consecutive quarters of positive GDP growth, beginning immediately after the quarter that included the terrorist attack of September 11, 2001. President Reagan was credited with the “Seven Fat Years” in a book of that name by Robert Bartley that derived its title from Genesis. President Bush has two more quarters to go to make it to 28 quarters of growth, which would be seven fat years of his own and leave responsibility for protecting the Bush boom to whomever America elects as the next president.

• Ricepec
  Eddy Elfenbein, May 1st, 2008 at 2:58 pm

  Thailand, Vietnam, Cambodia, Myanmar and Laos are thinking about creating a rice cartel:

  The plan appears to be in a nascent stage. “I think it’s time to do it, probably within the term of this administration,” Noppadon Pattama, Thailand’s foreign minister, said Wednesday.
  But if successful, a cartel could have far-reaching consequences on the rice market, sustaining prices at their current historic highs and worsening a food crisis that is hurting Asia’s poorest consumers. The price of Thai B-grade rice, a benchmark variety, has nearly tripled in recent months and is now hovering at about $1,000 a ton.
  Maintaining rice prices would please large-scale rice farmers and traders in countries like Thailand and Vietnam, but it would anger places like the Philippines, Singapore and Hong Kong, which rely heavily on imported rice. Plans for the cartel were front-page news in the Philippines on Thursday.

• The S&P 500 Total Return Index
  Eddy Elfenbein, May 1st, 2008 at 2:26 pm

  Including dividends, the S&P 500 is down -5.0% for the year, and up 8.3% for the decade.
  
  Here’s the same chart adjusted for inflation. The CPI for April hasn’t come out yet so I assumed 0.5%.
  

• Timmay Radio Is Born
  Eddy Elfenbein, May 1st, 2008 at 1:30 pm

  If you’ve never heard of Tim Sykes, at this point, that’s probably your fault. He’s a one-man media, blogging and trading empire.
  Tim has redesigned his site which now includes a podcast with yours truly. Enjoy.

• The Strange BBBY Rally
  Eddy Elfenbein, May 1st, 2008 at 12:47 pm

  Ever since Bed Bath & Beyond (BBBY) reported its poor quarter a few weeks ago, the stock has rallied. The stock is now up about 20% from its low.
  We often look to clear reasons to explain stock price movements. It’s disquieting to think that sometimes there simply aren’t any. Of course, I never thought BBBY should have been that cheap to begin with.

• Setting the Bar High
  Eddy Elfenbein, May 1st, 2008 at 12:43 pm

  It’s got to be rough for a company that earns $10.9 billion in a quarter, and the results are called disappointing.

• De Beers Finds Shipwreck, Treasure From Columbus Era
  Eddy Elfenbein, May 1st, 2008 at 10:34 am

  This is cool:

  De Beers, the world’s biggest undersea diamond miner, said its geologists in Namibia found the wreckage of an ancient sailing ship still laden with treasure, including six bronze cannons, thousands of Spanish and Portuguese gold coins and more than 50 elephant tusks.
  The wreckage was discovered in the area behind a sea wall used to push back the Atlantic Ocean in order to search for diamonds in Namibia’s Sperrgebiet or “Forbidden Zone.”
  “If the experts’ assessments are correct, the shipwreck could date back to the late 1400s or early 1500s, making it a discovery of global significance,” Namdeb Diamond Corp., a joint venture between De Beers and the Namibian government, said in an e-mailed statement from the capital, Windhoek, today.
  The site yielded a wealth of objects, including several tons of copper, more than 50 elephant tusks, pewter tableware, navigational instruments, weapons and the gold coins, which were minted in the late 1400s and early 1500s, according to the statement.

• The S&P 500 and Earnings
  Eddy Elfenbein, May 1st, 2008 at 10:14 am

  Here’s a chart of the S&P 500 (black line, left scale) and its earnings (yellow line, right scale). I scaled this graph at a ratio of 16-to-1, so whenever the lines cross, the P/E ratio is exactly 16. As you can see, even as the market has risen and sold off, the market is basically following earnings pretty closely.
  

• Another 25 Points
  Eddy Elfenbein, April 30th, 2008 at 2:24 pm

  The Fed cuts. Here’s their statement:

  The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
  Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
  Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
  The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.
  In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

• Apparantly Short Sellers Are the New Terrorists
  Eddy Elfenbein, April 30th, 2008 at 12:33 pm

  From the NYT:

  In the days when square-rigged galleons plied the spice route to the East, the Dutch outlawed a band of rebels that they feared might plunder their new-found riches.
  The troublemakers were neither Barbary pirates nor Spanish spies — they were certain traders on the stock exchange in Amsterdam. Their offense: shorting the shares of the Dutch East India Company, purportedly the first company in the world to issue stock.
  Short sellers, who sell assets like stocks in the hope that the price will fall, have been reviled ever since. England banned them for much of the 18th and 19th centuries. Napoleon deemed them enemies of the state. And Germany’s last kaiser enlisted them to attack American markets (or so some Americans feared).

  There’s also a new academic study that suggests shorts may know what they’re talking about.

  We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.