First They Came for My Natty Bo…
Posted by Eddy Elfenbein on May 21st, 2009 at 11:30 am

USA Today reports:

WASHINGTON (AP) — Consumers in the United States may have to hand over nearly $2 more for a case of beer to help provide health insurance for all.
Details of the proposed beer tax are described in a Senate Finance Committee document that will be used to brief lawmakers Wednesday at a closed-door meeting.
Taxes on wine and hard liquor would also go up. And there might be a new tax on soda and other sugary drinks blamed for contributing to obesity. No taxes on diet drinks, however.
Beer taxes would go up by 48 cents a six-pack, wine taxes would rise by 49 cents per bottle, and the tax on hard liquor would increase by 40 cents per fifth. Proceeds from the new taxes would help cover an estimated 50 million uninsured Americans.

I bet Obama would never tax appletinis or mojitos.

Very Short Post on MO
Posted by Eddy Elfenbein on May 21st, 2009 at 11:13 am

If you’re looking for a nice yield, it’s hard to find something better than Altria Group (MO). The company just declared a quarterly dividend of 32 cents a share. That comes to 7.8% a year. The company has decent cash flow so I don’t see the dividend being cut to pieces.

Disturbing Segment on CNBC
Posted by Eddy Elfenbein on May 20th, 2009 at 2:12 pm

On CNBC, Jeff Macke starts acting weird, then very weird. You know it’s bad when Dennis Kneale is the sane one.
I’ve watched this clip a few times and I have no idea what Macke is talking about. It seems like he’s referring to some inside joke, but I don’t get where he’s going. Poor Dennis just backs away.

(Via: Clusterstock)

Gold Vs. the S&P 500
Posted by Eddy Elfenbein on May 20th, 2009 at 12:42 pm

Here’s a look at how gold has done against the S&P 500:

Here’s the same graph but I divided the two numbers (S&P 500 by gold):

On the day of the inauguration, exactly four months ago, the ratio slipped below 1.0. The ratio has previously bounced off 1.0 on November 20. Since the inauguration, it’s closed above 1.0 only once and that was on April 17 which was the day of Citigroup‘s (C) **cough** “earnings” report.
Interestingly, the S&P has stayed roughly even with gold over the past few weeks which puts the rally in a different light.
My view is that we’ll test 1.0 again. If the market likes what it sees, then we might move much higher.

Nouriel Roubini in TNR
Posted by Eddy Elfenbein on May 20th, 2009 at 7:56 am

Saturday Night Live recently had a strange skit about a talk show hosted by the Bee Gees. Honestly, it wasn’t terribly funny but what struck me was that one of the guests was supposed to be Nouriel Roubini (I think it was Fred Armisen).
The Roubini character was the straight man in the skit, but it’s telling that he’s reached the point where he can be a typical “important person” you’d see on a talk show, even a parody of one.
Roubini is probably the hottest economist in the world right now. More tellingly, we live in a time where there is a hottest economist in the world.
Roubini just got another honor, a profile in the New Republic. It’s a pretty good profile. One complaint I have is that these profiles often try a tired formula—that the person’s ideas are an outgrowth of who they are. The New York Times tried that recently with Freeman Dyson and it didn’t work.
The truth is that you often can’t see a connection between important thinkers and their personalities or backgrounds. This sort of game can easily descend in psycho-babble. It will read something like, “He’s ideas are outside the mainstream and in high school, he was…wait for it…an outsider. Hello, Theme!!”
There’s even a theory that the stalemate in economics between investment (the male) and savings (the female) was finally broken by Keynes, the homosexual. That’s totally loopy to me but hey, it’s not my idea.
I’ve never met Roubini, but I would think the interesting angle to take is that he seems to be the opposite of his ideas—the playboy professor with the buzzkill forecasts.
Unquestionably, Roubini is an important thinker. However, I was glad to see the profile mention that Roubini hasn’t been as prescient as many people believe:

Anirvan Banerji, an economist with the Economic Cycle Research Institute, has been particularly dismissive of Roubini’s forecasting abilities: “The average time between recessions is about five years in the postwar period,” he says. “So, if you forecast a recession one year and it doesn’t happen, and you repeat your forecast year after year … at some point the recession will arrive.”
And Roubini has undeniably overshot. In 2004, he predicted that the oncoming recession would precipitate the crash of the dollar. The crisis has mainly buoyed it. On September 1, 2005, three days after Hurricane Katrina made landfall, Roubini told Reuters that economic disaster was imminent. What followed instead was a bump in financial activity that forestalled the recession for more than two years.

If you’re waiting for Jon Stewart to do a sanctimonious takedown of Roubini, I wouldn’t hold your breath. Though I nearly choked when the profile mentioned Nassim Taleb, “who also predicted a catastrophe in his book The Black Swan.” The old adage is true: It’s not what books say that’s important, it’s what people assume they say that’s important.
I’m glad to see Roubini get the attention, fame and fortune he deserves. But I have to add we shouldn’t judge economists by how accurate their macro forecasts are. That’s a losing game. Instead, we should focus on the power of their ideas to explain the economy, and see the connections that they see.
If you want to be a prognosticator, then go on the record with specific advice. If not, then you should try to explain the economy as clearly as you can.

This Just In…
Posted by Eddy Elfenbein on May 19th, 2009 at 5:51 pm

People With Higher IQs Make Wiser Economic Choices, Study Finds

People with higher measures of cognitive ability are more likely to make good choices in several different types of economic decisions, according to a new study with researchers from the University of Minnesota’s Twin Cities and Morris campuses.
The study, set to be published online in the Proceedings of the National Academy of Sciences this week, was conducted with 1,000 trainee truck drivers at Schneider National, Inc., an American motor carrier employing 20,000. The researchers measured the trainees’ cognitive skills and asked them to make choices in several economic experiments, and then followed them on the job.
People with better cognitive skills, in particular higher IQ, were more willing to take calculated risks and to save their money and made more consistent choices. They were also more likely to be cooperative in a strategic situation, and exhibited higher “social awareness” in that they more accurately forecasted others’ behavior.

I’m looking forward to authors’ follow-up study, “Your Ass and a Hole in the Ground: A Study on Dissimilarities.”

The VIX and Market Returns
Posted by Eddy Elfenbein on May 19th, 2009 at 4:17 pm

Most commentators assume that low volatility is good for the market. That’s not necessarily the case. All a high low or VIX is at predicting is high or low volatility, not direction.
CNBC reports:

Historically, the S&P has seen an average of 3% and 6% gains respectively over the 3 and 6 months that follow a crossover below 30.

That’s a completely useless stat. The general market averages close to those returns anyway. Given the historical sample size, that study simply measures noise and nothing else.
Here are some numbers I came up with:
Since 1990, when the VIX is below 15 (about 31% of the time), the S&P’s annualized return is 7.8%.
When the VIX is between 15 and 20 (27% of the time), the S&P’s annualized return is 2.8%.
When the VIX is between 20 and 25 (22% of the time), the S&P’s annualized return is -1.5%.
When the VIX is over 25 (20% of the time), the S&P’s annualized return is 11.1%.
To the extent there’s a tipping point, it seems to be a VIX of 13. Above 13, the S&P shows an annualized return of 3.0%, below 13 it jumps to 14.1%. However, 13 is a very low VIX reading; it’s been below 13 about 18% of the time.
Outside that, there doesn’t seem to be much of a trend.

Amazon at $77
Posted by Eddy Elfenbein on May 19th, 2009 at 1:17 pm

Amazon (AMZN) is at $77 a share!
Really? Is that real money, or Monopoly money or Canadian euros??
If they mean actual U.S. dollars, I wouldn’t pay half that much.

Volatility Chills
Posted by Eddy Elfenbein on May 19th, 2009 at 12:10 pm

The Volatility Index (VIX), which is also known as the “fear index,” dipped below 30 today for the first time in eight months. Personally, I’m glad I’m not in my 20s anymore.

At one point, the VIX nearly hit an intra-day high of 90. A lower VIX isn’t necessarily good for the bulls or bears, but it does show that the market is very different from a few months ago.

Medtronic’s Earnings — Blah
Posted by Eddy Elfenbein on May 19th, 2009 at 11:47 am

Despite getting some great press for Barron’s, Medtronic’s (MDT) earnings report was rather uninspiring. Their fiscal Q4 earnings came in at $250 million or just 22 cents a share. That’s a huge drop from the 78 cents a share they made a year. However, if you knock out all the charges, and there were many, the company made 82 cents a share which was in line with the Street.
The Wall Street Journal reports:

Revenue slipped 0.8% to $3.83 billion. In February, the company had said it expected revenue of about $3.84 billion. Excluding currency fluctuations, revenue grew 5%. Sales of heart-rhythm devices fell 5% as ICD sales declined 3.2%. The spinal business grew 1%.
Cardiovascular revenue was flat amid a 15% fall for stents, the scaffoldings that prop open arteries. The company said late Monday that the Endeavor stent was the first coronary stent to receive the European Economic Area’s CE mark of approval for treating patients with acute coronary syndrome, which includes unstable angina and heart attacks.

What’s more, the company is cutting 1,500 to 1,800 jobs. For this fiscal year, Medtronic projects earnings at $3.10 to $3.20 per share where the Street was looking for $3.20.
I have to agree that the stock is cheap, but I think it will become even cheaper. If you’re looking to add shares, wait for it to drop below $30.
Here’s a look at MDT’s sales and earnings for the past several quarters:
Quarter………..EPS………….Sales
Jul-01…………$0.28………..$1,455.70
Oct-01………..$0.29………..$1,571.00
Jan-02………..$0.30………..$1,592.00
Apr-02………..$0.34………..$1,792.00
Jul-02…………$0.32………..$1,713.90
Oct-02………..$0.34………..$1,891.00
Jan-03………..$0.35………..$1,912.50
Apr-03………..$0.40………..$2,148.00
Jul-03…………$0.37………..$2,064.20
Oct-03………..$0.39………..$2,163.80
Jan-04………..$0.40………..$2,193.80
Apr-04………..$0.48………..$2,665.40
Jul-04…………$0.43………..$2,346.10
Oct-04………..$0.44………..$2,399.80
Jan-05………..$0.46………..$2,530.70
Apr-05………..$0.53………..$2,778.00
Jul-05…………$0.50………..$2,690.40
Oct-05………..$0.54………..$2,765.40
Jan-06………..$0.55………..$2,769.50
Apr-06………..$0.62………..$3,066.70
Jul-06…………$0.55………..$2,897.00
Oct-06………..$0.59………..$3,075.00
Jan-07………..$0.61………..$3,048.00
Apr-07………..$0.66………..$3,280.00
Jul-07…………$0.62………..$3.127.00
Oct-07………..$0.58………..$3,124.00
Jan-08………..$0.63………..$3,405.00
Apr-08………..$0.78………..$3,860.00
Jul-08…………$0.72………..$3.706.00
Oct-08………..$0.67………..$3,570.00
Jan-09………..$0.71………..$3,494.00
Apr-09………..$0.78………..$3,830.00