The Challenge for Economics
Posted by Eddy Elfenbein on May 25th, 2009 at 9:49 am

In the NYT, Greg Mankiw writes on how the credit crisis will affect economics. His answer: Not much. The basics of economics are still in place although some topics will deserve more attention. Here’s a sample:

THE LIMITS OF MONETARY POLICY
The textbook answer to recessions is simple: When the economy suffers from high unemployment and reduced capacity utilization, the central bank can cut interest rates and stimulate the demand for goods and services. When businesses see higher demand, they hire more workers to meet it.
Only rarely in the past did students ask what would happen if the central bank cut interest rates all the way to zero and it still wasn’t enough to get the economy going again. That is no surprise; after all, interest rates near zero weren’t something that they, or even their parents, had ever experienced. But now, with the Federal Reserve’s target interest rate at zero to 0.25 percent, that question is much more pressing.
The Fed is acting with the conviction that it has other tools to put the economy back on track. These include buying a much broader range of financial assets than it typically includes in its portfolio. Students will need to know about these other tools of monetary policy — and will also need to know that economists are far from certain how well these tools work.

Thanks Vets
Posted by Eddy Elfenbein on May 25th, 2009 at 8:26 am

Weekend Poll
Posted by Eddy Elfenbein on May 22nd, 2009 at 10:09 am

Have a Great Weekend!
Posted by Eddy Elfenbein on May 22nd, 2009 at 9:56 am

The weather is beautiful so don’t expect much posting here today. Also, I finally broke down and joined Twitter (EddyElfenbein) so you can follow me there in 140-character-or-less increments.
I hope everyone has a great weekend!

The First Trading Day of the Month
Posted by Eddy Elfenbein on May 22nd, 2009 at 9:39 am

So far this decade, the market hasn’t done very well except for one small phenomenon—the first trading day of the month. Through yesterday, the S&P 500 is down 39.5% for the decade. But the market has returned over 21% on the first day of the month (neither figure includes dividends).
What’s interesting is that first days of the month occur less than 5% of the time, so sitting out the rest of the time would have been a smart strategy. How’d you like a job that probably improved your performance if you took over 20 days a month?

“Mother of inflated hope/Mistress of despair”
Posted by Eddy Elfenbein on May 21st, 2009 at 2:06 pm

The Chronicle of Higher Education interviewed economist Stephen Ziliak.
In haiku.

Q. How does writing verse
Help your students understand
A math-based science?
A: Thought transportation —
Newton’s laws might still abide,
Listen: Einstein’s train.
Q: A labor union
Protects workers from abuse —
But what does it cost?
A: Green Knights of Labor,
free Haymarket Anarchists,
cost less than Madoff.
Q: Debt plus recession —
Which is the better move:
saving or spending?
A: Treasury shoppers
choose plain broth over duck soup,
Nudge this paradox.
Q: Regarding Wall Street,
Do virtues of laissez-faire
Apply as elsewhere?
A: Traders are human,
swapping vices for virtues
and vice versa.
Q: Mom and Dad, I’m home!
The job market is nasty —
Where is my bedroom?
A: Invisible hand:
Mother of inflated hope,
Mistress of despair!
Q: Haiku might seem dumb
to bean counters and stuffed shirts —
Students disagree?
A: In this other world
wild orchids freely blossom —
haiku GDP.

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.