• The Dow Hates Bush?
    Posted by on January 18th, 2008 at 4:21 pm

    Megan McArdle writes:

    I’m surprised to see Mark Kleiman linking to this piece of silliness, which purports to “prove” that the Dow has fallen by 20% since GWB took office. Says Mark, “Turns out the “ownership society” hasn’t even been good for the owners.”
    This little treasure comes from a website hilariously titled “Just the Facts”, and achieves this result by using a market-weighted basket of global currencies. This is–what’s the word I’m looking for? Right, right, utterly daft. Americans don’t buy things in a market-weighted basked of global currencies. They shop in dollars. And we have a perfectly good mechanism for calculating the value of the Dow in dollars; it’s called “inflation adjustment”. The inflation-adjusted value of the January 2001 Dow in today’s dollars is about 12,200; today’s level is unambiguously higher.
    But what about foreigners? I hear you cry? What about ’em? They hold almost no stocks–about $200 billion on a total market capitalization1 of 17.75 trillion.
    What about the amount of foreign goods you can buy by selling your stocks? Trade is a relatively small part of the United States economy, and much of it is with places like Mexico and China, whose currencies haven’t really altered much against ours. (To be fair, a lot of it is also with Canada and Japan, that have seen higher currency appreciation). Moreover, many of those places have dropped the prices of their goods and taken lower profits rather than lose sales volume. That’s why, you may recall, everyone’s complaining that our trade deficit is failing to adjust. Overall, the effect of the currency decline on the purchasing power of your stock investment is exceedingly modest unless you planned to blow every dollar on Paris vacations and BMW automobiles.

    Her larger point is right, but I wouldn’t say that the Dow is “unambiguously higher.” The Dow Total Return Index stood 15,065.68 on January 19, 2001. Yesterday, it closed at 20,152.59. That’s a return of 33.76%.
    From December 2000 to December 2007, the CPI increased by 20.71% (I don’t have the January-to-January numbers yet). That works out to a total real return of 10.81%, or 1.48% a year. That ain’t great, but it’s in the black.
    Megan does a better job than me of trashing the lame Dow-in-euros argument. (I’ve tried to make a few times before.) I get paid in dollars not euros or gold or whatever. This Dow performance stat falls into what I call the “Daniel Gross/Larry Kudlow Law,” which states that you should never use financial market stats to backup a political argument. The financial markets are surprisingly apolitical.
    If we were to measure from the start of the war, the stock market is much higher. Does that justify the war?
    You can always come up with some commodity that has outperformed something else at some starting point. But the long-term evidence is crystal clear—common stocks outperform everything else.
    If have a market for over 70 years, you’re going to have something that’s called the worst crash in 70 years. If you measure from the top of that market, it doesn’t prove anything except that markets are volatile, and I already knew that.

  • Zimbabwe Introduces $10 Million Bill
    Posted by on January 18th, 2008 at 10:21 am

    The government of Zimbabwe is rolling out a $10 million bill for the purpose of…stemming currency shortages.
    The $10 million bill is worth about $4 in the U.S. Here’s the money quote (so to speak):

    To put it in figures, the Reserve Bank of Zimbabwe cannot account for more than $65 trillion of the $67 trillion cash currently in circulation.

  • Discover’s Horrible Spin-Off
    Posted by on January 18th, 2008 at 10:05 am

    Last month, Morgan Stanley’s CFO, Colm Kelleher, said “If you were to normalize our business and take out this $9.4 billion charge, you would see that we had a record year across the whole enterprise.”
    In other words, if you ignore the losses, we’re doing quite well. Somehow, the market wasn’t terribly impressed. Since July, Morgan’s stock has plunged from $70 to $45.
    But here’s the thing, their performance is even worse if you recall that Morgan spun-off Discover Financial Services (DFS). I’m usually a big fan of spin-offs, but Discovery has been a disaster. Since its July debut at $26, shares of DFS have plunged to $13 today.

  • CEO of the Princeton Economics Department
    Posted by on January 18th, 2008 at 6:31 am


    Notice that GS ticks down a penny when she mentions it, then up a penny when he corrects her. Score one for EMH.
    (Via Mankiw)

  • Quote of the Day
    Posted by on January 17th, 2008 at 5:57 pm

    Ben Bernanke on growing up Jewish in South Carolina:

    Being a member of a minority taught him about discrimination and prejudice. “There was more than one request to see my horns,” he said years later.

  • Dow -309.95
    Posted by on January 17th, 2008 at 5:23 pm

    Wow…that sucked.
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  • The Ballad of Jim Cramer
    Posted by on January 17th, 2008 at 3:30 pm


    That’s really good. I like the catchy tune.

  • The Bond Bubble Grows
    Posted by on January 17th, 2008 at 2:08 pm

    The five-year T-note (^FVX) is under 3% today. Six months ago, it was going for 5%. Notice how you never hear the media talk about “irrational exuberance” or “runaway bubbles” in the bond market. Bond traders are always assumed to be right.
    This is obviously theoretical, but if I ran a bank, I’d rather short the five-year note than borrow at the Fed Funds rate.
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  • Earnings from Amphenol and Clarcor
    Posted by on January 17th, 2008 at 11:20 am

    Two earnings reports from Buy List stocks to pass along.
    Amphenol (APH) had a great report but the stock is pulling back this morning. For Q4, APH earned 55 cents a share, three cents more than the Street was expecting. Last year, APH made 43 cents a share for Q4. Even better, the company gave good guidance going forward:

    For 2008, the company expects a profit between $2.18 and $2.25 per share on revenue between $3.1 billion and $3.18 billion. Last year, profit reached $353.2 million, or $1.94 per share, and sales hit $2.85 billion.
    Analysts project earnings of $2.22 and revenue at $3.13 billion, according to Thomson Financial.
    “We are cautiously optimistic (Yuck! I hate the phrase! – EE) about continuing improvement in the short term and very confident about the long term outlook for continued growth and profitability,” the company said in a statement.
    For the current quarter, Amphenol anticipates net income of 50 cents to 52 cents per share and revenue between $740 million and $755 million.
    Analysts expect a profit of 51 cents per share and revenue of $741 million.

    Personally, I was looking for a little better guidance than what we got. Although, APH had a pretty strong run from August to December, so maybe it’s simply profit-taking today. Assuming $2.22 a share for 2008, that’s a P/E of 16.5, which isn’t bad for APH.
    After the closing bell yesterday, Clarcor (CLC) reported earnings of 53 cents a share.

    For the quarter ended Dec. 1, Clarcor earned $26.7 million, or 53 cents per share, compared with $26.7 million, or 52 cents per share, for the same quarter in 2006. The company had fewer shares outstanding in the recent period.
    Analysts polled by Thomson Financial expected income of 51 cents per share.
    Sales rose 2.4 percent to $238.3 million from $232.6 million in the year-ago period.
    Operating margins were 16.8 percent in both periods. Clarcor said foreign currency fluctuations improved the recent quarter’s sales by $6 million.
    For the full year, Clarcor earned $90.7 million, or $1.78 per share, compared with $82.7 million, or $1.59 per share, for 2006. Sales rose to $921.2 million from $904.3 million the year before.

    The company also said that it expects 2008 EPS of $1.85 to $2.05 (sheesh, kinda wide range). The Street consensus is for $1.92.
    Here’s a spreadsheet of Clarcor’s results for the past few years.

  • The Education of Ben Bernanke
    Posted by on January 17th, 2008 at 8:07 am

    Behold! Roger Lowestein’s 8,000 word article on Ben Bernanke. Here’s a very small sample:

    Bernanke grew up in the small town of Dillon, S.C., at the tail end of the segregation era (in high school he wrote a schoolboy’s novel about whites and blacks coming together on the basketball team). His father and his uncle ran a local drug store. Folks trustingly called them Dr. Phil and Dr. Mort. Ben, who skipped first grade, was obviously smart from the get-go. He played the saxophone, just as Greenspan did, and waited tables two summers and worked construction another. The Bernankes were observant Jews, and Ben’s folks fretted when he got into Harvard that if he strayed from home he might wander from his religious teachings. It was never a risk. Judaism is important to Bernanke, though, as with other personal subjects, he does not discuss it. As a doctoral candidate at M.I.T., he blossomed into a star, and at the tender age of 31 he received a tenured position in the economics department at Princeton.
    His academic research was steeped in the increasingly sophisticated discipline of econometrics, which uses computer models to simulate (and predict) the economy. By contrast, Greenspan often relied on his hunches. The difference is partly generational, but Bernanke is clearly more comfortable working with mathematical formulas than with anecdotal examples. (One looks in vain in his Depression writings for stories of banks that failed or of workers who lost their jobs.)