Archive for June, 2006

• Free Money!
  Eddy Elfenbein, June 7th, 2006 at 11:36 am

  
  One of the cases often made by market bears is that the economic recovery, such as it is, is largely illusionary, thanks to lots of cheap money and inflated real estate prices. There’s certainly a lot of truth to that, although I think too many bears overstate the case.
  But they’re exactly rights about loose money. The chart above shows a good historical perspective. It charts the growth of an investment in Treasury Bills, adjusted for inflation, since 1953. In other words, real short-term interest rates. Over the long-term, real rates are rather puny–about 1.2% to 1.4% a year.
  The problem with inflation is “some” begets “more,” and it can easily spiral out of control. If the cost of borrowing falls below inflation, then borrowers are being paid to borrow money. That’s what happened in the 70’s and you can see that the blue line headed down. In other words, real rates were less than 0%.
  What’s interesting about this chart is that in the 80’s, the line appeared to revert to its long-term trend. But the trend was snapped again four years ago. I was shocked to see how much of a departure from history the last four years have been. Real short rates have been running about -1% a year since 2002.
  The chart (based on Ibbotson numbers) runs through December 2005, although it looks like rates have stayed negative this year as well. For the first four months of 2006, the CPI (which may be understated) is up about 2.4%, or 7.3% annualized. Since January, the three-month Treasury yield has climbed from 4% to 4.7%.

• A Response to StockLemon.com
  Eddy Elfenbein, June 7th, 2006 at 10:21 am

  It certainly took them long enough. Here’s American Renaissance Homes’ response to yesterday’s allegations. Home Solutions of America (HOM) is rallying today.

• Save the Penny
  Eddy Elfenbein, June 7th, 2006 at 10:02 am

  Greg Mankiw and Tyler Cowen think we ought to get rid of the penny. I’m not so sure. Despite any economic rationalizations, people are weirdly loyal to their currencies.
  Proper British gentlemen would never dream of conducting their racehorse business in anything but guineas. (I mean…really.) Did I mention that the last guinea was minted 193 years ago?
  See here for an example.

• Jim Stack: Recession Dead Ahead
  Eddy Elfenbein, June 7th, 2006 at 8:32 am

  I don’t always agree with Jim Stack, but he’s certainly someone worth listening to. Here’s his bearish outlook in the latest Forbes:

  Slowly and methodically, the forces have been moving us toward an imminent recession. These cyclical forces include commodity inflation, which on a long-term basis is at the highest level since the 1970s. But they also extend deeper– into the monetary forces and even consumer psychology behind the economic expansion.
  The yield curve has changed dramatically in the past 24 months, and is as “flat” as we can ever remember seeing it. The danger is the 88% historical probability of a recession that this represents. And if pressures preclude the Fed from easing later this year, one might say the odds of recession are closer to 100%.
  In the past 40 years, there have been eight instances where the yield curve (10-year T-bond minus 3-month T-bill) has flattened to this extent. In four of those instances, the yield curve temporarily widened, only to flatten again: 1973, 1989, 1998 and 2000. But in only one of those eight instances was the economy able to avoid a recession.

• Tap Your Inner Blankfein
  Eddy Elfenbein, June 7th, 2006 at 8:20 am

  Are you interested in working for the Goldman Sachs? Well, of course you are!
  But you’re not sure where you fit in? No problemo…just take Goldman’s handy “Where do I fit in?” quiz.
  (Um…did anyone else get “shiftless blogger”?)
  :o(

• Google and Its Principles
  Eddy Elfenbein, June 7th, 2006 at 7:32 am

  January 5, 2006: Crossing Wall Street

  One of the wonders of Google is the way they’ve been able to have Wall Street eat out of their hand at the same time the company slams the financial establishment. I’ve always felt that Google’s unconventionality was a bit affected. They seem to relish the role of outsider too much.
  And if you watch carefully, Google has backed down several times when important principles were at stake–principles which they claim they stand for. Never underestimate these moments.

  June 6, 2006: Brin Says Google Compromised Principles

  Google Inc. co-founder Sergey Brin acknowledged Tuesday the dominant Internet company has compromised its principles by accommodating Chinese censorship demands. He said Google is wrestling to make the deal work before deciding whether to reverse course.

• Student Will ‘Fess to $cam
  Eddy Elfenbein, June 7th, 2006 at 7:04 am

  From (where else?) the NY Post:

  An NYU student who masqueraded as royalty to orchestrate multimillion-dollar check-kiting and hedge-fund scams in Connecticut is expected to cop to his crimes today, sources said.
  Hakan Yalincak, 22, faces up to 50 years in prison and fines of $1.125 million. He will plead guilty in New Haven federal court, prosecutors said yesterday.
  Yalincak’s decision came within days of a judge rejecting his bid to be released from jail before his trial.
  He is accused of trying to kite $43 million in phony checks, and of running a phony hedge fund that swindled investors out of $7 million.

  New York has the whole story in “Mommy’s Little Con Man.”

• The Bull Market By Sectors
  Eddy Elfenbein, June 6th, 2006 at 2:06 pm

  Here’s a colorful chart. This is the relative strength of the 10 major industry sectors since the bull market began in March 2003:
  
  The defensive groups (staples and health care) have lagged. Also, tech hasn’t done that well in the last two-and-a-half years. Except for energy, I think it’s interesting how close together all the other sectors are.

• Women lowering voices to raise salary
  Eddy Elfenbein, June 6th, 2006 at 1:51 pm

  From UPI:

  British researchers say career-driven women are lowering the pitch of their voices to get ahead in the workplace.
  The Daily Mail says a comparison of women’s voices between 1945 and 1993 reveals they deepened significantly in the second half of the century. During that time, the average pitch of women aged 18 to 25 lowered by 23 hertz — equivalent to a semi-tone drop.
  Anne Karpf, author of The Human Voice, says singing coaches and audio archivists have noted the deepening trend as high-powered female politicians and television correspondents are being encouraged to lower their pitch.
  Former Prime Minister Margaret Thatcher was advised by spin doctor Gordon Reece to swap her shrill tones for a deeper delivery, while voice coaching toned down Princess Diana’s soft, breathy speech, the newspaper said.

• A 17th Rate Increase
  Eddy Elfenbein, June 6th, 2006 at 1:26 pm

  This is what yesterday was all about:
  
  After being on the fence, the July futures contract now believes that a 17th straight rate increase is very likely at the Fed meeting later this month.