Archive for September, 2008

• The U.S. Government Now Sponsors Manchester United
  Eddy Elfenbein, September 17th, 2008 at 1:25 pm

  Now that the Feds own 80% of AIG, which is one of Manchester United’s largest sponsors. So our government now sponsors Man U.
  

• The Next Depression?
  Eddy Elfenbein, September 17th, 2008 at 12:20 pm

  Well, I’m not convinced. Here’s a look at the Dow from its 1929 peak compared with the Dow from its 2007 peak.
  

• AIG’s Advertizing…Now with Irony
  Eddy Elfenbein, September 17th, 2008 at 10:35 am

  Part of the Fed’s deal is that AIG’s CEO had to go, but what happens to this kid?
  

• Who Replaces AIG in the Dow? How about the Fed?
  Eddy Elfenbein, September 17th, 2008 at 6:48 am

  Now that AIG (AIG) is public property, I wonder who will replace the stock in the Dow Jones Industrial Average (^DJI).
  My choice: The Federal Reserve. Barring that, the Bank of China.
  Over the years, the Dow has made many adjustments, but I can’t ever recall a stock being pulled because it nearly went under. AIG was added to the index in April 2004 and from the get-go, it was a drag the Dow. In fact, the last few additions haven’t helped much.
  One word to add: The Dow is price-weighted which means that a stock’s weighting in the index is solely based on its price, no matter how many shares outstanding there are. To find out the index level, just add up the prices of the 30 stocks and adjust by a divisor (roughly multiply the sum of the stocks by eight).
  It’s an antiquated measure, but it’s got quite a nice brand name after 112 years in business. Personally, I prefer the S&P 500 (^SPX) and that’s what I use for comparisons with my Buy List.
  The last change to the Dow came in February when Bank of America (BAC) and Chevron (CVX) replaced Altria (MO) and Honeywell (HON). Since changes are pretty infrequent, I hope the gatekeepers make a few more changes along with booting AIG.
  I’d vote to remove AIG, plus Alcoa (AA) and General Motors (GM). GM is frankly an embarrassment to the index.
  So what should the new stocks be? I’d say the front-runners are Google (GOOG), Cisco (CSCO) and Apple (AAPL). Here’s a list of mega-cap stocks that aren’t currently in the Dow and their market caps (in billions).
  Google…………………………$139.3
  Cisco……………………………$134.5
  Apple…………………………..$123.9
  Wells Fargo…………………..$115.6
  Pepsi……………………………$114.2
  Philip Morris…………………..$110.8
  ConocoPhillips………………..$109.8
  Schlumberger…………………$104.2
  Oracle……………………………$97.8
  Abbott Labs…………………….$92.2
  Qualcomm……………………….$78.6
  Amgen……………………………$69.7
  UPS………………………………..$69.4
  I’d also make a case for a stock like UPS (UPS). It’s not the biggest, but its business is probably a better reflection of the larger economy than many bigger stocks.
  On a side note, little changes to the Dow can have major impacts. The editors of the Wall Street Journal changed the index in 1939 by tossing out IBM (IBM). They added it back in 1979. In those 40 years, IBM gained 22,000%. If the editors had left it in, the Dow would now be about 35% higher than where it is now. All the historical benchmarks would be different. The Dow would have cracked 1,000 in 1961 instead of twelve years later.
  Behold the power of one really good stock.

• Is the Fed Allowed to do This?
  Eddy Elfenbein, September 17th, 2008 at 12:37 am

  Megan McArdle wonders what legal right the Federal Reserve has to go in the insurance business:

  It’s probable that they don’t actually have the legal right to do anything like this. Their authority is this: who’s going to stop them? No one wants to take on responsibility for this mess themselves.

  Section 13-3 of the Federal Reserve Act gives them the authority. Assuming you read it very broadly:

  In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

  Glad that’s all clear now.

• Colbert: My Portfolio Consisted Of Lehman, Merrill, AIG And Lil’ Shavers
  Eddy Elfenbein, September 16th, 2008 at 11:44 pm

• How Times Have Changed
  Eddy Elfenbein, September 16th, 2008 at 10:35 pm

  
  It was almost ten years ago that Time magazine ran a cover with Greenspan, Rubin and Summers called “The Committee to Save the World.” Let’s just say that I couldn’t imagine a similar cover running today with Bernanke, Paulson and Geithner.

• The Black Swan Beats Up the Bear
  Eddy Elfenbein, September 16th, 2008 at 10:07 pm

  The oil boom of the 1970s was a great financial help to the Soviet Union. It helped fund their strategic acquisition, meaning Afghanistan, which didn’t go quite so well. Perhaps the invasion of Afghanistan was a sell signal for commodities since gold peaked a few days later.
  The invasion of Georgia may be playing the same roll. Money has poured out of Russia and oil has plunged over $50 a barrel. The Russian market plunged 17% today and the stock exchange was shut down.

  “It’s panic,” said Oleg Vorotnitsky, head of equity trading at Uralsib Financial Corp. in Moscow. “There are problems with liquidity on the market. People are having difficulties with refinancing their positions so they started selling. Concern about AIG” is adding to the panic, he said.
  The dollar-denominated RTS Index lost 11 percent to 1,131.12, marking a 55 percent retreat from its highest close of 2,487.92, on May 19. The gauge has fallen 51 percent so far this quarter, the worst performance of major world equities indexes.

• AIG’s Move Today
  Eddy Elfenbein, September 16th, 2008 at 4:02 pm

  In today’s session, shares of AIG ranged from $1.25 to $5.24. Total volume was over 1.23 billion.
  

• The Fed Holds
  Eddy Elfenbein, September 16th, 2008 at 2:28 pm

  The central bank does nothing.

  The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
  Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.
  Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.
  The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully 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; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.