Archive for December, 2008

• Investing During a Recession
  Eddy Elfenbein, December 1st, 2008 at 2:24 pm

  Today, the NBER made news by saying the recession officially started in December 2007. This is the fifteenth recession since 1926.
  Of the 82 years from the beginning of 1926 through 2007, 182 months have been in recession which is about 18.5% of the time. During those 182 months, the stock market fallen at an annualized rate of 9.6% (including dividends and inflation).
  Of the 802 months of expansion, the stock market has risen at an annualized rate of 11.3%.

• NBER: Recession Began in December 2007
  Eddy Elfenbein, December 1st, 2008 at 1:42 pm

  I was wrong. I thought the National Bureau of Economic Research would date the beginning of the recession in May of 2008. The committee today pinpointed December 2007.
  I understand that selection since that’s when employment peaked. The reason for my later date was that GDP numbers continued to look decent through the second quarter. I didn’t think the committee would “overrule” that data, but I guess they did.
  NBER Announces December 2007 Peak in Economic Activity
  Next question: When will it end?
  

• Gasoline Down for 75 Straight Days
  Eddy Elfenbein, December 1st, 2008 at 12:04 pm

  The plunge continues:

  Gas prices fell for the 75th consecutive day on Monday, and sold below $2 a gallon in all but three states and the District of Columbia, according to a daily survey of credit-card swipes at gas stations.
  Gas prices slipped 0.5 cents to a national average of $1.82 a gallon, the cheapest price since January 2005, according to Monday’s survey from motorist group AAA. That price is $1.24 less than what gas cost on the same day last year.
  Gas prices have fallen by more than 55% since hitting a record high of $4.114 a gallon on July 17. Concern about falling fuel consumption in the midst of the current economic crisis has driven the price of oil, a main component of gasoline, down more than 65% since July.

  

• Profiting off the Liquidity Preference
  Eddy Elfenbein, December 1st, 2008 at 11:14 am

  One aspect of this market that I find fascinating is the dramatic yield spreads between short-term Treasury yields (^IRX) and just about everything else. Short-term Treasuries have one major benefit over all other securities and that is their safety. No matter what happens, an investor can be very confident that the U.S. Treasury will pay them back. The Feds, after all, own the printing press.
  But what we’re seeing recently is being caused by another advantage of Treasuries and that is their liquidity. The Treasury market is one of the most liquid markets in the world. If need be, Treasuries can be dumped at a moment’s notice for something else. That factor is drawing lots more buyers. The short-term T-bill continues to trade as inches above 0%. Going further out, the 10-year Treasury is now down to 2.8%.
  There’s an opposite reaction going on in less-liquid assets. I think this is partly why micro-cap stocks like Nicholas Financial (NICK) are so cheap. There’s an illiquidity discount. In other words, you can’t easily sell when no one is willing to buy. We’re also seeing nearly ridiculous yields for junk bonds.
  There are a number of junk bond ETFs. For example, the PowerShares High Yield Corporate Bond (PHB) is yielding 13.8% based on its most-recent monthly dividend payment.
  I think we saw a similar “gravitational pull” during the dot.com bubble. When sock puppet companies were going for over 100 times dreams, many high-quality REITs were paying dividends over 12%. The problem was the REITs had kept going down and the dot.coms kept rallying. It seemed as if the breaking point had already passed.
  Here’s a look at BAA corporate yields, which still isn’t junk, compared with short-term Treasuries.
  
  One advantage of the liquidity preference would be for the government to issue massive amount of short-term T-bills at their regular auctions. The proceeds could be used to by high-yielding preferred stock is locked-up companies. That way we could use the liquidity premium to the taxpayers’ advantage.
  Arnold Kling has more.