Bud Light sucks…

Fun fact: This is what happens when you Google, “what is American beer?”

“Light beer, which was introduced on a large scale by Miller Brewing Company in the early 1970s, is a beer made with reduced alcohol and carbohydrate content, and has grown to eclipse many of the original pale lager brands in sales. Bud Light, brewed by Anheuser-Busch InBev, is the top-selling beer in the United States.” -wikipedia

Bud. Light. Sucks. There. I’ve had my say.
Before I get started, I want to clarify that this article is on the stocks of Boston Brewing Co. (SAM), Anheuser-Busch (BUD), and Molson Coors  (TAP) stocks, not an opinion article on Bud Light, but now we all know where I stand.
The idea is that similar stocks will follow similar patterns in the stock market. You wouldn’t think that a construction company and a biotech firm  would move together. That is, you wouldn’t expect the two to be positively correlated. But you would expect stocks like Pepsi and Coke to move together, as any new information affecting one would probably affect the other, right?
WRONG. The correlation coefficient between Coke (COKE) and Pepsi (PEP) is 0.2014, which means only one in 5 days do Coke and Pepsi stocks move together in step… hmm.. ok maybe it’s just Coke and Pepsi acting weird. Here are the correlation coefficients for BUD, SAM, and TAP:
Screen Shot 2016-07-26 at 3.04.43 PM.png
Only roughly one in three days do SAM and BUD move exactly together (the same with SAM and TAP). TAP and BUD only move exactly together every other day.  They move mostly as we expected (direction), but they certainly don’t always move exactly together (magnitude).
Diversification means don’t put all your eggs in one basket. It means you need to branch out, own stocks in many sectors. It implies that stocks in similar arenas move together.
“But wait, didn’t we just find out that stocks in similar areas of the market don’t move in step? Is my finance advisor feeding me bullshit?”
Home Depot and Lowe’s are practically interchangeable, unless you have a penchant for orange or blue. The correlation between their returns is 0.8486. What affects one, directly translates to the other on eight of ten days.
In this article, I indirectly tested diversification. All jokes aside, diversification states that stocks in similar industries will move together on average. This idea is not trash, as none of the example groups of stocks returned a negative correlation coefficient, which would imply that they moved oppositely more often than together. You can still correctly assume that, on average, stocks in similar industries will move in similar directions.
Rest assured, diversification still works. It just doesn’t work as well as you thought it might… or at least I did.
– tommander-in-chief
Further, I’ll test to see if there is a profitable strategy to put in place regarding the three stocks. I’ll see if there are any two stocks whose outcomes will predict the third’s return.
Bud Light sucks…

Sick of the RNC

 

 

Sick of the RNC yet? Enough of the political mumbo jumbo. Here’s some stuff you might already know, but haven’t seen the data.

The last row of the following table shows GDP per Capita growth of Sweden, UK, Germany, Greece, Spain, and Italy relative to the United States.

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Over the time period, German production per head grew 16.54% faster than in the United States . Since 2005, Germans “gained” on the United States in terms of wealth. Countries in duress, such as Spain, Italy, and Greece lost in terms of wealth over the time period relative to the US. Americans became wealthier than the UK, Greece, Spain, and Italy over the 10 year time period. Americans lost wealth relative to Sweden and Germany.

relativegdp.jpg

The above graph shows per capita growth of the economies of Sweden, the UK, Germany, Spain, Italy,  and Greece relative to the United States.

Savings and Unemployment rates:

Theoretically, we would expect savings rates to rise as unemployment falls, and vice versa. As economies go through booms, people will spend more but also save more. As economies recess, people will lose jobs and spend less, but savings is spent. Dueling effects:

  1. Wealth Effect – As unemployment rises, wealth falls. As wealth falls, savings rates increase. This effect results in unemployment and savings rates to move together.
  2. Income (cyclical) Effect – Consumption rises and falls with the business cycle. In other words, as unemployment rises, incomes fall. As income falls and more people are in between jobs, savings must be spent. This effect results in unemployment and savings rates to move inversely.

Correlation between Savings Rates and Unemployment:

Screen Shot 2016-07-21 at 3.27.28 PM.png

From the correlations between Savings Rates and unemployment, we can infer about the was a country behaves in times of boom and bust. (break it down into time periods). The marginal propensity to save (mps) is an economics term used to describe what percentage of each paycheck we save. From the above data, we can safely assume that Americans will save more when the economy is in recession relative to others, whereas the savings rate in Sweden is relatively impervious to fluctuations in unemployment. Italy actually has a positive correlation coefficient between Unemployment and Savings rates! This means as unemployment goes up savings rates go up! The dominating effect here is the wealth effect. People will spend much less when they don’t have a job. The dominating effect in the US economy is the cyclical effect.

Perhaps this is a result of work force participant optimism. Perhaps the fear of getting another job in the near future after being let go is small in the United States. This could also be the result of cultural differences between Italy and the US, such as employee turnover rate. However, turnover rate in Italy is higher.

Italy’s job turnover rate has been declining over the last ten years (http://tinyurl.com/zefsqc2). This metric is computed by dividing the number of employees who left jobs by the total number of employees still working. In the United States, the figure for May of 2016 was 3.4%, or 11.8% annually. In Italy, the figure was 23.9% in 2004 and 17.3% in 2014. This higher turnover rate means Italians are leaving jobs at a higher frequency, both by choice and otherwise. The rate in the United States has largely remained unchanged since 2002, hovering around 12% annually.

Perhaps it is cultural differences. Maybe Italians are more prone to save when they don’t have a job because they have a firmer family structure than the average American. They are taken care of at home, and aren’t forced to spend on groceries and rent. Again, this is all guesswork.

Side note: Here is the annualized employee turnover rate in the US broken down over each month. More people leave jobs in January and August than any other months in the year.

jobturnover

Just something to think about.

– tommander-in-chief

 

Sick of the RNC