Wednesday, August 26, 2009

Humor Break: It's a "Beer" Market, How To Hedge Your Beer

If you had purchased $1,000 of Delta Air Lines stock one year ago, you would have $49 left. With Fannie Mae, you would have $2.50 left of the original $1,000. With AIG, you would have less than $15 left. But, if you had purchased $1,000 worth of beer one year ago, drunk all of the beer, then turned in the cans for the aluminum recycling REFUND, you would have $214 cash. Based on the above, the best current investment advice is to drink heavily and recycle.

Some variant of the above story has been passed around the internet and e-mail since around 2002, the names changing as new big name companies plummet. I'm a bit skeptical about the $214 figure since the most I've found that you can get for a recycled can of beer is about five cents. Assuming you were able to buy some real cheap beer and purchased 2,000 cans.....that is about $100 in trade-in value.....still better than the stocks mentioned. I AM NOT ADVISING YOU TO BUY BEER RATHER THAN STOCKS.....of course given a story in today's Wall Street Journal, maybe Beer Stocks, here's an excerpt:

"We do plan on taking prices up in the fall on the majority of our volume in the majority of the U.S.," said David Peacock, president of Anheuser's U.S. division. "The environment is very favorable, we think."

So demand for beer is up and that means the beer companies can charge more for it (supply/demand), the question remains whether this is a beerish (pardon the pun) or bullish sign. Is beer drinking up because of an economic recovery or because more people are drinking due to financial troubles?

Actually neither, beer volume is flat or falling. The issue is that there is less competition in the market place do to the biggies buying up the competition.

Overall U.S. beer volumes are declining at the sharpest rate in more than a decade. In the first half of this year, sales from distributors to retailers fell 0.9%, and shipments from brewers to distributors fell 1.3%, according to the Beer Institute, an industry group. Anheuser recently began offering $2 rebates in several states on its economy brands.

Still, beer prices in the U.S. have risen faster than other consumer goods. In July, the price of beer, ale and other malt beverages sold for consumption at home rose 4.6% from a year earlier. Meanwhile, consumer prices in the U.S. overall were down 2.1%, the biggest 12-month decline since 1950, according to Labor Department data.

The two brewers are able to boost prices in part because each offers a wide variety of products at different price levels, said Carlos Laboy, an analyst with Credit Suisse. "They have the dominant position in every category of the industry from imports to premiums to discount brands," he said.

Whatever the reason for rising prices, beer prices are rising and at precisely the wrong time. At times during the last year the only thing keeping me sane was a nice frosted glass filled with a good Hefeweizen (Widmer, Pyramid, Franziskaner, Karl Strauss, Gordon Biersch).....of course I always waited till after hours!

So, what we have is not a "bear" or a "bull" market, but a true "beer" market! Prices for your favorite beer are rising so go buy some before they do and while you're at it pick up a few shares of beer stock to hedge against the future price increases!

Your Fellow Beer Snob,

Scott Dauenhauer CFP, MSFP, AIF