Limericks Économiques

The Doctor Is Out

2012-02-17T17:14:00.001-05:00

Doctor Goose is on vacation during the week of President's Day - see you once again on February 27!

Linsanity

2012-02-16T23:44:00.000-05:00

Said a point guard who went un-recruited
By coaches who found him ill-suited:
"It's hard to surprise
Those skeptical guys
Like my really great Garden debut did."

By now, people all around the world have heard the amazing, come-from-nowhere story of the New York Knicks' Jeremy Lin; the Taiwanese-American pride of Palo Alto California, where he led the town's high school team to a state basketball championship. Considered too small for the big-time colleges, Lin ended up at Harvard, where he set Ivy League records. Passed up in the NBA draft, Lin sat on the bench for the Houston Rockets and the Golden State Warriors before being cut. Once on the Knicks, Lin got his chance when two of the teams regulars couldn't play; the rest is NBA record-setting history. This still-unfolding story has many meanings, one of which is that, in sports as well as investments, we overestimate our ability to predict winners based on simple formulas and models.

A Crude Iranian Conflict

2012-02-16T00:08:00.000-05:00

If an outbreak of Persian hostility
Brings petroleum price volatility,
The economy's cooling
From trouble in fueling
The engine of upward mobility.

Tensions with Iran over its nuclear program have introduced a new round of uncertainty into global strategic affairs, but one thing is definite: if Iranian supply is taken off the market, rising oil prices would impinge on almost every aspect of the US economy. Higher gasoline prices would cause consumers to cut back on discretionary spending, as most have a limited ability to cut back on driving. Manufacturers would be hurt both from higher delivery costs as well as higher prices for plastics and other petroleum-based materials. Even many service industries maintain fleets of vehicles and would feel the effects of a Persian Gulf conflict. The one bright spot at this point is that the prospect of $4.50 gasoline, as in 2008, appears as yet remote.

Romancing The Fed

2012-02-14T00:08:00.000-05:00

Said Bernanke, crimson with passion,
In fine professorial fashion,
"If liquidity's lacking,
With central bank backing
I'll try to inject some more cash in."

Who says there's no romance in monetary stimulus? Those outside of the Twitter econosphere may not know that the network was recently swept by a wave of #FedValentines, as the trend was hashtagged. It began with Penn economist Justin Wolfers, who tweeted: "Like fiat money, our love is built on trust." White House economic adviser Austan Goolsbee chimed in: "Roses are red, violets are pink, don't listen to gold bugs – no one cares what they think." My personal favorite belonged to the FT's Alan Beattie: "I'd like to borrow you overnight and then hold you to maturity." Not to be outdone, Dr. Goose contributed: "If you're not ready for a liquidity injection, I'll understand."

Happy Valentine's Day to economists everywhere, and all the nerds at heart!

MF Global: An Arresting Question

2012-02-13T00:34:00.000-05:00

Said the trustee: "It's funny perhaps,
In this great MF Global collapse,
That there aren't any 'collars',
Despite all the dollars
Misplaced by those capable chaps."

Francine McKenna, a former Price Waterhouse Coopers auditor who writes on auditing issues for Forbes as well as her blog "Re: The Auditors", says that it's remarkable that the investigation of the missing $1.2 billion in MF Global customer funds is not leading to any arrests, and those involved have not opted for an escape to Switzerland. Could this be a case of "plausible deniability" on the part of top management? Managers at the bankrupt company moved a lot of money around on Hallowe'en, evidently in an attempt to make it through the weekend, probably in the hope that a friendly takeover would allow its return. Instead, the firm was shut down, but without any paper trail linking top management to the missing customer funds.

Hat tip to Jesse's Café Américain.

Q&A at the Mortgage Fraud Settlement Negotiations

2012-02-10T00:55:00.000-05:00

"Pray tell us: what must we do,
That the Feds and the states will not sue?"
"In dollar terms: 25,200,000,202."

The Obama administration and 49 US state attorneys general have announced a $25 billion settlement of mortgage foreclosure fraud charges with the five biggest mortgage loan origination banks. The five firms - Ally Financial Inc./GMAC Mortgage, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. - will underwrite benefits to certain mortgage borrowers that are modest in their individual impact but may provide a marginal impetus to the housing and mortgage markets. The benefits include principal reduction for those at imminent risk of default; refinancing eligibility for some "underwater" borrowers; and $2,000 cash payments to some whose homes were foreclosed during the last three years. However, the largest impact of the settlement is not on homeowners but on the banks, from which a significant legal risk has been removed. Banks are not completely out of the woods yet, though; bondholders can still sue to have the mortgage originators buy their bad loans back.

Time To Invest?

2012-02-09T00:02:00.000-05:00

Said a broker, in recommendation,
At a client's undue hesitation:
"Throughout time, we deduct,
Sh^t has always been f#cked;
Pray be bold in your risk allocation."

In times like these, after a prolonged economic slump, isolated indicators may offer glimmers of hope; an improving jobs number here, more manufacturing there. And yet, the economy as a whole is not clearly improving. At such times, investors may become paralyzed by the conflicting data, waiting for all the stars to align and thereby missing a rocket launch to the moon. Investors may need the equivalent of a "snap out of it!" delivered with a bracing slap. Here to meet this pressing need is Joshua Brown, the investment advisor and blogger known as the "Reformed Broker". Urging investors to "Get Your Shit Together," Mr. Brown says:

I have no idea when this secular bear market and the attendant economic malaise will truly be over - but I know for a fact that if you're not planning for its end you're going to miss your chance.

Leveraging One's Education

2012-02-08T00:08:00.000-05:00

A student had trouble believing
That the newspaper wasn't deceiving
In ascribing a sign
Of reversing decline
To his borr'wing to learn basket weaving.

Citing the latest Federal Reserve statistics that show consumer debt up in December, the Wall Street Journal sees "a sign that the credit freeze is thawing." Indeed, household debt rose at a seasonally adjusted 9.3% annual rate, following a 9.9% rise in November. But - is this a good thing? Two considerations rate mention. First: we're trying to exit a huge financial crisis brought about by excessive borrowing, so any conclusions based on consumer debt trends should at least consider what an optimal level of borrowing would be, and whether we are still above it. Second, the largest component of December's increased consumer debt comprised student loans, which is certainly a bad thing. Student loans have been growing faster than they can be repaid, in part because federal and state programs will fund unlimited amounts with no credit underwriting; there is no assessment of the likelihood of the student and program of study generating sufficient loan repayment in the future. This must change.

It's The Improving Economy, Stupid

2012-02-06T23:42:00.002-05:00

For the typical President wannabe,
The election's about the economy;
So what's there to do
For the wannabe who
Is afraid how much better it's gonna be?

This is the dilemma faced by US presidential contender and former Massachusetts governor Mitt Romney. Having put some distance between himself and Newt Gingrich, the nearest Republican contender, Mr. Romney has now pivoted to the general election, in which his key issue is President Obama's "failed stewardship of the economy", particularly where "job creation" is concerned. Only, what if the economy (and particularly the private sector) begins creating actual jobs? The latest BLS data show that this has now happened, and Mr. Romney's response is that job creation occurred "in spite of the President's policies." This may be the best he could do under the circumstances, but it seems a dangerous road to go down. After all, if jobs can grow in spite of the President's policies, the voters may ask, what do we need you for?

Good Employment Numbers, But…

2012-02-05T23:38:00.000-05:00

"A DC elite that obstructs
More stimulus misses the crux
That, despite fewer jobless,"
Said Krugman, "It's obvious
The US economy sucks."

The Giants won the Super Bowl and last Friday's employment report shows the most jobs created since the 2008 crash, so everything's fine, right? Not so fast, says Paul Krugman. Although "for once, falling unemployment was the real thing, reflecting growing availability of jobs rather than workers dropping out of the labor force," any recovery cannot be self-sustaining while we have "a sharp fall in household formation — econospeak for lots of young adults living with their parents because they can’t afford to move out." This is one of the chief impediments to a housing recovery. Unfortunately, Krugman maintains, many in the economic elite are quick to call for austerity at the first sign of positive news, and seem to direct their vigilance against an inflation that has failed to materialize for the last three years. So, a little good news could become bad news if it leads to more such economically retrograde behavior.

None of this, however, should spoil the Giants' victory celebration - congratulations to Coach Tom Coughlin, Eli Manning & company!

The Real Super Bowl XLVI

2012-02-05T14:25:00.000-05:00

Said a Patriot, flanked by his lady:
"Though my Giant opponent is shady,
And I may lack for planning
Or adequate Manning,
I've a trophy wife, just like Tom Brady."

Days before the kickoff of Super Bowl XLVI, US Presidential contender Newt Gingrich tried to rally his supporters for the next 46 primaries in the race for the Republican nomination. Though out-organized and outspent by the frontrunner Mitt Romney, Mr. Gingrich hopes that his persuasive powers will win the day. On the evidence of another commanding Romney win in this weekend's Nevada primary, however, money and organization appear likely to carry the election in the next XLV contests.
As for today's Super Bowl XLVI: Go Giants!

Little Interest in Saving

2012-02-03T00:08:00.000-05:00

Said Bernanke, waxing inventive
On another recession preventive:
"Though our savings must grow,
I'm keeping rates low,
So look for another incentive."

Federal Reserve Chairman Ben Bernanke is making life very easy for Jerry Stiller. Mr. Stiller (pictured) is the lovable alte kocker who, as spokesman for Capital One Bank, brays happily that his client pays checking account interest "up to five times the national average." Mr. Bernanke, testifying before the House Budget Committee on Thursday, noted that the fragile state of the US economic recovery dictates that the Fed hold rates to near zero through the end of 2014. Corroborating the Chairman's testimony, the Capital One website promises to quintuple Dr. Goose's locally average checking account rates to a winning 1.00%. For the foreseeable future, it all adds up to little interest in saving.

Facebook Valuation Formula

2012-02-02T00:23:00.001-05:00

Facebook is valued at plenty
By Wall Street's high-tech cognoscenti,
Based on 1 billion friends
Times $5 each, then
Times the IPO multiple, 20.

Facebook filed its Form S-1, announcing its intention to make an initial public offering of stock in the near future; millions paused their Farmville games long enough to glean some hitherto unpublished "fun facts" about the social network, which is 28% owned by its founder, Mark Zuckerberg. Soon to be traded under the ticker symbol "FB", Facebook had 2011 revenue of $3.7 billion, a 47% operating margin and a cash balance of $3 billion. The company's social impact has been much greater, according to The Wall Street Journal:

In just eight years, Facebook has become the world's social bazaar, where friends gossip, play games and swap 250 million photos per day. It has also emerged as a potent political tool, helping to topple regimes across the Middle East last year.

Of course, there are skeptics, many of whom made their snarkiness felt on Twitter. Josh Brown, aka @ReformedBroker, suggested this risk disclosure: "Our business model may prove unsustainable if people realize how little time on earth they actually have." As for the IPO's $100 billion valuation, Wharton economist @JustinWolfers offers this formula: "Facebook valuation for dummies. 1 billion users. FB earns $5/year serving ads to each. NPV = annual profit x20. =$100b!" As they say, good ideas were meant to be stolen (thank you, Justin)!

Newt's Non-Concession

2012-02-01T01:34:00.000-05:00

Said Gingrich: "It's not contradictory,
In defeat, to forego valedictory;
One may not give up now,
Having taken a vow
To have and to hold out for victory."

Mitt Romney won commandingly in the Florida Presidential primary Tuesday night, capturing 46% of the vote and all of the state's 50 delegates. However, you wouldn't know it from second-place finisher Newt Gingrich, who, with 32% of the votes and no delegates, gave what sounded a lot like a strident victory speech. In the glow of his primary night defeat, Gingrich pledged to supporters that, upon his inauguration, he would repeal health care reform, Dodd-Frank financial reform and the Sarbanes-Oxley corporate governance reform, as well as sign a host of executive orders including a pledge to end "antireligious bias." Thankfully, he saved lunar colonization for another day.

Depositing or De-Leveraging?

2012-01-30T23:18:00.000-05:00

Said a banker named Old Ebenezer:
"Don't think me a miserly geezer;
Though to work is a gift,
I must still practice thrift,
As my paycheck is going to Visa."

The Wall Street Journal reports that US personal income was up for the month of December, but spending was down ("Rising Income Is Saved, Not Spent"). This fresh statistic, which reverses the previous three months' higher spending, is cited – perhaps hopefully – as a break in the long-term pattern of Americans' spend-thriftiness. Conspicuous by its absence is any mention of the level of consumer debt, which was ruinously high before the crisis and, though since reduced, remains high today. In any discussion of the trends of American income and spending, one must take care to distinguish between actual saving and de-leveraging. I suspect that our thrift is really debt repayment.
Infographic courtesy of The Wall Street Journal.

Mr. Buffett, His Secretary & Their Tax Rates

2012-01-29T23:55:00.000-05:00

Inequality's pair most iconic,
Mr. Buffett and Mrs. Bosanek,
Have talked up the facts
Of the rates of his tax,
Which are lower than hers – most ironic.

"But investors like Buffett," says Mankiw,
"Have firms that pay tax as well, thank you;
We must add the taxation
Of each corporation
To see in which bracket we rank you."

So taxation's not simple as "one-two",
You can argue the point if you want to,
But unequal or not,
Ms. Bosanek ain't got
Someone else she can pass the tax onto.

Harvard's famed Professor Greg Mankiw, who chaired President George W. Bush's Council of Economic Advisers (and may someday do the same for Mitt Romney, if things should take such a turn), has made his voice prominent in rebutting the claim of Warren Buffett that he pays a lower income tax rate than his secretary. Debbie Bosanek pays roughly 33% of her income in taxes, while her billionaire boss pays 19%. The difference is due to the 15% rate of taxation on capital gains, which liberals argue is unfair. Professor Mankiw has argued that one must consider the shareholder's stake in the corporate income tax paid by the companies he owns.

Along comes a new and intriguingly anonymous blogger to put meat on the bones of Mankiw's argument. "PrometheeFeu" points out that, if Buffett pays 15% tax on his dividends and the company paying the dividend has already paid 25% income tax, then this is the same as a 35% income tax between Buffett and the original source of the income. Furthermore, one must distinguish between the person who pays the tax and the people on whom the burden of the tax ultimately falls. In other words, corporate tax burdens can be passed along to customers, vendors and employees as well as shareholders. However, this second point undermines the first, since it suggests that the companies owned by Berkshire Hathaway may spread the burden of their taxes, while Mrs. Bosanek would be hard-pressed to do so.

Davos: Private Gain, Public Pain

2012-01-26T22:11:00.000-05:00

There's a forum for serious chatter
By the bankers and leaders who matter,
Who will see, when they're done,
That the debts of the one
Are obligingly backed by the latter.

This week, the global business and political elite meet at the World Economic Forum in Davos, Switzerland. Founded in 1971, the WEF describes itself as an international organization of large corporations "committed to improving the state of the world" with "no political, partisan or national interests." But, says Bloomberg columnist Jonathan Weil, "It’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain." Exhibit A in Weil's case against the Forum is its Co-Chair, Citigroup CEO Vikram Pandit. Angrily detailing the ways in which Pandit has "failed upwards" at his former hedge fund and then at Citi, ultimately taking multiple federal bailouts while declaring his institution to be sound, Weil concludes, sarcastically: "These little rough patches in the financial industry offered just the kind of hands-on experience the forum’s organizers were looking for in a leader, in which case they found their man."

Industrialist Obama

2012-01-26T01:20:00.002-05:00

"To create better jobs in the shorter view,
Manufacturing needs the support of you,
For to firm up the health
Of our national wealth,
We must build some more cars and export a few."

President Barack Obama, in his State of the Union address on Tuesday night, predicted that manufacturing products for export would turn the US economy around. The President singled out companies such as General Motors and Master Lock as examples of this potential. Such rhetoric made Marketplace reporter Heidi Moore wonder whether we could build enough stuff to fill the financial hole left by crisis-riven banks. After all, the financial sector accounted for one third of US corporate profits before the bubble burst. Responded University of Maryland economics professor Peter Morici:

"We cannot succeed as an economy without a strong manufacturing base." While Wall Street has made a lot of money, Morici says, "It's nothing compared to the wealth generated by labs that come out of manufacturing."

State of the Union: Commando-In-Chief

2012-01-24T23:53:00.000-05:00

"Though obstructionists threaten to ruin it,
Those who know what they say don't impugn it:
When I sound the attack,
Our economy's back
Like the Navy SEAL Bin Laden unit."

US Pres. Barack Obama, seeking to tie his military successes to hopeful signs in the economy, gave his economic-themed State of the Union address a military motif. The speech began with a salute to returning Iraqi war veterans, and ended with a tribute to the amazing teamwork of the Navy seal unit that killed Osama bin Laden. These twin martial references helped the president emphasize two key points: first, that there is much on which the President and Congress can work together as a team for the good of the American people; second, that there is much that I, as Commander-in-Chief, can order without you.

IMF MD to EU

2012-01-24T00:39:00.000-05:00

"If the euro would founder and fester
From the wounds that beset and distressed 'er,
Ideology marred
The chance," said Lagarde,
"Of avoiding zees awful deezester."

IMF Managing Director Christine Lagarde, speaking in Berlin, sounded the euro-alarm as never before: "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," she said before the German Council on Foreign Relations; "A moment, ultimately, leading to a downward spiral that could engulf the entire world." The IMF managing director would like Germany, France, the ECB and other key players to strengthen their support of the eurozone's liquidity and financial stability, to avoid an Italian meltdown in particular. As Mme Lagarde expresses so dramatically, such a development would not be confined to Europe.

Why Apple Is Not Made in the USA

2012-01-23T00:07:00.000-05:00

"With the notion we might go along
That employment at home should be strong,
But our skills, we apprise,
And our chain of supplies
Don't compare to those guys' in Guangdong."

A New York Times profile on Apple's manufacturing of the iPhone opens with President Obama at dinner with Steve Jobs, asking him what it would take to bring this operation back to America. It's a poignant moment, as it seems that both US iPhone jobs, as well as Steve Jobs himself, were going and not coming back. Charles Duhigg and Keith Bradsher take an in-depth look at the economics of iPhone manufacture and determine that factory-ready skills and scalable supply chains are lacking here at home. "Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need," they write. As for supply chains -

The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.

Is massive vocational and technical training America's answer to this challenge?

A Strategic Withdrawal

2012-01-19T23:46:00.000-05:00

The L.A. town council, climactic'ly,
Ruled that porn stars must act prophylactic'ly.
"To mandate a condom
Is really beyond 'em,"
Said producers; "We're pulling out tactic'ly."

In a case of regulatory overreach made for limericks, the Los Angeles City Council passed an ordinance that actors in pornographic productions must wear condoms as a condition of obtaining a film permit. Some immediately decried this unwarranted government penetration into business affairs, sensing a backdoor attempt to regulate the industry's license. Porn moguls fear that this law could lead to flaccid sales in a business that has never developed a pulsating market for safe sex films. The city responded that the filmmakers are being too thin-skinned about condoms, the use of which is really a public health issue. Taking a cue from their on-screen birth control practices, movie producers threatened withdrawal from a domain of which they are evidently not master. Industry observers (also known as voyeurs) cautioned against premature evacuation, as the business is too entrenched in Los Angeles. It is estimated that 80% of US pornographic films are produced within the San Fernando Valley.

China's Slowing Growth

2012-01-19T00:50:00.000-05:00

As the world isn't sure of withstanding
A slowdown in China's expanding,
The brightest and best
Are correctly obsessed
With predicting a hard or soft landing.

The Hard guys are finding it troubling
That the property market is bubbling,
And China's growth race,
To equal the pace
Of construction, would have to be doubling.

Say the Softies: there isn't just one way
Of averting a slump the yuan way;
While liquidity's free,
One can easily see
There's a gentle descent to the runway.

Economists and analysts around the world are weighing in on the question of how quickly China's sky-high growth rate will fall, and with good reason: while the developed world limps along at 1-3% growth, China's National Bureau of Statistics announced that their nation's economy grew 9.2% in 2011. The problem is illustrated by the Wall Street Journal graphic; though China is the jet engine propelling the world economy, it is on a downward glide path. Will there be a hard landing, in which property markets collapse and, directly or indirectly, throw millions out of work?
Yes, says Professor Patrick Chovanec of Tsinghua University's School of Economics and Management in Beijing. Dr. Chovanec points out that an outsized portion of Chinese GDP growth belongs to real estate, which is growing unsustainably fast. "Frankly, you don’t need a real estate collapse in order to trigger a serious slowdown in these sectors. All you need is a pause in the hitherto frantic pace of construction," says the professor.
No, say Zhou Xin and Nick Edwards of Reuters; China's vast fiscal resources give it powerful tools to moderate a slowdown, which the Fed and the European Central Bank can only look upon in envy.
Both sides make good points, but the most important perspective is that the future of China is many times more important to the world economy than that of, say, Greece.

The Chief Yahoo Resigns

2012-01-18T00:50:00.000-05:00

A founder who outlived his heyday
Kept investors from having their payday;
Compared to a buyout,
No tack he might try out
Could put off his "anchors aweigh" day.

The shares he was said to have ruined
Rose in price, as the towel he threw in;
But history may
Look kindly one day
On the groundbreaking things he was doin'.

As Yahoo! co-founder Jerry Yang announced his resignation, reaction varied from regretful musing to grim satisfaction. The latter was reflected in the $YHOO share price, which rose 3% in after hours trading to $15.90. Internet industry oldtimers (if there is such a thing) were more philosophical; the Wall Street Journal quoted Citibank analyst Mark Mahaney, who said: "The near-term Wall Street reaction is that he wasn't doing a good job, but the longer-term perspective is that he will go down as one of the top 10 Internet entrepreneurs." Mr. Yang co-founded Yahoo! with fellow Stanford University graduate student David Filo in 1996, and the company rode the dot-com bubble to a market valuation of $120 billion in 1999. Along the way it eclipsed or bought out such early rivals as Alta Vista, Inktomi and Excite. In the wake of the dot-com bust and the ascendancy of Google search, $YHOO has languished, and Mr. Yang incurred the wrath of investors when he spurned a $47 billion takeover by Microsoft in 2008.

World Trade Center 2.0

2012-01-17T00:11:00.000-05:00

Those towers of stature and weight
That collapsed in the fires of hate,
Through devotion and skill
And political will,
Are rising up, doubly great.

Dr. Goose was privileged to witness first hand how the World Trade Center, more than ten years after its destruction, is finally headed toward completion. The driving force behind this achievement is the unsung Steven Plate (pictured at left), Director of World Trade Center Construction for the Port Authority of New York & New Jersey. He invited the mayor and town council of Glen Ridge, New Jersey (of which council Dr. Goose is a member) to tour the site and observe its progress up close. Mr. Plate knows all about thankless jobs, having once served as mayor of Glen Ridge - a volunteer, non-partisan position - himself. In his current role, his achievements loom large even if his name may not.

You may see photos of the tour on the Limericks Économiques Facebook page.