No Interest in Saving

A fellow was in a bad mood,
And feeling financially screwed,
When he read in his statement
How lowly his rate went
That int'rest had barely accrued.

As the US attempts to pull out of a financial hole brought on by over-leveraging, it seems that no-one is looking out for the interests of US savers; no-one, that is, but Kansas City Federal Reserve Bank President Thomas Hoenig.   Mr. Hoenig, who does not have a vote on monetary policy this year, urges the Fed to sweeten the pot for savers by raising interest rates from near zero.

Overheard at the Chinese Finance Ministry

"With the IMF head in ignominy,
His replacement is just what I wanna be,
Since, with all due regard
To Madame Lagarde,
We're the world's up-and-coming economy."

Now that Dominique Strauss-Kahn has resigned in disgrace as head of the International Monetary Fund, his countrywoman, French finance minister Christine Lagarde, has moved into the spotlight as the European favorite for a position traditionally held by an Old World banker. However, China and India have seized on this moment to challenge the tradition and assert their growing weight in global business and financial affairs.  Notwithstanding the Greek debt crisis, the calls for an emerging market successor to DSK are growing.

Currency Conundrum

An economy gripped by stagnation
Needs a weakening currency flotation,
But on this point, the Fed
Punts to Treas'ry instead,
Who repeat their "strong dollar" fixation.

UC Berkeley Professor Christina Romer, erstwhile head of President Barack Obama's Council of Economic Advisors, opined in the New York Times over the weekend on the disconnect between reality and posturing on the value of the dollar. While a weak dollar would encourage US exports and foreign investment inflows in a time of economic weakness, no US public servant will acknowledge this point, except to complain about the artificially low Chinese yuan. Failure to voice support for a Strong Dollar evidently brands one as un-American at home, and unfairly American abroad.

Tip o' the hat to Professor Greg Mankiw.

Pungent Predicament

The high price of onions in Mumbai
Means for many, they're harder to come by,
So the Bombayite lunch
Loses some of its punch,
Unless they can really find some buy.

With millions of poor farmers and even more millions of poor consumers, India tries to strike a balance between supporting farm prices and moderating food prices.  Now however, Bloomberg Business Week and others report that the cost of farm production is going up by 20% due to fuel and fertilizer price hikes.  This means that the government will have to re-calibrate the minimum guaranteed price of crops that farmers receive, as well as the subsidies that are extended to such staples as grains and oils.  In a pinch, however, things may have to get blander at the dinner table.

LinkedIn

In the IPO pricing of LinkedIn,
Which doubled before one had blinked in,
Either banks ripped off clients,
Or it's more art than science;
It's a point which the truth's indistinct in.  

The IPO of the professionally oriented social networking site LinkedIn created a sensation last week when the offering price of $45 was quickly more than doubled in the first day of trading. The IPO "pop" became the object of furious debate between those who saw a successful issue creating investor excitement and those who objected that the deal was underpriced and the company thereby deprived of potential capital.  Underwriters Morgan Stanley, Bank of America and JPMorgan may indeed have delivered a windfall to their favored investors, who could have flipped the shares and doubled their money immediately; however, since the original $4.3 billion valuation (at $45/share) seemed bubblicious for a company that earned $15 million last year, all the complaints about ripping off the company may amount to 20/20 hindsight.

Don't Buy Retail

Wall Street sees contrary sentiment
In retail investors' presentiment,
So, when Mom or Pop's right,
One asks if it might
Be the good call that coincident'ly went?

The Wall Street Journal's Kelly Evans writes in her Ahead of the Tape column that the American Association of Individual Investors' sentiment survey has been showing more predictive power than usual in the first half of this year.   Market professionals often see retail investors as a contrary indicator; small investors typically react in a herd to broad market moves, such that, as Stifel Nicolaus strategist David Lutz puts it: "If everyone's on one side of the boat, I like being on the other one."  The fact that the S+P 500 index climbed 6.6% after a bullish reading of the AAII December survey is an interesting departure, but how soon before Mom and Pop revert to type?

The Socialist Mødel

A hotbed of startup activity,
Though socialist in their proclivity,
Norwegians eschew
The American view
That the government crimps productivity.  

Stability helps to ensure
That the av'rage norsk entreprenør
Will see, in their tax,
Not "a weight on our backs,"
But a price that one gets service før.

The bible of American entrepreneurship, Inc Magazine, goes against the grain of US business thinking with a thoughtful look at Norway, where "Startups Say Ja to Socialism."  Challenging the view that lower taxes mean more economic growth, author Max Chafkin looks for the factors underpinning Norway's higher rate of growth and entrepreneurship in comparison to the United States.  As against America's more service-oriented, "can-do" business culture, Scandinavians enjoy the benefits of a more stable, low-risk environment fostered by good-quality healthcare and education as well as pensions paid by the government.  Conclusion: it's not what you pay; it's the value you get in return.

Hat tip (and happy birthday!) to my good friend Michael Griffiths.

The $37 Billion Question

Said a Harvard professor of econ,
"That Google's got something unique on:
They have cash by the score,
Yet still borrow more;
This is something I've puzzled all week on."  

Said an expert in cross-border taxes,
"I should hope the professor relaxes;
As Google keeps cash
In an overseas stash,
'Til taxation here wanes and not waxes."  

Professor Greg Mankiw, who teaches economics at Harvard and writes America's best-selling textbooks on the topic, wondered in his blog about the apparent contradiction of Google's borrowing money at long-term rates, when they already have $37 billion in cash idling at short-term rates close to zero. Proving that smart people attract smart blog followers, Prof. Mankiw quotes a reader who responds that Google is "intertemporally arbitrag[ing] the U.S. tax code. By not repatriating the $37 billion now, they are betting that the U.S. corporate tax rate on repatriated foreign profits will be appreciably lower in the future."

Know Your Limit

When reaching the debt limit really,
One must balance the budget ideally,
So the rich are more taxed
(With their conscience relaxed)
And the middle class needy, but steely.

Washington politics reached the borders of business as usual yesterday, with the news that the $14.3 trillion federal debt limit has been reached. Although it is possible simply to increase it, the Republicans in particular do not want to do so without a plan for drastic reduction of the budget deficit, expected to hit $1.5 trillion this year. The GOP and Democrats remain far apart over how (and to whom) the pain of budget-balancing will be administered.

L'Affaire DSK

A maid whose hotel greatly trusted her
Once confronted a sight that disgusted her,
And beat a retreat
From a luxury suite,
When an IMF package was thrust at her.

In a case that recalls the feudal practice of droit de seigneur, in which the lord of the manor was entitled to the favors of his female serfs, the worlds of politics and finance were rocked on the weekend by the news that Dominique Strauss-Kahn, head of the International Monetary Fund and a front-runner in the upcoming French presidential race, was arrested in the first class cabin of an Air France jet at JFK airport for the attempted rape of a chambermaid at the Sofitel New York. In a stroke, this development has roiled not only French politics, but also the negotiations over the bailouts of Greece and Ireland as well as the leadership of the IMF itself.

@StephenKinsella Recites Dr. Goose

[Audio] Stephen Kinsella, Lecturer in Economics at the University of Limerick, recites Dr. Goose's two-verse poem entitled "Dublin vs. Limerick Economist," proving that economists are good sports.  The verses are based on Dr. Kinsella's debate with Morgan Kelly of University College Dublin over the best way out of Ireland's financial crisis.




For background:

• here is Dr. Kelly's polemic in the Irish Times that started it all; 
• here are parts one and two of Dr. Kinsella's response.

Dublin vs Limerick Economist

"For Ireland, it would be best to
Abandon the ECB rescue,
Or in one to two years,
We're bankrupt, me fears,"
Said Kelly, "and this I'll attest to."

Said Kinsella, "Your debt abdication
Would bring about rapid deflation,
For draconian cuts
Are needed, or what's
To balance the books of the nation?"

Today is Limerick Day - the birthday of Edward Lear - and this year we celebrate with a Limerick economic debate - literally. Stephen Kinsella, Lecturer in Economics at University of Limerick, has replied to a controversial proposal by Morgan Kelly, Professor of Economics at University College of Dublin. Prof. Kelly shocked Ireland with his polemic in the Irish Times, arguing that Ireland should walk away from an EU/ECB/IMF bailout that would bankrupt the nation in two years. Dr. Kinsella responds in the Guardian that the need for government to balance a €15 billion budget gap immediately under the Kelly plan would suck spending out of the economy, creating a rapid deflationary spiral.

This is all a far cry from "There was an old man with a beard," one of the Lear "Nonsense" classics, but such are the times in the land of Limerick.

Update: Here is Stephen Kinsella reading the limerick dedicated to him.

Detroit Phoenix

In the black again, General Motors,
Still one-quarter owned by the voters,
Has seized on the chance
Of expanding its plants
With the market it took from Toyoters.

Those who recall when, just two years ago, GM was rescued from certain death by a $50 billion taxpayer bailout, must be pleasantly surprised at the automaker's recent developments. Having increased its domestic market share from 18.7% to 19.6% over the last year, a newly profitable GM is investing $2 billion in US factories and creating or saving 4,000 American jobs. There's a catch: the new factory jobs, at an hourly wage of $14, pay half the going rate of existing jobs and add to the pressure on UAW president Bob King to take back some of the concessions made during the crisis.

It Isn't a SNAP

An American family who,
On a pittance, must try to make do,
Turns to fed'ral assistance
To get their subsistence,
As one out of seven do, too.

The Wall Street Journal's Real Time Economics reports that the proportion of the US population receiving food stamps has stabilized (if that's the word for it) at 14.3%. The USDA's Supplemental Nutritional Assistance Program , or SNAP, helps poor Americans - for example, a family of four with gross annual income of less than $28,700 - get basic nutrition. Almost two years after the "Great Recession" was declared over, a surprisingly large number remain in the qualifying pool.

Taking Stock

The President paused to take stock
After giving the world a great shock;
"We've gotten," said he,
"Our arch-enemy,
After pulling the troops from Iraq."

US President Barack Obama, on the CBS 60 Minutes program Sunday evening, reminded interviewer Steve Kroft that he came into office promising to draw troops and materiel from Iraq not in order to wage peace, but rather to finish the job against Al-Qaeda and the Taliban in Afghanistan and Pakistan.

Unrefined Reversal

On the global commodity bourses,
Crude oil is subject to forces
Like the gasoline price,
Which, when high, may suffice
That the market puts carts before horses.  

A sudden, 8.6% plunge in the price of crude oil to $99.80 a barrel yesterday originated with a surprising source: the high price of US gasoline.  Fears of an imminent "double dip" into recession have been fed by gas prices approaching $4/gallon.  Oil, which - though the main ingredient in gasoline - is sensitive to economic cycles, was evidently poised for a break to the downside.  All that was needed was a surprisingly bearish announcement, and the market got two: European Central Bank President Jean-Claude Trichet implied no imminent hike in euro interest rates, which strengthened the dollar; and new jobless claims were higher than expected, which weakened the US growth outlook.

MBS Q&A

Tell me how can we state with finality
When the mortgage bond crisis finale be?
When loans finish tanking
In ledgers of banking
To prices reflecting reality.  

Freddie Mac has inspired the foregoing Q and A with the news of its first quarterly profit in over 3 years. The $676 million profit stems from FHLMC's having arrested the slide in the collective value of the mortgages and foreclosed homes on its balance sheet, begging the question of whether the valuation is realistic, and whether it may yet fall further. As Freddie Mac CFO Ross Kari cautioned: "We're encouraged by the trends, [but] we're not putting up a 'mission accomplished' sign on the front of the building either."

Overheard at a Mortgage Lender

"To originate loans to the maximum,
One must feed the demand to invest in 'em;
If a borrower's no good,
Then it's best if you would
Not disclose what does not show the best in 'em."  

The "reckless" practices of the mortgage origination industry were illuminated in a federal lawsuit filed against Deutsche Bank and its US mortgage lending subsidiary.  MortgageIT Inc. was purchased by the German bank in 2007, as it tried to capture more volume in the booming mortgage bond business.  The suit alleges that the bank was so eager not to disrupt its mortgage origination flow that it literally locked documentation of underwriting violations in a closet, only to have them "outed" in court when the boom turned to bust.  The US government has paid out $386 million in claims on defaulted mortgages, and is liable for $888 million more.

It's Still the Economy

The brass of the vict'ry parade
To the background may easily fade;
As Bill Clinton could tell 'em,
The economy's realm
'Swhere political fortunes are made.  

From celebratory to somber, the nation is swept up in reactions to the death of Bin Laden at the hands of US Navy SEALs.  Meanwhile, the political world tries to sort out what it all means for the 2012 Presidential election.  Though Republicans cede the day to President Barack Obama, they are mindful of the short-lived popularity of President George Bush (the elder) following his lightning victory in the 1991 Gulf War.  In the downturn of 1992, the little-known governor of Arkansas realized that elections are decided by "the economy, stupid," and Bill Clinton went on to beat the war hero incumbent.

Change

A pol had to cancel his plan
For the banner beneath which he ran,
Which read that "Obama
Cannot find Osama,"
When now it appears: Yes, he can.  

The death of Osama bin Laden, more than nine years after the 9/11 attacks, represents a watershed moment in US history.  Among other things, it will certainly shift the ground in the emerging 2012 Presidential race; how many political strategies were being torn up and written anew on Sunday evening at 11:00?