Power Outage Haiku

Two late-night walkers
On darkened streets, passing 'neath
The shadows of trees.

Dr. Goose and his muse, Gloria the Cairn Terrier, must continue to make our nightly rounds in Irene's ghostly gloom. When power returns, so too will Limericks Économiques.

Uninsurable Irene

In many a coastal locality
There's a state-run insurance modality,
Though critics insist
That in lowering risk,
The hazard is one of morality.

As Hurricane Irene bears down upon the U.S. East Coast, millions of households are making last-minute checks: food and supplies, evacuation plans… and homeowner’s insurance. The Wall Street Journal reports that 677,000 households in Irene’s path live in coastal areas considered too risky by private insurers, and are therefore covered by state-sponsored “insurers of last resort.” Insurance pools such as the North Carolina Beach Plan have $196 billion total exposure. Should an especially severe storm exhaust their resources, they will draw on both reinsurance and privately insured state residents to cover any shortfall. Therein lies the Moral Hazard: by spreading the risk of living in hurricane-prone areas, the states end up encouraging more construction in harm’s way and increasing the overall financial risk of natural disaster.

Apple CEO No More

Said Jobs: "I'm no longer the ruler now,
But review my achievements and you'll avow:
The tools of the geek
I made sexy and sleek -
Thanks to me, your technology's cooler now."

Steve Jobs' resignation as CEO of the company he co-founded in 1976 prompted an outpouring of tributes that seemed like obituaries, if not to the man - who, though evidently gravely ill, is very much alive - then to his visionary leadership of America's iconic technology company. Indeed, the word "icon" itself gained new meaning with the introduction of the first graphical interface computer - the Macintosh - in 1984. The story of Jobs' rise, fall, exile, triumphant return and rise to the top is already the stuff of legend, but his signature achievement is the transformation of technology into beautiful objects of desire.

Seismic Media

In our national corridor of power
Was a quake felt in many a tower;
Though the trembling in it
Would last for a minute,
The twittering lasted an hour.

From the Beltway to Broadway, and from the Federal Reserve to the New York Stock Exchange, people up and down the East Coast stopped what we were doing yesterday, gripped by fear and uncertainty at the (mostly) slight trembling of the Earth and swaying of buildings. The 5.9-scale quake, which would have barely raised eyebrows in California, unleashed an all-time wave of Twitter messages as millions of earthquake virgins used social media to share their "first time."

Hold On There, Pahdnah

Unemployment adjusted for population growth

Said a well mathematic'ly versed one:
"On Texas, let me be the first one
To confirm their job rates
Are the best of the states,
Whether Perry's the best or the worst one."

In response to last Friday's limerick ("Faith-Based Economics"), which cited the work of economists attempting to debunk the "Texas Jobs Miracle," a conservative friend sent a link to a meticulously researched blog post that concluded, in essence: "Now wait a minute - this here Jobs Miracle is real!" The Political Math Blog, by Matthias Shapiro, analyzes the data behind the claims and counterclaims that are loosed in the heat of electoral combat. Shapiro concludes:

My advice to anti-Perry advocates is this: Give up talking about Texas jobs... Not only are they creating them, they're creating ones with higher wages.

Whether Texas Governor Rick Perry, in his eleven years in office, had much to do with the Miracle is another matter, and may lead us to question the extent to which any political executive can ever be said to create (private sector) jobs.

The $1.2 Trillion Rainy Day Fund

At a time which the bankers were stunned in,
The Fed gave emergency fundin'
To hundreds of banks
Of high and low ranks
In New York, Waukegan and London.

The US Federal Reserve has published the data on the 21,000 emergency loans to over 400 recipients, totaling $1.2 trillion, that it made from August 2007 to April 2010. Thanks to Bloomberg, the public can now comb through some very illuminating interactive graphics to compare and contrast the credits to companies large and small, American and international, banks and non-banks. Most know that the heaviest bailing-out went to Morgan Stanley, Citi and Bank of America; many are also aware that European banks such as Deutsche, Dexia and Dresdner availed themselves. But how many know of the lifelines thrown to Legacy Texas Group, Sharon Savings Bank and Stupp Bros.?

Faith-Based Economics

Gov'nor Perry, waxing quite lyrical,
Says: "Texas produced a jobs miracle!"
But economists who
Put this claim to review
Say the Miracle isn't empirical.

Texas' Governor - and now Republican Presdential hopeful - Rick Perry likes to boast about the "Texas Miracle": that the Lone Star State added more jobs more quickly than any other. Unfortunately for Mr. Perry, his candidacy wasn't more than a week old when the Miracle was disproven by a number of authoritative sources. The Big Picture blog probably sums up the takedown most comprehensively; in short, Texas' unemployment rate, though somewhat better than average, reacted like everyone else's to the recession. What's more, the employment rate (number of working adults / total population) is worse than average, and Texas ranks near the bottom on a host of quality-of-life measures.

Job One is Jobs

Said Obama: "'Til now I've done little
To answer the job-making riddle:
Though employment may grow
At high wages or low,
It's hollowing out in the middle."

President Barack Obama, touring the midwest while Republican Presidential candidates campaigned in Iowa, was acutely aware of the pressure on his administration to help restart the engine of job growth in America. The President promises a major address on this topic after Labor Day (how appropriate), and hopes to put some of the pressure to create a job-creation package on the Congressional deficit-reduction super-committee.

Always Low Prices?

Said an analyst: "Time for rethinking
Whether Wal-Mart is rising or sinking;
Though still they do well,
Their core clientele
Find their incomes and credit lines shrinking."

Kelly Evans, the Wall Street Journal's Ahead of the Tape scribe, writes that Wal-Mart is at a crossroads: though retail analysts see the company's earnings growing at 10% a year, surveys indicate that 60% of Wal-Mart's customers no longer believe it has the lowest prices. This leaves Bentonville, Arkansas' big-box powerhouse in the awkward position of moving up from its financially troubled core demographic to compete more directly with the likes of Costqueau and Targét. Wal-Martre, anyone?

Save Me

Said a savings-inclined un-sophisticate:
"I've got a complaint, and the gist of it
Is the rates that they're setting
Are not even letting
Me earn the rewards of my thrift a bit."
More than one commentator has asked the question: if America is caught, not in a cyclical downturn, but a period of deleveraging from excessive debt, which we desperately need to save our way out of, why is the Fed setting interest rates near zero for the benefit of borrowers rather than savers?

Check Your Emotions

Investors, with faces quite ashen,
Their holdings may clamor to cash in,
But advisors persuade
That it's best not to trade
In a greedy or panicky passion.

Down 600 points, up 400 points, down 400 points again - the volatility of the stock market this week may induce emotional volatility on the part of those whose retirement savings are tied up in it. However, at such times it is best to remember that the investor's two worst enemies are their own fear and greed, which may prompt rash decisions with adverse long-term consequences. As the legendary early 20th century trader Jesse Livermore once said: "The successful trader has to fight these two deep-seated instincts. Instead of hoping he must fear; instead of fearing he must hope." For more on this topic, listen to this weekend's Marketplace Money on public radio, where an expert panel will answer listeners' questions about how to respond to the market upheaval.

Disclaimer: nothing in this post should be considered as investment advice, for which the reader should turn instead to a qualified investment advisor.

Bernanke Jolt

The Fed gave a shot of caffeine
To the moribund stock market scene,
When they answered the pleas
To continue to ease
From now until Twenty-thirteen.
The Federal Reserve's policy statement, released yesterday afternoon, caused the stock markets to swoon and then soar, as investors reacted first to the Fed's prediction of continued economic weakness, and then to the fine print that the Fed is "prepared to employ" a "range of policy tools." Translation: more monetary stimulus. The Dow ended the day up 4%, solidly over the 11,000 mark, so the statement turned out to be quite a stimulant.

Belt-Tightening Blues

In the stock market sell-off's severity,
There's a White House political rarity:
While private demand
Is too soft to expand,
There's a Democrat talking austerity.

As millions of Americans fretted about S&P's Friday night downgrade of US sovereign debt, Monday's stock markets saw a tsunami of selling that began in Asia and rolled across the world, ending with the S&P 500 stock index down 6.7% for the day. However, the downgrade itself was not the catalyst, as evidenced by the fact that Treasury prices actually rose. The market was much more spooked by waning growth prospects, caused in part by government belt-tightening at a time of slack private demand. How ironic that, following a Republican President who stimulated the economy with spending and tax cuts, and his Democratic successor announces years of growth-dampening spending cuts ahead.

Weekend Worriers

Whenever a bombshell discloses
After Wall Street on Friday night closes,
The market is fraught
All weekend with what
The chance of new highs or new lows is.

Listening to the weekend's feverish speculation as to the market effect of the S&P downgrade of US sovereign debt, one could not help but hark back to the Lehman failure in 2008, when the world waited breathlessly for the Asian markets to open and point to our global economic fate. Early results this time around indicate a sharp sell-off of anything risky, though not necessarily US Treasury bonds themselves, the risk perception of which has not really changed.

Downgrade Dilemma

That the GOP's debt ceiling polity
Viewed a US default with frivolity
So provoked S&P
That investors may flee
To Treasury bonds for the quality.

In a move that surprised no-one, the Standard & Poor's credit rating agency downgraded the debt of the US government to AA+ Friday evening, citing primarily the "weakened...effectiveness, stability and predictability of American policymaking and political institutions at a time of fiscal and economic challenges." Since, as many market analysts pointed out, the move was long overdue, no material market reaction was expected. Indeed, the expectation is that Treasurys will remain the safe haven whenever investors panic, so, to the extent that the downgrade has lowered the general risk tolerance, it may even cause net inflows to Treasury bonds. Let the Asian trading day commence!

Why Did the Market Fall?

Said an equity trader, "I'll cop to this:
I can't tell why we tanked from the top to this,
But the punters of punts
All concluded at once -
There's no basis for being an optimist."

From London and Frankfurt to New York and Tokyo, stocks fell around the world on Thursday and continued on into Friday. The S&P 500 closed at 1200, a level not seen since last December. Many were caught by surprise and looked for the catalyst that would explain such a dramatic global correction; but, as Marketplace's Heidi Moore put it in her blog,

"No one knows... 'The Market' is too large, too sprawling, and is filled with people moving their own investments for their own reasons. Saying “the market was worried about recession today” is like saying “all the waves in all the oceans started to worry about global warming.”"

Still, once may hazard a guess that, with the removal of the US debt ceiling as a focal point for fear, market participants could look around and notice that nothing else was going right.

Negative Outlook on Uncle Sam

Said Moody's: "Our negative view on
The debt deal you voted anew on
Ponders revenue ruts
Caused in part by the cuts
Which we anyway doubt you'll come through on."

In announcing its negative outlook on the Aaa rating of US sovereign obligations, the Moody's rating agency cited the untested framework set up by the debt ceiling bill passed by Congress and signed into law yesterday by President Obama. Moreover, said Moody's, Congress may lack the fiscal discipline to make the hard decisions required later this year to narrow the deficit by another $1.5 trillion over the next ten years. Finally, the rating agency pointed out that federal revenues may not rise as fast as government forecasts assume. Of course, in the feedback loop between fiscal policy and the economy at large, deficit cutting can contribute to a slower economy.

Bernanke's Just Right

Said Mankiw: "The public should soften
Its critique of our central bank boffin;
Were I in his stead,
I would not have the Fed
Giving stimulus more or less often."

Harvard economics professor (and Romney economic advisor) Greg Mankiw writes in The New York Times:

Mr. Bernanke has worked tirelessly to shepherd the economy through the worst financial crisis since the Great Depression, and yet, for all his efforts, seems vastly underappreciated.

While left-leaning critics find the Fed's stimulus measures wanting, those on the right obsess over inflation, expecting it to pop out at any moment. Cool it, says the professor to both camps. After all, left-wingers, the Fed has used up all the stimulating weapons in its arsenal, and could not do more without risking a dangerous rise in inflation over the target rate of 2%, where, right-wingers, it has consistently averaged throughout Bernanke's five years at the helm. In other word's Papa Bernanke's porridge is neither too hot, nor too cold, but just right.

Debt Ceiling Lesson

Said Boehner: "My lasting impression
Of this Washington debt ceiling session?
It's a wonderful thing
The minority wing
May employ to extract a concession."

The budget compromise worked out in dramatic fashion on Sunday night between U.S. President Barack Obama and congressional leaders is actually not very definitive, considering the amount of time and angst that went into making it. Republicans can point to one key accomplishment: the White House’s agreement to $917 billion of spending cuts over the next ten years. As for the next $1.5 of deficit reduction, that particular can has, as they say, been kicked another six months down the road. The most important legacy of this protracted episode of brinksmanship may be that a vocal and well-organized minority can use the debt ceiling to bend the government to their will. One wonders what Denmark – the only other developed country with a debt ceiling – will make of all this.