Safe Investments?

Said a strategist, airing his views
On central bank rumors and news:
"You've booked every gain
And best not retain
Your bonds, which are certain to lose."

Bernanke's Records

Said Bernanke, in argumentation
To the makers of Fed legislation:
"You may think me a dove,
But take notice of
My record-low rate of inflation."

Those Congressmen failed to point out
That, for all of his monet'ry clout,
He couldn't deflate
The very high rate
Of laborers laying about.

Along came an eminence grise
Saying: "High or low rates such as these
Are attributed less
To your skill or success,
And more to the global unease."

The Difference 2% Makes

When she opened her statement from Payroll,
Unaware of how Washington may roll,
She had to recount
The take-home amount:
"My disposable income's gone AWOL!"

Turning Japanese

Said Krugman: "It boggles me how
Any long-term concerns may allow
Our political corps
To mostly ignore
The depression we're living in now."

Ev'ryone calls for a plan
On inflation, which isn't at han'.
If we tighten too soon,
We won't be immune
To a Lost Decade à la Japan."

Good As Gold?

Said a fellow who looked into gold
For the hedging effects it may hold:
"After testing with rigor,
I really can't figgur
The typical tales that are told."

"It's hard to explain how this thing got
The following no other bling got,
But immunization
From rampant inflation
Is more than you get from an ingot."

State of the Union Econ Highlights

"The state of the union is iffy,
As I stand here tonight looking spiffy.
The economy's slow
To get up and go,
And Congress is fiscally cliffy."

"The minimum wage in the nation
Should be tied to the rate of inflation,
So that all may enjoy,
While in private employ,
Relief from the grip of privation."

"America, please hear my sermon:
The Yank should be more like the German,
With apprenticeship skills
That fix our job ills,
As numerous studies determine."

"The number-one US priority
Is the growth of the fact'ry sorority,
So we can bring back
The fam'ly of Mac,
If not all, then at least a minority."

"Of course, I must certainly preface it
As a President these days professes it:
These are policies which,
By taxing the rich,
Will not add a dime to the deficit."

President Barack Obama's latest State of the Union address, the first of his second term, was mostly prosaic, at least in its economic prescriptions.  The poetry came at the end, when the President invoked the victims of gun violence in the House chamber, repeatedly intoning: "They deserve a vote!"  Also, the sight of 102-year-old Desiline Victor, who Mr. Obama cited for her waiting six hours to vote (presumably for him), was enough to make one verklemmt.

Here is the full prepared text of the speech.

The $137 Billion Question

There's a question for Cook and his board
Arising from Apple's cash horde:
At exactly what height
Of liquidity might
Alternatives best be explored?

Said Einhorn: "I'm finding absurd
All the dividend plans that I've heard.
If shareholder value
Is your rationale, you'll
Agree that my way is preferred."

Inflated Expectations

The specter of higher inflation
Makes investors want more compensation,
Thus driving up yields,
While prices of deals
Will fall, in an inverse relation.

The longer the stated maturity
Of a given fixed-income security,
Then all the more great
The effect of the rate,
As the market may show us with surety.

Bond prices tend to be countercyclical with stock prices and the economy as a whole.  In good times, or when inflation is elevated (or when both happen at once), bond prices tend to fall because rates are rising.  In bad times, or when investors show aversion to risk, there is a "flight to safety" that pushes them into bonds, driving up the price - and thus lowering the yield.  As The Wall Street Journal never fails to remind us: "Bond yields fall when prices rise." These dynamics were prominently on display in January, when 10-year bond prices fell 2.6% while the S&P 500 gained 5%.  In part, the bond selloff reflected more economic optimism and relief over the (partial) resolution of the fiscal cliff.  The higher yields also responded to awakening inflation anxiety, as the Fed's long-term inflation projection crossed over 3% for the first time in many moons.  Going forward, there is plenty for bond investors to feel anxious about - from the US debt ceiling to the eurozone - and little prospect for rapid economic growth, so inflation fears may not be driving rates any higher (and prices lower).

S&P's To Blame

A debt crisis once was created
By avarice run unabated,
As the market was flawed
By schemes to defraud
In bonds that were triple-A rated.

Now Justice may fin'lly report
That they're taking the raters to court
For the role of those chaps
In the housing collapse,
In which they provided support.

Dow 14,000

The last time around that the Dow
Hit the level it's gotten to now,
The market was brisk
By taking on risk
As much as the law would allow.

In one sense, 14,000 has no significant meaning. You should not buy or sell based on the Dow Jones Industrial Average reaching this level on the way up, or down. It ain't nothin' but a number. In another sense, any sort of round-numbered market milestone affords the opportunity to reflect on how far we've come, or in this case, come back. At the time of the Dow's previous 14,000 milestone in October 2007, the US market and economy were full of financial hubris, if not outright fraud (at least in the mortgage sector), and headed for a great fall.

This time around, the market's climb reflects the slow receding of fear and building of growth, helped along by the Fed's generous monetary stimulus and shunting of savers into riskier asset classes. While it's not a completely beautiful picture, on balance, things seem less likely headed for a fall than last time around.

Heeling Brews

Said Justice: "We doubt the propriety
Of imposing on US society
The burden to choose
From costlier brews
When opting for lower sobriety."

There's trouble brewing in the global beverage industry: the US Department of Justice has filed a lawsuit to stop the planned combination of Belgian-based behemoth Anheuser-Busch InBev SA ($ABI.BR) with Mexican giant Grupo Modelo ($GMODELOC.MX).  In what appears to be a classic anti-trust case, talks to avert the lawsuit broke down when the Justice Department decided the parties were too far apart.  AB InBev, whose 200 brands include the globally dominant Budweiser, Beck's and Stella Artois, already has 47% of the US market.  The number 2 US competitor, MillerCoors, controls much of the rest.  Grupo Modelo is a smaller US competitor; its 7% share largely rests on the popular Corona brand.  Although AB InBev already owns about half of Modelo, the Mexican brewer has been "eating Budweiser's lunch" in certain US regional markets, according to internal company memos obtained by the Feds.  For example, when Budweiser and Miller raised prices in California in 2010, Corona declined to follow suit, and took market share.

AB InBev hotly disputes the government's contention that the merger is intended to control prices, and the legal battle is expected to be long and costly.  As they say: "Here we go."