Tuesday, November 29, 2011

Overheard at American Airlines

"The market immutably sets
The fares and the fuel in our jets,
But a bankruptcy filing
May turn back the dial in
Our benefits, pensions and debts."

AMR Corp has filed for Chapter 11 bankruptcy protection in an effort to bring its cost structure into line with that of the airline industry. The parent of American Airlines is the last of the big "legacy" carriers to restructure its balance sheet and compensation costs in court. Mindful of its proud, 91-year history, American had long avoided a judicial reorganization, but in an environment in which fares are driven by the lowest-cost competitor, the Fort Worth-based carrier's position became untenable.

Monday, November 28, 2011

Facebook IPO - The Inside Story

Mark Zuckerberg, known to be skeptical
Of the IPO stock market spectacle,
Expressed his unease
That I-banking fees
Could ever yield anything practical.

Countered one of the Facebook wise men of it:
"The S.E.C. tells us the 'when' of it;
As our ownership grows,
We'll have to disclose
Our finances, so let's reap the benefit."

The Wall Street Journal reports that Facebook is moving toward a possible $10 billion IPO, which would value the social networking company at $100 billion. CEO & founder Mark Zuckerberg has previously questioned both the value of an IPO and the role of investment banks in such a transaction. However, the SEC may force his hand; come April, the number of Facebook shareholders will have passed 500, the level at which US law requires companies to publish their financial results. At that point, Facebook would have all of the liability of a public company, so the board is evidently warming to the idea of its having the cash proceeds, as well.

Sunday, November 27, 2011

Black Friday

When consumers queued up in a quorum,
To do as investors implore 'em,
They bought quite a bit
Of Holiday sh*t,
And forgot all their debts and decorum.

It's all over but the counting: Black Friday 2011 will go down as the all-time greatest, as sales rose 6.6% to a record $11.4 billion. Still, the salient facts suggest that, as the Zero Hedge blog put it, we are literally "shopping like there is no tomorrow." Both the savings rate and consumer credit continue to contract, leading one to question the sustainability of our one-day shopping surge. Curiously, the second-best Black Friday on record was that of 2008, suggesting that this day may not correlate to a vibrant US economy.
Meanwhile, the social networking analysis firm Mashwork analyzed 270,000 Black Friday related tweets to predict that:
  • The greatest numbers would shop at Wal-Mart and Best Buy;
  • 18% of all purchases would be computers or tablets;
  • The iPad would outsell the Kindle Fire by 10-1;
  • 46% of shoppers would be purchasing for themselves.
Need we say more?  (Hat tip to Barry Ritholtz.)

Wednesday, November 23, 2011

Lincoln's Thanksgiving Proclamation

"The Almighty, with merciful gaze
Looking past our iniquitous ways,
Has bountif'ly blessed,
As we all may attest
In a day of Thanksgiving and praise."

In 1863, with the nation ablaze in civil war, President Abraham Lincoln spoke movingly of
"these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, [to which] others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God... They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.
It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People."
It is worthwhile to read the entire proclamation as we come together to give thanks in a time of troubles, and remember the greater trials of our history. Happy Thanksgiving to all!

Monday, November 21, 2011

Overheard Somewhere in Rome

"The euro zone debt crisis, gen'rally,
Is more easily overcome fed'rally,
If those on the Rhine
Would say "Ja" and not "Nein"
To issuance jointly and sev'rally."

As the European debt crisis drags on with no end in sight, some trial balloonists at the European Commission are set to come out with a paper that explores the potential of bonds issued or guaranteed by all of the 17 euro zone members. One immediate obstacle is the resolute opposition of the Germans, who fear liability for the debts of spendthrift neighbors such as Italy. However, combined euro zone debt issuance would carry much more weight in the market than the European Financial Stability Facility (EFSF), which does not appear up to the task of stabilizing the market for Italian treasury bonds.


A supercommittee that tried
To conquer the party divide,
When it ground to a halt,
Found the other one's fault
Was the one thing that each could decide.

With a Monday deadline looming, the Congressional deficit-reduction supercommittee found itself unable to bridge the divide between the Republican and Democratic positions. Having apparently failed in their task of reducing the US federal deficit by $1.2 trillion over 10 years, there was nothing left for committee members to do but succeed at the "blame game." As a consequence, a "sequestration" process will be invoked, under which $1.2 trillion of automatic, across-the-board spending cuts will hit everything from defense to social programs. Is this perhaps the secret wish of the supercommittee members?

Saturday, November 19, 2011

A Tale of Harvard & Yale

A fellow was telling a tale:
"Of the days when you'd win or you'd fail
In the gridiron game
When the summit of fame
Was the showdown of Harvard and Yale."

"The roar of the Ivy League crowd,
At the yardage denied or allowed,
Would resound at the goal
In the Field or the Bowl,
As the Crimson or Blue sang aloud."

"But the passage of time slowly went,
And Ivy League football was spent;"
Said this fellow: "At least
If we're not the Big East,
We can still be the top One Percent!"

Friday, November 18, 2011

Overheard in the MF Global Accounting Dept.

"In the annals of shame and ignominy
Of the modern financial economy,
A transgression may start
With a loss on the part
Of a sure-fire thing, not uncommonly."

The New York Times reports that the notorious $600 million of MF Global customers' funds "may no longer be simply missing. It may be gone." Regulators and FBI agents who have worked around the clock to recover the funds now believe that they were used not to margin customers' trades, but to pay off the firm's trading losses. Futures brokers routinely use customers' cash to earn income for themselves, but always back such operations with collateral such as Treasury notes. MF Global now appears to have used up this buffer and simply taken the cash to plug the gaps in its can't-miss $6.3 billion European bond position. This is a shock to the futures trading community, which up to now has believed that its deposits were safely segregated.

Wednesday, November 16, 2011

Dim Sum Debt

The market for bonds in renminbi
Heretofore has been traded quite thinly,
Though it's possible, thanks
To the world's central banks,
For yuan to be all that it kin be.

The Wall Street Journal reports that bankers pushing for the development of the offshore market for yuan-denominated bonds - so-called "dim sum" bonds - have homed in on a new target group: central banks and sovereign wealth funds. The appeal to many such institutions may be the diversification of their foreign reserves away from US dollars. Though the current outstanding dim sum debt is a paltry CN¥198 billion ($31 billion), larger issues such as this past August's CN¥15 billion ($2.3 billion) notes of the Chinese Finance Ministry have begun to expand the market beyond small investors.

Monday, November 14, 2011

It's Buffett's Move

Berkshire Hathaway drove the price higher
When its IBM deal hit the wire,
So the charge could be made
Of an insider trade,
Since Buffett knew he was the buyer.

In a case of self-fulfilling prophecy, Berkshire Hathaway's purchase of 5.4% of IBM for $10.7 billion prompted a 12% surge in the technology services company's share price once it became public. Although large purchases of public shares must normally be disclosed in 13F filings, the SEC grants about 60 confidentiality waivers every quarter, allowing investors to accumulate shares without driving their prices up. For his part, Mr. Buffett has overcome his fear of tech companies by recognizing in IBM an entrenched service provider with a protective "moat" against would-be competitors. Notwithstanding new highs in the share price, Mr. Buffett believes that, for IBM, the best is yet to come.
Hat tip to... somebody on Twitter for the insider trading joke, and apologies for forgetting who it was.

Who Falls First?

Economists smartly conversed to,
Of three downturns, determine the worst two:
Those of debt uncontrolled
In the New World and Old,
Or of that which exports to the first two?

Writing in the Wall Street Journal, Ian Bremmer and Nouriel Roubini try to analyze, among Europe, China and the USA, whose economy has it the worst. They note that, in all three cases, "kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier." Their unsurprising conclusion is that Europe will fall first and hardest due to the severity of its debt crisis. America and China may not indulge in schadenfreude, however, as both would see their exports to Europe reduced.

Thursday, November 10, 2011

Under One Roof

Said an old man who found his domain full
Of his grown, jobless kids: "Though it's painful,
If you must lay about,
Then I'm crowding you out
Of the market for jobs that are gainful."

The ties that bind are tighter than ever when the economy is tight. The Wall Street Journal reports that 59% of parents recently provided financial assistance to their grown, out-of-school children. Of all adults between 25 and 34, 5.9 million now live with their parents, up from 4.7 million before the recession. Paradoxically, older workers who may be putting off retirement - in part to help support their unemployed progeny - may be crowding younger workers out of the job market, says journalist Joanne Lublin.

Wednesday, November 9, 2011

From Deep Pool to Bottomless Pit

When volume and confidence rise up,
Investors approvingly size up
The debt of a nation
In great circulation;
Less so when liquidity dries up.

Now that the Athenian contagion has spread to Rome, the thing that made Italy's sovereign debt so attractive - namely, the shear amount of it - has become a focal point for investor fears and issuer nightmares. At €1.9 trillion ($(2.6 trillion), Italy ranks behind only the USA, UK, Germany and France in the league table of sovereign debt. As the Wall Street Journal noted, big investors felt comfortable with Italian bonds, despite the country's 120% debt-to-GDP ratio, because they knew they could always sell their position. Suddenly, this is no longer true, and Rome must figure out how to roll over the next €300 million of maturing bonds, which the market now prices at over 7%.

Cheer Up

Said the company manager, Russo:
"I'd be bullish if only I knew so,
But in times of distress,
I hate to profess
We'll expand, though we really may do so."

Small businesses say they aren't hiring, yet they keep adding workers.
That's the paradox examined by Kelly Evans, the Wall Street Journal's Ahead of the Tape reporter. As shown in the chart, employment at small companies (50 or fewer employees) has grown by 6.5% since 2001, and such firms have added net new jobs in each of the last five months. On the other hand, the National Federation of Independent Business "optimism index" has averaged below 90, a level associated with a downturn, for the last two years. Although the October index has just come in at 90.2 - the highest since June - only 3% of small business owners told the NFIB that they intend to hire in the next three months. What would explain the gap between the gloomy talk and the more confident walk?

Monday, November 7, 2011

Choose Your Course Wisely

Said the head of a fine university:
"My friends, it's a time of adversity.
You must learn a career
That the money spent here
Will be more of a blessing than curse," said he.

Whether occupying Wall Street or just their old room at home, today's college graduates are beset by record un- and underemployment, as well as overindebtedness. For those anxious undergraduates trying to set the best course in difficult waters, the Census Department has provided a compass of sorts. Its 2010 employment survey (via the Wall Street Journal) breaks down the jobless rates and salary ranges by 173 different majors. Among the hardest hit? Psychology majors; while those who studied pharmacology do quite well providing their anxiety medication.

Fannie, Freddie, Financial Crisis

A party that needn't be named
Made GSEs chiefly to blame
For the mortgage collapse,
Though inquisitive chaps
Say the data don't back up this claim.

Writing in The Big Picture blog, Roosevelt Institute fellow Mike Konczal brings out the data to refute the oft-heard claim that the cause of the mortgage crisis was Congress' pushing Fannie Mae and Freddie Mac to make imprudent loans. Among the key facts:

  • More than 83% of subprime loans issued to 2006 were from private firms, and went into the private label securitization market. 
  • From 2002-2005, the GSEs (government-sponsored enterprises, such as Fannie and Freddie) saw their share of US mortgage originations drop from 50% to 30%. 
  • Before the crash, conservative think tanks such as the American Enterprise Institute were arguing that the GSEs were were blocking the issuance of subprime mortgages, by purchasing too few of them. 

Friday, November 4, 2011

Liquidators Liquidated?

There's many a bold innovation
That may end up in sad liquidation,
When its marketing might
Would seem to invite
A bigger, upstart imitation.

Though it once brought the deal-hunting pros out,
Filene's, like a candle that blows out,
Couldn't counter attacks
From Marshall's and Maxx,
And is headed for one final close-out.

The news that discount retailer Syms filed for Chapter 11 was made more poignant by the fact that its subsidiary, Filene's Basement, originated the off-price liquidation business at its Boston department store in 1909. This was a second trip to bankruptcy court for Filene's Basement, which was auctioned off to Syms two years ago. The original bargain-basement legend enjoyed great customer loyalty for decades, but found it hard to compete with the influx of larger competitors such as TJX (owner of TJ Maxx and Marshalls) and Ross Stores.

Wednesday, November 2, 2011

Overheard at the G-20 in Cannes

"Monsieur Président," said Premier Hu,
"If the Greeks carry on as they do,
We would scarcely esteem
Your stability scheme,
Or the chance of financing it, too."

When President Nicolas Sarkozy, host of this week's G-20 summit in Cannes, met Premier Hu Jintao for dinner, he would have hoped to wine and dine the Chinese leader into backing the European Financial Stability Facility (EFSF) with some of his country's $3 trillion in foreign reserves. Instead, the entire project has been thrown into doubt by Prime Minister George Papandreou's call for a Greek referendum on his country's bailout. Alarmed that the referendum is likely to fail, European leaders have responded with an ultimatum, in the words of Chancellor Angela Merkel: "Does Greece want to remain part of the euro zone or not?"

MF = Money is Fungible

Said the Feds, in a stern admonition,
At a broker's insolvent petition:
"We place our reliance
That money of clients
Is far from your trading position."

Commodity broker MF Global filed for Chapter 11 bankruptcy on Monday, after weekend in talks with potential acquirers fell through. Due diligence inquiries revealed a $900 million discrepancy in the amount of customer funds on hand, inviting due diligence of a different sort from the FBI. The case of MF Global, in which leveraged bets on European sovereign bonds did not turn out as hoped, highlights once again the necessity of the industry's avowedly strict segregation of customer funds. Clients may be wiped out, but only because of their own bad bets. Against those of the firm, they are federally insured.

Tuesday, November 1, 2011

The Nightmare Before Hallowe'en

A snowstorm of great volatility,
In knocking down poles of utility,
Made courageous hearts rend
Among those who depend
On the 'Net for their earnings ability.

The northeastern US was hit by a freakishly early snowstorm that knocked out electric power to 2.7 million people including Dr. Goose, in whose town Hallowe'en "trick-or-treating" was officially postponed as a result. For those of us who depend on the internet to do our jobs, the loss of power came as a rude push back into the 19th century. Even the bankruptcy of commodity broker MF Global became a side note in the elemental struggle to reconnect. It is hoped that the reader will understand the break in the regular posting of these Limericks Économiques.

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