Bear Warning

Said one of those skeptical guys,
As the market was hitting new highs:
"The bulls may suppose
The economy grows,
But I doubt that the latter complies."

Stress Test

Said the Fed to the banks in its purview:
"Sorry chaps, we don't mean to unnerve you,
But if panic should surge,
Our views would diverge
On the capital that would best serve you."

High? What High?

Said a really curmudgeonly guy
On the Dow Jones Industrial high:
"It's still quite a ways
From the Internet craze,
When adjusted for core CPI."

Dow Jones Record High

Despite the new highs in the Dow,
Economists still disavow
The hope that those wishin'
To find a position
Will likely be getting one now.

The stock market's rate of return
Is based on what companies earn.
As long as it's more,
On the stock exchange floor,
Employment's of little concern.

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."

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.

Core Cash Flow Multiple

Said a notable stock-pickin' man:
"Of $AAPL I'm not such a fan,
But the price is so low
Compared to cash flow,
I'm buying as much as I can."

Hedge fund manager and blogger James Altucher posted an amusing take-down of the bearish Apple sentiment in Seeking Alpha yesterday. The gist of it is that six times cash flow is too little to pay for the shares of a company whose revenue is still growing at 20%, so the recent fall to $440 from $600 a share is just noise.

Says Altucher: "I own Apple since my initial $1000 call and anyone who did is well in the money. Meanwhile, I also own Google and Amazon. These companies are going to keep innovating past each other and by the time they are through one of them is going to make a time machine, the other is going to put a phone into our neurons, and the third is going to let us spend the rest of our lives in drugged out virtual realities while we fly around in pilotless spaceships. So I'm staying long."

N.B. Altucher's investment horizon is five years, so this is not exactly a day-trading recommendation.

Punitive Measures

A six-billion loss dealt a blow
To the name of a bank's CEO.
To atone for this trade,
He merely was paid
A paltry ten million or so.

What do you take from the man who has everything?  That was the question faced by the board of JPMorgan Chase, which had to determine the consequences for CEO Jamie Dimon of the $6.2 billion loss from the "London Whale" trades.  The answer was a 50% reduction in Mr. Dimon's total compensation, from $23 million in 2011 to "only" $11.5 million for 2012.  (To be fair, the compensation package reflects a record year for the bank's profits, in spite of the outsized trading losses.)  The New York Times' Dealbook page, no doubt attempting to wrap its head around the fact that $11.5 million is only half of someone's compensation, believes that, in the face of such a striking management lapse, more radical changes are called for.  Suggests columnist Agnes Crane:

One could be to split the roles of chairman and chief executive. A well-chosen chairman provides a check on a chief executive’s powers. In one indication that this can work, GMI Ratings last year concluded that an executive pulling double duty can earn 50 percent more than the total pay of two people performing the top jobs separately.

It sounds as though, if governance is strong, compensation finds a more appropriate level as a matter of course.

Is It Just an Expression?

Investors incessantly say:
"Sell in May, and then go away,"
And stock market nerds
Who heeded these words
Are 6% richer today.

Via the FT's Alphaville blog, we learn that May 2012 was a very bad month indeed for US equities:

The Dow Jones Industrial Average had its worst month in two years in May. The index fell 6.2 per cent, the largest decline since dropping 7.9 per cent in May 2010 (Wall Street Journal). Closing down 0.23 per cent at 1,310 on Thursday, the S&P 500 had its worst month since last September (Reuters).

A strict observance of the "Sell in May then go away" rule, executed on the first of the month, would therefore have yielded the best results.

A Whale of a Tale

Said the boss of a trading facility,
Whose job was to crimp volatility:
"While I'm away jettin',
Be sure you don't threaten
The global financial stability."

Though much has been written about JP Morgan's "London Whale" and the $2-billion-and-growing loss that arose from his credit index trades, there has not been much focus on the interpersonal management dynamics of the case, until yesterday. The New York Times' Jessica Silver-Greenberg and Nelson Schwartz looked into the story and concluded that "Discord at J.P. Morgan Unit is Faulted at Loss." In a modern, highly-leveraged twist on "when the cat's away, the mice will play," it appears that the egos and ambitions of Bruno Iksil (the Whale) and his boss Achilles Macris could not be contained once the bank's chief investment officer, Ina Drew, was out sick for an extended period. Without Ms. Drew's "coolheaded, steely resolve", the internecine tensions between the CIO's New York and London offices devolved into daily screaming matches with no clear leader to to set limits and keep discipline.