In The Words of Bastiat

When men of a certain propriety
By plunder, advance in society,
They fashion their cause
By a system of laws
And morals to cloak it in piety.

"...une loi qui la sanctionne, une morale qui la glorifie."

So said Frédéric Bastiat 162 years ago, and it has never been truer than today:

When plunder has become the livelihood of an agglomeration of men united by social ties, they soon make a law that condones it, and a morality that glorifies it.

Hat tip to Barry Ritholtz.

Dow 13,000

Whenever an index is bound
For a number exceedingly round,
The luster of Midas
Convinces insiders
It's time that their longs were unwound.

Ah, the enthralling power of round numbers; by itself, the Dow Jones Industrial Index hitting 13,000 for the first time since 2008 means nothing. It is neither fundamental - i.e., indicative of the economic prospects of companies, markets and industries - nor truly technical - i.e., indicative of the patterns of buying and selling behavior in stocks. But it does provide a convenient marker of how far the US stock market has come since its bottom (roughly double), as well as how far it has to go to reach the previous high of 14,164.53, set on Oct. 9, 2007. Still, most of those who make their living in the markets seemed to betray a certain exasperation with the whole hoopla, such as the market strategist who said: "No doubt (the market) has been overbought since the beginning of February, but in a powerful uptrend, price will continue higher for some time amid overbought conditions." Bloomberg's Margaret Brennan may have tweeted it best: "Dow closes above 13,000 for the 1st time since 2008. Can we stop talking about it now?" Now that the limerick is out, sure.

Greece: Select Company

Said Standard & Poor's: "It's preferred
You remember your bond is your word;
When changing the payments
You've promised to claimants,
'Selective default' is incurred."

Greece joined a select company indeed when it became the first euro-zone country to be given a default rating. Standard & Poor's cut the country's long-term rating from CC to "selective default," as it had promised to do if Athens amended the terms of its bonds to add collective action clauses. The Greek CAC effectively forces bondholders to accept a bond swap offering. The measure, which was approved by the Greek parliament last week, could potentially forces bondholders to take losses, but up to now the country has not missed any interest payments; hence, the "selective" qualifier. If a majority of bondholders accept the amended bonds, the rating agency has indicated that it will set Greece's rating at CCC.

A Gulf in Understanding

Said a man in the Strait of Hormuz:
"The price of the oil we use
More quickly reacts
To the threat of attacks
Than the efforts of drill platform crews."

Upon his return from a relatively unplugged vacation in the hills of eastern Quebec, Dr. Goose was struck by the gulf in perception between some US Republican politicians, who attribute recently higher oil and gasoline prices to the policies of President Obama regarding pipelines and offshore drilling, and petroleum analysts, who tend to cite disruptions in the existing supply in such places as the Persian Gulf. A reasonable interpretation would be that the President's actions regarding oil exploration are of little short-term impact, but his actions regarding global security and stability are critical.

The Doctor Is Out

Doctor Goose is on vacation during the week of President's Day - see you once again on February 27!

Linsanity

Said a point guard who went un-recruited
By coaches who found him ill-suited:
"It's hard to surprise
Those skeptical guys
Like my really great Garden debut did."

By now, people all around the world have heard the amazing, come-from-nowhere story of the New York Knicks' Jeremy Lin; the Taiwanese-American pride of Palo Alto California, where he led the town's high school team to a state basketball championship. Considered too small for the big-time colleges, Lin ended up at Harvard, where he set Ivy League records. Passed up in the NBA draft, Lin sat on the bench for the Houston Rockets and the Golden State Warriors before being cut. Once on the Knicks, Lin got his chance when two of the teams regulars couldn't play; the rest is NBA record-setting history. This still-unfolding story has many meanings, one of which is that, in sports as well as investments, we overestimate our ability to predict winners based on simple formulas and models.

A Crude Iranian Conflict

If an outbreak of Persian hostility
Brings petroleum price volatility,
The economy's cooling
From trouble in fueling
The engine of upward mobility.

Tensions with Iran over its nuclear program have introduced a new round of uncertainty into global strategic affairs, but one thing is definite: if Iranian supply is taken off the market, rising oil prices would impinge on almost every aspect of the US economy. Higher gasoline prices would cause consumers to cut back on discretionary spending, as most have a limited ability to cut back on driving. Manufacturers would be hurt both from higher delivery costs as well as higher prices for plastics and other petroleum-based materials. Even many service industries maintain fleets of vehicles and would feel the effects of a Persian Gulf conflict. The one bright spot at this point is that the prospect of $4.50 gasoline, as in 2008, appears as yet remote.

Romancing The Fed

Said Bernanke, crimson with passion,
In fine professorial fashion,
"If liquidity's lacking,
With central bank backing
I'll try to inject some more cash in."

Who says there's no romance in monetary stimulus? Those outside of the Twitter econosphere may not know that the network was recently swept by a wave of #FedValentines, as the trend was hashtagged. It began with Penn economist Justin Wolfers, who tweeted: "Like fiat money, our love is built on trust." White House economic adviser Austan Goolsbee chimed in: "Roses are red, violets are pink, don't listen to gold bugs – no one cares what they think." My personal favorite belonged to the FT's Alan Beattie: "I'd like to borrow you overnight and then hold you to maturity." Not to be outdone, Dr. Goose contributed: "If you're not ready for a liquidity injection, I'll understand."

Happy Valentine's Day to economists everywhere, and all the nerds at heart!

MF Global: An Arresting Question

Said the trustee: "It's funny perhaps,
In this great MF Global collapse,
That there aren't any 'collars',
Despite all the dollars
Misplaced by those capable chaps."

Francine McKenna, a former Price Waterhouse Coopers auditor who writes on auditing issues for Forbes as well as her blog "Re: The Auditors", says that it's remarkable that the investigation of the missing $1.2 billion in MF Global customer funds is not leading to any arrests, and those involved have not opted for an escape to Switzerland. Could this be a case of "plausible deniability" on the part of top management? Managers at the bankrupt company moved a lot of money around on Hallowe'en, evidently in an attempt to make it through the weekend, probably in the hope that a friendly takeover would allow its return. Instead, the firm was shut down, but without any paper trail linking top management to the missing customer funds.

Hat tip to Jesse's Café Américain.