A Sandy Saga

Here's the ballad of Hurricane Sandy,
Who proved just a little too handy
At blowin' and drenchin'
And throwin' a wrench in-
To Wall Street's modus operandi.

Liquidity's normally fodder
For the markets to act as they oughter,
But as mortgages do,
When Sandy came through,
The stock market went underwater.

She disrupted the stock trading minions,
Though in most educated opinions,
This hurricane paled
Before those that whaled
At Floridians and Carolinians.

The wind filled New Yorkers with terror,
And climatically did something rarer,
Since trading has ceased
For two days at least
Not since the Victorian era.

It's a terribly deep devastation
In the experts' informed estimation,
Though the Keynesian boost
As rebuilding is loosed
May deliver some small compensation.

WSJ: Sandy Saga

In today's Wall Street Journal Total Return blog, Dr. Goose has contributed a lyrical ode to Hurricane Sandy, running wild in Wall Street's canyon of high finance. Please visit me at the Journal, and be sure to leave a greeting.

Hurricane Sandy

When the threat of disaster is heightened
For the Wall Street or media titan,
He may well reflect
On its fiscal effect,
But more likely will simply be frightened.

Hurricane Sandy is headed for the East Coast, and Wall Street is taking no chances. NASDAQ and the New York Stock Exchange are closed on Monday, as is the CBOE. From DC to NYC, closures have been announced for mass transit, schools and offices. Though we like to put on a tough face around these parts, there's a definite whiff of anxiety in the air. Here's hoping that everyone in the hurricane's path stays safe and dry, enjoying a quiet day indoors while nature rages outside.

A Chicken & Egg Problem

For GDP growth to look handsome,
Manufacturing's got to expand some,
But someone must buy
That expanded supply,
So we've got to expand our demand some.

"Without Demand, Manufacturing Can’t Pump Up Output or Jobs," says The Wall Street Journal's Real Time Economics blog. As much as many, including the White House, have pinned their expansionary hopes on a US manufacturing renaissance, this only works if foreign and domestic demand keeps those factories busy. Right now, both appear to be softening.

Recent factory surveys from the Federal Reserve Banks of New York, Philadelphia, Richmond and Kansas City show more respondents reporting falling orders than expanding. Moreover, "a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said 'lack of demand' was an expected barrier to their company’s growth over the next year. That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter."

Third quarter US GDP is set to be announced this morning at 8:30, with the consensus forecast of an expansion at a tepid 1.7% annualized rate. At the moment, the prospect of manufacturing our way to faster growth looks dim.

Economists' Golden Rule

The moral economist tries
A society so to devise
That there he would live in
In any case, given
No clue what his role would comprise.

The preceding verse sums up what Nobel laureate Paul Krugman has articulated as the "social vision" guiding his work. Prof. Krugman, of Princeton University, joined fellow Nobel laureate and Columbia professor Joseph Stiglitz Tuesday evening at New York's Fashion Institute of Technology for a wide-ranging conversation before a sold-out audience. The event was co-sponsored by the Institute for New Economic Thinking, whose executive director Robert Johnson moderated the conversation. A video of the entire talk along with Q&A is embedded below.

At 1:27:10 of the video, an earnest interrogator notes that classical economics has come under attack for a lack of moral vision, and asks if the two professors can articulate the moral code that underpins their work. Prof. Krugman, after an initially stunned reaction, responds that he follows the philosophy of John Rawls, who said in his Theory of Justice that social issues should be decided as if from behind a "veil of ignorance," where "no one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like." In other words, self-interest should be replaced by fairness and impartiality.

It would be neither just nor fair if I failed to thank my friend Sherry Brabham, FIT's Treasurer and head of Finance & Administration, whose guest I was for the evening.

Watch live streaming video from instituteforneweconomicthinking at livestream.com

WSJ: No Debt Limit

Here is the 2nd of Dr. Goose's now regular contributions to the WSJ Total Return blog, regarding Joe Stiglitz' thoughts on the US debt/GDP ratio. I am thrilled to become a regular contributor to the Wall Street Journal's website, and hope that readers of this space will visit me there as well.

Foreign Policy Debate

It's agreed by Obama and Romney,
As incumbent and GOP nom'nee,
That nothing impairs
One's foreign affairs
Like a shaky domestic econ'my.

Says Obama: "My answer to threats,
Which America constantly gets,
Is one that renews
Or else we'd still use
The cavalry and bayonets."

Says Romney, expounding on Syria:
"My policy on the extyria
Is the same as Obama's
Except that I promise
To be just a little supyria."

The third and final Presidential debate took place Monday night, and for me, three elements stood out: President Obama took an aggressive stance from the beginning and even landed a few "zingers"; Governor Romney largely seemed to agree with the details of the President's foreign policy and, as in the prior debates, appeared to moderate the more hardline aspects of positions he took in the primaries; both candidates agree that a strong economy is the foundation of a strong world power, and in fact would rather pivot away from the latter and focus on the former.

College Choice

The candidates tried to explain
How to lessen America's pain
From tuition and fees
That pay for degrees
Of commercially dubious gain.

Said Obama: "I'd like to enhance
Federal aid, be it loans or Pell grants;
Though I'm hopelessly lost
On containing the cost,
At least I will get you financed."

Said Romney: "The government's never
Very good, but the market is clever;
So you're out on your own
To get your own loan,
Where-, how-, from whom- for what-ever."

Said neither: "On loans, I will let it
Be decided by factors of credit,
So that those who can show
That they're getting to know
Something useful are those who will get it."

The US Presidential election is two weeks away and the final debate is this evening, but so far both candidates have gotten away without putting forth an effective plan to address the looming higher education crisis. We have a vicious cycle of ballooning student debt to pay for rapidly rising costs of education which, in all to many cases, does not prepare the graduates for a gainful career, and hence offers no hope of repaying those mountainous loans. Both President Obama and Governor Romney would do well to take a page from the book of my friend Jay Hallen, who proposed in the National Review that the provision and pricing of student loans should be based on the likelihood of repayment, as is the case with any other type of loan. This would have the effect of directing student loans to where the economy most needs them, i.e., toward programs that prepare students with the skills that employers most need.

Guest Post: ECB Tries Again

My friend Andy Fately sent a brilliant pair of limericks to his clients this morning. Andy, a Corporate FX Risk Strategist for Barclays Capital who used to tweet as @fx_poet, is a foreign exchange limericker, a rare subspecies of financial poet. Here are his verses today:

There once was a group of old fossils
Whose policy slips were colossal,
And later today,
They’re likely to say
Come follow us, like we’re apostles.

But what can they possibly do
To fix all the things that they blew?
The popular theme’s
A new banking scheme
To help failing banks to pull through.