No Interest in Saving

A fellow was in a bad mood,
And feeling financially screwed,
When he read in his statement
How lowly his rate went
That int'rest had barely accrued.

As the US attempts to pull out of a financial hole brought on by over-leveraging, it seems that no-one is looking out for the interests of US savers; no-one, that is, but Kansas City Federal Reserve Bank President Thomas Hoenig.   Mr. Hoenig, who does not have a vote on monetary policy this year, urges the Fed to sweeten the pot for savers by raising interest rates from near zero.

Overheard at the Chinese Finance Ministry

"With the IMF head in ignominy,
His replacement is just what I wanna be,
Since, with all due regard
To Madame Lagarde,
We're the world's up-and-coming economy."

Now that Dominique Strauss-Kahn has resigned in disgrace as head of the International Monetary Fund, his countrywoman, French finance minister Christine Lagarde, has moved into the spotlight as the European favorite for a position traditionally held by an Old World banker. However, China and India have seized on this moment to challenge the tradition and assert their growing weight in global business and financial affairs.  Notwithstanding the Greek debt crisis, the calls for an emerging market successor to DSK are growing.

Currency Conundrum

An economy gripped by stagnation
Needs a weakening currency flotation,
But on this point, the Fed
Punts to Treas'ry instead,
Who repeat their "strong dollar" fixation.

UC Berkeley Professor Christina Romer, erstwhile head of President Barack Obama's Council of Economic Advisors, opined in the New York Times over the weekend on the disconnect between reality and posturing on the value of the dollar. While a weak dollar would encourage US exports and foreign investment inflows in a time of economic weakness, no US public servant will acknowledge this point, except to complain about the artificially low Chinese yuan. Failure to voice support for a Strong Dollar evidently brands one as un-American at home, and unfairly American abroad.

Tip o' the hat to Professor Greg Mankiw.

Pungent Predicament

The high price of onions in Mumbai
Means for many, they're harder to come by,
So the Bombayite lunch
Loses some of its punch,
Unless they can really find some buy.

With millions of poor farmers and even more millions of poor consumers, India tries to strike a balance between supporting farm prices and moderating food prices.  Now however, Bloomberg Business Week and others report that the cost of farm production is going up by 20% due to fuel and fertilizer price hikes.  This means that the government will have to re-calibrate the minimum guaranteed price of crops that farmers receive, as well as the subsidies that are extended to such staples as grains and oils.  In a pinch, however, things may have to get blander at the dinner table.

LinkedIn

In the IPO pricing of LinkedIn,
Which doubled before one had blinked in,
Either banks ripped off clients,
Or it's more art than science;
It's a point which the truth's indistinct in.  

The IPO of the professionally oriented social networking site LinkedIn created a sensation last week when the offering price of $45 was quickly more than doubled in the first day of trading. The IPO "pop" became the object of furious debate between those who saw a successful issue creating investor excitement and those who objected that the deal was underpriced and the company thereby deprived of potential capital.  Underwriters Morgan Stanley, Bank of America and JPMorgan may indeed have delivered a windfall to their favored investors, who could have flipped the shares and doubled their money immediately; however, since the original $4.3 billion valuation (at $45/share) seemed bubblicious for a company that earned $15 million last year, all the complaints about ripping off the company may amount to 20/20 hindsight.

Don't Buy Retail

Wall Street sees contrary sentiment
In retail investors' presentiment,
So, when Mom or Pop's right,
One asks if it might
Be the good call that coincident'ly went?

The Wall Street Journal's Kelly Evans writes in her Ahead of the Tape column that the American Association of Individual Investors' sentiment survey has been showing more predictive power than usual in the first half of this year.   Market professionals often see retail investors as a contrary indicator; small investors typically react in a herd to broad market moves, such that, as Stifel Nicolaus strategist David Lutz puts it: "If everyone's on one side of the boat, I like being on the other one."  The fact that the S+P 500 index climbed 6.6% after a bullish reading of the AAII December survey is an interesting departure, but how soon before Mom and Pop revert to type?

The Socialist Mødel

A hotbed of startup activity,
Though socialist in their proclivity,
Norwegians eschew
The American view
That the government crimps productivity.  

Stability helps to ensure
That the av'rage norsk entreprenør
Will see, in their tax,
Not "a weight on our backs,"
But a price that one gets service før.

The bible of American entrepreneurship, Inc Magazine, goes against the grain of US business thinking with a thoughtful look at Norway, where "Startups Say Ja to Socialism."  Challenging the view that lower taxes mean more economic growth, author Max Chafkin looks for the factors underpinning Norway's higher rate of growth and entrepreneurship in comparison to the United States.  As against America's more service-oriented, "can-do" business culture, Scandinavians enjoy the benefits of a more stable, low-risk environment fostered by good-quality healthcare and education as well as pensions paid by the government.  Conclusion: it's not what you pay; it's the value you get in return.

Hat tip (and happy birthday!) to my good friend Michael Griffiths.

The $37 Billion Question

Said a Harvard professor of econ,
"That Google's got something unique on:
They have cash by the score,
Yet still borrow more;
This is something I've puzzled all week on."  

Said an expert in cross-border taxes,
"I should hope the professor relaxes;
As Google keeps cash
In an overseas stash,
'Til taxation here wanes and not waxes."  

Professor Greg Mankiw, who teaches economics at Harvard and writes America's best-selling textbooks on the topic, wondered in his blog about the apparent contradiction of Google's borrowing money at long-term rates, when they already have $37 billion in cash idling at short-term rates close to zero. Proving that smart people attract smart blog followers, Prof. Mankiw quotes a reader who responds that Google is "intertemporally arbitrag[ing] the U.S. tax code. By not repatriating the $37 billion now, they are betting that the U.S. corporate tax rate on repatriated foreign profits will be appreciably lower in the future."

Know Your Limit

When reaching the debt limit really,
One must balance the budget ideally,
So the rich are more taxed
(With their conscience relaxed)
And the middle class needy, but steely.

Washington politics reached the borders of business as usual yesterday, with the news that the $14.3 trillion federal debt limit has been reached. Although it is possible simply to increase it, the Republicans in particular do not want to do so without a plan for drastic reduction of the budget deficit, expected to hit $1.5 trillion this year. The GOP and Democrats remain far apart over how (and to whom) the pain of budget-balancing will be administered.