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."

The Futility of Liquidity

Though the Fed may be funding us cheaply,
Recovery's not rising steeply,
Until and unless
We consumers express
More demand again, broadly and deeply.

This was the message conveyed by Federal Reserve Bank of Dallas President Richard Fisher in a speech in Gainsville, Texas on Tuesday. While "quantitative easing is a necessary but insufficient tool to spark job creation," said Mr. Fisher, "employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell." This is actually a mild statement for the Dallas Fed president, who, while not a member of the Fed Open Market Committee, has consistently opposed its stimulative measures, arguing that quantitative easing and Operation Twist would have little impact against the resistance of regulatory burdens and tax uncertainty. In his latest remarks, he sounds almost Krugmanesque.

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!

Slow Week

Said a stock market man named O'Toole:
"Never trade in the week after Yule;
For liquidity's thin
When the traders aren't in,
Which, for now, is the general rule."

Discussion of stock market trading in the week between Christmas and New Year's invariably touches on the low market volume. For example, Tuesday's New York Stock Exchange volume, at two billion shares, was half the normal daily figure of 4.3 billion shares traded. This is caused not only by the fact that half of the market participants are on vacation, but also by the fact that most of them will have already "cleaned up" their balance sheets for year-end financial and regulatory reporting, and are loath to untidy them again. Interest rates for short-term funding over year-end can be volatile and expensive as well, another encouragement simply to take the week off.

Liquidity Injection

Said Bernanke: "I'd like to eschew
That the euro would bid us adieu,
So I'll open the taps
To help out those chaps
In the Old World as well as the New."

The Federal Reserve led an internationally coordinated effort among the leading central banks to inject US dollar liquidity into the European banking milieu. With a half-percent cut in the rate on dollar swap lines to the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, the Fed hopes that dollars would in turn be made available to those Old World financial institutions for which liquidity has dried up of late. Marketplace's Heidi N. Moore, in her Tumblr, compared the action to siphoning unleaded premium from a Hummer so that a distressed Mercedes tow truck - and the broken Ferrari behind it - can reach the nearest exit and stop endangering the other traffic. Markets reacted ecstatically, which is ironic considering the central banks' implicit acknowledgement of urgency, bordering on panic.

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.

Forint Affairs

Those liquidity problems  of Hungary's
Shook the Eurocrats down to their dungarees;
Said the IMF head:
"Zees 'ungarian dread
Ees more fright'ning than George Bush ze younger ees."

Where's My Hedge?

Said the trader: "We've no business trying
To bet on the debt underlying;
When we want to unwind,  
We quite often find  
That the market is no longer buying."