The Best American Poetry

Julie Sheehan, Constituent Bartender: Greenspan's Own Oops Punch

Entertaining as Rick Perry’s November 9, 2011 “Oops” moment was—you know, the one when in his frenzy  to take a hatchet to government, he forgot which heads he was chopping off—the more significant and now completely repressed “oops” moment for the American right occurred three years earlier, on October 23, 2008, when Alan Greenspan confessed his “state of shocked disbelief” that markets don’t regulate themselves.

Without rules, the free market is kind of like the punch you might have served at parties in your college dorm. Who knows what toxic assets were swimming around in there? Fermented Hi-C? Grain alcohol? Nail polish? Why not, when punch itself was invented by desperate sailors who had run out of beer and turned to the locals for a stimulus package. One of the oldest recipes calls for arrack, which tastes a bit like a credit default swap and is made from palm trees. Any punch worth its floating lemon wheels is meant to creep up on guests, unleashing a voracious appetite for risk. In dormitories, that means regrettable sex. Greenspan’s deregulatory punch unleashed a voracious appetite for paper profits, what he called “euphoria” and the rest of us call greed.

Beyond chopping off regulatory heads wherever they might be, Chairman Greenspan left another insidious legacy. He handed off a historically low 4.25% interest rate to his successor, Ben Bernanke, who then had very little room to cut it. Fiddling with the Federal Funds rate is one of the few tools the Fed has. Roughly put, the idea is to crank the rate up when the economy’s “euphoric.” Paul Volcker raised it to 20% in 1981, and was duly vilified. Nobody likes a spoiler, but ever since the Depression, the Federal Reserve’s job was supposed to be to take away the punch bowl just when the party gets going. And part of why you take the punch bowl away is so that you can bring it back, by lowering rates in a crisis like the one we have now. That’s hard to do when rates are already low.

Greenspan not only failed to take away the punch bowl, he spiked it with 80-proof easy money, in the form of both low interest rates and deregulation. No wonder the speculators got drunk. His tenure fit right in with the larger recklessness of the Bush years, the blind appetite for risk, the unwillingness to weigh long-term consequences against immediate gain--in the case of the invasion of Iraq, the neglect to think even one week ahead into a post-Saddam future. The attitude was to take the easy profit in the short term and let the future fend for itself. Thus so-called fiscal conservatives and budget hawks gave away a budget surplus to the 1%, rather than saving it for a rainy day. Meanwhile, the rest of us journeymen got punch drunk, battered in the early rounds of what turned out to be an economic TKO to the middle and working class.

At his 2008 hour of reckoning, Greenspan predicted a “restrained” market “for an indefinite future”:

"The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors, chastened, will be exceptionally cautious. Structured investment vehicles, Alt-A mortgages, and a myriad of other exotic financial instruments are not now, and are unlikely to ever find willing investors."

Chastened, my ladle. Not only did investment banks and hedge funds quickly return to that “myriad of other exotic financial instruments,” Greenspan himself renounced caution a few years later, criticizing the meek regulations of the Dodd-Frank Act for their attempts to impose order on financial markets.

Have a cup of Greenspan's Oops. You’re going to need it when you get rabbit punched by those party animals again.

Price-Earnings Ratios: The Pros and the Cons [by David Lehman]

In my experience, price-earnings (PE) ratios are the most efecvtive way to evaluate common stocks. Here's an oversimplification for the beginner. The price of a stock is what it's listed for on the Big Board or Nasdaq or whatever stock exchange you choose. The number varies from minute to minute -- actually from nano-second to nano-second -- simply because the market arrives at the figure by the oldest economic model, that of supply and demand. The former (the number of shares available for purchase on any given day) can fluctuate, but is the latter -- the demand for a stock -- that can gyrate dizzily, for it depends on a whole range of factors, starting with earnings reports, continuing with rumors, modified or accelerated by news particular to the company, macroeconomic trends, or world events, and ending with the most volatile factors of all, investor sentiment and mass psychology. The earnings of a stock are the company's profits for the most recent three-month period divided by the number of shares outstanding. This, too, is an unstable figure. If the profit line rises, relative to the same quarter one year ago, then the price-earnings ratio should narrow, making it a more attactive stock to buy, unless the price has already gone up in anticipation of this blessed event.

Even this brief summary shows the difficulty of using P-E ratios. In addition to the instability of the figures, there are further variables you need to adjust for. There are industry-specific factors: for example, historically a blue-chip bank would have a lower P-E ratio than a manufacturer of electronic equipment. But the history of bank stocks since the collapse of my Fictional Uncles' investment house on September 15, 2008, refutes even the loose application of P-E theory that suggests that a low ratio correlates to a relatively safe investment. Then there are "earnings surprises" -- spikes or drops in profit -- that have an immediate effect on the price of a stock, and that no P-E ratio, however sophisticated your calculations, will prepare you for. Let Burton G. Malkiel, author of A Random Walk Down Wall Street, a real pro and no con, have the last word: "God Almighty does not know the proper price-earnings multiple for a common stock."

This is the segue I needed to justify tagging the previous post -- "All God's Chillun Got Rhythm," as sung by Ivie Anderson (and also as performed in the Marx Brothers' Day at the Races) -- in the category of  "Financial Market Report." Faith in the Lord is the single best guarantor of good stock market perofrmance especially if expressed with the hassidic abandon of the singers and dancers of "All God's Chillun Got Rhythm." You can read about the song here, with special reference to the scene in the Marx Broithers movie. For a discussion of the song as a jazz standard, click here. Did you know that Gus Kahn ("Love Me or Leave Me," "I'm Through with Love") wrote the lyric? Happy new year! -- DL 

  

"All God's Chillun Got Rhythm" (Ivie Anderson)

You can't fool 99% of the people all the time

According to a board of experts from the business community, which of these sentences applies to "Occupy Wall Street"?

-- "It is not a tea party."
-- "Tax the Rich," OK, but it depends on what the definition of "rich" is
--  "Tattoos, body piercings, a pungent aroma, and in her other hand the gender studies major held an iPhone"
-- The question is, "Will Marie Antoinette subsidize Madame Defarge's knitting business?"
--  The way to circumvent "obstructive nihilism" is to eliminate loopholes and lower marginal rates and then move to Basel 3 and higher capital requirements

According to a blue-ribbon panel of economists, money managers, investment bankers, and security analysts, which of these sentences applies to recent acitivity on Wall Street defined in the customary fashion?

-- "We're kicking the can down the road."
-- "China may crash. It's a bubble waiting to happen."
-- "Of course, if theres's a double-dip recession, all bets are off."
-- "Multiple levels of organizational hierarchy lead to managerial dysfunction."
--  Big pharma is singing the Neil Sedaka hit "'Breaking Up is Hard to Do'

True or false: The controversial new Calvin Klein's billboard campaign was released in select American cities during the week of October 17 but was immediately suspended in thirteen states by court injunction.

Thanks to Ed Rush for contributing this week's quiz.

Money for Poets 101: An Essay on the Stock Market in Chaos

Not in the sense of "poets' physics," or "rocks for jocks," but let's face it, who couldn't use a crash course in high finance? And a crash course is exactly what we should call it, because stocks today are more vulnerable than ever before to crashes, "corrections," and even one-day aberrations like the "flash crash" of May 2010 when, during a single afternoon, a computer error triggered a dire convulsion, with some stocks losing a third of their value. Electronic speed being what it is, things that used to take three months to happen can take place in the course of a day that may begin with a two-hundred point drop and end three hundred points north of the previous day's close.

Most poets' eyes glaze over when they hear the words "credit downgrade" or "debt ceiling," and that's a pity not only because these phrases have their poetic potency (as Julie Sheehan has shown), but because it's your money and you should trust no one with it, and if you're a poet you're probably a control freak, and the basics of investing and the allocation of your assets are not uninteresting subjects for a control freak.

Money is a kind of poetry, as Stevens said, not facetiously. And Archie Ammons explained that money resembles poetry inasmuch as both are ways to negotiate desire.

The stock market is nothing more or less than the way we measure wealth. All values are relative, and the value of capital, and especially of stocks and their derivatives, defies scientific analysis. Price-earnings ratios, earnings momentum, cash flow: all these seemingly objective criteria are far less important than mass psychology for the outcome recorded in the stock market storecard. In the simplest terms, markets are high when people are feeling rich and low when people are feeling down. In a rational universe, markets vary according to the laws of supply and demand. In a volatile universe in which the forces of anarchy and entropy have their say, the movement of markets is determined in the dynamic between greed and fear, which interact in the human psyche in the way that the Dionysian and the Apollonian act upon each other in Greek tragedy according to Nietzsche. Greed makes markets go up, fear makes them go down.

Law one: markets go down faster than they go up. Much faster. Maybe by a ratio of three to one, or better than the odds-on favorite at the Preakness or the Belmont.

Twice in the last week the market -- that is, the Dow Jones Industrial Average as a surrogate for all the stocks traded on the New York Stock Exchange -- was down by more.than five hundred points. Today it recouped some losses, bouncing up four hundred points, after traders assimilated the Federal Reserve Bank's announcement that short-term interest rates will stay low for two more years. It's Fed-head Ben Bernanke's moment of glory. They're calling him Big Ben on TV.

Good news, certainly, and a heartwarming market reaction, but the continued volatility is an unambiguous indicator of uncertainty, which Wall Street hates more than anything else. So for now and until further notice the stock market remains a worrisome thing that'll leave you to sing the blues in the night. At least yesterday's panic selling is over. For now.

Law two: Never sell into a panic. When people panic, get out of the way. And people are panicking all over. It is taking a violent turn in law-abiding London and Manchester where gangs are looting stores and setting them on fire. That's one kind of panic. Here, in more orderly corridors, investors are rushing to the exits, selling their shares at a twenty-five percent discount, and buying gold. This is classic "flight to quality," and it must be said that gold has been the best investment strategy for a whole decade. Still, it has reached the unprecedented height of $1,700 an ounce, more than even the most dedicated gold bugs can have foreseen. Could the precious metal be the latest bubble to await bursting?

For most this is a time for doing nothing, and that includes filing your latest retirement-account statements without looking at them. For the adventurous few, it's tempting to buy some things on the cheap. Experts who rarely agree on anything else concur that this is an oversold market, and it may be a good moment to swoop in and pick up desirable stocks at their lows. But that is neither for the faint of heart nor for the contrarian of mind.

Which shares to buy if you do have the cash? With the bank paying nothing for the dough in your savings account, and with bonds and treasuries yielding tiny fractions, the smart money will probably gravitate to dividend-paying blue-chip worldbeaters such as Exxon Mobil, Chevron, Intel, Disney, UPS, Johnson and Johnson, and Pepsi  -- all of them undervalued as a result of the activities of the past week. With a portfolio centering on these and such other standbys as Warren Buffett's Berkshire Hathaway, current market favorite Apple, evergreen IBM, Coca Cola, Procter and Gamble, American Express, Wells Fargo, Microsoft, a patriotic rail or two (Union Pacific, CSX) and a couple of water and electric utilities, you can pretty much throw away the key and sleep soundly at night. Extra disposable income might be well used in a mutual fund specializing in resource-rich Canada.

What has led to the present impasse? The market's forward momentum, fitful at best after the lows of March 2009, lasted two years. In March 2011 Japan's earthquake, tsunami, and nuclear meltdown threw everyone for a loop. Even worse for the global economy has been the show called the "European contagion." As in a comic opera, Portugal, Greece, Ireland -- one after the other, each played by an aging soprano -- teeters on the edge of a cliff until a helmeted Valkyrie steps in and saves the overfed maiden. The whole idea of a European economic union, with a single currency, comes down to the kindness of Germans and their willingness to work harder than their neighbors. Sometimes you lose a world war twice but still come out on top. 

There are those who maintain that recent jitters on Wall Street have more to do with Europe's finances in shambles than with the US economy per se, and then you add the turmoil of Arab spring, the nuisances of North Korea and Iran, and most important, the emergence of China as America's biggest rival. We're told we're not going to have a double dip recession. And we probably won't. But it's hard to overlook the growing gap between the extremes of wealth and poverty in this country. Formerly the rich favored liberal social policies as an easy insurance policy against revolution. But that spirit is on the wane, and liberalism, like the conventional wisdom, is wrong and has been wrong for forty years, at least according to the conventional wisdom.

The balance sheets indicate that corporate America is in great shape. All that outsourcing, that downsizing, that cultivation of foreign markets, has paid off big. On the other hand, as economists say, nearly one of every ten workers is unemployed, a lot of homeowners are defaulting on their mortgages, and shrill law school brats on cheap late night TV commercials are hawking the virtues of bankruptcy. Something's gotta give.

We need to figure out a way to get corporations to repatriate their foreign earnings. At the moment, they would prefer not to, because if brought into the US those earnings would be taxed at conventional rates. So the money stays abroad. Some corporate managers have been lobbying the bureaucrats to lower the tax rate on those repatriated funds as an inducement. That would be the carrot if a carrot and stick policy is in order. We need those profits working for the economy and we need the revenues from the tax on those profits to keep the government going, though it may be time to consider something radical -- like eliminating the House of Representatives or keeping it just for show like the House of Lords in London.

We talked it over tonight at my place. My friend Paul said, "Everyone knew all along that they wouldn't default, so how come the markets tanked after they struck an eleventh hour deal to avert the catastrophe?" I like his wife Nancy's answer. She talked about the sorry spectacle of the DC lawmakers. "Posturing, sure, but a few of them did seem capable of walking the economy off a precipice. It was a shameful display." It may have scared people, and any retailer in America can tell you that Mr. and Mrs. Future, the American consumer, lacks confidence. Paul would add that political leadership has been lacking, and he has a point. When the key phrase in an Obama speech is "a balanced approach," the oratory is not going to lift spirits or stock prices.

One last thing. Is this like 2008? No way. Nor like 1987 when a 508-point crash on an October Monday was something it took us three months to absorb, which we finally did when a silver-haired man in a three-piece suit, a lisp, and a smile, reassured us that this wasn't 1929. -- DL

James Fenton, Our Man in the States

James Fenton is an English poet who has always defied the stereotype. He is a splendid poet, who comes to us via Auden by way of John Fuller, and he served as Oxford Professor of Poetry for five years in 1990s -- as high an honor as the British academic establishment knows. But he is nothing if not versatile: he has been an influential London theater critic, has worked on musicals, and has written stimulating articles and books about the political turmoil he witnessed at first hand in Asia

The once and future political journalist, New York-based at present, is weighing in on the American scene for the London Evening Standard. I will past an excerpt from his report of July 15. You may read the whole piece here. 

<<<
. . . the stalemate cannot hold any longer. We see this in the murmurings from the ratings agencies Moody's and Standard & Poor's. America's credit-worthiness is, predictably, at risk of a downgrade. We see it also in the surprising readiness of certain figures on the Right to listen to a creative proposal from Mitch McConnell, which hands over to the President the ability to approve the raising of the debt ceiling, in such a way as - it must be hoped -will saddle him with the obloquy for doing so.

There is nothing middle-of-the-road about McConnell. He's the one who, at the mid-term elections, claimed that the Republicans' chief priority from now on was simply to destroy Obama. He modified his language later, but his message remained sternly negative.

Now, however, he seems ready to jump before the train is wrecked. Someone appears to have read him a lecture on the price of intransigence and given him, perhaps, a salutary fright.
>>> 

Please attend the New School poetry forum featuring James Fenton on Monday, October 3, 2011 at 6:30 PM in The Bark Room, 2 West 13 Street. Fenton will read for about thirty minutes, then takes questions from moderator David Lehman.

Will the Fed (Ever) Raise Rates?

And Ben Bernanke spoke: "There would appear -- all else being equal -- to be a case for further action,"

This was widely taken to mean that the Fed will aggressively pursue a policy of quantitative easing.

On the other hand, interest rates are as low as they can go and what else can the Fed do to stimulate job growth, which remains job one?

Could we finally be seeing some light at the end of the long housing tunnel?

Factory orders are up, inventories are reasonable, demand for durables goods has firmed, and customer reticence may be multi-causal.

Meanwhile, we see a mixed picture elsewhere. Consumer confidence has taken a hit.

A new worry in the form of the dreaded Death Cross, in which the major indexes' 50-day moving averages slip below the 200-day average, has materialized.

On the other hand, it may prove to be a minor blip on the landscape or may even turn out to be a Golden Cross in which the 50-day measure climbs above the 200-day mark.

At least the economy does not have that deer in the headlights look.

We aren't out of the woods yet, of course. In retrospect and with twenty-twenty hindsight it was unwise to litter the paths with bread crumbs on the misguided assumption that other commmodities (natural gas, oil, coal) were more valuable and should be hoarded.

On balance, though, fears of a double-dip recession are abating in favor of the view that the glass is half empty.

True, we do not envision a Goldilocks scenario where everything tastes just right

Still, the data suggest that a modest recovery may be under way, with forecasts of 1.5% GDP.

The question is: Will it be sustainable?.

The bulls are strking a more confident pose as they line up in front of their mirrors in glorious masculine Wall Street profile.

Nevertheless, the road will be long and winding and marked by unexpected obstacles and occasional setbacks.

It could take months for this to happen.

On the other hand, the present is upon us like a gift we cannot refuse. 

Where is that one-armed economist that Princeton promised President Truman? -- DL

The Perfect Headline & Lede

WHAT'S AHEAD FOR STOCKS

COVER STORY

"We're in for more of the same over coming months, our group of market strategists predicts."

-- from Barron's, September 6, 2010

Finance for Poets

"As a struggling poet, in my late 20, I teach as an adjunct plus I do some office work. My rent and overhead are low. I am single, come from a family of modest means, and am basically financially illiterate. I would rather read Wallace Stevens than Forbes. What do you recommend?" -- Good Intentions, Michigan

I'll keep it simple. Invest the same amount every month in a well-run mutual fund. Do it with autopay and limit your labor. Invest whatever you can afford to put aside without feeling like a martyr.$ 100 per month, $50, or even $25 will work.

Important: when you set up the account, elect to have the dividends and capital gains reinvested. You'll get the benefits of dollar-cost-averaging, regular saving, and the accumulation of dividends. All the reputable mutual fund outfits have 800 numbers staffed by people who can help you with the application process.

Here are some funds with excellent track records and experienced managers -- in descending order from most conservative to least risk-averse: Vanguard Wellington, Fidelity Balanced, T. Rowe Price Equity Income Fund, Royce Premier Fund, Franklin Mutual Global Discovery Fund.

Reading Wallace Stevens is a more fun and intellectually more rewarding than the memos that Wally himself had to read in the office. But you don't need to read Barron's or Forbes or Smart Money to be an investor. If you have the horizon of a true long-term investor -- using money you won't need for at least ten years --investing on the installment plan in a sure-and-steady fund is one of the best things you can do.

The Wall (Street) of Worry: What To Do With Your Money Now

We received a recent inquiry from a poet wondering how to invest a small inheritance she received on the death of her father and stepmother in a car accident last winter. The sum was more than $100,000 but less than twice that sum. She says she would be inclined to put half of it in a money market fund under ordinary circumstances. But at the moment, cash in a money market account is "dead money" drawing no interest. What should she do?

Our resident expert, a big fan of the great Bill Evans (left) says you should always have enough money in a federally insured savings account to sustain you for six months or through a crisis of emergency. Savings accounts pay less than one per cent interest at the moment -- something like 0.8 % -- but that's better than nothing and $50,000 put away will let you sleep better at night.

An equal sum put into a short-term bond fund -- such as Vanguard Short-Term Investment Grade Bond Fund (VFSTX) -- makes excellent sense because (1) you get close to a 3% return, (2) Vanguard charges you less than any other firm and is noted for probity in an industry where you can't take that for granted. Bond prices vary inversely with interest rates, so whenever the latter go up -- as they will eventually -- the value of the bond fund will decline. But this particular fund has an outstanding record, and when the rates do go up, you can transfer the balance to the Vanguard Prime Money Market Fund.

That leaves a certain amount of money that can be used for long-term investments if you face no major expenditure (down payment on a house, kid's education) in the near future. The market has not recovered from the devastation of 200, which means you can pick up some blue chips at bargain prices. You might look at dividend-paying shares of companies with good reputations, such as IBM, GE, Pepsi, Proctor and Gamble, Exxon Mobil, Intel. The cardinal rules are (1) Diversify. (2) Pick companies you know whoise products or services you understand. (3) Do not trust any broker. (4) Do not buy a stock because someone recommended it in the locker room. You can open a brokerage account with Fidelity, which provides excellent service. If individual stock-picking freaks you out, a solid alternative is Vanguard Wellington Fund (for very conservative investors) or T. Rowe Price's Equity Income Fund (for moderate risk).