The IMF took center stage during the last four days as its meeting in Tokyo became the central focus of the global macro world. As usual, the IMF communique promised much via the usual platitudes but as investors and traders we are left in the lurch as much is promised but no real substance is revealed. Probably the most important element in the communique is the line, “WE NEED TO ACT DECISIVELY TO BREAK NEGATIVE FEEDBACK LOOPS AND RESTORE THE GLOBAL ECONOMY TO A PATH OF STRONG,SUSTAINABLE AND BALANCED GROWTH.” Why is this simple statement so critical? In last week’s IMF-produced “World Economic Outlook,” it revealed that the IMF‘s model is probably flawed when measuring the impact of fiscal policy on economic growth.
Posts Tagged ‘Paul Krugman’
Notes From Underground: Unemployment was “less bad”
September 3, 2010The unemployment rate moved higher but that is meaningless for the markets. However, talk radio will have something negative to discuss. The interesting data was that private sector jobs grew more than expected and, more importantly, average hourly earnings (AHE) rose much more than expected and that is a good thing for potential consumer spending.
The more important news is a story that the Washington Post broke about a new stimulus package coming from the Obama administration. The Obama camp have the cover of Nobel laureate Paul Krugman to bring forward a much more robust stimulus package heavily centered on tax cuts for small and medium business. What else is going to be forthcoming? We have no idea but this package will err on being bigger not smaller than previously projected.
Why do we believe a bigger program is coming? Because Secretary of Commerce Gary Locke opened his big mouth in a November 2009 interview and was forced to recant his words as being “impercise.” It seems to us that Secretary Locke was so excited about the stimulus plan that he couldn’t contain his enthusiasm. A package of tax cuts aimed at small business is what the financial markets want to see.
A payroll tax moratorium would be a major move but we at NOTES doubt they will do that because if wage earners saw what came out of their weekly checks in real time there would be tax sticker shock. We still think that Geithner has plans for doing some type of massive mortgage refinance as the executive branch has control of Fannie and Freddie and does not need Congressional approval.
The bottom line is that something is up and coupled with a “less bad” employment, the Obama administration may be able to gain some positive momentum heading into the November elections so as to stem some of the negative political fallout. This election is not about wars. It is totally focused on the economy. The commerce secretary, through his premature excitement, has let the cat out of the bag. The question remains: How loud will it roar? If the plan includes the cut on dividend taxes, we could see the equity markets rally hard. We wait to see how aggressive they plan to be.
Notes From Underground: HELL hath frozen over
August 13, 2010Paul Krugman’s piece in Friday’s New York Times gives more support to our “Ball OF Confusion” piece.While we respect Krugman’s work from the 1990s, on Japan and deflation we find his political views too venomous for our taste. But again, when he sticks to his economics he deserves a read.