With modest GDP growth and a 1.4 trillion deficit downside to equities can only come from an external shock.

High unemployment keeps the Fed on hold and the 0 rate policy keeps costs of production down and keeps personal income gains modest.

At least for now, the combo of 0 rates and an 8%+ budget deficit continues to be supportive of only modest aggregate demand growth and only very modest employment growth.

Again, good for stocks, where a bit of top line growth and productivity gains keep earnings growth positive.


Karim writes:

  • Strong service sector report with particular strength in key components (orders and employment)
  • Employment index crosses 50 and at highest since 2008
  • Service sector picking up growth mantle from manufacturing
  • ADP gain plus upward revision to prior month suggest about 125-150k in private sector job growth



July June
Composite 54.3 53.8
Activity 57.4 58.1
Prices Paid 52.7 53.8
New Orders 56.7 54.4
Employment 50.9 49.7
Export orders 52.0 48.0
Imports 48.0 48.0

7 Responses

  1. Hey Warren, I’m curious if you’ve seen Bill Isaac’s new book, Senseless Panic, about the TARP bailout. I was just skimming through it on Google Books, I didn’t realize he (with that Galbraith fellow) was a big reason the TARP bill was voted down in the House on the first try by a bipartisan group of backbenchers. This ad hoc majority voted against the demands of the President, Tsy, the Fed, both parties’ leaders and presidential candidates. Isaac had written a Washington Post op-ed where he spelled out an alternative solution based on his experience as a FDIC Chairman and immediately had half a dozen Members of both parties call him to invite him to the Hill (I guess somebody is still reading newspapers).
    http://www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092602200_pf.html

    Clearly his plan is sorely lacking a payroll tax holiday. :o)
    However,as it relates to your political campaign, its worth noting this guy was saying things that struck a responsive chord with both liberal Democrats and conservative Republicans. And his new book is interesting, typically, political book cover blurbs are from one side of the aisle or the other. Isaac’s back cover is rather confounding,he has blurbs from…. Steve Forbes, Larry Kudlow, Ralph Nader, Rep. Marcy Kaptur (D-OH, Michael Moore-style Democrat), your old pal Art Laffer and Rep. Darrell Issa (R-CA – sharpest GOPer in Congress).
    http://books.google.com/books?id=d6MjT9ekwmIC&lpg=PP1&dq=bill%20isaac%20book&pg=PA191#v=onepage&q=bill%20isaac%20book&f=false

    The TARP bailout is just so cartoonishly unpopular (Members and Senators who voted for it are losing primary races over it), you running as an independent gives you one big tactical advantage. You are “operationally unconstrained” from urging voters to vote against any Member of Congress of any party who voted for the TARP bailout (on the first or second try) and you should challenge your opponents to agree with you. Your major party opponents, in contrast, do have political constraints, they are allowed to slag the other party but not their own side (and remember, the leadership of both parties in both Houses supported TARP), so there’s no good answer to that challenge for them.

    1. Beowulf, people don’t need a book to tell them that TARP was a rip-off; it was obvious from the get-go that former GS CEO Paulson was bailing out his buddies. Obama foolishly rushed in to help him.

      I don’t think Obama can recover from this blunder, since it destroyed his credibility right off the bat. Now there are just too many irate voters that don’t trust him or anyone who voted for it. He was afraid that the Democratic Congress would get blamed if they blocked it and the the global financial system melted down as Paulson was predicting it would. Obama acted rashly, and now he is paying the price.

      1. Tom, the TARP bailout isssue was a jump ball that either Obama or McCain could have grabbed and used to run against Henry Paulson’s No Banker Left Behind program.

        Instead they both fell in line. Short term, of course, that was an insane policy for McCain to follow. He was 5 points up the day Lehmann declared bankruptcy, his lead evaporated that week and he never regained it. His only shot at winning in spite of all this was to go full-on maverick by coming up with an alternative plan for Congress to vote on. Even if his plan lost, he could have made hay campaigning against the bailout. But he didn’t even try, he just fell in line exactly when he should have been rebelling.

        Since McCain was too passive (or poorly advised) to react promptly, it made Obama’s job as the out of power candidate very easy. He could just go with the flow, sit on his lead and coast to victory. Long-term though, as you point, Obama’s still paying the price for acting as Paulson’s getaway driver.

      2. Tom,
        I view Paulsons ‘audible’ as the largest (certainly by $ value) deceptive act ever perpetrated in US govt dealings.

        Im going from memory, but I thought Pelosi went along because it would have put the Govt directly across the table from a citizen that was facing eviction, and in a direct position to grant principle forgivness if when looking at the original deal, it could be determined that the citizen was taken advantage of, or fraud was involved., etc…in a direct position to then restructure/prosecute based on the facts.

        Paulson changed the implementation so fast, he had to have been working on it all along, he as much said so himself: “as soon as it passed I knew it wouldnt work”? WTF?. Presenting one set of information to the one counterparty he’s negotiating with while structuring another deal counter to the one he’s currently selling….hmmm sounds like business as usual at the Goldman-Sachs he created. god’s work LOL! Resp,

    2. Isaac is always worth listening to.

      His criticism of TARP in that op-ed was based on the original asset purchase version, not on the bank capital version that Paulson eventually implemented.

      First time seeing the “net worth certificate” idea, apparently implemented in the S&L crisis. Very nifty – done through the FDIC rather than Treasury, and sold back to the banks as zero risk paper. Politically much more palatable, and a step closer to Warren’s regulatory forbearance alternative than the political mess that actually transpired. Also somewhat analogous in the wrap around funding flow structure to one of the EZ rescue components for governments.

      1. Yup, but the original asset purchase version was what was on the table when Congress voted on it. It was only afterwards that Paulson called an audible once he realized just how impractical the original strategy was.

        And it seems that Isaac was of like mind with Warren on waiving the $100,000 FDIC insurance cap (though Isaac could have been more explicit), “the FDIC could announce that it will handle all bank failures, except those involving significant fraudulent activities, as assisted mergers that would protect all depositors and other general creditors”.

    3. that was the original tarp that never happened, as also predicted on this blog when i said it had no operational reality. the revised use of tarp funds was very different

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