(an interoffice email)

>    On Thu, Mar 20, 2008 at 8:55 AM, John wrote:
>    The other thing about the IG widening is that the financial mess
>    has an outsized impact on the widening- so if you think we can
>    see the end of the tunnel on that, then IG likely to tighten.

I see the macro economy stabilizing and modest gdp growth returning as per previous consensus forecasts.

net govt spending increasing-

fiscal package

07 spending was moved forward to 08

total demand increase maybe 2% of gdp

foreign sector reducing the rate of accumulation of $US financial assets

US exports booming- up 16% + last month

trade gap still 58 billion, down from 70 billion, so the accumulation has gone down with rising exports, but there could be a long way to go

total net demand increase maybe 2% for 08

Pension fund ‘remonetizing’ by allocating to passive commodities could add another 1/2% to agg demand.

Total add to agg demand from those two sources are 4% of gdp. this should be plenty to support gdp at modest positive levels, and potentially a lot more.

Corporate earnings and cash flows still high, ex financial writeoffs.

Housing near 0 in my estimation, with no where to go but sideways or, more likely, up.

Actual quantities of physical housing inventories are down from the highs.

The govt. will ensure the agencies originate, hold, buy all available paper and support new lending to qualified buyers.

Employment is holding up pretty well. Unemployment history:

Nov: 4.7

Dec 5.0

jan 4.9

feb 4.8

Yes, it could move up a few tenths and be deemed a ‘disaster’ but it’s not the 1930’s 15% level, or the double digit levels of the 70’s, or 6% + seen in the 90’s

Over 30% of workers are paid directly or indirectly by gov and get headline cpi annual increases +.

Add pensioners and probably over half of income or more doesn’t ever go down. So the other half has to drop a lot just for the total to get to 0 nominal growth.

Same with consumer spending.

A negative gdp is likely to be a combination of rising nominal gdp but a higher deflator.

These are all minority positions. Psychology can’t get any worse- another bottoming condition.

I also see prices continuing to rise.

Saudis are price setter and it will take a swing of at least 5 million bpd of net world supply to dislodge them.

3 Responses

  1. sorry here’s the text from the link:

    “At least the Treasury is doing something right: Yesterday the department agreed on a set of principles governing sovereign wealth funds with Abu Dhabi and Singapore. (Read their joint statement here). This is huge news. Such funds, essentially state-run investment pools boosted by export and natural-resource wealth, have been on a massive buying spree recently, scooping up stocks and debt around the world. Some, like those from Norway and Singapore, are fairly transparent and originate in largely peaceful, democratic countries. But you can understand the concern when, say, Russia or China gets in on the act.

    As investment vehicles, these funds inject badly needed cash into the global market; as state-run entities, they run the risk of being used for political ends. Predictably, there has been a bubbling hubbub in the United States and Europe about regulating, or even excluding, sovereign wealth, at precisely the moment when we could really use the money–which, frustratingly, is not to say that the skeptics are wrong.

    The principles elucidated in Washington are a good step beyond that pickle. They call for the funds to institute transparent governance controls, respect host-country rules, and base “solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government.” In exchange, the U.S. will not raise barriers and regulate them like any other fund.

    The issue now is whether these steps can be taken beyond the trilateral level. Singapore and Abu Dhabi are friendly, go-along states that have little to hide. The same can’t be said of many other funds. The International Monetary Fund and the Organization for Economic Cooperation and Development are currently working on a set of voluntary multilateral principles, and yesterday’s agreement will hopefully reinforce those. But (sorry to toot my own horn) as Joshua Kurlantzick explains in the new issue of Democracy, voluntary principles mean nothing to countries that won’t play. The final step needs to be either a regulatory framework or an agreement among fund states and receiving states to exclude investments from those countries that won’t play ball.

    –Clay Risen”

  2. Correct, we don’t need their funding for anything.

    And agg demand can always be readily sustained at any level with no ‘solvency risk’ by fiscal policy.

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