International Monetary Fund (IMF) Sounds the Alarm

By The Greek: Economy & Markets:

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Global voices are speaking loudly today, as the International Monetary Fund (IMF) and the International Labor Organization (ILO) joined with individual voices from Davos to warn and advise on the global economic outlook. While we hope to address the other two topics shortly, this article focuses on the IMF report.

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Today's business news was light on domestic economic data, but international sources filled the abscess adequately enough. The IMF updated its World Economic Report and its Global Financial Stability Report today, and in so doing, warned that global economic growth would nearly cease in 2009. Specifically, the IMF forecast growth at 0.5%, a rate not seen since World War II. Still, contraction in the U.S., Europe and Japan (3 largest economies), will be saved by emerging market strength (namely India and China), according to the IMF gurus.

The IMF noted that despite the many varied actions of the world's central banks, the situation remained "acute." This is a message repeated this afternoon by the U.S. Federal Open Market Committee. The American Fed has cut rates to a historic mark, or rather range of between zero and 0.25%.

The IMF pegs the cure to global ills as a necessary restructuring of the banking system in order to free up credit. In fact, the IMF seems to have borrowed directly from the Fed's playbook. Of course, it's a lot easier to offer advice than to implement it, but the IMF seems to buy into the need for a "bad bank" approach. There's that term again, and we'll surely dedicate an article to it soon enough.

Unclogging credit by making ill banks well again can be accomplished perhaps by cutting out problem assets. However way you serve it though, banks are going to be especially careful about lending, since once considered safe jobs are now walking the line. Therefore, assets will weigh much more heavily than income when banks decide on loan agreements, and those assets are deflating across the board. So, lending can't really recover to recent levels anytime soon. Also, lending will only be available for those who can surely handle it. So, while the economy recovers, it seems the rich will get richer and the poor will see assets sold through debtor in possession. At best, the employed poor will be stuck in limbo, but at least many will maintain employment thanks to fiscal stimulus. Who keeps their job will depend a lot on how our government allocates that stimulus.

The IMF urges nations with room to spare on monetary policy to use it quickly, and it advises those countries without room (you know like us) to creatively devise means of manipulation. When risk creates a wide spread, other means will be necessary to close that particular gap and inspire lending/borrowing for that particular instrument.

Something I found especially interesting was an allusion to protectionism on China's part, and advice to it to change the game, so to speak. The IMF literally states, "However, many emerging and developing countries are facing a need to adjust to permanent adverse shocks in access to external financing and terms of trade." Okay, so this may apply to smaller nations than China, and strictly to capital access, but we still hope the IMF was planting some sort of subliminal message!

In a non-Geithneresque manner (and in my mind), the IMF seems to have told China, stop cheating man! The words "terms of trade" (at least when taken in isolation) imply to me that the IMF is asking China to play fair (or at least fairer) in a new environment, or otherwise risk trade war in a period in which the world can't even afford a friendly tariff or two. While this may all be a wonderful figment of my imagination, might that statement, snuck in at the very end of the IMF press release today, have spoken loudest nonetheless? How about in Bizarro World??? Don't forget this comes just a few days after Geithner's statement.

Several concerns and remedies were addressed in the commonly agreed upon playbook, and so victory or defeat is left now to the players. It depends wholly on how they execute upon the game-plan. It seems there's still hope for our little world, but many pieces remain in play and several chess players must collude to move together. On this planet of selfishly aligned groups and nations, humanity's prosperity depends on cooperation. While I'm generally a proponent of human creativity, when it comes to cooperation, I only believe it possible when all the participants agree on its dire necessity, unfortunately.


Today's Noteworthy EPS Reports:

Adaptec (Nasdaq: ADPT), Affymetrix (Nasdaq: AFFX), Airgas (NYSE: ARG), AirTran (NYSE: AAI), Ameriprise Fin'l (NYSE: AMP), Astoria Fin'l (NYSE: AF), AT&T (NYSE: T), Avocent (Nasdaq: AVCT), Baker Hughes (NYSE: BHI), Becton, Dickinson (NYSE: BDX), Boston Properties (NYSE: BXP), Boston Scientific (NYSE: BSX), Cabot (NYSE: CBT), CACI Int'l (NYSE: CAI), Canon (NYSE: CAJ), Cirrus Logic (Nasdaq: CRUS), Citrix Systems (Nasdaq: CTXS), ConocoPhillips (NYSE: COP), Covance (NYSE: CVD), Energen (NYSE: EGN), Fair Isaac (NYSE: FIC), FormFactor (Nasdaq: FORM), General Dynamics (NYSE: GD), Green Mountain Coffee (Nasdaq: GMCR), Hess (NYSE: HES), Hoku Scientific (Nasdaq: HOKU), Lam Research (Nasdaq: LCRX), LandStar System (Nasdaq: LSTR), Legg Mason (NYSE: LM), LSI Corp. (NYSE: LSI), Manitowoc (NYSE: MTW), MeadWestvaco (NYSE: MWV), Methanex (Nasdaq: MEOH), Murphy Oil (NYSE: MUR), Pfizer (NYSE: PFE), Praxair (NYSE: PX), Qualcomm (Nasdaq: QCOM), Regis (NYSE: RGS), Robert Half (NYSE: RHI), Ryland (NYSE: RYL), SAP AG (NYSE: SAP), Sepracor (Nasdaq: SEPR), Starbucks (Nasdaq: SBUX), Susquehanna Bancshares (Nasdaq: SUSQ), Symantec (Nasdaq: SYMC), Teradyne (NYSE: TER), Tetra Tech (Nasdaq: TTEK), Allstate (NYSE: ALL), Boeing (NYSE: BA), New York Times (NYSE: NYT), Tidewater (NYSE: TDW), Tractor Supply (Nasdaq: TSCO), Tyco Electronics (NYSE: TEL), USG (NYSE: USG), WellPoint (NYSE: WLP), Wells Fargo (NYSE: WFC) and World Acceptance (Nasdaq: WRLD).

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