This week, the IMF was actively announcing a slew of negative research on the global economy. Here’s a sampling:
• IMF says European banks need to delever and sell up to $4.5tn in assets.
• IMF warns of capital flight from the European periphery.
• IMF sounds alarm over the stability of the Japanese banking system.
• IMF warns that US and Japan may lose their “safe-haven” status.
• IMF warns that the euro crisis is threat number one.
• IMF warns that Big Bird is endangered and the polar ice caps are melting.
(Ok, the last one was me.) Seriously, it appears that the IMF is doing its best to shake up political leaders to act more forcefully on the fiscal issues at hand. They certainly have numerous fiscal transgressions globally to choose from and similar numbers of politicians behaving badly. While I generally look at the IMF as a laggard with their research – similar to ratings agencies – I think they play an important role in reminding everyone what’s at stake.
For the markets, we’re in a transition phase due to:
1. US weak earnings.
2. No progress on Greece or Spain.
3. Lack of economic growth in China.
This translates into profit taking on equities, short US dollar positions and some buying of risk-free bonds. Overall, markets looking for some new catalyst to buy US equities and risk overall. The US jobs data didn’t provide that and it’s unlikely any VP or Presidential debate will do it either. Referring back to the IMF points, the catalyst to move the markets will likely center around Europe with an agreement on Greece funding, Spain requesting a bailout/loan or the ECB pre-emptively activating the OMT.
