Re: Credit recap

(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.