We heard from the International Monetary Fund (IMF) this week.
What we heard was not good. But it was not surprising either. And that's the point, I think.
Conveniently, there's plenty to distract the market from the downward revisions the IMF made to global 2013 and 2014 growth forecasts plus the fact that the IMF believes:
- Long-term global economic growth will run at subdued levels; "A likely scenario for the global economy is one of continued, plausible disappointments everywhere."
- Short-term US fiscal matters could shake-up the rest of the world
- The European Central Bank must continue on with accommodative policy; "The ECB should consider additional monetary support, through lower policy rates, forward guidance on future rates, negative deposit rates, or other unconventional policy measures. Since these factors reinforce each other, a vigorous response on all fronts offers the best way forward. In the absence of a comprehensive policy response, matters could easily worsen."
- Countries must use their exchanges rates to alleviate growth pressures, rather than unwind fx reserves to try and stem capital outflows
- Some emerging markets are suffering what could be called stagflation
- China's growth model -- dependence on exports, credit and investment -- has become exhausted and must change
Gee. How depressing.
But guess what -- the market doesn't care today. And it likely won't care too much about these comments down the road either.
Because the IMF has aired the dirty laundry. They have made know the growth head-winds and the financial risks. These things can not come as a surprise to anyone now. Ultimately, the only things that will impact the market are individual data points or trends that suggest policymakers and leaders cannot contain the risks to growth and financial markets.
Until then, investors are more than likely happy to give economic growth the benefit of the doubt.
Besides, we'd much rather focus on the charades in Washington D.C.
Today it appears politicians are closer to a compromise than they were yesterday. Yesterday I believed ideological differences would push us past the debt ceiling deadline, force a market downturn and then generate a compromise and continuing resolution.
I tend to think we'll see the broad market, particularly US and global stock markets, slide before the month is over. I believe it will be sharp. But I also believe it will be relatively short-lived, barring a real surprise from the US debt standoff.
The market is higher today. I'll be looking to sell into any follow-through strength early next week.