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Archive for the ‘International Monetary Fund’ Category

IMF Encourages Investors to “Rely On Their Own Due Diligence”

Posted by Larry Doyle on October 7th, 2010 9:36 AM |

In the midst of the economic crisis, many business models have been exposed as broken. Other models have been exposed as downright useless. Somewhere in that realm lies the business model of our credit rating agencies. How will these entities, charged with providing meaningful credit ratings analysis, adapt to the changing economic and financial landscape? More importantly from my standpoint in trying to promote ‘sense on cents’, how should investors adapt? Well, my jaw dropped yesterday upon reading a report by none other than the International Monetary Authority on this topic. Let’s navigate.

The IMF recently produced a Global Financial Stability Report. Embedded in that report is an Executive Summary which highlights:  (more…)

IMF: “Spain’s Economy Needs Far-Reaching and Comprehensive Reforms”

Posted by Larry Doyle on May 25th, 2010 9:00 AM |

Global markets are down 2-3% overnight. What is going on?

From a military standpoint, all eyes are focused on the Korean Peninsula after North Korea’s admission of sinking a South Korean vessel in late March. How will the world respond? Will the U.S. issue some sort of warning shot across the North Korean bow? Will the international community, and especially those who treasure freedom, rally and aggressively denounce the North Korean’s aggression or will we witness what amounts to a ‘kumbaya’ session?

From an economic standpoint, all eyes are focused on the Euro-zone where fiscal pressures remain elevated. Today the focus is Spain. (more…)

Emerging Markets Learned Their Lesson

Posted by Larry Doyle on October 27th, 2009 9:50 AM |

Are emerging markets now the teacher instead of the student? As such, are recent developments in select emerging markets signaling a turn in our markets? Let’s look closer and navigate this corner of our global economic landscape.

Recall that the global market turmoil of 1998 was precipitated by the devaluation of the Russian ruble. As that domino fell, global markets and economies reacted violently. Here in the United States, the meltdown in the broad market caused the failure of the hedge fund Long Term Capital Management. In hindsight, many believe the Fed-orchestrated takeover of LTCM by Wall Street banks set the table for the massive increase in leverage on Wall Street which led to the current crisis. However, what were the lessons learned in the emerging markets from the 1998 crisis?

Many emerging markets were effectively forced to take support from the IMF as a result of the 1998 economic meltdown. The IMF support came with many strings attached. Those strings were tied to strict controls and onerous burdens imposed on many emerging market governments. Having been forced to live under these burdens once, these governments do not want a visit from the IMF again. As such, they have done a much better job at getting their fiscal houses in order and keeping them in order. Many other governments primarily in the Western hemisphere, including the United States, should have done the same.

How is this playing out currently? (more…)

When Is a $3.4 Trillion Loss Supposed To Be Good News?

Posted by Larry Doyle on September 30th, 2009 2:45 PM |

A $3.4 trillion loss may be perceived as good news when it was previously projected to be $4 trillion. That said, when losses of this magnitude are buried in a mix of financial chicanery and accounting charades, the impact is not lessened but only extended.

The loss to which I refer is the projected global writedowns on a wide array of toxic loans and assets as put forth by the International Monetary Fund. The IMF released the Global Financial Stability Report yesterday. While it is hard for the media not to cover any report that would project these types of losses, this story is not receiving the attention it deserves. What do we learn from this report?

>Global financial stability has improved, but risks remain elevated.

> Estimated global losses have improved to $3.4 trillion. However, further deterioration in banks’ loans is to come — over half of their writedowns are still to be recognized. (LD’s emphasis)

> Policymakers face considerable near-term challenges. These include ensuring sufficient credit growth to support economic recovery; devising appropriate exit strategies; and managing the risks arising from heavy public borrowing.

Other highlighted points include:

1. In regard to financial institutions, the IMF puts forth that bank earnings will NOT be sufficient to cover these writedowns and that banks will need to raise more capital. While securities prices of certain toxic assets have rebounded, the underlying loans on securities, as well as unsecuritized loans, continue to deteriorate. Against that backdrop, bank lending to consumers and businesses will remain under pressure.

2. Private sector credit growth continues to contract while public sector credit demands grow. This phenomena will only lead to further ‘crowding out.’

3. While Asian and Latin American economies appear to be regaining a sense of stability, the emerging economies of eastern Europe remain challenged.

4. Long term interest rates will be under pressure due to the enormous global fiscal deficits. The IMF projects that these long term rates will rise by anywhere from 10 to 60 basis points for every 1% rise in the deficit relative to GDP.

5. Policy changes remain significant. Issues of systemic risk, exit strategies, credit availability, and balance sheet pressures need to be addressed and managed.

6. The IMF provides a thoughtful and comprehensive review of all the challenges facing financial institutions and regulatory agencies in an attempt to restart the securitization of assets.

From origination to securitizing to rating to distributing, this once large corner of our economic landscape has widespread issues. I come away from reading this part of the IMF report with the feeling that the hurdles will be substantial and the time process protracted before any meaningful fully private securitization market regenerates.

7. The IMF gives strong marks to officials for stabilizing markets, but also cautions that the communication along with the actual unwinding of support mechanisms is critically important for long term stability.

What do I make of the IMF report? I repeat what I said the other day: we are running a marathon and, at best, we have only reached the 7-mile mark.

Miles to go….


IMF Sees U.S. Risks Tilted to the Downside

Posted by Larry Doyle on July 31st, 2009 11:38 AM |

The 2nd quarter GDP report this morning is surprisingly strong at a better than expected -1%. Are we supposed to disregard the significant downward revision (-5.5% to -6.4%) for 1st quarter GDP? Can we go somewhere to get an unbiased macro view of the U.S. economy?

It just so happens the International Monetary Fund released a review of our domestic economy this morning. This report, United States: 2009 Article IV Consultation, provides a rather sobering outlook as we continue navigating our economic landscape.

What do we learn?

>>financial strains are still elevated and the outlook remains for only a gradual recovery, with risks still tilted to the downside.

>>Policies under the Financial Stability Plan, notably the SCAP stress test, debt guarantees, and capital injections, have contributed to a significant improvement in financial conditions. However, risks persist, notably the risk that a prolonged recession could further erode capital. This situation warrants continued close monitoring and regular stress tests to evaluate vulnerabilities. The proposed reserve for stabilization funds should be retained, with the resolution framework for systemic nonbanks expeditiously implemented to improve the predictability and flexibility of crisis management. Balance-sheet cleaning remains a priority; the PPIP will provide a tool, although its usage may be limited. Recent steps to facilitate mortgage modifications are welcome, but more steps may be needed to encourage writedowns of underwater mortgages.

>>Monetary policy should remain highly accommodative until recovery is clearly underway. If downside risks materialize, additional credit easing and a strengthened commitment to maintaining a highly accommodative stance could be deployed. Additional fiscal stimulus could also be used, provided it were set within a credible medium-term fiscal framework.

>>For the Fed, a diverse set of tools will be needed to afford maximum flexibility in light of uncertainties about how market conditions will evolve and about the extent to which particular instruments can be used. In addition, Maiden Lane facilities should be transferred to the Treasury at an early stage, to reduce the Fed’s exposure to credit risk. On support to financial institutions, terms should be tightened on facilities that need to be extended, to avoid distortions, fiscal risks, and governance issues. Clear communication of the strategy would bolster market confidence, and international coordination will be warranted as well.

Recall that Maiden Lane was a facility used by the Fed to house Bear Stearns assets in the process of JP Morgan’s takeover of that firm. Sounds like the IMF has some concerns! (more…)

GDP Projections from IMF, CBO, OMB

Posted by Larry Doyle on July 8th, 2009 12:05 PM |

For those not familiar with the acronyms of the organizations referenced in the title of this post:

IMF: International Monetary Fund
CBO: Congressional Budget Office
OMB: Office of Management and Budget, which operates within the White House

This morning the IMF released their updated Global Economic Prospects.

I will share with you the projected growth rates for the United States against those provided by the CBO and OMB.  I will then provide some comparative analysis.

United States
IMF      -2.6% (2009)    .8% (2010)
CBO     -3.0% (2009)  2.9% (2010)
OMB    -1.2% (2009)  3.2% (2010)

The figures provided by CBO and OMB were projections from the 1st quarter 2009. As you can see, the White House projections forecasted by the OMB are wildly optimistic both for this year and next relative to the IMF and CBO.

Those projections play directly into projected tax revenues and then, in turn, to the level of the federal deficit. If the IMF’s current projections are anywhere close to being accurate, our deficit will be significantly worse than previously forecast. What does that mean?



In regard to the rest of the globe, the IMF’s projected numbers speak volumes:

China 7.5% (2009)   8.5% (2010)

Euro Area -4.8% (2009)    -.3% (2010)

Japan -6.0% (2009)     1.7% (2010)

India 5.4% (2009)     6.5% (2010)

Emerging/Developing    1.5% (2009)     4.7% (2010)

Advanced Economies -3.8% (2009)        .6% (2010)

Global -1.4%  (2009)      2.5% (2010)

Bloomberg provides a review of the IMF report, IMF Sees Stronger Global Rebound From ’09 Recession. I would question the accuracy of Bloomberg’s title. I see a wide divergence between growth prospects in the BRIC nations and emerging markets from those of the advanced economies, especially with Europe and the United States. Bloomberg reports:

Still, risks to the outlook, which have “diminished noticeably,” are still “tilted to the downside,” the fund said, citing a possible downward pressure on asset prices resulting from rising unemployment, pressure on bond yields from concerns on public debt, and emerging economies’ vulnerability to financial stress.

A larger-than-expected drop in risk aversion and stronger demand in emerging economies could offer “some upside risk” that boosts growth, according to the fund.

In a separate report today on the state of the global financial system, the IMF said that while financial markets and confidence in an economic recovery have improved since April, risks remain and policy makers must remain vigilant until a sustained recovery is under way. Credit risks are high, bank lending to the private sector is slowing and the recovery so far has been dependent primarily on public funds, the fund said in an update to its Global Financial Stability Report.

Can the emerging economies of the world pull the developed countries out of the ditch? Will the global economies decouple? Is there any surprise why countries are pursuing protectionist measures?

In regard to the United States, President Obama may want to have the members of his economic team, including Secretary Geithner, Larry Summers, and Peter Orszag, call John Lipsky at the IMF and ask him what he sees.

Risks remain extraordinarily high.


Let’s Cross the Pond and Revisit The Weakest Link

Posted by Larry Doyle on May 23rd, 2009 2:27 PM |

The Washington Post is running a lead article today about the concern that the European Union in general, and the United Kingdom specifically, may derail the global recovery. Let’s cross “the pond.”

European Slump May Stall Global Rebound

Some countries, such as Ireland, are so cash-strapped that they’ve raised taxes in the middle of a deep recession, making things worse. In addition, European leaders have only recently signaled their willingness to conduct broad, systematic stress tests on their financial institutions, similar to the ones on major U.S. banks already concluded by the Treasury Department. 

This is not news. Nothing of substance has dramatically changed in Western or Eastern Europe from my writing, The Weakest Link and The Weakest Link Is Weakening in late February and early March.  

The media, government officials, and market pundits have been been attempting to talk the economy up more than the actual reality would dictate. The equity markets rebounded from an oversold condition in early March. For short term traders and those focused on technical analysis, I hope you caught the move. For those focused on the long term fundamentals of the economy, the risks remain very high.

While, WaPo and other media outlets may voice concerns now or report developments as new, the “strains in the European chain” remain very real. Along these lines, I had written on April 30th in my April 2009 Market Review: Brave New World:  

I believe it is a question of when – not if – in terms of a major European country defaulting on its debt and requiring a rescue from the EU and/or IMF.

The Washington Post should be a little more rigorous in terms of checking their facts. They report:

While U.S. banks have already written down about half the estimated $1.1 trillion in troubled loans and toxic assets on their books, Europe’s financial institutions have thus far written down less than 25 percent of their $1.4 trillion in bad debts related to the crisis, according to a report from the International Monetary Fund. 

In actuality, the IMF has forecasted that U.S. banks have upwards of $2.8 trillion in troubled loans and toxic assets and have written down approximately 40-45% of it. That’s bad reporting. At least the reporter is diligent enough to highlight that Western Europe’s major concerns relate to the financial exposure to Eastern Europe. Although, this is not new news, they report: 

Many major Western European banks are also heavily invested in hard-hit Eastern Europe, where the risk of a fresh wave of corporate and consumer defaults is considerable.

With all due respect, tell us something we don’t know.


“IMF Puts Financial Losses at $4.1 Trillion”

Posted by Larry Doyle on April 21st, 2009 9:57 AM |

The FT provides in depth analysis as IMF Puts Financial Losses at $4.1 Trillion. The IMF had forecast these losses earlier this month. The actual report is no better than the initial warning. The simple fact is the world is awash in excessive debt. This debt can be restructured, defaulted, and/or devalued. Each of these respective approaches will take time and money. While the IMF has a checkered reputation, I had the good fortune of working at JP Morgan with John Lipsky, current First Deputy Managing Director at the IMF, and hold him in very high regard. Lipsky is often the public face to the markets for the IMF given his reputation.

The FT report is fairly comprehensive, although I still question the relative amount of losses outside of the U.S., Europe, and Japan. Is there anyplace in the world to truly hide in the face of these losses? Can China single-handedly be the economic engine for the global economy? The FT does a great service in shedding light on this report. (more…)

IMF Issues Warning on Credit Losses

Posted by Larry Doyle on April 8th, 2009 7:11 AM |

Forecasted credit losses across the residential mortgage, commercial mortgage, consumer credit, and corporate credit markets have been widely estimated to triple – if not potentially quadruple – in certain sectors. What does that mean in terms of total dollars? The IMF sheds light on these losses in an article this morning in the Financial Times:

The International Monetary Fund is likely to raise its estimate of total credit losses on US assets from $2,200bn to about $2,800bn when it releases its Global Financial Stability report later this month

Those figures equate to an increase of 27% in losses and a total figure of $2.8 trillion, which equates to 20% of GDP!!! Is there any wonder why credit is so constrained in the face of these impending losses? The IMF also sheds further light on these projected losses here in the U.S., as well as in Europe, and globally:

The new estimate, while up significantly from January, will almost certainly be lower than a $3,100bn (€2,350bn, £2,111bn) figure circulating on Tuesday, which contributed to pressure on US bank stocks.

The IMF is also expected to release for the first time an estimate of total losses on European assets, which is likely to exceed $1,000bn. The fund is likely to put total losses globally at slightly above $4,000bn, including some additional losses on Asian assets. (more…)

G-20: Commitments, Comments, Questions!!

Posted by Larry Doyle on April 2nd, 2009 1:14 PM |

British Prime Minister Gordon Brown just delivered a statement highlighting the results of the G-20 conference in London.  There must have been a lot of work done behind the scenes over the last few months because it’s hard to imagine there was a lot of debate over issues within a 36 hour time frame at this conference.  I will grant the world’s political leaders their due as it is most important at times like these to convey a strong, uniform front. 

Let’s review the objectives and commitments, each followed by questions and/or comments that I have:

1. Address countries providing tax havens.
My question:  who will police?

2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds. 
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)

3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?

4. Develop a global systemic risk oversight body. 
My Question: who and how? (more…)

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