Thursday, April 16, 2009

Thanks to Jim Paulsen.

I received the Monthly Perspective from Jim Paulsen at Wells Capital Management and had the great pleasure to read the following portion:
Many believe traditional economic policies have not worked in this crisis. However, despite potential mistakes made by U.S. policy officials (and each will painstakingly be studied for years to come), its resolution is nonetheless finally emerging “because” ofpolicy official actions! Wall Street has stabilized since November only because of massive monetary, interest rate and fiscal stimulus introduced since last summer!
Since last August, the real M2 money supply has risen at a postwar high annualized growth rateclose to 20 percent! Short-term interest rates have been driven essentially to zero! The yieldcurve has been spectacularly steep! Mortgage rates have plummeted to at least a four-decade low!Finally, federal deficit spending in the seven months since August is in excess of $900 billion!
Despite widespread perceptions these policies were not working, within three months, these massively stimulative economic policies began to stabilize Wall Street in November. And even though policies often take as much as a year before they begin to show noticeable impact on the economy, signs of economic stabilization are already emerging.
I have been pontificating to the young guys at my firm in my role as macro strategist that the media was contributing to the problem of pessimism by demanding immediate results from monetary and fiscal stimulus. Always in the past the rule of thumb was monetary stimulus took 6 to 12 months to produce any real results and therefore no one should even expect to see much from all those programs until at least March and probably a little later. So I continued, don't expect much good news till then but some surprises should begin to occur around the end of the first Qtr giving us a chance of a rally.
I have been expecting this to be a big point of conversation around the forecasting crowd but until Jim's report I had not heard a single mention of this issue. Times have certainly changed. I guess we really have become an instant gratification society.
You can read Jim Paulsen's report here, please note I will not be posting Wells Capital Management reports here since you should be contacting the company for these, but, since I quoted it and Jim is an analyst I admire I am posting just this one.

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