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Farrell: The Troops are Restless


NY Governor Patterson (Democrat) is going to run for re-election. That wouldn't be big news coming from an incumbent but it is now since the New York Timesleaked the story that the Obama Administration told him not to. Patterson is a weak candidate and the fear is the Governorship of a significant state could change parties.

Senator Chris Dodd (Dem. Ct.) is in trouble in his re-election bid for a lot of reasons starting with his alleged sweetheart mortgage deal from Angelo Mozilo and Countrywide. He might need a bit of a Hail Mary pass to catch up (sort of early for that, I think) but he has challenged the Administration in an unusually bold way. The Administration wants to enable the Fed to take greater control of financial matters and Dodd is proposing a super cop sort of regulator that would roll four agencies into one, the Federal Reserve included. The thought that breaking from the President is a good idea by two prominent politicians could be interpreted as the President is losing some juice domestically.

Foreign affairs don't favor President Obama either.

The G20 meeting kicks off this week in Pittsburghand while America is the host and has always dominated the agenda, the G19 are restless as well. The last minute agenda being put together will try to address broad changes to economic policies in the US, Europe, and Asia. The US should save more and reduce its deficit, China and Germany should rely less on exports and encourage domestic consumption, and Europe should boost business investment says a report to be issued by the American delegation. President Sarkozy of France will push hard on his agenda and it will probably be obvious that the US does not control the stage. There will be no overriding authority to enforce commitments and it is not likely that the G20 will be able to act as a global Board of Directors as the Wall Street Journal wondered about in a Monday article.

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At least the US will continue to fund its deficit as it appears the demand for Treasury paper is unending. Foreign investors have bought 43% of the $1.4 trillion in Treasury paper floated this year compared to 27% at the same time last year. This week will see auctions for a record amount of 2 year, 5 year, and 7 year paper. As we noted last week, the economic outlook bears on the level of interest rates and Monday's Index of Leading Indicators registered a positive reading of +.6%. That makes the annualized rate of change for the year ending August a bit better than 1.5%. That looks so much better than last March when the annual rate of decline was -4%.

With the announced deal of the combinationof Dell Computer and Perot Systems there is thought that there will be another wave of Mergers and Acquisitions. Prior announcements of combinations between Baker Hughes and BJ Services , Disney and Marvel , and the Kraft bid for Cadbury's might be seen to be warm up acts. Annualized corporate cash flow of over $1.5 trillion allows for a lot of ammunition to play this game. If we are right that there will be a slow growth economy many companies will look for revenue and profit growth via acquisitions and the resulting bottom line benefits of cost cutting.

And if only we could stop the inventory liquidation! I have seen estimates that if we stopped liquidating inventories, not restock at all, just stop the liquidation, the resulting impact on GDP would be a positive 1.3%.

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