Nothing particularly new this morning. The meta-story about the Federal Reserve (Fed) getting closer to more stimulus shows up on page A1 of the New York Times (NYT) with “Fed Leaning Closer to New Stimulus if No Growth is Seen” and on page A1 of the Wall Street Journal (WSJ) with “Fed Moves Closer to Action.” The articles seem to deal mostly with what the Fed could do, in a tone that suggests that this is all speculation. Interesting that it shows up in both papers in similar ways. This is probably a leading indicator of future policy, but it’s not hard news as yet.

Europe continues to simmer, although the Europeans themselves don’t seem to be all that worried. The Financial Times (FT) has two articles, “Brussels patient despite Spain’s pressures” and “ECB stands firm on Spain’s pleas,” that talk about how European officials are not planning further action at this point—and are even going on summer vacation. This insouciance would be reassuring, maybe, if it weren’t contradicted by other articles from the FT like “Rome places spending controls on Sicily” and “German private sector woes mount” and by articles from the WSJ such as “Downturn Deepens in Euro-Zone Economy” and “European Crisis Seen Spreading to Russia,” both from page A8. The Europeans still don’t seem to get it, which is mind-boggling.

A couple of days ago, at the end of a post on reasons for optimism regarding the economy, I promised that the following day we would discuss what could go wrong. And of course, something did go wrong—I didn’t discuss it. In any event, Friday the 13th just seemed like the right time to discuss the downside—so here we are.

Uncertainty continues

It’s Friday the 13th, widely considered a bad-luck day, and if the Financial Times (FT) lead—which states that banks face a $22 billion bill for LIBOR-related misdeeds—is correct, it certainly is bad luck for them. U.S. regulators are trying to get their side of the LIBOR story out, with reports in the business section of the New York Times (NYT) and on page C3 of the Wall Street Journal (WSJ) that Tim Geithner, then-president of the New York Fed, is said to have noted problems with the LIBOR rate-setting process and attempted to correct them. Apparently, the problems were not corrected, as we are finding out, but the Fed wants us to know that at least Geithner tried. The story just keeps getting more interesting by the day.

Other than that, economic reporting is actually rather upbeat for a change. Page 1 of the NYT reports that economists see signs of a pick-up. Not a fast pick-up, as the article notes, but renewed growth in the second half of the year. On page 4 of the FT, an optimistic take on China’s growth is reported, and on page 3, Ireland seems to be on track with its bailout requirements. Finally, the first page of the NYT business section reports that California municipal bankruptcies are not seen as a trend, despite three in the past couple of weeks. Good to know.

We have another day without a single overarching theme in the newspapers. The U.S. papers, the Wall Street Journal (WSJ) and the New York Times (NYT), lead with domestic politics. The WSJ hits on union political spending and on the beginnings of the battle over the extension of the Bush tax cuts. The NYT looks at fundraising by the presidential campaigns—Romney is ahead—and the evolving political incentives on the tax-cut extensions and health care. This is a pretty interesting article, as it highlights the evolution of the incentives we discussed in an earlier post in the context of intra-party politics. The bright line for a cutoff of $250,000 in income for the tax-cut extension, as opposed to $1 million, actually appears to run through the Democratic Party to a greater extent than I would have expected. Likewise, there appears to be some evolving Republican support for parts of the health care bill. These intra-party arguments will only get more complicated, particularly on the health care side, as voters start to process what they will now be losing, either on the expiration of the tax cuts or on a repeal of the health care bill. Don’t expect simple party line votes on either—that may be what we get, but it really is not as simple as that.

The Financial Times (FT) focused on Europe and China again. Key issues include an accelerated plan to aid Spanish banks, which also makes the “What’s News” column in the WSJ and the business section of the NYT. Overall, this is probably a good thing, but it does not seem to have impressed the markets to any degree. The LIBOR fixing scandal is also highlighted in the FT; the problem continues to expand to other banks besides Barclays. and we can expect to be hearing a lot more about this going forward.

There is nothing particularly new today—mostly commentary of a follow-up nature on trends already in place. The common focuses are China and Europe.

For China, the New York Times (NYT) has an article on the front page of the business section about the premier’s call to spur the economy. Given the recent policy actions that China has already taken, this seems to be confirmation that weakness is continuing. China has taken a big hit from weakening demand in both Europe and the U.S. The situation may be getting worse for them, with a front-page article in the Financial Times (FT) about a pending China/EU trade dispute. As I discussed in an earlier blog post, protectionism is on the rise, and this is one of the latest manifestations. Rounding out coverage, the Wall Street Journal (WSJ) had an article on page A6 about China’s growth challenge. China is becoming a larger issue, as the “certainty” of a soft landing seems to be getting much less certain.

A strong month at the end but losses for the quarter

[youtube http://www.youtube.com/watch?v=pOXsPZnx3FA]

One of the things I do every morning is read at least three papers, the New York Times, the Financial Times (FT), and the Wall Street Journal (WSJ). I like to see what is going on—or, at least, what the paper’s editors think is going on. Even in our 24-hour Web world, I still think there is value in looking at what the editors and reporters think is worth putting on paper. With that said, I thought I would try a regular posting called Yesterday’s News that sorts among those papers to identify what is most interesting and important. I will be doing this most days.

The lead economic and business story today, from both the WSJ and FT, was the factory output report. U.S. industrial production, as shown in the Institute of Supply Management (ISM) report, was at the lowest level for three years and had the first actual decline for three years. The figure dropped from 53.5 to 49.7, which was well below expectations. Any level below 50 means a decline, and industrial production is now at 2009 levels.

I have been looking for a metaphor that usefully and accurately describes the European crisis, and I think I finally have it. The moment of enlightenment came last night when I was talking with an advisor at Commonwealth’s Retirement Symposium (which looks to be fantastic for the second year running) about our kids. This advisor has teenagers, and as we were talking, I found my metaphor. I hasten to add that this is based on my experience—not that of the advisor and her kids.

When I was in college, through some colossal mistake, I was issued a credit card by Citibank, who must have held the theory that my parents would make good on my debt if (when) I overspent. To make a long story short, I learned an expensive lesson: my parents declined the opportunity to bail me out, default was not an option, and it required personal austerity on my part to pay off the credit card.

Short term, overall market activity is largely random. Unless, that is, there is some overwhelming new information that can, in fact, change the aggregate valuation level. We thought that might happen this morning, with the Supreme Court preparing to rule on Obamacare. As it turns out, we’ll have to wait three more days, until June 28, to find out whether a proposed restructuring of about 18 percent of the U.S. economy is constitutional or not.

To quote our vice president, this is a big #*%!-ing deal. I don’t want to get into the details of the policy: first of all, I’m not qualified, and second of all, I try to stick to facts rather than opinions here. The factual takeaway, though, is that the federal government has asserted a right to restructure nearly a fifth of the economy. Literally everyone’s life will be affected in one way or another.