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Morning Notes For August 20th 2010 at Trader’s Narrative

Morning Notes For August 20th 2010

The following is a guest post by a buy-side analyst working in a US asset management firm. The author’s comments are in italics. I welcome your feedback in the comments:

  • The WSJ says all that cash on company balance sheets is fueling a boomlet in mergers and acquisitions. The $1.5 billion acquisition of New Alliance Bankshares by First Niagara Financial is expected to spark a wave of bank mergers. – There could also be large returns of cash to shareholders in the form of dividends or buybacks.
  • In the just released July SLOOS report, the Fed cited it as “the first survey that has shown an easing of standards on C&I loans to small firms since late 2006″. The 9.1% net percent of banks reporting easing lending standards for small firms (i.e., annual sales under $50 million) was near the 9.6% average when there was a steady easing of such lending standards from Q4(03) through Q4(06). Moreover, net easing of standards also was reported for prime residential mortgage loans, credit cards and other consumer loans.
  • Credit Standards eased somewhat for Small Firms
    credit standards small firms Aug 2010

  • U.S. workers are more likely today than they were just before the start of the 2008 financial crisis to be content with their earnings. Forty-three percent now say they are “underpaid,” down from 51% in August 2008. – Gallup
  • Financial jobs help NYC unemployment rate to fall - New York City’s seasonally adjusted unemployment rate fell for the seventh-straight month to 9.4 percent in July as financial companies continued a growth trend – Bloomberg
  • Record number tapping retirement accounts to help make it through the downturn. Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier. - CNBC
  • BP – US scientist retracts assurances over success of cleanup – NOAA’s Bill Lehr says ¾ of the oil that spilled from the Macondo well is still in the Gulf after a research study detected a 22-mile plume of oil in the ocean depths. - Guardian
  • The Philly Fed index fell from 5.1 to -7.7 in August. It was expected to rise to 7.0. There was weakness in orders, shipments, unfilled orders, delivery times, inventories, employees and the workweek, all of which were negative. Of these, only one category, unfilled orders, was less negative than in July. A negative read indicates more companies cutting back than adding. The Philly Fed index is regional, and like all regional indices it is subject to more volatility than national indices. But the decline in the index was the third in a row and appears to be confirmation of a trend rather than an anomaly. The Philly Fed index leads the ISM manufacturing index. Today’s numbers are consistent with an ISM of 47.0. This is particularly disturbing because manufacturing has been one of the strongest sectors of the economy all year. In the past, 47.0 is consistent with the turning point between expansion and recession of the general economy. – FTN Financial

Philadelphia Fed Business Outlook
Philadelphia Fed Business Outlook Aug 2010

  • Social Security – WSJ budget panel (created by the WH to make proposals on solving the long-term budget deficit outlook) could make proposals on social security; some key players appear open to a deal on retirement benefits (could raise retirement age, cut benefits for wealthier retirees, and also raise the amount of income subject to social security taxes). WSJ
  • Jobs, Factory Data Suggest Unfurling of Recession Flag - The potential for a double-dip recession in the U.S. has increased following the latest reports on jobless claims and manufactur¬ing. Deterioration in these key indicators sug¬gests a weakening labor market and a slowdown at factories — bad news for the economy because job growth and manu¬facturing are two of the key ingredients to recovery. – Bloomberg
  • Philip Poole, the global head of macro and investment strategy at HSBC Global Asset Management, said global stocks stand a “decent chance” of a rally in the fourth quarter as investors are overly pessimistic about the outlook for eco¬nomic growth

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