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Morning Notes For August 23rd 2010 at Trader’s Narrative




Morning Notes For August 23rd 2010


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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:

  • CEOs tell The Washington Post why they’re not hiring - Democrats say we need more stimulus, and Republicans say we need less regulation and lower taxes. But CEOs say the real problem is that they simply don’t trust American consumers will open their wallets in the coming years. – WP
  • Returning cash to shareholders – there isn’t too much hope for a full fledged M&A boom, but investors are anticipating companies to return some of their huge cash hoards to shareholders; if cash declined from the current 11% of assets down to a more normal 7%, it would result in companies spending ~$428B (per JPMorgan ests); dividends and buybacks are becoming more popular; companies are still not spending their cash on growth and job creation – WSJ
  • Positive ratings of the automobile industry spiked to 39% this year from 24% in 2009, a record one-year improvement in Gallup’s annual poll on industries. Still, the auto industry is back only to its 2007 level and ranks in the middle of the pack; the computer and restaurant industries are rated most positively. – Gallup

opinion of automobile industry Aug 2010

  • Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now Rajan, the International Monetary Fund’s former chief economist, says the Federal Reserve should consider raising rates. Interest rates near zero risk fanning asset bubbles or propping up inefficient companies. “Low rates are not a free lunch, but people are acting as though they are…” – Bloomberg
  • Wall Street job cuts could pick up, which would deal another blow to an already weak labor market – Wall Street firms could start to contemplate job cuts unless activity levels pick up; slow client flows, market volatility, and new regulations are all factors contributing to the cloudy outlook for WS jobs (WSJ)
  • “Small investors flee stock market” – NYT article discussing how individual investors are shunning stocks – individuals have pulled +$33 billion from domestic equity mutual funds in the first 7 months of 2010.
  • US housing - real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century; it will take 20 yrs to recoup the $6T worth of housing value destruction seen in the last 5 years….after adjusting for inflation, values will never catch up – NYT – are these the same experts who told us real estate values wouldn’t decline?
  • Doug Kass tells CNBC it’s time to turn bullish again – he has been buying financials of late (inc. BAC and C) – CNBC
  • Obama plans a major speech on Iraq after his return to Washington as the last U.S. combat troops prepare to leave Iraq – AP

  • Political outlook – some Democratic party operatives think the current political environment may be even worse for them today than back in 1994

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One Response to “Morning Notes For August 23rd 2010”  

  1. 1 Mr. E

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    JP just had a research note in their FX section breaking down the amount of impact that political and regulatory climate has on business activity and hiring, vs. the general economic conditions.

    Turns out that only 12% is due to regulatory and political uncertainty, the rest is due to economic conditions.

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