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Morning Notes For August 24th 2010 at Trader’s Narrative

Morning Notes For August 24th 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:

  • The largest egg recall in U.S. history comes during recent consolidation in the industry, as a shrinking number of companies produce most of the eggs found on grocery shelves and a defect in one operation can jeopardize a significant segment of the marketplace. – WP
  • American International Group said Monday that it had used $4 billion from a recent debt sale to pay back the U.S. government, marking the single largest cash repayment so far from the bailed out insurance giant. – WP
  • Someone in the Obama administration did the math and realized there are more outstanding mortgages than there are bank deposits in the US. As a result, according to the WSJ, either the size of mortgage debt outstanding must continue to shrink, or the mortgage securitization process has to be repaired. The White House is leaning toward some kind of government guarantee, most likely involving Fannie and Freddie, to be funded with a new tax on banks in an effort to revive the securitization process. In effect, the government will take on the role of monoline insurer, with the cost of the insurance included in the price of the mortgage. From the article, it is clear the process in still in the very early stages. – FTN Financial
  • Major Asian and European stock markets are off more than 1% this morning and Treasuries are stronger. The 10-year is currently trading at 2.55%. The Japanese yen is getting stronger as investors continue to sell the euro. Last night, the yen rose almost 1% to a new 15-year high against the dollar. Officials warned they will intervene if the yen gets much stronger. – FTN Financial

Japanese Yen vs. Euro
Yen Euro cross Aug 2010

The Yen has appreciated ~30% since last October versus the Euro, which can be a killer for an export economy.

  • Consumers Debt in the US Federal Reserve last week began the first in a series of quarterly publications on the condition of consumer finances. The 38-page report shows recent declines in various levels of debt. Still, consumers remain heavily burdened, and deliquencies are up, with 11.4 percent of outstanding consumer debt delinquent. That amounts to $1.3 trillion, including $986 billion that is more than 90 days late. – Bloomberg

total debt balance US consumer Fed Reserve Aug 2010

  • US Equity Technicals – from M Krauss - The bears have the agenda below 1081-1086, seeking next support at 1056-1059, if not the 1040 floor. Must hold 1040, or risk a retest of the 1011 July 1 trough. Day resists 1072, 1075.
  • US Housing Market – Mark Zandi sees the US housing market entering a double dip: “Today we are going to get an existing home sales number that that I think is going to be very, very weak, closer to 4 million units, which I think would be a new low in this cycle,” CNBC
  • California has decided to delay ~$2.9B/month worth of payments to school districts and counties sooner than expected in order to preserve cash (will start withholding in Sept instead of starting in Oct); the state has warned it may have to start issuing IOUs again (perhaps as soon as the end of Aug) – AP
  • Drilling – US could partially lift drilling ban according to the director of the Bureau of Ocean Energy Mgmt, Enforcement, and Regulation. DJ

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