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Morning Notes For August 31st 2010 at Trader’s Narrative




Morning Notes For August 31st 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:

  • Republicans lead by 51% to 41% among registered voters in Aug. 23-29 Gallup weekly tracking of 2010 congressional voting preferences. The 10-percentage-point lead is the GOP’s largest of the year and is its largest in Gallup’s history of tracking the midterm generic ballot. – Gallup

gallup poll congressional election Aug 2010

  • Obama Jobs Measure – President Barack Obama said his economic advisers will examine “additional measures” to promote hiring and growth and urged Senate Republicans to drop their “blockade” of a measure to help small businesses. Obama called for congressional passage of initiatives he’s already outlined, including extending tax cuts for middle-income Americans and a package of tax incentives and lending aid for small business. – Bloomberg
  • Euro’s Popularity as Reserve Currency to Continue – The euro is likely to continue to gradually increase its share as a percentage of foreign-exchange reserves held by central banks around the world. There is no shortage of the high-quality government debt in the euro area that central banks aim to hold in their FX reserves, despite the numerous sovereign downgrades in the euro area. – Bloomberg

foreign reserve currency allocation Aug 2010

  • Last night, German unemployment fell for the 14th month in a row, leaving European policy makers with a problem: how to slow growth in German, where a labor shortage threatens to put upward pressure on wages and prices, while promoting growth in the rest of the EU. If Europe’s labor market were as flexible as the US’, it wouldn’t be a problem. Workers would flock from peripheral Europe to the industrial heartland. But language and cultural differences discourage worker migration. – FTN Financial
  • Corporate Profits to Slow in Third Quarter – The deceleration in the economy and worker productivity in the second and third quarters of 2010 is likely to pressure corporate profits in coming months, as workers stretched thin by large firms’ reluctance to hire will put in longer hours. – Bloomberg

corporate profits relative to national income

  • Yesterday, an op-ed about extended unemployment benefits and the unemployment rate in the WSJ generated quite a bit of attention. The author, Harvard Professor Robert Barro, points out that the extension of unemployment benefits from 26 to nearly 100 weeks corresponds with the record number of long term (26+ weeks) unemployed in the US today. There is no way to prove empirically that extended unemployment benefits cause extended unemployment, but it makes sense, especially in a recession which has done significant structural damage to the economy. Many of those employed in severely shrunken industries – real estate agents, mortgage brokers, auto workers etc. – may have to start again at the bottom rung in another industry if they want to work. For them, it may be nearly impossible to find work which pays more than they can get without working from the government. Barro’s argument is supported by theory. Economists from Paul Samuelson to Alan Blinder to Paul Krugman make the case that unemployment benefits increase unemployment in their economic textbooks, though Krugman – perhaps not surprisingly – argues the other side in his NYT column. – FTN Financial
  • Investors See Little to Celebrate in Income, Spending Data There were few encouraging economic signs in the July income and spending release. The economy won’t expand at an acceptable rate until incomes accelerate, and that doesn’t appear to be in the cards. – Bloomberg

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One Response to “Morning Notes For August 31st 2010”  

  1. 1 Andrew

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    Meh. Both parties are bought and controlled for. They are both corporatists and anti-free market thugs who have no business being in Washington. Washington is more corrupt than Wall Street!

    Eliot Spitzer talks about the regulations that were implemented to supposedly help consumers. Regulations are put into place to keep down the small man.

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