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Morning Notes For July 26th 2010 at Trader’s Narrative




Morning Notes For July 26th 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. Please provide feedback in the comments:

  • Tens of thousands of classified documents related to the Afghan war released without authorization by the group Wikileaks.org reveal in often excruciating detail the struggles U.S. troops have faced in battling an increasingly potent Taliban force and in working with Pakistani allies. – Washington Post
  • On July 23, the Committee of European Bank Supervisors (CEBS) announced the results of stress tests of 91 banks, covering at least 50% of each domestic market and 65% of the overall EU banking sector. The results were in accordance with analysts’ expectations that five to 10 banks, none of them large, would fail the test: five Spanish cajas, Germany’s Hypo Real Estate (HRE) and Greece’s ATEbank didn’t meet criteria. The recapitalization needs amount to €3.5 billion (US$4.5 billion). The tests, which the CEBS says were more severe than those in the U.S., do not assume a sovereign default as this is seen as unlikely. The head of the CEBS says that the released findings on total exposure to sovereign debt by individual banks are detailed enough for investors and analysts to build their own scenarios. – RGE Monitor
  • Americans’ confidence in US banks remains near its all-time low at 23% — essentially unchanged from 22% last year, and far below the 41% pre-recession level of June 2007. – Gallup
  • The federal budget deficit, which hit a record $1.4 trillion last year, will exceed that figure in 2010 and 2011, according to a White House forecast released Friday. The $1.47 trillion budget gap predicted for 2010 represents a slight improvement over the administration’s February forecast, but the outlook for 2011 has darkened considerably, primarily due to a drop in expected tax receipts.
  • Bush tax cuts will become the major issue on Capital Hill when Congress returns from recess in Sept; Republicans want all the cuts extended while Dems are more divided (there are big articles in the NYT, FT, and WSJ on this issue) – JPM
  • Bill Gross/PIMCO’s move into equities – discussed in the Washington Post – Gross thinks the 30+ yr bond rally will fizzle out; “bonds have seen their best days”. “The king of bonds is now talking up stocks as a better long-term investment. He said that as U.S. Treasury returns fall, investors will have to take more risk with high-yield bonds, equities and, eventually, real estate” – Washington Post
  • GS – the Financial Crisis Inquiry Commission is still pursuing Goldman and demanding the co overturn information pertaining to derivatives; Goldman has said it doesn’t keep records for the type of information sought by the FCIC; the FCIC is threatening to bring in outside accountants to comb through Goldman’s records – FT
  • GOP to launch new “substantive campaign agenda” in the next few weeks; the campaign will focus on: “create incentives for new jobs, cut federal spending, and clean up Congress” Politico
  • Gold – Peter Berezin of BCA says gold has growing risks over the next few years – Barron’s
  • BP: BP’s board will meet tomorrow and will discuss their Q2 earnings (which get reported on Tues Jul 27) and the future of CEO Hayward; the BBC says that Hayward’s departure will be announced within the next 24 hours and that he will be replaced by Bob Dudley. BP’s latest effort to plug the well, a “static kill”, could commence within the next 3-5 days – Reuters

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