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Morning Notes For Monday - July 19th 2010 at Trader’s Narrative

Morning Notes For Monday - July 19th 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. Please provide feedback in the comments:

  • While more Americans may soon gain access to healthcare as provisions of the federal overhaul go into effect, Gallup finds 16.5% of American adults were uninsured in June, unchanged from the same month last year, but up significantly from June 2008. – gallup
  • Buffett warns Obama that the US economy is only “halfway back” – Buffett apparently told the president that the US economy, after having gone through a “wrenching recession”, is only 40-50% back. – Reuters
  • Greenspan says Congress should let Bush’s tax cuts expire to trim the deficit. The consensus in Washington is to extend the cuts on lower and middle incomes, however. Bloomberg
  • Ireland was downgraded from Aa1 to Aa2, outlook stable, by Moody’s last night. Initially the announcement caused a sell-off in the euro, but not for long. The euro is trading at 1.2959 at 6:55AM and European stocks are mostly higher. – Bloomberg
  • Sovereign risks in Europe – 2 headlines: 1) Ireland d/g - Moody’s has today downgraded Ireland’s government bond ratings to Aa2 from Aa1; 2) Hungary - IMF and EU negotiators walked away from talks with Hungary, saying the country needs to do more to shrink its budget deficit. – JPM

Sovereign CDS Pricing for Hungary & Ireland:
CDS Hungary Ireland Jul 2010
CDS pricing is the cost to insure debt from that country. Note that neither are even close to Venezuela.

  • This was out Friday – The WSJ offers opinions on the efficacy of the financial overhaul in today’s paper from a diverse group starting with Henry Paulson, who was a strong advocate of reform even before the crisis erupted in full force in 2008. As a group, the experts all judge the bill incomplete, which should be no surprise because it was written that way. The bill’s primary purpose was to empower regulators to write most of the rules. It also appears some of the harshest critics have not read the bill. Most think the bill, as written, won’t prevent the next crisis, which is probably right. But this is not the end of financial reform. New international standards are expected before November and the New York Fed is working on a massive project to map and repair the shadow banking system. – FTN Financial
  • BP says “capping stack” is holding, and will be kept closed until relief wells are completed later this month or in early August. – WP
  • The Coast Guard says the cap on BP’s leaking well may have forced oil seepage from the seafloor. BP may have to release oil to relieve pressure, although the company says it does not think it is necessary. – FTN Financial
  • The top-secret world the government created in response to the terrorist attacks of Sept. 11, 2001, has become so large, so unwieldy and so secretive that no one knows how much it costs, how many people it employs, how many programs exist within it or exactly how many agencies duplicate work. – WP
  • Higher income Americans have started to scale back their spending, something which imperils the economic recovery – Bloomberg
  • German firms complain about the business conditions in China – the heads of Siemens and BASF both made remarks to Chinese premier Went that the climate for foreign firms doing business in China has taken a turn for the worse – FT
  • Mystery traders buys all of Europe’s cocoa – analysts don’t think it was a chocolate company that made the purchase (Nestle, KFT) or even one of their suppliers. “If it looks like cornering, feels like cornering and the price difference between Europe and the US is so large, it probably is cornering.” London Telegraph
  • Goldman Sachs agreed Thursday to pay $550 million to settle a fraud suit brought by the Securities and Exchange Commission that accused the storied Wall Street bank of selling a subprime-mortgage investment that was secretly designed to fail. – Washington Post
  • GS SEC settlement – the WSJ said the decision to settle split the SEC; like bringing the charges originally, the decision to settle wasn’t unanimous; the two Republicans on the SEC voted against settling (they were also against bringing the charges in the first place); some questioned the dropping of the more serious fraud charge yet still demanding such a large fine from Goldman; chairman Schapiro was the deciding vote to move forward w/the settlement (WSJ)
  • Goldman settlement – Wall Street breathes a sigh of relief – the fine was relatively small, regulators can claim victory; the overall situation highlighted how difficult it will be for civil, much less criminal cases, to be put together on these matters – NYT

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