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Morning Notes For November 9th 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. I welcome your feedback in the comments:

  • USA gets downgraded by a Chinese rating agency – this news actually hit Tuesday 10 AM ET. China's Dagong Global Credit Rating Co. downgraded the U.S. to A+ from AA, with a negative outlook, because of quantitative easing – Bloomberg
  • Gold continued its post-QE2 climb, surpassing the US $1,410 mark on November 9 as China announced a number of measures designed to curb inflows of hot money. – Roubini Global Economics

Ten Year Chart of Gold
gold price 10 year chart Nov 2010

  • An international backlash against the Federal Reserve's move last week to pump billions of dollars into the U.S. economy is threatening to undercut the Obama administration's economic goals for this week's G-20 meeting of world leaders. – Washington Post
  • US homeowners can't take advantage of lower rates – homeowners are unable to take advantage of low rates because of negative equity and/or stringent new lending requirements. Refinancing levels are well below where they normally should be given how low rates are. FT
  • "New risks for munis" – The greatest default risk is in smaller municipalities with shrinking tax revenue bases and large projects. WSJ
  • According to the WSJ, the Fed is expected to grant approval to some US banks to resume capital payouts to shareholders (either via buybacks and/or dividends) although its not clear whether a public announcement will be made (or if the banks will simply be given guidance privately).
  • US Housing market – new bleak Q3 report published from Zillow – "Nationally, home values continued to decline, and several local markets that had been showing strong signs of stabilization took a turn for the worse." – Zillow
  • Inflation/food worries – one of the lead FT articles – "food price fears as US warns on crop yields" – the US government again on Tuesday cut its forecast for corn yields, raising concerns about surging prices. Worry growing over supply shocks. – FT
  • CNBC's Steve Liesman reports that the G20 Leaders Summit communiqué, it is officially be published this weekend, will call for more flexible, market-based exchange rates and will also declare that no financial institution should be too big to fail. The leaders are expected to endorse the Basel III rule changes. Large systemically important banks will be encouraged to create "living wills." – CNBC
  • Banks – the G20 has drawn up a "two-tier" bank regulatory plan, whereby global regulators would focus their attentions on large world-spanning institutions instead of more domestic-focused firms. This means that many banks in Japan and China, which have a more domestic focus, would wind up being exempted from the new regulatory framework. A list of 20 large global banks whose importance is "systemic" is being drawn up. Some of the banks that may wind up on that list: GS, MS, BAC, C, RBS, HSBC, Barclays, RBC, Standard Chartered, UBS, CS, SocGen, BNP, Santander, BBVA, Mizuho, Sumitomo, Nomura, Mitsubishi, Unicredit, Intesa, DB, and ING (and some think the Japanese banks may wind up being removed as they are primary domestic institutions). FT
  • Goldman Sachs Asset Management's Jim O'Neill said China is accelerating the yuan's appreciation as part of the "grand bargain" to win US support for Beijing to gain a bigger say at the International Monetary Fund. – Bloomberg
  • The National Federation of Independent Business Index of Small Business Optimism improved by 2.7 in October to 91.7, though it remains in "recession territory" and well below the long-term average of 98.7 – Roubini Global Economics

NFIB Small Business Optimism Index
nfib small business optimism index chart Nov 2010

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