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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:
- Foreclosures – ~40 state AGs today are expected to unveil an investigation into the foreclosure process used by the nation’s major banks; some of the AGs hope the pressure on banks will prompt many to restructure mortgages for homeowners via modifications or principle forgiveness. – WSJ
- Is all this Fed anticipation setting the stage for a market correction? It has become a near certainty in the minds of investors that the Fed will embark on another round of Quantitative Easing, with an announcement most likely coming at the November 3rd meeting. However, there are two big uncertainties:
- will the Fed, if it goes down the QE path again, actually reveal a specific dollar amount? Or will it adopt more open-ended language such as favored by Bullard? If there isn’t an explicit dollar figure, investors, many of whom have visions of ~$500B-1T dancing in their heads, could be disappointed.
- if the Fed does announce a dollar figure but it winds up being on the light side (like $500B or less), this could be disappointing also.
– CNBC – the expectations and positioning in front of the Nov. 3 meeting do seem somewhat ‘’crowded. There are a number of speeches this week from fed members and they will probably start dropping hints about the size of QE2.
- The Fed’s Yellen (now the vice-chairman) made some relatively hawkish comments late in the day (she is known as one of the more dovish people on the Fed, so her remarks stood out). Yellen warned that low rates could give firms an incentive to take more risks and said officials must be prepared to take away the “punch bowl”; she has traditionally been thought of as one of the more dovish members of the Fed. With most investors considering it a near certainty that the Fed is going to launch QE2 on Nov 3, the slightest deviation from this view will have a big impact on sentiment. – CNN
- Domestic farm economy bounces back quickly; prices are rising even as crop sizes set records; strong demand from overseas markets are driving the increase. Farm sector income is seen coming in @ $77B, the 4th highest ever. Food prices prob. won’t rise too quickly as most firms are reluctant to push through increases to end uses given the weak economy. – WSJ
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