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Morning Notes For October 4th 2010 at Trader’s Narrative

Morning Notes For October 4th 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:

  • Bank of America, the nation’s largest bank, has put foreclosures in 23 states on hold in order to review whether “certain affidavits have followed the correct procedures,” the company said today. The bank is the third major lender to freeze foreclosures in those states due to flawed paperwork. J.P. Morgan and Ally Financial have announced similar measures. – Washington Post
  • The State Department is alerting U.S. citizens about the potential for terrorist attacks in Europe. – WP
  • Staggered Cooling of Global Manufacturing? - JP Morgan/Markit’s global PMI slowed further in September to 52.5, a 14-month low. Output began to soften from record highs in EMEA, while activity in China continued to accelerate modestly. Japan’s PMI slipped back below the neutral level of 50. On a global basis, new orders have cooled quite significantly and inventories have begun to build up, suggesting manufacturing could stagnate at best and contract at worst. – Roubini Global Economics
  • Payroll Data to Influence Fed’s Quantitative Easing Decision – The September non-farm payroll report slated to be released this Friday will be the most meaningful data point before the Federal Reserve meets Nov. 3 to consider options to jump start the economy. – Bloomberg

nonfarm payroll Sep 2010
Temporary employment gains tend to precede full time employment gains.

  • World Economy Decoupling From U.S. in Wall Street View - Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown. Underpinning their analysis is the view that international reliance on U.S. trade has diminished and is too small to spread the lingering effects of America’s housing bust. Goldman Sachs expects a weakening dollar, higher bond yields outside the U.S. and stronger emerging-market equities. “So long as it doesn’t turn to flu, the world can withstand a cold from the US,” Ethan Harris BofA Merrill Lynch – Bloomberg
  • Swiss Banks – a Swiss banking panel unveiled new capital rules for Swiss banks; actually being viewed as a pos. as the new regs less onerous than feared – UBS and CS should hold total capital equal to at least 19 percent of their RWA vs. 10.5 percent level the Basel Committee on Banking Supervision announced last month. The Swiss Banks should hold at least 10% of their capital in common equity vs. 7% under the Basel rules (some were fearing up to 12%). The additional 9% of capital can be made up of contingent capital, which is a sig. positive. CS says it can comply w/the new rules w/o materially changing its growth plans or dividend policy. UBS also said it is well positioned to comply. – Bloomberg/JPM
  • Cheap debt for companies fails to spur economy – large corporations are able to raise large sums of money while smaller businesses and individuals are turned away; however, these companies are simply hoarding the cash. Fed’s low rates are intended to help stimulate the economy, but this isn’t happening; in fact, the low rates are hurting many Americans. “Corporations now sit atop a combined $1.6 trillion of cash, a figure equal to slightly more than 6 percent of their total assets. In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent” NYT
  • President Barack Obama’s job approval rating averaged 45% in September, just slightly better than his monthly average of 44% in August. – Gallup

Obama approval sep 2010

  • Rand Paul on Social Security – Kentucky Republican Rand Paul said eligibility changes are needed for Social Security, including possibly raising the age for receiving benefits, as he debated his Democratic opponent for a U.S. Senate seat. “You’re going to have to have eligibility changes for the younger people,” Paul said yesterday during a debate on “Fox News Sunday” when asked if increasing the retirement age for Social Security was one way to reduce the budget deficit. He said he wouldn’t back making that change for Americans already participating in the program. – Bloomberg
  • Americans sour towards trade – in the latest polling, +50% of people surveyed said free trade has hurt the US, up significantly from prior readings. Politicians are taking action accordingly. WSJ
  • “Paulson and the Bulls Bounce Back” – WSJ article discusses how some HFs posted strong gains in the month of Sept, outperforming the broader market; “a number of hedge-fund investors have become more bullish in recent weeks”. WSJ

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