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Morning Notes For September 15th 2010 at Trader’s Narrative




Morning Notes For September 15th 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. I welcome your feedback in the comments:

  • Japan Sells Yen for First Time Since 2004 to Revive Growth - Japan intervened in the foreign-exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery. Finance Minister Yoshihiko Noda told reporters in Tokyo the yen sales were unilateral. Chief Cabinet Secretary Yoshito Sengoku said the ministry “seems to think” 82 yen per dollar to be the line of defense, after it reached 82.88 earlier today. – Bloomberg – Announcing a unilateral intervention along with announcing a line of defense is an interesting tactic. Nonetheless, so far it is having the desired effect of weakening the Yen. When monetary and fiscal policies become uncoordinated, the tendency is for countries to devalue currencies thereby stimulating exports to try and grow their way out of recession. Everybody wants a weak currency. But one currency’s value is always relative to another currency (or basket of currencies), thus, it is impossible for everyone to have a weak currency.

USD vs JPY (Down movement represents Yen strength)
USD Yen cross Sep 2010

  • Cisco plans to issue the company’s first dividend this fiscal year. – Bloomberg – Recently we have seen a number of companies in our portfolios announce dividend increases. Microsoft is planning to sell debt to pay for dividends and stock buybacks; General Electric increases; Norfolk Southern increases…to name a few. Cash levels for S&P 500 are very high. Typically, in a recovery, companies would hire, acquire, or invest in capital expenditures as demand picks up and they look to grow. But the environment is too uncertain to spend the cash and companies are being punished with a zero percent return for holding that cash. They don’t want to spend it and they don’t want to hold it…by default you return it to shareholders through dividends or buybacks. Furthermore, the resolution of Basel III may result in well-capitalized banks announcing more dividends.
  • Entitlement spending will be difficult to cut – nearly half of all Americans are members of households in which at least 1 person receives gov’t benefits of some sorts. Meanwhile, only 45% of people pay federal income taxes (although a larger percentage are hit w/payroll taxes). This will make it politically difficult to cut entitlement spending. WSJ
  • President Obama’s job approval rating averaged 46% for the week ending Sept. 12, his highest weekly average since mid-July and up from the 43% low point recorded in late August. – Gallup

Obama approval rating Sep 2010

I guess the recent increase is due to the announcement of the end of military ops in Iraq.

  • Signs of emigration out of Greece as the slow economy strangles job opportunities – NYT

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