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Morning Notes For September 16th 2010 at Trader’s Narrative

Morning Notes For September 16th 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:

  • GOM - The U.S. said oil and gas companies must permanently plug Gulf wells that have sat idle for five years or more – WSJ
  • Principles for economic revival – OpEd in WSJ - GEORGE P. SHULTZ, MICHAEL J. BOSKIN, JOHN F. COGAN, ALLAN MELTZER AND JOHN B. TAYLOR – 1) take tax increases off the table; 2) balance the budget by cutting spending; 3) modify social security and health care entitlement spending; 4) enact a moratorium on all new regulations for the next three years, with an exception for national security and public safety; 5) monetary policy should be less discretionary and more rule-like.
  • Byron Wein’s market comment has received a lot of attention of late (his so called “Billionaire’s Summit”); the overall tone from the gathering was cautious. “the group was gloomy on the outlook. They saw the United States in a long-term slow growth environment with the near-term risk of recession quite real. The Obama administration was viewed as hostile to business and that discouraged both hiring and investment. Companies and entrepreneurs were reluctant to add workers because they didn’t know what their healthcare costs or taxes were going to be. Financial service firms were confused about how the rules emanating from the new financial service regulatory reform legislation would affect their businesses” – Blackstone/JPM
  • M&A Activity and the Stock Market - News articles of mergers-and-acquisition activity have tended to fluctuate with the stock market since the mid-1990s. The more mentions there have been, the higher the benchmark S&P Index has gone. The opposite, as seen in the chart, is also true.

mentions of mergers acquisitions compared SPX Sep 2010

  • State Pensions Find Themselves in Benefits “Death Spiral” – U.S. state pensions such as Illinois, Kansas and New Jersey are in a “death spiral,” with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains. Less than half of the 50 state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled for the Bloomberg Cities and Debt Briefing. Two years earlier, only 19 missed the mark. Illinois covered just 50.6 percent of benefits last year, the lowest so-called funded ratio. Actuaries say the level shouldn’t be less than 80 percent. – Bloomberg
  • Banks are starting to offer more specifics on dividends, including new details on payout levels and timing. Two major US banks this week said payout ratios going forward will prob. be ~30-40% vs. 50%+ pre-crisis. – ABA
  • The collapse of Lehman Brothers and central banks’ unorthodox monetary policies distorted markets to create some of the biggest pricing anomalies ever documented in bond trading; Instruments that should normally track each other almost perfectly saw their prices diverge sharply as investors panicked and central banks including the US Federal Reserve distorted bond demand by buying up huge amounts of debt – FT
  • Bloomberg News says Geithner and his team at the Treasury Department are exploring ways to pressure China to appreciate their currency faster. The Treasury introduced two WTO suits against China yesterday. – Bloomberg/FTN Financial – Yuan has appreciated 1.59% in almost exactly 3 months, over half of that happening in the last week.

yuan appreciation against US dollar Sep 2010

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