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Morning Notes For September 9th 2010 at Trader’s Narrative

Morning Notes For September 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:

Initial Jobless Claims: Survey 470K Actual 451 Prior 472 Revised 478
initial jobless claims Sep 2010 updated
Trade Balance also narrowed more than expected as imports fell and exports climbed. (good for GDP)

  • The Fed Beige Book published on September 8 noted continued growth in economic activity but struck a cautious note by pointing at “widespread signs of a deceleration” in activity. Five of the 12 districts showed modest growth, and two showed “net improvement,” while five showed “mixed conditions or deceleration” compared to two districts in the previous report. Consumer spending gained on balance, but consumers remained cautious. – RGE Monitor – keep in mind this is backward looking.
  • Chuck Prince and Robert Rubin were among Citigroup officials who knew 2007 losses were mounting on mortgage assets that U.S. regulators have faulted the bank for not disclosing, a court filing shows. – Bloomberg
  • Norway Buys Greek Debt as Sovereign Wealth Fund Sees No Default - Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts. The Nordic nation’s $450 billion Government Pension Fund Global has stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal.
  • US Competitiveness Slips, Switzerland Tops Ranking – The U.S. slipped to fourth in the annual rankings of the world’s most-competitive economies amid a record budget deficit, while Switzerland retained the top spot, the World Economic Forum said. The U.S. fell from second, a year after losing the No. 1 position for the first time since the Geneva-based organization began its current index in 2004. A budget shortfall of more than $1 trillion and public distrust of politicians were among the weaknesses in the world’s largest economy.
  • The WSJ has an article on the front of its Money and Investing section on bifurcation between large and small banks. The biggest national banks have posted an impressive rebound in earnings since the recession ended last year, but smaller banks continue to struggle with bad loans. The article recognizes the fundamental problem for small banks: They are in the business of taking deposits and making loans. The spread between loan rates and deposit rates are extraordinarily tight due to weak loan demand. What the article does not say is that Fin Reg reform is intended to push big banks toward this unprofitable small bank model by eliminating proprietary trading revenue. – FTN Financial
  • Basel Capital Rules – more evidence the final capital rules to be less onerous than feared - Central bank governors and senior regulators are to rule that banks must have a minimum core tier one capital ratio, including a new so-called “buffer” to protect against extreme economic conditions, of 7%. This is considerably lower than was wanted by the “hawks”, the US, UK and Switzerland. They wanted a core tier one capital ratio of 8 to 9% including buffer. However, opposition from some countries, esp. Germany, forced the number to be lower. The 7% minimum represents a dramatic increase on the current minimum of 2%. Under the new system, if a bank’s capital ratio falls below 7% or would fall below 7% when the bank is tested for financial stresses, the bank will be forced by regulators to raise new capital. And if the ratio falls below 4%, the bank will be put into “resolution”. BBC
  • Election Odds … – Bloomberg/Iowa Electronic Markets

US midterm election odds Sep 2010

  • WSJ – “A President’s Class War” – “since the earliest days of his presidency, starting with his first economic message, Mr. Obama has harped on the idea that “well-off and well-connected” economic factions in the U.S. have done something explicit to shaft the middle class. Yesterday’s Cleveland speech was more of the same”
  • “Drunken, Raucous Bond Market Is About to Be Ill” – Bloomberg – argues that sovereign bond markets will see substantial further pressures and even the US and Germany won’t be immune. Bloomberg – let me know if you want this piece.

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