Wednesday, May 12, 2010

• Americans continue to view unemployment as one of the nation's leading problems, but they put
slightly less emphasis on it today than they did in April. At the same time, 10% cite immigration as the
top problem, up from 2%. – Gallup

• The SEC is investigating Morgan Stanley CDO deals. The firm helped structure the deal before
betting against them, according to the WSJ, but did not market the deals to customers.
• “4 Big Banks Score Perfect 61-Day Run” – “four giants of American finance managed to make
money from trading every single day during the first three months of the year”. NYT
• Bond sales have plunged since Europe crisis broke out - Borrowers worldwide have sold $15
billion of corporate debt this month, a 62 percent decline from the same period in April and 83 percent
less than the average for the past year – Bloomberg
• FNM, FRE – an amendment that would have ended gov’t support for both companies in two
years failed to pass in the Senate; this was as expected (CNBC)

Europe

• Conservative David Cameron became the youngest British Prime Minister in over 200 years
today after his party struck a deal. – FTN
• Spain unveils new austerity measures - Spain will cut public spending by 6 billion euros and civil
service wages will be slashed by 5 percent; Spain’s union leader rejects the gov’t cuts and doesn’t rule out
action (Reuters)
• Portugal – few items this morning (all seen as positive): 1) bought back ~EU225MM in bonds out
of RU4.628B expiring next week in move to reassure investors; 2) country says does need not to resort to
the $1 trillon safety net agreed by the European Union and the IMF; 3) sold EU1B in bonds at higher
bid/cover and higher yield; 4) Portugal’s opposition leader agrees to back higher tax hikes.
• Meanwhile, the drubbing of the euro continued last night and, according to the WSJ, European
investors reacted by taking gold to a new high of $1,243.53. European stock indices are higher by 0.5-
1.5% as speculation about Europe’s future continues. Those who agree with EU officials that the
difficulty funding debt by Greece, Portugal and other periphery countries is a liquidity crisis may be
reassured by the bailout, but those who see it as a credit crisis are now trying to anticipate the next stage.
One popular view is that the rescue package will buy time in which Greece and perhaps Portugal will
elect to leave the Union so that they can aggressively devalue their currencies. Another is that the rescue
will hold the union together, but the euro will have to devalue significantly so that the balance of trade
can shift enough to start eroding budget deficits. Almost all the economists watching the crisis agree the
status quo is not tenable. Something has to give. – FTN – thus far, that ‘something’ has been the Euro
• Last night, however, the biggest surprise out of Europe was an unexpected increase in German
Q1 GDP on stronger-than-expected exports. – FTN
• In China, expectations are building for a near-term adjustment to rates/yuan with a PBOC advisor
being quoted overnight as saying it was the right time for a rate hike and sell-siders continuing to call for
near-term adjustment (one broker overnight saying an adjustment could come ahead of planned talks
w/the US on May 24-25).

It wasn’t that long ago that China let its renminbi appreciate over 20%. Supposedly the government has
been telling exporters to brace themselves for currency appreciation.