Markets For The Week Ending September 23, 2011: Monetary Policy

Markets for the Week ending
Monetary Policy
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
weekly change
YTD change
1yr forward (OIS)
North American
Bond Yields
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing high
52-week closing low
weekly change
QTD change
YTD change
change from 52wk high
change from 52wk low
Credit Spreads
September 23, 2011
Bank of U.S. Federal

European
Canada
Reserve Central Bank
Bank of Swiss Bank

England
Rate
1.00
1.00
1.00
1.00
(0.38)
0.08
0.09
0.07
0.13
(0.01)
(0.05)
-
1.50
1.50
1.25
1.00
0.50
(0.55)
0.50
0.50
0.50
0.50
(0.15)
0.25
0.25
(0.25)
GoC 2yr
GoC 5yr
GoC 10yr
GoC 30yr
RRB BEIR
0.86
1.04
1.59
1.68
1.94
0.79
(0.18)
(0.73)
(0.82)
(1.08)
0.08
1.34
1.55
2.33
2.42
2.90
1.28
(0.21)
(0.99)
(1.08)
(1.56)
0.06
2.06
2.29
3.11
3.12
3.50
2.02
(0.23)
(1.05)
(1.06)
(1.44)
0.04
2.69
2.93
3.55
3.53
3.87
2.68
(0.24)
(0.85)
(0.84)
(1.18)
0.01
1.92
2.11
2.52
2.41
2.70
1.92
(0.20)
(0.60)
(0.50)
(0.79)
-
10yr Ontario long Ontario 10yr Quebec long Quebec
China
China
Bank of Royal Bank Rediscount
Reserve
Japan of Australia
Rate Requirement Brazil SELIC
0.10
0.10
0.10
0.10
0.03
4.75
4.75
4.75
4.75
(1.49)
2.25
2.25
2.25
2.25
-
21.50
21.50
21.50
18.50
3.00
12.00
12.00
12.25
10.75
1.25
US 3mth
US 2yr
US 5yr
US 10yr
US 30yr
0.00
0.00
0.02
0.13
0.17
(0.01)
(0.01)
(0.12)
(0.16)
0.01
0.22
0.17
0.46
0.60
0.85
0.16
0.05
(0.24)
(0.38)
(0.64)
0.06
0.86
0.91
1.76
2.01
2.40
0.78
(0.05)
(0.90)
(1.15)
(1.54)
0.09
1.83
2.05
3.16
3.30
3.74
1.72
(0.22)
(1.33)
(1.47)
(1.91)
0.11
2.90
3.31
4.37
4.34
4.77
2.80
(0.42)
(1.47)
(1.44)
(1.87)
0.10
Moody's
Moody's
Corp Avg - Corp BBB US 10s
AAA
long BC
long MB
long NB
long NS
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
0.96
0.90
0.73
0.67
0.97
0.64
0.05
0.23
0.29
(0.01)
0.31
0.97
0.93
0.81
0.80
0.98
0.73
0.04
0.16
0.17
(0.01)
0.24
1.09
1.03
0.82
0.78
1.11
0.72
0.06
0.27
0.31
(0.02)
0.37
1.09
1.03
0.87
0.87
1.10
0.79
0.06
0.22
0.22
(0.01)
0.31
0.94
0.88
0.76
0.74
0.94
0.65
0.06
0.18
0.20
(0.00)
0.29
0.94
0.90
0.76
0.73
0.95
0.65
0.04
0.18
0.21
(0.01)
0.29
1.08
1.03
0.86
0.87
1.09
0.78
0.05
0.21
0.21
(0.01)
0.29
1.06
1.01
0.84
0.85
1.07
0.77
0.06
0.22
0.21
(0.01)
0.29
2.51
2.66
2.29
2.15
2.78
2.03
(0.15)
0.22
0.37
(0.27)
0.48
1.20
1.21
0.76
1.10
1.25
0.74
(0.01)
0.44
0.10
(0.05)
0.46
International 10yr
Rates
Swiss
UK
Germany
France
Italy
Spain
Portugal
Greece
Japan
Australia
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
change
h
from
f
52
52wkk high
hi h
0.92
1.01
1.73
1.72
2.16
0.87
(0.09)
(0.81)
(0.79)
(1.24)
(1 24)
0.05
2.37
2.48
3.38
3.40
3.88
2.19
(0.12)
(1.02)
(1.03)
(1.52)
(1 52)
0.18
1.75
1.86
3.03
2.96
3.49
1.67
(0.12)
(1.28)
(1.22)
(1.74)
(1 74)
0.07
2.56
2.60
3.41
3.36
3.78
2.48
(0.04)
(0.85)
(0.80)
(1.22)
(1 22)
0.08
5.63
5.51
4.88
4.82
6.20
3.73
0.12
0.75
0.81
(0 57)
(0.57)
1.90
5.21
5.29
5.45
5.45
6.32
3.98
(0.08)
(0.24)
(0.25)
(1 11)
(1.11)
1.22
11.81
11.18
10.90
6.60
13.38
5.53
0.63
0.92
5.21
(1 57)
(1.57)
6.28
23.63
21.19
16.34
12.47
25.68
8.78
2.44
7.29
11.16
(2.05)
(2 05)
14.85
0.99
1.01
1.14
1.13
1.36
0.85
(0.03)
(0.15)
(0.14)
(0.37)
(0 37)
0.14
4.02
4.24
5.21
5.55
5.75
4.02
(0.23)
(1.19)
(1.53)
(1 74)
(1.74)
-
September 23, 2011
Global 5yr CDS
U.S.
U.K.
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
56
50
50
42
65
36
0
5
14
(9)
19
95
79
61
72
95
48
16
34
22
Risk
VIX
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
41
31
17
18
48
15
10
25
24
(7)
27
Currencies
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
Commodities
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
h
YTD change
C$ / US$
1.030
0.978
0.963
0.998
1.034
0.943
0.05
0.07
0.03
47
TED
Germany
106
83
43
58
106
32
23
63
48
74
France
203
168
80
101
203
62
35
122
101
141
LIBOR-OIS
OIS-Tbill
0.27
0.28
0.13
0.12
0.29
0.10
(0.01)
0.15
0.15
(0.02)
0.18
0.09
0.06
0.11
0.06
0.12
0.02
(0.02)
0.03
(0.04)
0.09
US$ / euro
US$ / GBP
US$ index
()
()
78.30
76.60
74.30
79.03
81.20
72.93
1.70
4.00
(0.73)
1.35
1.38
1.45
1.34
1.48
1.29
(0.03)
(0.10)
0.01
1.55
1.58
1.61
1.56
1.67
1.53
(0.03)
(0.06)
(0.01)
0.36
0.35
0.23
0.18
0.36
0.13
0.01
0.13
0.18
0.23
Italy
Portugal
Greece
Japan
China
1,179
1,055
745
500
1,216
336
124
434
679
(38)
843
3,536
3,536
1,952
1,074
5,047
666
1,583
2,462
(1,512)
2,870
140
120
91
72
140
53
20
49
68
87
161
127
85
69
161
53
34
76
92
108
Euribor - Fed balance ECB balance

EUR swap
sheet
sheet
Baltic Dry
538
445
171
238
538
127
93
367
300
412
0.89
0.75
0.20
0.41
0.89
0.14
0.14
0.69
0.49
0.76
Spain
437
371
270
350
437
197
66
167
87
240
2,861
2,867
2,869
2,423
2,882
2,298
(6)
(8)
438
(21)
563
2,135
2,135
1,972
2,004
2,135
1,866
163
130
269
1,884
1,814
1,413
1,773
2,784
1,043
3.9%
33.3%
6.3%
-32.3%
80.6%
S&P ASX Bloomberg

200 index
GCC 200
3,903
4,149
4,608
4,745
4,971
3,903
-5.9%
-15.3%
15.3%
-17.7%
-21.5%
0.0%
54.8
54.7
58.1
60.7
62.2
51.5
0.2%
-5.7%
5.7%
-9.7%
-11.8%
6.4%
Bloomberg / C$ Effective
JPM Asia-$ Exchange
index
Rate
CH / US$
yen () /
US$
US$ / AU$
yuan () /
US$
0.90
0.88
0.84
0.94
1.00
0.72
0.03
0.06
(0.03)
76.63
76.79
80.56
81.12
85.49
76.24
(0.16)
(3.93)
(4.49)
0.977
1.036
1.072
1.023
1.102
0.949
(0.06)
(0.10)
(0.05)
6.39
6.38
6.46
6.61
6.69
6.38
0.00
(0.08)
(0.22)
115.0
117.6
118.9
116.5
120.2
113.8
(2.64)
(3.86)
(1.47)
116.2
121.2
122.7
120.2
125.0
115.7
(5.07)
(6.51)
(4.09)
US Regular
Average Gas
Nickel Natural Gas
Price
CRB Food
CRB US
Spot Raw
Industrials
WTI Crude
Oil Spot
Price
Oil Futures
Gold
Silver
Copper
301.9
329.6
338.1
332.8
370.6
280.1
-8.4%
-10.7%
10 7%
-9.3%
80.34
87.96
95.42
91.38
113.93
73.38
-8.7%
-15.8%
15 8%
-12.1%
80.29
88.18
97.04
94.48
114.78
80.14
-8.9%
-17.3%
17 3%
-15.0%
1,642
1,812
1,500
1,421
1,900
1,292
-9.4%
99.4%
4%
15.5%
30.75
40.67
34.69
30.91
48.44
21.13
-24.4%
-11.4%
11 4%
-0.5%
336.4
404.2
427.8
448.2
466.5
336.4
-16.8%
-21.4%
21 4%
-25.0%
855
1,027
1,091
1,177
1,362
855
-16.7%
-21.7%
21 7%
-27.4%
3.70
3.81
4.37
4.41
4.85
3.29
-2.8%
-15.4%
15 4%
-16.0%
3.60
3.66
3.57
3.05
3.97
2.69
-1.6%
00.8%
8%
18.0%
475.3
487.0
484.6
440.3
513.6
399.9
-2.4%
-1.9%
1 9%
8.0%

North American
Equities
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
International
Equities
September 23, 2011
S&P/TSX S&P/TSX 60
11,463
12,264
13,301
13,443
14,271
11,463
-6.5%
-13.8%
-14.7%
-19.7%
0.0%
653
696
764
769
819
653
-6.2%
-14.5%
-15.0%
-20.3%
0.0%
1,136
1,216
1,321
1,258
1,364
1,119
-6.5%
-14.0%
-9.6%
-16.7%
1.5%
10,771
11,509
12,414
11,578
12,811
10,662
-6.4%
-13.2%
-7.0%
-15.9%
1.0%
MSCI MSCI Pacific

Europe
Rim
Nasdaq
KBW Bank
index
Russell
Large-Cap
Russell
Small-Cap
Russell
Large-Cap
Value
Russell
Large-Cap
Growth
2,483
2,622
2,774
2,653
2,874
2,327
-5.3%
-10.5%
-6.4%
-13.6%
6.7%
35.0
38.7
48.3
52.2
55.6
34.5
-9.5%
-27.6%
-33.0%
-37.1%
1.6%
628
673
734
697
758
617
-6.8%
-14.6%
-10.0%
-17.3%
1.7%
652
714
827
784
865
643
-8.7%
-21.1%
-16.7%
-24.6%
1.4%
556
599
669
639
694
552
-7.1%
-16.9%
-13.0%
-19.8%
0.8%
535
572
610
575
629
507
-6.4%
-12.2%
-6.9%
-14.9%
5.6%
MSCI
Emerging
Markets
FTSE 100
DAX 30 FTSE MIB 40
Nikkei 225
Shenzen
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
3,727
4,023
4,531
4,290
4,707
3,727
-7.3%
-17.7%
-13.1%
-20.8%
0.0%
4,338
4,654
5,505
5,226
5,776
4,315
-6.8%
-21.2%
-17.0%
-24.9%
0.5%
5,224
5,664
7,004
6,391
7,401
5,170
-7.8%
-25.4%
-18.3%
-29.4%
1.0%
4,226
4,452
4,842
4,938
5,136
4,226
-5.1%
-12.7%
-14.4%
-17.7%
0.0%
1,615
1,791
2,083
2,062
2,177
1,615
-9.8%
-22.5%
-21.7%
-25.8%
0.0%
5,067
5,368
5,946
5,900
6,091
5,007
-5.6%
-14.8%
-14.1%
-16.8%
1.2%
5,197
5,574
7,376
6,914
7,528
5,072
-6.8%
-29.6%
-24.8%
-31.0%
2.4%
13,665
14,547
20,187
20,173
23,178
13,474
-6.1%
-32.3%
-32.3%
-41.0%
1.4%
8,560
8,864
9,816
10,229
10,858
8,519
-3.4%
-12.8%
-16.3%
-21.2%
0.5%
1,061
1,090
1,156
1,291
1,390
1,061
-2.7%
-8.2%
-17.8%
-23.7%
0.0%
S&P/TSX sectors
Energy
Materials
Industrials
Cons Disc
Cons
Staples
Financials
Healthcare
Tech
Telecom
Utilities
2,462
2,684
3,085
3,140
3,504
2,462
-8.3%
-20.2%
-21.6%
3,407
3,870
3,689
4,101
4,208
3,407
-12.0%
-7.7%
-16.9%
1,142
1,208
1,423
1,297
1,431
1,122
-5.5%
-19.7%
-11.9%
893
912
1,069
1,095
1,139
874
-2.2%
-16.5%
-18.5%
1,666
1,681
1,739
1,674
1,797
1,584
-0.9%
-4.2%
-0.5%
1,496
1,544
1,737
1,666
1,812
1,487
-3.1%
-13.9%
-10.2%
632
654
761
488
809
442
-3.3%
-16.9%
29.6%
128
135
159
230
271
127
-5.4%
-19.9%
-44.6%
919
921
933
844
949
830
-0.2%
-1.5%
8.9%
1,897
1,937
1,907
1,916
1,999
1,735
-2.0%
-0.5%
-1.0%
Energy
Materials
Industrials
Cons Disc
Cons
Staples
Financials
Healthcare
Tech
Telecom
Utilities
441
499
559
507
598
406
-11.6%
-21.3%
21 3%
-13.1%
191
217
246
240
255
191
-12.3%
-22.5%
22 5%
-20.4%
253
276
322
301
335
251
-8.3%
-21.3%
21 3%
-15.9%
282
298
318
296
329
259
-5.3%
-11.2%
11 2%
-4.5%
305
319
323
304
334
286
-4.4%
-5.4%
5 4%
0.5%
157
174
207
215
231
156
-9.5%
-23.9%
23 9%
-26.7%
365
382
411
365
421
346
-4.5%
-11.2%
11 2%
0.1%
387
402
411
405
439
358
-3.8%
-5.8%
5 8%
-4.3%
120
124
134
129
136
115
-3.7%
-10.8%
10 8%
-6.9%
170
173
170
159
174
153
-1.7%
-0.1%
0 1%
6.6%
23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
YTD change
S&P 500 sectors

23-Sep-2011
16-Sep-2011
30-Jun-2011
31-Dec-2010
52-week closing low
weekly change
QTD change
h
YTD change
MSCI World MSCI EAFE
S&P 500
Dow Jones
Industrials

BankofCanada
2.0
September 23, 2011

U.S.FederalReserve
EuropeanCentralBank
1.5
1.0
0.5
23Sep
23Nov
23Jan
GoC2yr
GoC5yr
23Mar
GoC10yr
23May
23Jul
GoC30yr
23Sep
BoC
4.0
40
3.5
3.0
2.5
2.0
1.5
15
1.0
0.5
12Mar
2.6
12Apr
12May
12Jun
12Jul
12Aug
12Sep
y
GoC10yr
2.5
2.4
2.3
2.2
2.1
2.0
22Aug
29Aug
5Sep
12Sep
19Sep

5.0
4.0
Germany(2yr)
September 23, 2011

France(2yr)
Italy(2yr)
Spain(2yr)
12Jun
12Jul
3.0
2.0
1.0
12Mar
12Apr
12May
12Aug
12Sep
80
Swiss(2yr)
60
Portugal(2yr)
Greece(2yr)
40
20
12Mar
400
12Apr
12May
12Jun
SOVXWESTEUROPEANSOVCDS
12Jul
12Aug
12Sep
CDXEMSOV5YR
300
300
200
100
23Sep
23Oct
23Nov 23Dec
23Jan
23Feb 23Mar
23Apr 23May
23Jun
23Jul
23Aug
200
23Sep
1,000
EUROPE IG CORP CDS 5YR

EUROPEIGCORPCDS5YR
EUROPE XOVER (HY) CORP CDS

EUROPEXOVER(HY)CORPCDS
150
750
100
500
50
23Sep
23Oct
23Nov 23Dec
23Jan
23Feb 23Mar
23Apr 23May
23Jun
23Jul
23Aug
400
250
23Sep
600
EUROPESNRFINCDS5YR
EUROPESUBFINCDS5YR
300
450
200
300
100
150
23Sep
23Oct
150
23Nov 23Dec
23Jan
23Feb 23Mar
23Apr 23May
CDXNAIG5YR
23Jun
23Jul
23Aug
23Sep
800
CDXNAHY5YR
125
600
100
400
75
23Sep
23Oct
23Nov 23Dec
23Jan
23Feb 23Mar
23Apr 23May
23Jun
23Jul
23Aug
200
23Sep
September 23, 2011
S&P500
S&P/TSX
1,400
14,000
1,300
13,000
1,200
12,000
1,100
11,000
1,000
23Sep
23Nov
23Jan
23Mar
23May
10,000
23Sep
23Jul
13,000
S&P/TSX
12,750
12,500
12,250
12 250
12,000
11,750
11,500
11,250
22Aug
22
A
29Aug
29
A
5Sep
5
S
12Sep
12 S
19Sep
19 S
29Aug
5Sep
12Sep
19Sep
1,250
S&P500
1,225
1,200
1 175
1,175
1,150
1,125
1,100
22Aug
104.0
US$/C$
103.0
102.0
101.0
100 0
100.0
99.0
98.0
97.0
22Aug
29Aug
5Sep
12Sep
19Sep
Weekly Recap
Monday September 19
- Markets start the week in risk-off mode as concerns about next funding tranche for Greece took centre stage
- Sparse data today and for most of week; US NAHB slipped a touch to 14, but was basically a non-event
- Obama presented his deficit-reduction plan; Republicans made accusations of class warfare
Tuesday September 20
- S&P downgraded Italy to A from A+; S&P now has Italy ranked 2+ notches lower than does either Moodys (Aa2) or Fitch (AA-)
- Italian 10-year spreads widens, approaching 400bps vs Germany; yield at 5.67%
- German ZEW survey slipped to 43.6 for current situation, lowest since July 2010, and -43.3 for expectations, lowest since December
2008
- US housing starts fell to 571k but building permits rose to 620k; both remain consistent with the range seen over the last couple of
years
- Doctor copper slipped below $400 for the 2nd straight day, lowest since November 2010
- IMF issued latest World Economic Outlook (shocking! slowing growth, rising risks)
- FOMC started 2-day meeting; Carney spoke but no news;
- Slovenian government lost parliamentary confidence vote, meaning vote on ratifying EFSF probably cant be held until 2012
- Senators Mitch McConnell and Jon Kyl and House Representatives John Boehner and Eric Cantor sent a letter to the Fed
discouraging the Fed from further extraordinary intervention in the U.S. economy; this is a repeat of a similar letter the four sent last
November; I guess after spending July and August trying to shut down fiscal stimulus, theyve turned their attention towards trying to
shut down monetary stimulus
Wednesday September 21
- IMF issued its latest Global Financial Stability Report, in which it raised its estimate of the capital hole in European banks by 50% to
300B
- Canadian CPI surprised to the upside; core CPI was up 0.4% MoM in August to rise to 1.9% YoY, while total CPI was up 0.3% and
3.1%
- US existing home sales also beat expectations, at 5.03 mil; median existing home price down 5.1% YoY
- Fed kept us on the edge of our seats (for 8 extra minutes) awaiting its statement, in which the FOMC decided to ratify market
expectations of a maturity-extension program, a.k.a. Operation Twist, in which it will sell $400 billion of short-term securities to
finance purchases of an equivalent amount of longer-term Treasuries by the end of Q2/2012, and further announced that maturities
from its agency debt and agency MBS holdings will be re-invested in agency MBS, rather than Treasuries --- this could be important:
this could set the stage for some sort of massive government mortgage-refinancing plan --- i.e. allow/help home-owners to refinance;
this leads to huge prepayments of existing mortgages, which then need to be refinanced under new terms that are more affordable
for homeowners; and this new (lower-coupon) mortgage paper will have to be purchased by someone; but if the Fed was still
committed to reinvesting its agency MBS payments into Treasuries, who would be the buyer of new MBS paper??; with todays
change, now the Fed can be; if so, it sounds like the independent Fed is stepping into the fiscal policy arena again, by giving the
Obama administration the green light for mortgage debt restructuring
- might McConnell, Kyl, Boehner and Cantor soon join Perry in also calling Feds monetary gamesmanship treasonous? Even if their
reaction is not quite that extreme, this type of collusion between the Fed and the Treasury wont impress Republicans; as such, even
if a major mortgage refi program IS announced and IS launched and DOES alleviate household debt financing burdens, will
Republicans now fight tooth and nail to prevent Obama from getting any further fiscal stimulus rolling?!
- Back to the market: perhaps the market thought that this move was the equivalent of a 25bp rate change when a 100bp change is
what is called for; or perhaps the Fed really was at least as aggressive as most could have anticipated, but the fact that it also struck
a fairly dire tone in its assessment of the economy seemed to shake the markets; either way, not only did long U.S. Treasury bonds
appreciate $5 throughout the remainder of the afternoon, but stocks, gold, credit and most currencies not the greenback all took the
brunt of the risk-off trade
Thursday September 22
- Failed vote in the House yesterday in the U.S. to pass a continuing resolution to provide temporary funding for the government past
Sept. 30 (through Nov. 18); new fiscal year starts Oct. 1, so government has time to reach an agreement on temporary funding, but
congressional recess is scheduled to start tomorrow; will House leaders trim the spending amount in the bill (which includes $3.6B in
disaster aid for FEMA) to get tea-partiers on board, or will they reduce the amount of spending cuts that were included to offset some
of the disaster aid, in order to get Dems on board)
- HSBC China Manufacturing PMI below 50 for the 3rd straight month in September
- European PMIs for both manufacturing and for services disappointed expectations, with Eurozone Composite at 49.2 (manufacturing
at 48.4 and services at 49.1); Eurozone consumer confidence lowest in 2 years
- Canadian retail sales were a bit lower than hoped
- US jobless claims were higher, with upward revisions (as usual)
- U.S. leading economic indicators were up 0.23; [BUT... the contributions from money supply growth and the fact that the yield curve
is (necessarily) positive added up to +0.93; strip out those 2 indicators (on the basis that a positively-sloped yield curve does not have
the same implications for economic growth when the short-end is fixed at 0 than when it is not, and the fact that money supply growth
is being offset by declines in monetary velocity), and the LEI would have been down -0.70 instead of up +0.23; even taking out the
-0.41 contribution of stock prices, then the 7 non-financial components of the leading index would have been down -0.29]
- Government 10yr bond yields fall to as low as 1.696 in the U.S., 2.016 in Canada, 2.28 in the U.K., 1.65 in Germany, 0.97 in Japan
- S&P500 has fallen about 100pts in last couple of days, but remains above the lowest point reached on August 9 (previous FOMC
day) of 1102;
- VIX above 43; S&P/TSX Banks index at lowest price since Feb 2010; BAC just barely stays above a 5-handle stock price
- German DAX and French CAC40 each down about 5% on the day, and now down over 25% each YTD
- Stock markets and the euro got a bit of a reprieve in late afternoon trading (after news from Europe that officials want to have fresh
capital injected into the 16 banks that nearly failed the last stress test -- preferably private capital (yup, b/c there are lots of private
investors just drooling for this opportunity!), but if necessary then public ---- why are they worrying about bailing out the 16 weakest of
Europes 91 big banks?! Why is their focus not on the biggest, most systemically-important banks (yknow, SocGen, BNP, Credit
Agricole)
Friday September 23
- G20 issued a statement that countries would take all necessary actions to preserve the stability of banking systems and financial
markets as required --- talk is cheap; heard it all before; still very questionable whether political authorities even have the ability,
much less the willingness, to figure OUT what is necessary, much less to DO it
- Whether markets took some solace from the G20 statement, or just got tired out from a long busy week, Friday was a relatively quiet
day in stock and bond markets
- NOT in the commodity space, however, where there was a dash for cash and margin calls were forcing long levered positions to take
it on the chin: gold was off as much as $126; silver was down as much as 18.5% from its intraday high to intraday low; copper,
aluminum, lead, nickel, etc., all down significantly; oil off just marginally and nat gas up modestly
- C$ traded below 97 cents again for the 2nd straight day
- Most developed market stock markets were up on the day, though most of Asia closed down earlier; TSX stayed in the red, held
down by a 5% fall in the Materials sector; Canadian bonds outperformed Treasuries as yields pulled back somewhat south of the
border
Non-Mainstream News and Views

Quote of the Week1:
Charles Robertson, Renaissance Capital, via Buttonwood :
The euro was supposed to prevent the market from bullying governments via the FX attacks which were so common from the 1970s to
1993 (when France and the others accepted wider ERM currency bands). But in 2010-11, the markets sold bonds instead of currencies.
So the eurozone agreed to buy vulnerable bonds, which arguably falsified the bond price. So the market began selling shares in eurozone
banks which held these bonds at prices which did not reflect market reality. So governments banned short-selling of banks, which has not
helped reverse the trend.
http://www.economist.com/blogs/buttonwood/2011/09/european-debt-crisis-0
QOTW2:
George Magnus of UBS in a comment to a Mohammed El-Erian post at the FT:
I regard bank recapitalisation and a robust and open-ended commitment by the ECB to buy Italian and Spanish bonds as a doubleheaded sine qua non for ending the European bond market and sovereign financing crisis. The existential issues that need to be
addressed for a viable eurozone can be left until later. But they cannot if the bond market crisis is not resolved quickly. The time for
incremental and technical changes to ECB and other policies and instruments is, to use banking parlance, long past due. And while I agree
with Mr El-Erians policy prescriptions, it is surely not alarmist to say that if the political divisions and lack of determination in policy circles
remain as now, we will surely hurtle to our own Kreditanstalt moment the 1931 collapse of Austrias largest bank which was how that
appalling decade started.
http://blogs.ft.com/the-a-list/2011/09/22/french-banks-could-tip-europe-back-into-recession-2/#axzz1YiFfP5f2
This weeks must-read: Ambrose Evans-Pritchard, Telegraph: Can China escape as world's debt crisis reaches Act III?
China has not abolished economic gravity. Its policy of yuan suppression against the dollar and euro has been impossible to sterilize,
leading to an imported credit bubble of epic proportions. Its export-led strategy has left it with a deformed economy that relies on permademand from exhausted debtors in America and Europe.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8772225/Can-China-escape-as-worlds-debt-crisis-reaches-ActIII.html
Barry Ritholtz says he is pretty much bored silly with the nonstop Fed watching, commentary, will they/wont they chatter, and why it
doesnt matter: http://www.ritholtz.com/blog/2011/09/pushing-on-a-string-2/
IMF research paper: Still minding the gap inflation dynamics during episodes of persistent large output gaps:
This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for
an extended period.... such episodes generally brought about significant disinflation, underpinned by weak labor markets, slowing wage
growth... disinflation has tended to taper off at very low positive inflation rates... temporary inflation increases during episodes were, in turn,
systematically related to currency depreciation or higher oil prices. Overall, the historical patterns suggest little upside inflation risk in
advanced economies facing the prospect of persistent large output gaps.
http://www.imf.org/external/pubs/cat/longres.cfm?sk=24144
Jim Chanos on Chinas contingent liabilities:
http://www.nakedcapitalism.com/2011/09/jim-chanos-on-chinas-contingent-liabilities.html
20 signs of an imminent financial collapse in Europe
http://www.econmatters.com/2011/09/20-signs-of-imminent-financial-collapse.html
other fare:
Was Einstein wrong?
http://www.guardian.co.uk/science/2011/sep/22/faster-than-light-particles-neutrinos?fb=optOut
Contrarian Perspectives
From the table on Cross-Border Outstandings on page 259 of its Annual Report of Form 10-K
http://www.morganstanley.com/about/ir/shareholder/10k2010/10k2010.pdf
Morgan Stanley had $39 billion of exposure to French banks as of last year-end.
That compares to its current market cap of $25 billion; and its tangible book value of $36 billion.

Markets For The Week Ending September 23, 2011: Monetary Policy

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Markets For The Week Ending September 23, 2011: Monetary Policy

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Markets for the Week ending

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