November 26, 2010

Market Wrap: for the week ending 26-Nov-2010

Weekly Snapshot
• Irish 10-year yields breached 9% and Portugese yields 7% (Eurointelligence)
• S&P cuts long term credit ratings on four domestic Irish banks (Reuters)
• US new home sales were down 8.1% from September and 28.5% from last year (ESA)
• Industrial new orders for September were down by 3.8% in Euro area (Eurostat)
• US durable goods in October 2010 decreased 3.3 percent, to $196.0 billion (ESA)
• China’s current-account surplus stood at $102.3 billion in the third quarter (Economist)
• Asian stocks decline for third week as tensions rise on Korean Peninsula (Bloomberg)
• US personal income in October 2010 rose 0.5% (ESA)
• US personal savings rate as a percentage of DPI was 5.7% in October (ESA)
• Australia's central sees no further interest-rate increases in the near term (WSJ)
• US real GDP grew at an annual rate of 2.5% in the third quarter of 2010 (ESA)
• Business confidence in Germany this month reached its highest since 1990 (Economist)

Market Barometers    
st-2010-1126   fx-2010-1126

Chart Of The Week
Courtesy of comes a nice chart showing the yields of the main Treasury Bonds since 2007.  Interesting to see the impact of QE1 and and the beginning of QE2 on yields.   


Recommended Read
In the spirit of Thanksgiving please consider this excellent assessment of China’s economic prospects.  In his article Shadow over Asia, Vitaliy Katsenelson outlines a number of reasons why China’s economy might not continue to be as miraculous at it has been so far. If you wondered whether double-digit growth is sustainable, here is a good analogy:

One way to think about the Chinese economy is by comparing it to the bus in the movie Speed with Keanu Reeves and Dennis Hopper. In the movie, a bus was wired with explosives that would blow up if the bus’s speed dropped below 50 miles an hour.

Since China is manufacturer to the world, that manufacturing business comes with a lot of fixed costs. Factories, equipment need financing, and they are mainly financed by debt – another fixed cost. The high level of fixed costs doesn’t afford China an economic slowdown, but when it happens, the consequences will be dire. High fixed costs are great when revenues are rising as income grows at a faster rate than sales. But they are devastating to profitability when sales decline: costs decline at a slower rate than sales and you start losing money, fast.

Well then, if China isn’t going to be the locomotive pulling the world economy out of the mud and Europe pre-occupied with bailing out its problem children who can the global economy count on?  Perhaps the only way out still remains with the unbreakable spirit of the American consumer.  I harbor the hope that we still can. 

Happy Thanksgiving Everyone!

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