December 03, 2010

Market Wrap: for the week ending 3-Dec-2010

Weekly Snapshot
• US unemployment rate edged up to 9.8%, and nonfarm payrolls up by only 39,000 jobs (BLS)
• The Fed released details on the $3.3 trillion it extended during the financial crisis (CNBC)
• The Euro area seasonally-adjusted unemployment rate was 10.1% in October 2010 (Eurostat)
• Australia's economy grew at only 0.2% in Q3 -annualized growth remained flat at 2.7% (WSJ)
• The Euro fell below 1.30 in the wake of investor concerns about Eurozone debt (Reuters)
• US consumer confidence increased further in 54.1, up from 49.9 in October (Conference Board)
• US house prices fell by 0.8% on a seasonally adjusted basis from August to September (FT)
• India's economy grew 8.9% in the quarter ended Sept. 30 (WSJ)
• China is to raise next year's official inflation target and tighten monetary policy (AP)
• Peripheral Eurozone bond yields spiked, as investors fear default of Greece, Ireland and Portugal (AP)
• European Union nations agreed to give Ireland a $89 billion bailout (AP)
• Overall size of Ireland's aid package is €85bn at an average interest rate of 5.8% (Bloomberg)

Market Barometers    
st-2010-1203   fx-2010-1203

Chart Of The Week
A bit of a downer was this week’s US employment report. The unemployment rate rose from 9.6 to 9.8 percent in November; nonfarm payroll employment improved just marginally.  Only 39,000 jobs were added, much less than expected. These numbers clearly pose a problem in terms of the wider economic recovery. But even more concerning is the persistently high number of long-term unemployed which just took a small turn for the worse.


Recommended Read
US Markets were up almost three percent this week and the outlook for equities in 2011 has just got a bit boost from a rather optimistic outlook by Goldman Sachs that hit the wires this week.  Nevertheless, the recovery remains jobless thus far and the employment outlook for the next year doesn’t appear to change the job prospects dramatically. In this context, please consider the Investment Outlook for December by Pimco’s Bill Gross.  Instead of spending our way to prosperity he recommends doing things the old fashioned way:

The constructive way is to stop making paper and start making things. Replace subprimes, and yes, Treasury bonds with American cars, steel, iPads, airplanes, corn – whatever the world wants that we can make better and/or cheaper. Learn how to compete again. Investments in infrastructure and 21st century education and research, as opposed to 20th century education are mandatory, as is a withdrawal from resource-draining foreign wars. It will be a tough way back, but it can be done with sacrifice and appropriate public policies that encourage innovation, education and national reconstruction, as opposed to Wall Street finance and Main Street consumption.

Fed Helping Everyone – Courtesy of the US Taxpayer
This week, the Fed disclosed details of some $3.3 trillion in loans made to all the financial institutions and a big list of other firms, including foreign banks, during the financial crisis.  It is clear now that many of these firms would have been toast without the US taxpayer as this interactive graphic by the Wall Street Journal confirms. The Fed did indeed act as lender of last resort and yes, the financial world as we knew it would have probably come to a dramatic halt without the Fed’s support. But considering how many of these near-death institutions have managed to rake in record profits and continue to dish out bonuses as if the crisis never happened, we must question the Fed’s rather generous help in purchasing essentially worthless paper from the institutions that created the mess in the first place.  I can live with the idea that lending facilities for institutions were put in place. But transferring a pile of @#$% from the banks’ balance sheets onto the Fed’s balance sheet should have never been allowed.  In the interest of the US taxpayer, those transactions should be reviewed in detail and Banks should be forced to take the paper back and deal with it themselves.

In this context, please consider the following interview with John Cassidy: Wall Street Banks Are Doing Less and Less Good For Society.

Good luck and good trading!

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