Monday, February 08, 2010 – my comments are in italics

Happy Birthday Jules Verne (182)

• Greece - Greece will lower the current 75,000 euro income threshold that is subject to a 40 percent
tax rate as part of reforms to urgently boost government revenues – Reuters – will similar measures be
taken in other countries who need to get their fiscal house in order?
• Support for the weaker Euro? French Finance Minister Christine Lagarde said the strengthening
U.S. dollar against the euro could be a positive development for the European economy. "We always
complained about the dollar not being strong enough," Lagarde said. "That is clearly an improvement."
• Fed to outline tightening plan this week; Bernanke to layout tightening blueprint (the House is
holding hearings on Fed exit strategies on Feb 10 – Bernanke will be speaking here); key to tightening
plan will be the rate the Fed pays on excess reserves (the rate paid on money left on reserve w/the Fed by
the nation’s banks). The Fed is still at least several months away from raising rates or starting to drain
reserves. WSJ
• Geithner says odds low for a double dip in the US and also said the US would never lose its current
AAA rating. – is that reassuring?
• Fed and other bank regulators issued a statement to banks on Fri (this hit during trading) urging them
to increase lending to small businesses.

NFIB Small Business Expected Credit Conditions

Small business owners are still quite pessimistic on expected credit conditions.
• newsflow will quiet down a lot for the week of 2/8, both on the corporate and economic front. The
calendar earnings season is winding down and most of the major US names left to post results are smaller
market cap companies. That said, there are a few notable companies left in the US
• “One Simple Way to Create Jobs” – F Smith oped in the WSJ (he is the founder and CEO of FDX) –
Smith says allowing firms to accelerate their depreciation schedules (which would lower their taxable
income) would create tax savings and encourage more capital investment. This in turn would spur job
creation. WSJ
• US employment - Greenspan said it is “very difficult” to see U.S. unemployment falling soon and
that an economic recovery is “going to be a slow, trudging thing” Bloomberg – He went on to say that he
“would get very concerned if stock prices continued to fall. A drop in stock prices is more than a
warning sign. It’s important to remember that equity values, stock prices, are not just paper profits.
They actually have a profoundly important impact on economic activity.”
• Rising from the ashes of a severe financial crisis and deep recession, global GDP is on track to deliver
a third consecutive above-trend increase this quarter. The bounce in global manufacturing has been
particularly pronounced with the strongest two-quarter gain in over 40 years on record and January
surveys moving higher. However, the key outlook question remains unanswered: Is a broad and self-
sustaining expansion being established? Kasman
• Jobs - Job creation is central to self-sustaining US growth, and the news from January indicators was
decidedly mixed. Payrolls continued to decline last month, and the rise in initial jobless claims into
month-end is a key concern. However, the details of the employment report show that although firms
may not be creating jobs, output growth is now benefiting those households that are employed.
Kasman
• US Fed - We don’t expect the first Fed hike until 1H11, but 2H10 could be active in terms of Fed exit
strategies. Discount rate hike may come sooner than most expect. In contrast, large-scale draining of
reserves could come later than most expect. When the Fed does hike, the interest on the excess reserve
(IOER) rate will be the rate on which to focus. Feroli

Expectations for Fed Funds Rate – expectations for tightening keep getting pushed out further