Friday, October 01, 2010 – my comments are in italics

Personal Income: Survey 0.3% Actual 0.5 Prior 0.2

Personal Spending: Survey 0.3% Actual 0.4 Prior 0.4

U.S. Q2 2010 GDP Revised Up to 1.7%; Final Sales Down to Anemic 0.9% - Revised estimates
suggest the U.S. economy grew at a 1.7% annualized rate in Q2 2010, slightly above the previous
estimate of 1.6% but far below the advance estimate of 2.4% and significantly below potential.
Meanwhile, growth in final sales was revised down to 0.9% from the previous estimate of 1% and the
advance estimate of 1.3%. With temporary factors that boosted growth in H1 2010 set to turn neutral or
even negative in H2 2010, there are as yet few signs of a counterbalancing resurgence of final demand.
Real-time indicators of economic activity in Q3 show marked weakness. – Roubini Global Economics
The First World War will officially end on Sunday, 92 years after the guns fell silent, when
Germany pays off the last chunk of
reparations imposed on it by the Allies. –
London Telegraph
Asked whom they would support if
Secretary of State Hillary Clinton were to
challenge President Barack Obama for the
Democratic presidential nomination in
2012, 52% of Democrats nationally say
Obama, while 37% say Clinton. – Gallup
The massive economic stimulus
package President Obama pushed through
Congress last year is coming in on time
and under budget - and with strikingly few
claims of fraud or abuse - according to a White House report set to be released Friday. – Washington
Post
Year to Date sector returns for S&P 500 – big bets on energy, healthcare & IT did not fare well

The whipsawing of markets has made this an awful year for active managers with 27% trailing
their benchmark by 500bp and 30% behind their 3-year benchmark by 500bp. Given the positive
bias of equity markets into YE in midterm election years, both hedge funds and asset managers are likely
to make a pronounced positive shift into Beta (ß) by YE. – JP Morgan – in other words, they will buy
stocks chasing returns.
 Some Relief for Consumers as Interest Payments Fall – Interest payments as a proportion of
disposable income are falling (see first chart below), indicating that pressure on the U.S. consumer is
easing slightly. The ratio of total debt to income has also fallen somewhat, to 108 percent as of July
from a record 115 percent in February 2008 (second chart below). Goldman’s Chief Economist Jan
Hatzius delved into this topic in a recent report, discussing how high inflation in the 1980s, when
required debt service payments were also elevated, eroded the real value of household debt. As Hatzius
wrote, continued disinflation will require households to “continue running large fiscal surpluses”. That
would prolong consumer deleveraging. – Bloomberg – this is a key reason inflation would be a good
thing at this point in the cycle because one of its consequences is to reward fixed rate borrowing (while
penalizing the other side of that transaction).

Household debt service ratio

Debt service ratio – Required payments on outstanding mortgage and consumer debt divided by
disposable personal income. Source: Federal Reserve