Monday, November 29, 2010

SEOUL - South Korea will abandon its long-standing policy of not responding militarily to the
North's hostile acts, President Lee Myung-bak said, following the artillery bombardment of a South
Korean island last week that killed four people, two of them civilians. "In the past, North Korea has
provoked us on many occasions, but this is the first time they have made a direct attack on South
Korean soil," said Lee, making his first public remarks since the Nov. 23 attack on civilian-inhabited
Yeonpyeong island heightened fears of an all-out conflict. "Launching a military attack on civilians is a
crime against humanity, even during wartime." – Washington Post – The escalation of this conflict must
be added to the list of tail risks.
European Governments handed Ireland an 85 billion-euro ($113 Billion) aid package and diluted
proposals to force bondholders to bear some cost of future bailouts. – Bloomberg – financial markets
responded to the bailout by pushing yields to new highs.

Ten Year Irish Sovereign Debt Yields

Germany faces its awful choice as Spain wobbles – the London Telegraph argues that Germany
may want to start thinking about offering a total fiscal union to all members of the eurozone “before
everything falls apart”. “Germany must contemplate doing for Euroland what it has done for its own
Volk in the East over the last 20 years – pay big transfers – or watch its strategic investment in the post-
War order of Europe collapse with a bang” – London Telegraph
Jobless claims plunged to 407k in the week ending November 20, the lowest since July 2008.
The drop took claims well under trend and suggests the possibility of stronger job growth in December.
Given the timing, it also suggests retailers may be adding more seasonal workers than expected. As
always with jobless claims, the data can be affected by spurious elements which cause big one-week
changes. We’ll have to watch the next few weeks to see if the drop is confirmed. – FTN Financial

Initial Jobless Claims

Black Friday Round-Up: A few key themes from reports over the weekend – 1) traffic trends
were called out as strong among a number of surveys (i.e. NRF estimates +8.7%; ShopperTrak +2.2%), 2)
Promotions started earlier this year w/more promos also being directed online, 3) Retailers/Forecasters
were more positive on discretionary purchases (i.e. Jewelry) vs. more staples type gifts than last year.
Bush Tax Cuts - Sen Graham is predicting this weekend that Dems don’t have the votes to limit
an extension of the Bush cuts; Graham thinks there will be a bipartisan agreement reached in the lame
duck Congress to extend all rates for another 2-3 years. – Roll Call
The chairman of the White House deficit reduction commission are making some last minute
changes to their draft proposal to gain support ahead of a crucial vote this Wed. The chairman needs 14
of the 18 commission members to vote in favor. – WSJ
Inflation a new fear for emerging markets – the concern isn’t so much hyper-inflation but rather
emerging market central banks being forced to tighten policy more aggressively than expected b/c of
surging food prices – WSJ
Fed to become more hawkish next year – the WSJ notes that three of the four new members
coming to the Fed in Jan have demonstrated hawkish tendencies. The new members coming in Jan inc.
Charles Evans, Charles Plosser, Richard Fisher, and Narayana Kocherlakota. Of the three, Evans should
bring a dovish voice but Plosser and Fisher have made hawkish remarks of late – WSJ