Wednesday, February 16, 2011

Willem Buiter, chief economist at Citigroup, said the global economy continues to do remarkably
well and that the euro-area break-up remains highly unlikely. – Bloomberg
Bruce Kasman, chief economist at JPMorgan Chase, said emerging-market central banks are
failing to counter rising inflation, risking a scary and synchronized global monetary-policy tightening as
early as next year. – Bloomberg
US Treasuries – neg. FT article – China’s appetite for US Treasuries has been waning of late, but
this hasn’t mattered much given the Fed’s QE2 policy. However, what happens when QE2 ends in June?
Then, “Beijing’s pull-back may then become noticeable”. The FT warns that Treasury yields may have to
jump sharply to attract incremental buyers. – FT
Corporate cash balances finally starting to decline as companies invest in capital + people -
Standard & Poor’s 500 companies reduced cash and short-term investments to $2.4 trillion from a
record $2.46 trillion according to Bloomberg; this is the first decline since mid-’09. Capital spending
increased $22.3 billion, the biggest quarter- to-quarter jump since the end of 2004, to $142.8 billion –
Bloomberg
China + gold - an ICBC exec says that demand in China for physical gold and gold-related
investments is growing at an "explosive" pace. ICBC sold about 7 million tonnes of physical gold in
January this year, more than double the 15 tonnes of bullion sold in the whole of 2010, said Zhou Ming,
deputy head of the bank's precious metals department on Wednesday – Reuters
Mid East unrest continues – 1) Libya - Riot breaks out in Libyan city of Benghazi; the protesters
were angry about the arrest of a human rights campaigner and demanded his release (RTRS); 2) Bahrain
– protesters have occupied a key roundabout in the country’s capital (Pearl roundabout) that could wind
up becoming their version of Egypt’s Tahrir Square (FT); 3) Yemen – protesters clashed w/pro-
government groups in the Yemen capital on Wed; police were unable to keep the two sides apart (RTRS)
Washington spending – odds of a government shutdown rising? Debt ceiling breach could
happen as early as late Mar – while the F12 budget proposal from the White House yesterday appears to
be a complete non-starter (there has been a huge amount of opposition from Congressional Republicans
as well as Dems). However, more immediate will be the F11 budget – the temporary funding package
for the current government is due to expire in less than three weeks and it doesn’t seem like the two
sides are close to reaching a consensus on spending. Thehill.com Tues morning said the odds of a
government shutdown are rising (http://bit.ly/hE8kk4). As far as the markets are concerned, the most
important part of this budget debate is the debt ceiling, which the Treasury could hit as early as late
Mar. Tim Geithner and Jacob Lew will both be testifying again before Congress today to discuss the
president’s budget. – JPM
Munis – prices perked up on Tues amid market talk that demand was building for a $3.7B issue
being priced by Illinois. The bond sale on Mon was delayed until next week to give investors more time
to review the state’s budget, which is being published Wed. – Reuters
Munis – banks are starting to set aside billions to make loans to state and local government
borrowers as those entities find it tougher to raise debt in the public markets. The WSJ says that banks
are “aggressively courting municipal borrowers w/conventional loans for capital projects”. – WSJ
Domestic farm prices surge – farm values in much of the Midwest are rising at their fastest rate
since the ’08 boom according to a new Fed report. – WSJ
 Monetary policy – Fed’s Fisher says he may prefer Treasury sales first to outright rate increases -
“One could make an argument that the most logical thing to do is to undo what you did last… Markets
for Treasuries are very deep and very liquid -- that gives you a lot of maneuvering room” – Bloomberg –
that would probably result in record steep yield curves.