Friday, March 18, 2011 – my comments are in italics

UN Security Council voted Thurs night to pass a resolution authorizing military action against
Libya, inc. airstrikes against Libyan tanks and heavy artillery as well as the establishment of a no-fly zone.
– NYT – the resolution passed with ten votes in favor, zero against and five abstentions…Russia, China,
Germany, Brazil & India. Here is the resolution.
France says airstrikes could start within “several hours” (said this at 3amET). “It may start with a
mixture of Cruise missiles and air strikes,” – Bloomberg
The objective of the resolution is to push the government’s forces back from Benghazi and
hopefully sow confusion in the Libyan army to the extent that defections begin to pick up. Some think
the army would crumble following major strikes against Gadaffi. – WSJ – This is merely the most positive
possible outcome. Regardless of how easy it may be to turn the tide back against Qaddafi, this is a
significant escalation with any large number of possible outcomes. With abstentions from Germany and
Turkey being against this move, it is very unlike that NATO forces will be used. Arab League forces are
minimal and those that do exist are busy quelling unrest in Bahrain and guarding Saudi Arabia’s oil fields.
G7 finance ministers met at 7am Tokyo time Fri morning and decided to jointly intervene in FX
markets – “In response to recent movements in the exchange rate of the yen associated with the tragic
events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the
United Kingdom, Canada, and the European Central Bank will join with Japan, on 18 March 2011, in
concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly
movements in exchange rates have adverse implications for economic and financial stability. We will
monitor exchange markets closely and will cooperate as appropriate” – European Central Bank – is this
the equivalent of a global QE3? The Yen is a funding currency, thus, its suppression keeps alive the carry
trade. Taken alone, this is bullish for risky assets.
Nuclear crisis appears to have stabilized – officials in Japan early Fri appeared to have stabilized
the crisis. – FT
China banks – the PBOC raised bank reserve requirement ratios (RRRs) by 50bp, the third such
move of ’11. The RRRs were raised 6x last year. China's official reserve requirement ratio for most
banks will be 20.0% after the latest hike takes effect, based on the PBOC's public announcements.
Reuters
Bahrain continues its aggressive crackdown on opposition, unveiling more arrests and attacks on
certain villages. Many Shia government officials have resigned in protest. – FT
Bloomberg says that some banks found the tests to be more stringent than they anticipated,
forcing some institutions to scale back proposals for capital returns. Examiners told some lenders to
reduce or delay plans for giving shareholders capital. The Fed may apply a lower valuation to certain
consumer loans and the FDIC apparently pushed for the TLGP debt to be refinanced. – Bloomberg