Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1218.6 6.9 0.57%
Eurostoxx Index 2215.4 -9.490 -0.43%
Oil (WTI) 93.94 0.070 0.07%
LIBOR 0.567 0.004 0.67%
US Dollar Index (DXY) 80.077 -0.158 -0.20%
10 Year Govt Bond Yield 1.88% -0.03%

The next two weeks are going to be slow for the markets. In spite of the improving economy, it has been a dour holiday season so far. Banks are announcing another round of job cuts, and those who are lucky enough to keep their jobs will see their bonuses cut in half. Bloomberg is reporting that Royal Bank of Scotland is contemplating exiting the equities business. This is in addition to job cuts being announced by Citi and Morgan Stanley.

Paul Krugman is discussing what will probably be the next financial headache in this morning’s NYT – the bursting of the Chinese real estate bubble. While Western banks don’t have a lot of direct exposure to Chinese banks, they do have a lot of exposure to Hong Kong banks, specifically HSBC (aka Hong Kong Shanghai Banking Corp) and Standard Chartered. Krugman’s main worry is a collapse in demand and the fact that a weakened global economy cannot take the strain of a Chinese collapse.

Kim Jong-Il has died, and his 28 year old son is taking over. Market moving? Not really, unless you are long the Won. We have a deal on the extension of the payroll tax cut. Wait, we don’t? Again, market moving? Not really. No one cares anymore. Prince Alwaleed has bought himself some Twitter.

24 Responses

  1. File under "leading from behind"Ezra Klein today:"What I am excited about is the administration's new regulations on essential benefits in the health-reform law. Well, "excited" may be to strong a word. But these rules are important. Really important. As I wrote back in January:"This is the judgment that underlies the whole project. If you're an individual and you have coverage that meets essential health benefits, you don't need to worry about the individual mandate. If you're a mid-sized company and you offer coverage that meets the definition, you're similarly in the clear. But if you don't have coverage that's good enough, you either need to buy it, or upgrade what you've got. Everything the insurers offer in the exchanges has to be as good as or better than whatever counts as essential health benefits. Everything that mid-sized employers offer has to meet the standard, too. The question is, what's the standard?""If you've read Section 1302 of the legislation — and you have, right? — it'd be easy to think that benefits had been defined. And they have — sort of. The legislation mentions nine specific categories of care that have to be included (pediatric, hospital, etc.), and specifies different levels of comprehensiveness (as defined by the percentage of annual health-care costs the policy is expected to cover) that the exchanges will offer. But those elements give shape to the discussion over essential health benefits, they don't conclude it. The same paragraph that ticks off those categories also instructs that 'the Secretary shall define the essential health benefits.'"On Friday, that definition got released. And it was, in essence, a punt. The administration left the definition of essential benefits up to the states. That won't make insurers very happy, as it means they'll have to deal with 50 different standards. It won't make patient-advocates very happy, as it means they'll have to fight on 50 different fronts. But it protects the administration politically. They're no longer to blame for the benefit decisions people dislike, and perhaps even better, they don't look like they're trying to take every opportunity to increase government control over the health-care system.This is, in essence, defensive implementation of the health-care law. It's implementation meant to avoid potential political problems for the administration rather than push the policy forward. There are obvious reasons for the administration to opt for that path. But it's another sign that if the Affordable Care Act does make it to 2014, it will do so by operating cautiously, tentatively, at half or three-quarters speed. That may help the law survive. But it won't allow it to thrive."

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  2. Regarding the Krugman piece my comment in Ezra's column, forgive my lack of originality in posting it here:"He's correct. Now for those who see him as Nostradamus with a Nobel, you should undertsand that in the financial world, this is becoming the consensus opinion, and he's about the 137th person to write about it. BUT if it happens, a year from now, in this column all we will see written is how Krugman was "the first to predict . . . " LOL

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  3. Scott:Where are you? I need to know how low you think the ten year can ultimately go.

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  4. john:I don't think there is much more than 10bps left in the rally, if that. It bounced off of 1.72% back in Sep, so that is a strong resistance point. Trouble, the market is thin in these last 2 weeks of the year, so any market-moving even could have an inflated immediate effect either way. Plus it is tough to tell how much of this is just squaring/situating books for year end. But with a slightly longer term outlook, it seems to me the real risk from here is a sell-off. Not a whole lot of room for rally, and any good news out of either Europe or the US will push rates up.

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  5. John, you mean the Chinese real estate bubble? I want to say it's been on the radar for several years.

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  6. bsimon:You are right. It has.

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  7. OT, but Bob Dole has endorsed Romney. I don't know anything about the inner dynamics of the Republican party so I don't know what the signifcance, if any, of that endorsement. I do wonder if it supports the comment made frequently around here that Romney is the preferred choice of the GOP establishment.

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  8. Bob Dole endorsing Romney indicates to me that, absent one eccentric billionaire and a bunch of volunteers, we're gonna be partying like it's 1996 come next November.

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  9. I hear Mitt raised 1.1 million last Wed in NYC

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  10. scottThanksbsimon:That's my point. The people who read Krugman are generally speaking not regular financial readers, so they "discover" everything in his column for the first time and assert later on that he was in the vanguard.

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  11. Banks getting taken out and shot again. It's like being a Belgian in August 1914

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  12. fund managers dumping the banks so they can say they were underweight when Q411 holdings are disclosed…

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  13. The flip side of the inequality debate: North Korea has a lot less income inequality than South Korea. North Korea in the dark A better argument for capitalism you can't find.

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  14. jnc:North Korea has a lot less income inequality than South Korea.Heh.

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  15. brent:More than just that I think. It's Draghi again and the flat dollar. The whole world apparently wants a weaker dollar except the Chinese.

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  16. On the flip side, can you IMAGINE the ramifications if Europe DOES get their act together. It will be like being on a boat where suddenly all the passengers rush to one side at the exact same time!

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  17. For those who think of Nebraska as a veritable Garden of Eden that will be destroyed by the pipeline:"Running Dry on the Great Plains" http://www.nytimes.com/2011/12/01/opinion/pollutin… "The Truth About Aquifers" http://www.nytimes.com/roomfordebate/2011/10/03/wh

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  18. showoff! LOLHe did you see where I defended you as a "realist" like me?It's just that I don't want to be standing alone, when the villagers come with the pitchforks.

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  19. Aw, say it ain't so!“It’s the most important case of the day,” a senior official at the Securities and Exchange Commission said, half-joking. He was talking about the case against Daniel Ruettiger and 12 other participants in a scheme to deceive investors into buying stock in his sports drink company. Ruettiger is perhaps better known as “Rudy” — the walk-on, undersized Notre Dame football player who inspired the 1993 film. The SEC says Ruettiger founded Rudy Nutrition to compete with Gatorade in the sports drink market. Rudy Nutrition produced and sold “modest amounts” of a sports drink called “Rudy” with the tagline “Dream Big! Never Quit!” But the real purpose of the company was as a vehicle for a pump-and-dump scheme that took in $11 million in illicit profits, according to the SEC. "

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  20. "He did you see where I defended you as a "realist" like me?"I did. Apparently the concept of quoting someone to present an argument that you don't necessarily agree with so that it can be debated is foreign. I am surprised that FDR's concerns are completely overlooked in the current payroll tax debate. Had a Republican President proposed cutting the payroll tax, I suspect more progressives and Democrats would be opposed to it as "an attempt to undermine Social Security".

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  21. So THAT'S why the banks are getting killed today:"Sorry Wall Street, But It Looks Like the Fed Says Basel Regulations Are a Go"http://www.cnbc.com/id/45726147

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  22. jnc:Haven't I found THAT out multiple times!

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  23. North Korea has a lot less income inequality than South Korea. Indeed. Of course, the countries with the greatest income inequality are Chile, Mexico, and Turkey, so I'm not sure what conclusions are to be drawn. Of course, it depends on what your discussing: North Korea would have probably had a fairly high GINI Coefficient, if I understand the number–with all the wealth of the country residing with very few people. I'm not sure that income inequality means much, absent the context of the overall economic condition of the country under discussion.

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