Oct 10, 2011

Temporary Relief from Europe

October 10, 2011

Markets are opening strong this morning after German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed to back a plan recapitalizing the European banks. They expect to have a plan ready by the November Group of 20 meeting, but the markets are reacting positively to the news. The deal doesn’t solve all the issues in Europe, but buys them more time.

Fitch downgraded the credit ratings of both Spain and Italy, cutting Spain by two notches and Italy by one. Moody’s also lowered the credit rating of 20(+) banks in the UK and Portugal, and also put Belgium’s debt on credit watch.

The White House told the Council on Jobs and Competitiveness that the US must do a better job of persuading countries such as the rapidly growing BRIC countries to invest in the US. “We need to show not only that we are open for business, but to use every tool in our tool box to attract it” said Hillary Clinton. They are targeting almost $200 billion per year, but aren’t considering new tax plans to incentivize the investors. There are no details yet.

The Basel Committee on Banking Supervision is focusing on uniform implementation of Basel III rules, including an increase in liquid assets for banks. Both government officials and banking executives are against Basel III, saying the tougher rules could hinder the economic recovery.

Netflix (see chart below) is seeing a nice bounce this morning after an about face on their plans to separate the company into two parts. As I mentioned last week, the stock had declined by 63% since early July after changing the pricing plan for mail vs. streaming customers. It seems that the company may be responding to a jump in churn since the announcement was made.

The iPhone 4s was announced a last week, just one day before the death of Steve Jobs. Pre-orders have been running strong, and have already topped 1 million units.

Earnings season finally kicks off this week, with Google reporting on Thursday. Scotts Miracle Grow became the first company to lower guidance, citing the impact of Hurricane Irene as the cause of lower demand.

It was an interesting week in Sacramento as Governor Brown signed a slew of new laws last week. It always amazes me that after being a state for roughly 150 years, that there are still hundreds of laws that need to be enacted every session. Haven’t we already thought of most of the good ones? Included in the new laws were a ban on anyone under 18 using a tanning salon as well as a new law permitting illegal immigrants to receive state funding to attend CSU and UC schools. I guess neither of those was an issue in 1848.

ESPN is reporting that for the first time since 1982 there isn’t a single Florida school in the AP top 25. After Florida fell to #1 LSU 41-11, they fell out of the poll, as did Florida State. Saturday was also only the second time since 1978 that all three big schools (including Miami) lost on the same day. I had a big smile on my face after seeing the Oklahoma-Texas score, 55-17. In MLB action the Brewers won game 1 over the Cards, while the ALCS game 2 was delayed by rain.

Have a great day


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