Wednesday, September 29, 2010


Treasury to Sell Out Citi?

I'm hearing that the Treasury is considering a single common stock offering to sell its entire position in Citigroup.

Maybe sometime in the next week or so.

Even some members of the Federal Reserve believe that the second round of quantitative easing will have a muted impact, because rates are already low and excess reserves remain sizeable.

Whitney Axes Brokers

Meredith Whitney cuts 2010-2012 estimates on Goldman Sachs and Morgan Stanley.

She cut estimates on GS by $0.50 to $1.00 each year and MS by $0.15 to $0.60 each year this morning.

Liberty Mutual Group has postponed its Liberty Mutual Agency IPO.

Mr. Market continues to deliver the potentially toxic combination of low volume, poor breadth and weakening financial stocks.

QE 2 will have more impact than many fear:

* It will pull the U.S. dollar still lower, serving to improve our exports and slow down our imports. This will result in a better trade deficit.

* The yield curve should grow more flat. That flattening will likely encourage banks to lend.

* The consumer will benefit by a further drop in mortgage rates as debt service ratios improve. Refinancing activity will also increase; a pickup in consumer spending should follow.

* Even though housing will continue to be haunted by an unsold shadow inventory, lower mortgage rates raise the odds that the residential real estate markets stabilizes and, with less pressure on home prices, that consumer confidence might recover.

* Real interest rates will drop further, so risk assets should theoretically gain in price.

The cost of consumer banking is about to rise. From BAC:

At Bank of America, we want to provide you with up-to-date information on your accounts so that you can make informed banking decisions. Beginning in November 2010, we will be making changes to certain fees. Before these changes go into effect, we want to communicate them clearly and let you know that we are available to discuss any questions you have.

Some changes will take effect at the beginning of your statement cycle in November, while others will take effect in December and January. We have included specific dates on the enclosed chart indicating when changes are taking effect.

-- "Price Changes for Personal Checking and Savings Accounts," Bank of America mailing to customers this week

Financial regulation has cut into banking incomes, but be prepared for a barrage of increased fees from the banking industry in an attempt to regain profitability.

That letter contained higher fees for ATM full statements, check imaging services, deposited items returned or cashed items returned and monthly maintenance fees and minimum balance requirements.

In other words, be careful what you wish for!

The cost of consumer banking is about to rise -- in certain cases, dramatically.

It seems the Fed is hesitant to come into the market, guns blazing.

For me, personally, it is not a foregone conclusion that more accommodation is required. I am not yet of a firm mind of what exactly the problem is, and for that reason I'm not yet committed to a particular course of action that might involve further accommodation. ... If in six months or 12 months the economy is operating at the low level it is today (and unemployment is 9.5% or higher), I will be comfortable with taking action.

-- Dennis Lockhart

Atlanta Fed President Dennis Lockhart gave his two bits on the possibility of another round of quantitative easing in a speech in Tennessee last night, and the message was that it remains unclear whether the economy, at the current time, is so weak as to justify further quantitative easing. Moreover, the benefit/effectiveness of more monetary stimulation is not certain to many economists and members of the Federal Reserve.

Other observations by the Atlanta Fed president include: economic growth will accelerate in 2011-12, deflationary risks are possible but not probable, policy (tax and regulatory) is negatively affecting business decisions, and the rise in the price of gold may not signal emerging inflationary pressures.

Lockhart's speech confirms the substance of Jon Hilsenrath's column in The Wall Street Journal from Tuesday.

My conclusion?

For now, no Fed shock and awe.......

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