Archive - Jul 19, 2010

• Abu Dhabi & UTD TECH plans $800M military aircraft repair joint venture
• Asian stock markets were lower Monday, dragged by Wall Street's losses on Friday.
• BOE's Sentance says 'gradual' rate increase in UK would help recovery.
• China Oil Spill pollutes 50 sq km. of sea
• Dollar weakens most in 14 months versus Euro on signs of economic slowdown.
• Housing, Leading Index in US probably slumped in sign recovery slowing.
• IMF says Hungary must do more to boost revenue, reform state enterprises.

One of the longest running Conviction Buy ratings in Goldman history, that of Bank of America, is no more. As of this morning, Richard Ramsden has taken the firm from the coveted position at the top of the ratings pedestal. "BAC results showed many similar operating trends as JPM and C but with the least amount of credit improvement. While we still see significant upside to BAC, in our view JPM is more attractive given the recent convergence in valuation and superior credit trends. Hence we remove BAC from the Conviction list (but retain our Buy rating) and reiterate our CL-Buy on JPM...the current concern is banks are now fighting shrinkage in both trading and net interest income (NII). Given market volatility, the first can be attributed to a weak quarter but net interest income is a function of low rates and weak loan demand. We believe that NII trend is likely to remain a headwind for the coming two quarters, but based on the experience of regional and trust banks, NII should recover in 2011." Look for Bank of America to return the favor soon enough.

In the latest sign yet that things in the world are roughly 25% worse than expected (give or take), the FT reports that the IMF will seek an imminent rise in its lending cap from $750 billion to $1 trillion to build safety nets that could prevent financial crises. “Even when not in a time of crisis, a big fund, likely to intervene massively, is something that can help prevent crises,” Dominique Strauss-Kahn, the IMF managing director told the Financial Times. “Just because the financing role decreases, doesn’t mean we don’t need to have huge firepower ... a $1,000bn fund is a correct forecast.” At this point it is glaringly obvious that without the explicit support of the various central banks and of such fake international but really US organizations as the IMF, the already prevalent liquidity crisis would simply destroy the world. The troubling theme is that instead of taking away incremental worries, we have now gotten to the point where one bailout, like a butterfly in China, merely requires 10 more down the road. Alas, instead of a virtuous Keynesian dynamic, this is anything but.

From Goldman's Ben Broadbent. Apparently the weather in Chiswick was not sufficiently balmy for your regularly scheduled update.

For the first two quarters of this year, we’ve been pounding the
pavement on the risks inherent throughout Europe. The 50+ article (and
counting) series known as the Pan-European Sovereign Debt Crisis is
rife with opinion, analysis, commentary (albeit rather smart ass
commentary), and data that is hard to come across from objective
sources.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 19/07/10