Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.
From the Front Page: Compound Fractures…
Despite some constructive economic fundamentals, new monetary stimulus in the U.S. and heroic efforts by major corporations to turn their businesses around, there are significant hurdles ahead – - in particular the reemergence of sovereign risk in the daily headlines as a market deterrent. Earnings growth in the Q3 was once again robust and default rates in high-yield have been consistently declining this year. Liquidity has been an overriding force behind the rally in recent months, even to the point of distortion or awkward exaggeration. Amazingly, the new dosages of Fed easing were to smooth over all potholes and yet it is now unclear how the global economy will react to this latest dose of quantitative easing. Conditions remain volatile, however. M are stuck between competing trends: massive liquidity vs. bouts of risk. The result is a uncoordinated combination of distortions and dislocations. Just a quick roundup of the issues is warranted. First, it is not clear how much lift will actually come from the Fed’s QE extension.
Second, significant stimulus support is fading. Many benefits and supports are falling by the wayside soon, tax hikes are ahead, enormous restraint is coming from state and local spending, and costs of materials are burdensome. Third, overseas hurdles are rising. China is struggling to tighten policy as its inflation pressures intensify. The central bank there keeps on hiking reserve requirements. And the problems in the European peripheral countries may turn out to be a long slog, with a complex and uneven road to recovery. Risks are being exacerbated by the difficulties for the countries concerned to get their finances in order and by the fact that investors are making what they consider safer yield plays elsewhere. Because markets are not giving peripheral euro zone governments much leeway or time to prove their various austerity packages, the mainstream investors whose money is needed are avoiding the sector and looking elsewhere. To some extent, sovereign concerns are a natural reaction to a sluggish growth environment
as debt sustainability is questioned – - a problem that may surface in the U.S. as well.
From the section entitled: Dimensions of Risk
Global Imbalances Threaten World Economy… Federal Reserve Chairman Ben Bernanke told central bankers Friday that a structurally flawed international monetary system that perpetuates persistent global imbalances threatens everyone with eventual slow growth. Bernanke used back-to-back appearances in Frankfurt to warn of self-defeating export-led growth strategies are placing the burden of adjustment on advanced economies with
flexible exchange rates upon which developing economies ultimately depend.
From the section entitled: You Can’t Handle the Truth (Let’s Take the Con out of Economics)
China to Tighten Control on Inflows of Overseas Funds
China will force banks to hold more foreign exchange and strengthen auditing of overseas fund raising, stepping up efforts to curb hot-money inflows that may inflate asset bubbles and add pressure for a stronger yuan. The State Administration of Foreign Exchange will introduce new rules on currency provisioning and tighten management of banks’ foreign-debt quotas, the regulator said in a statement on its website today. The government will also regulate Chinese special-purpose vehicles overseas and tighten controls on equity investments by foreign companies in China, it said. The measures underscore concern around the world that the U.S. Federal Reserve’s expanded monetary stimulus will cause capital to flood into emerging markets. The yuan rose today by the most since the end of a dollar peg in 2005 as global leaders prepare to discuss currency tensions and the impact of the Fed’s easing at the Group of 20 summit this week in Seoul.
From the section entitled: Credit Matters
The October 2010 Senior Loan Officers’ Opinion Survey report, released by the Federal Reserve Board, indicates a slight easing in lending standards, on net. However, in additional special questions, large numbers of banks surveyed responded that “standards for many categories of loans would not return to their longer-run averages for the foreseeable future” – likely beyond 2012
The nation’s largest banks must undergo new stress tests to show they can weather another recession, and the Federal Reserve said those that pass them can boost dividends paid to investors. Banks would need to show the Fed’s bank examiners that they’re in good financial
health and that they have adequate capital to absorb potential losses over the next two years.
From the section entitled: Engine Drivers
Total US housing starts were at 519 thousand (SAAR) in October, down 11.7% from the revised September rate of 588 thousand, and barely above the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).
From the section entitled: The New Geography of Business
The Chinese government has issued rules to further restrict foreign investment in the country’s property market as part of its wide-ranging crackdown on speculation. The State Administration of Foreign Exchange (SAFE) said foreigners will only be allowed to purchase one residence for their own use, while businesses will be limited to buying office space only in their registered cities.