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.


Markets have quickly surmounted the new scares associated with the mortgage foreclosure disaster, as the mid-term elections and hopes of new massive easing by the Fed helped provide a strong bid beneath risk assets. The recession may be officially over, but numerous dislocations remain and new distortions are being created – – threatening to make the road ahead more uneven than many realize. These distortions are evident in commodity, currency and even the debt markets.. With inadequate world growth, the risk of global currency and trade wars is rising, with some major economies now engaged in competitive devaluations. Admittedly, with yields on bonds moving lower, corporations enjoyed an avalanche of new issuance. Corporations are focused on extending maturities and improving liquidity. While these developments have brightened the outlook somewhat, the baseline scenario for households and business remains weak and subject to some very stubborn long term constraints. Despite amazing drops in mortgage rates, housing remains crippled. The U.S. economy continues to grow at a pace which is neither fast enough to bring unemployment down, nor slow enough to threaten a double dip spiral. By any of several studied forecasts, the economy remains well behind the pace needed to bring unemployment down to a really-not-that-impressive 8 per cent by the middle of 2012. The Fed is clearly trying to reflate asset values in order to generate a more positive wealth effect on personal spending and pull down the cost of debt to re-ignite business “animal spirits” – a gamble that will go down in history books. Moreover, the Fed’s decision to pump an extra $600bn into the economy has galvanized emerging market central banks into preparing defensive measures and sparked criticism from leading global economies. The Fed’s initiative, in response to rising concern about the weakness of the US economy, has fuelled fears of a sharp drop in the dollar and a fresh flood of capital inflows into emerging markets. Some major economies such as China, Brazil and Germany have criticized the Fed’s action, and a string of east Asian central banks have publicly admitted that they were preparing measures to defend their economies against large capital inflows. Being in uncharted waters should make more policymakers and market participants uneasy…

From the section entitled: You Can’t Handle the Truth (Let’s take the “Con” out of Economics)

Investors hungry for yield and protection against a sagging dollar have this year gobbled up $23 bln of bonds in developing-country local currencies. Some may be forgetting one key point amid the frenzy. If things go bad, sheriffs playing by different rules will lay down the law.

Optimism in U.S. Government Hits 36-Yr Low

Optimism in the country’s system of government has dropped to a new low when measured against polls going back 36 years, and the public’s belief that America is the greatest nation on earth, while still high, has fallen significantly from its level a generation ago. These results from
the latest ABC News/Yahoo News poll, coming before next week’s midterm elections, suggest that public disenchantment extends beyond its economic and political roots to broader questions about the country’s governance and American exceptionalism. The bottom hasn’t fallen out of national pride: Seventy-five percent call the United States “the greatest country in the world.” But that’s down from 88 percent when the same question was asked in 1984.

From the section entitled: Credit Matters

Anomaly in 2010 HY debt exchanges… The presence of debt exchanges combined with a relatively small pool of defaults has resulted in some anomalies in the data relating recovery outcomes to seniority. Through September, the weighted average recovery rate on unsecured bonds is 80.4% of par, above the secured bond recovery rate of 51.3%; however, this unusual pattern is due to the high concentration of debt exchanges in the small pool of unsecured bond defaults. (Fitch)

From the section entitled: Real Estate and Construction Outlook

Property Prices Slide in Survey

An index compiled by Mood’s Investor Service found that commercial property prices have started to slide again. The Moody’s/REAL Commercial Property Index was 105.37 in August, down 3.3% from July. Moody’s said the latest reading is the lowest since early 2002. Not all sectors of real estate had declines. Moody’s said prices were down for retail and industrial property but were up for office buildings and apartments.