Wednesday, August 25, 2010

News from Washington: Lets See How they can screw this up


· Major change coming Wed as SEC expected to approve new corporate governance rules permitting large shareholders to nominate their own board candidates directly (vs. going through the process of a proxy fight).  Corporate lobbying groups are very against the new rules, worrying that boards may wind up being held hostage.  FT

· The Fed – sentiment around the Fed and its ability to avoid a double dip recession has deteriorated meaningfully over the last few weeks.  Things really deteriorated after the Aug 10 FOMC decision surprised markets and prompted talk that the Fed officials were more worried about the economy and inflation than they let on.  The WSJ article Tues morning discussed how the Aug 10 meeting was one of the most contentious of the Bernanke era as opinions are starting to fray among officials in terms of the proper policy course.  All this negativity sets up the Bernanke address coming up this Fri in Jackson Hole as a potential positive catalyst.  The Fed’s Fisher intra-day today (during a Fox Business interview) said the Aug 10 wasn’t contentious and that the FOMC goal was simply to avoid a shrinking of the balance sheet (which would have happened at an accelerating rate b/c MBS maturities were picking up as a result of robust refinancing activity).  If Bernanke can have a repeat performance of his successful “60 Minutes” interview from Mar ’09 and set the record straight when it comes to the Fed’s outlook and capabilities, then sentiment could recover. 

· Fed unlikely to lower rate it pays on bank reserves; Policymakers believe the potential costs of bringing the rate, currently at 0.25 percent, all the way to zero outweigh the minuscule stimulative benefits – Reuters 

· Corporate debt wall of maturity is crumbling – a positive – companies need to refinance ~$400B in the next 5 yrs, but that number has shrunk 25% over the last two years.  NYT

· Mortgages – Fannie/Freddie – Bill Gross published his latest monthly commentary (mid-day on Tues).  He repeats his views originally articulated at the Treasury mortgage conf that Fannie and Freddie should be folded into Ginnie Mae and that it is vital that Washington maintain a prominent presence in the market.  Gross notes that the tremendous losses experienced in the mortgage market over the last few years has made non-government involvement too expensive a proposition.  Mortgage yields would be 300-400bp higher if the government exited the market completely.

· Stimulus package – the CBO estimates the impact on economic growth/unemployment from the stimulus package; the CBO estimates that in Q2:10, the stimulus bill raised real GDP by between 1.7 percent and 4.5 percent; Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points; Increased the number of people employed by between 1.4 million and 3.3 million.

· Hurricanes – WSI (Weather Service Int’l) trimmed its forecast for the ’10 Atlantic hurricane season; now sees 18 named storms, w/10 of those strengthening into hurricanes (vs. the prior 19 and 11, respectively); WSI says this season will still be much higher than normal – Reuters 


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