Morning Notes


  • Monday, May 16, 2011Debt ceiling hit Mon but deal still considered far off; the Treasury is expected to announce Monthat it will stop issuing and reinvesting government securities in certain government pension plans, partof a series of moves designed to stave off default until later in Aug. WSJ 
  • IMF head Dominique Strauss-Kahn has been charged w/a criminal sex act in NYC early Sun (hewas removed from an Air France 10 minutes before it was due to depart for Europe late on Sat). John
  • Lipsky, the IMF’s #2, stepped into the role of acting managing director and planned to chair any boardmeetings. Strauss-Kahn was due to attend a meeting Mon + Tues of European finance ministers atwhich the bailouts of Greece, Ireland, and Portugal were supposed to be discussed.
  • It’s not clear howhis arrest will impact talks on the European debt crisis. The IMF said it was fully functioning despite thearrest and a variety of officials have said they anticipate no disruption to the eurozone debt talks as aresult of the arrest. Reuters says that eurozone finance ministers on Mon are still expected to back thebailout package for Portugal (w/new conditions set by Finland). Discussions concerning Greece could bedelayed as a result of the IMF news. WSJ 
  • A technical default by the Treasury wouldn’t produce a market catastrophe and could help prices to rally if spending gets slashed –WSJ interview w/Stanley Druckenmiller –the HF manager pointsout a big difference between a technical default, deferring a few interest payments, and an actualeconomic default (where a country lacks the economic capacity to service its debts). If the Treasurywere to technically default but at the same time implement large and credible spending cuts andentitlement reforms, the Treasury market might actually rally. The bigger risk is permitting the currentfiscal dynamic to extend into the future. – WSJ – the status quo is the real tail risk. If technical default iswhat it takes to get structural deficits in order, then it is a positive for the country.
  • FOMC minutes Wed May 18 - these minutes may wind up being one of the most importantreleases for markets – CNBC recently reported that the meeting was more hawkish than Bernanke let onduring his recent press conf a couple weeks back. Specifically, CNBC said there was a lot more talkamong officials concerning exit strategies. If this is the case, than the dollar could find more upside support.– CNBC 
  • White House to accelerate domestic oil production; Obama announced Sat during his weeklyradio address plans to significantly expand domestic exploration and production. However, none of theinitiatives unveiled will have any immediate impact on prices. The White House specifically will begin holding annual auctions for leases in Alaska’s National Petroleum Reserve. It will also accelerate areview of the environmental impact of drilling in the Atlantic. – NYT