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Words from the (Investment) Wise for the Week That Was (October 12 - 18, 2009): Part II

MarketWatch: Banks cutting back on loans to businesses
"US banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts.

"According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

"Last autumn, bank lending temporarily expanded when other sources of funding from the shadow banking system dried up after the collapse of Lehman Bros. Since then, however, total outstanding bank loans have dropped at an accelerating pace.

"The decline in bank lending mostly affects smaller businesses. Larger corporations have alternative sources of funding, including retained earnings, corporate bonds, securitized loans and new equity. Those other sources of capital have increased in recent months, but not enough to offset the decline in bank lending.

"In the first and second quarters, the US private sector consumed more capital than it raised for the first time in more than 60 years. Negative net investment is 'the hallmark of depression and difficult to reverse', said economist Leigh Skene of Lombard Street Research.

"The big drop in credit also shows up as slower money growth. In the past 13 weeks, the money supply has fallen 0.3%. Most new money is created by borrowing, as banks credit the borrower's account with the proceeds of a loan. Conversely, the money supply is reduced when debts are paid off or written off. Deflation is not a threat - it's already here.

"The question is whether the decline in lending will be reversed soon.

"If the drop-off in lending is mainly due to weak demand by businesses, then there's some hope that the recent upward momentum in industrial output and sales could lead to more optimistic business sentiment, greater demand for capital, and more lending by banks.

"But if the decline is mainly due to weak banks unable or unwilling to lend, then a turnaround in credit creation may have to wait until banks' balance sheets are repaired, a process that could be delayed by further expected defaults in consumer loans, mortgages and commercial real-estate loans."

Source: Rex Nutting, MarketWatch, October 9, 2009.

CNBC: Bair on state of banking industry
"FDIC Chair Sheila Bair discusses the state of the US banking industry with CNBC."

Source: CNBC, October 13, 2009.

Financial Times: US bank results highlight recovery gap
"Bumper third quarter profits at Goldman Sachs and another loss for Citigroup on Thursday highlighted the gap between the financial resilience of Wall Street and the woes of Main Street, fresh evidence that two Americas are emerging from the crisis.

"The diverging performance of investment banks such as Goldman and the retail banking operations of the banks such as Citi is problematic for an Obama administration that wants a strong Wall Street but is also under pressure to tackle the plight of ordinary people.

"'When you have unemployment creeping towards 10% and a sluggish economy, stories of huge profits and huge bonuses ... could create difficulties if [the president] needs any more stimulus,' said Norman Ornstein, a political analyst at the American Enterprise Institute.

"Goldman announced near-record earnings of $3.2 billion, boosted by surging profits in bond and currency trading - two activities that have become more profitable after the crisis reduced competition in financial markets and governments injected emergency funds into the banking system.

"Goldman's profit, which was nearly four times higher than in the third quarter of 2008, underscores its status as one of the winners from a crisis that eliminated two rivals - Lehman Brothers and Bear Stearns - and hobbled others such as Citi, Merrill Lynch and UBS.

"Citi, by contrast, suffered its seventh loss in eight quarters as US consumers continued to fall behind on credit card bills and mortgage payments.

"'US consumer credit remains the number one issue affecting our near-term results,' said Vikram Pandit, Citi's chief executive, after announcing the bank had suffered credit losses of $8 billion in the three months to September, largely in its consumer business.

"Citi, which has been bailed out with $45 billion of US taxpayers' money, has suffered a total of more than $42 billion in credit losses since the beginning of 2008.

"The contrasting fortunes of Goldman and Citi suggest that Wall Street, which played a major part in the crisis and was one of its first victims, is recovering much faster than the rest of the US economy."

Source: Francesco Guerrera, Greg Farrell and Anna Fifield, Financial Times, October 15, 2009.

The Wall Street Journal: Wall Street on track to award record pay
"Major US banks and securities firms are on pace to pay their employees about $140 billion this year - a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.

"Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

"Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion - and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

"The growth in compensation reflects Wall Street firms' rapid return to precrisis revenue levels. Even as the economy is sluggish and unemployment approaches 10%, these firms have been boosted by a stronger stock market, thawing credit market, a resurgence in deal making and the continuing effects of various government aid programs."

Source: Aaron Lucchetti and Stephen Grocer, The Wall Street Journal, October 14, 2009.

Bespoke: 30-year fixed mortgage rate back below 5%
"For those worried that they missed the bottom in mortgage rates a few months ago, you've now got a second chance to refinance or lock in that home loan at less than 5%. As shown below, after spiking nearly 100 basis points off its low in late April, Bankrate.com's national average for 30-year fixed mortgage rates hit 4.97% on Friday."

Source: Bespoke, October 13, 2009.

Clusterstock: Besides the Fed, nobody is buying agency debt
"Where would we be without the Fed and its printing press? There's been a lot of debate about the appetite of foreign investors of our debt - Treasury auctions continue to be strong, even as noises emanate from overseas about wanting to dump the dollar.

"But here's a stark fact, via the Council on Foreign Relations: Only the Fed is buying agency debt. Foreign buyers, who once consumed it voraciously, have been net sellers so far this year."

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock - Business Insider, October 8, 2009.

Bloomberg: Pimco's Gross boosts government debt, cuts mortgages
"Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co. (Pimco), bought government debt last month and cut mortgage bond holdings to the lowest level since 2005 after he said this year that the US recession will lead to a period of less-than-average growth.

"Gross boosted the $185.7 billion Total Return Fund's investment in Treasuries, so-called agency debt and other government-linked bonds to 48% of assets in September from 44% in August, according to Pimco's website. The holdings are the most since August 2004.

"'We've exchanged our mortgages for the government's check,' Gross, who is based in Newport Beach, California, said in an interview last month. He said he was buying longer-maturity Treasuries because of deflation concern.

"Treasuries rose in July, August and September, offering their first three-month gain in a year, Merrill Lynch & Co. indexes show, as optimism waned about the pace of economic recovery. Federal Reserve Vice Chairman Donald Kohn said this week inflation and growth will probably stay below the central bank's objectives for some time, warranting very low interest rates for an 'extended period'.

"The Total Return fund cut mortgage debt to 22%, the lowest level since February 2005, from 38%, according to the website."

Source: Wes Goodman and Susanne Walker, Bloomberg, October 15, 2009.

Bespoke: Investment-grade corporate bond ETF breaks down
"Investment-grade corporate bonds have generally moved alongside the stock market throughout the bull market. In recent days, however, investment grade corporates have moved lower even as stocks have risen. Below is a chart of the iShares iBoxx Investment Grade Corporate Bond Fund ETF (LQD) since the March lows. As shown, the ETF had been in a tight uptrend for months until just last week when it broke below its 50-day moving average. With the uptrend now broken, it will be interesting to see what, if any, impact this has on equity markets."

Source: Bespoke, October 12, 2009.

Clusterstock: Investors are only interested in high-yield junk
"Today's chart shows not only that high-yield junk debt (HYG) has decimated safe debt (LQD) since the market lows, but that in recent days the situation has gotten really extreme.

"Investment-grade debt has started to break down over the past couple of weeks, clearly breaking an uptrend, while the risky stuff keeps on powering higher."

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock - Business Insider, October 12, 2009.

Bespoke: Bull market check-up
"Below we have updated our table of historical S&P 500 bull markets (at least a 20% gain that was preceded by at least a 20% decline) since index data begins in 1927. The table is sorted by bull market length. The current bull market that started on March 9 is now 219 calendar days with a gain of 61.41%. As shown, the median gain for all bull markets has been 68%, and the median length has been 308 days. The current bull is still below the median in terms of both gains and days. However, there aren't a lot of bulls bunched up around the median, and there is a pretty big deviation between all of them. Bottom line though is that this is definitely a bull market."

Source: Bespoke, October 15, 2009.

Bespoke: Break out the Dow 10,000
"For the fourth time in the index's history, the Dow has broken above 10,000 after trading below that level for at least a month. While the media would have you believe otherwise, the more this occurs the less exciting it becomes. Call us at Dow 100K."

Source: Bespoke, October 14, 2009.

MoneyNews: Rosenberg - Buy bonds, dividend stocks
"Economist David Rosenberg says the recovery will be weak and thus recommends that investors buy bonds and dividend-paying stocks.

"'Right now the economy is being held together by very strong tape and glue provided by the Fed, Treasury, and Congress,' the chief economist for Gluskin Sheff and Associates, tells Bloomberg.

"Without the government's massive fiscal and monetary stimulus, there's little to pull the economy out of the recession that began in December 2007, he says.

"Rosenberg, who saw the recession coming early, predicts the economy will stagnate this quarter and then grow no more than 2% next year. The economy shrank 0.7 percent in the second quarter.

"The recovery will resemble the 'jobless' recovery of 2002, when the economy grew just 1.8%.

"The economy won't take on the 'V' shape of previous rebounds, Rosenberg says. 'It's going to look like this whole string of lowercase Ws for the next five years.' That means there will be periods of growth followed by periods of contraction.

"As a result, 'you want to maintain strategies aimed at income generation,' Rosenberg says. 'There's a shortage of income on the household balance sheet.' That means bonds and dividend stocks."

Source: Dan Weil, MoneyNews, October 15, 2009.

MoneyNews: Stiglitz - irrational exuberance is back
"Former Federal Reserve Chairman Alan Greenspan warned of 'irrational exuberance' in the stock market 13 years ago. Nobel laureate economist Joseph Stiglitz warns of it today.

"Weak economic recovery, particularly in the jobs sector, will weigh on stocks, he told Bloomberg. The unemployment rate hit a 26-year high of 9.8% in September.

"'It's pretty clear that the situation will continue to get worse,' Stiglitz said.

"In a vicious circle, the slumping economy prevents companies from hiring, and employment losses keep the economy weak. So look for unemployment to keep rising as the economy sags, Stiglitz said.

"The job woes have made it more difficult for consumers to pay their debts, especially for credit cards, he points out.

"The Columbia University professor also cited the difficulties for residential and commercial real estate.

"'There's a lot of risk going ahead of some big bumps. There's a very big risk that markets have been irrationally exuberant,' he said.

"As for this year's fiscal stimulus package, the chances of the US economy rebounding meaningfully before 2011, when most of the spending measures expire, are very slim, Stiglitz argues."

Source: Dan Weil, MoneyNews, October 9, 2009.

Bespoke: Strategists' year-end price targets right where they started
"Below we highlight the year-end S&P 500 price targets of major Wall Street strategists polled each week by Bloomberg. Since we last updated our table, Credit Suisse, HSBC, and Morgan Stanley have increased their year-end targets. The average price target for all strategists currently sits at 1,050 for the S&P 500. This is 3.77% below the actual level of the index, so strategists as a whole aren't bullish for the remainder of the year.

"What's ironic about the current average price target is that it is right at the level it was at to start the year! As shown below, at the start of 2009, strategists had a target of 1,049.9 for the S&P 500, which would have been a gain of 16.2%. Throughout the first two quarters of the year, however, strategists lowered their estimates as the market headed lower, and now they've had to raise their estimates as the market has rallied. Their low year-end price target was 944 on June 1, so they continued to lower estimates well after the market had bottomed in March. Had they all just held tight, they would have been more spot on and not made themselves look bad in the process."

Source: Bespoke, October 15, 2009.

Bespoke: S&P 500 sector trading ranges
"The chart below summarizes the current levels of the S&P 500 and its ten sectors compared to their normal trading ranges. The circles represent where the sectors and index currently stand, while the end of the tail represents where it was one week ago. When the circle is in the red zone, the sector or index is overbought (light red=overbought, dark red-extreme overbought). Readings in the green zone indicate that the index or sector is oversold (light green=oversold, dark green = extreme oversold).

"As shown below, currently the S&P 500 and nine out of ten sectors are overbought. Additionally, the index and seven of its sectors are at or above levels that would be considered extremely overbought. While these types of readings often lead to corrections, we would note that corrections can occur in either price or time. As has been the case with prior overbought readings during this bull market, sometimes all it takes is some sideways action in order for the overbought readings to work themselves off."

Source: Bespoke, October 15, 2009.

Bespoke: Short interest declines again
"Last Friday, short interest figures for the end of September were released, and once again they showed declines. The average short interest as a percentage of float for companies in the S&P 1500 was 6.4%. This is now lower than any other point since at least the start of 2007. As shown in the chart, bets against the market have declined considerably since their peaks in 2008."

Source: Bespoke, October 14, 2009.

Bespoke: New highs expand again
"This is a bull market that's lifting all boats. With today's [Wednesday] run above 10,000 in the DJIA, and another new high in the S&P 500, the number of stocks in the S&P 500 hitting 52-week highs rose to 22% (110 stocks). As long as this figure can expand as the market rises, the ball is in the bulls' court."

Source: Bespoke, October 14, 2009.

Bespoke: Bullish sentiment high but still below 50%
"With the Dow up more than 50% since its lows in March, it is no surprise that sentiment among newsletter writers has improved dramatically. As shown below, the percentage of bullish newsletter writers has increased from a low of 22.4% in October 2008 to 47.2% today. While sentiment has improved, we would note that some investors are still uneasy. With bullish sentiment below 50%, this implies that over half of newsletter writers are anticipating a bear market or at least a 10% correction. Additionally, even as the major indices have all hit new highs off the lows, bullish sentiment is down from its peak of 51.6% in late August and at its lowest levels since the first week of August."

Source: Bespoke, October 14, 2009.

John Authers (Financial Times): Jobless recovery aiding stock rally
"What would send markets for a loop? Disconcertingly, it is possibly the event which the world's populations, and its politicians, have been awaiting - a strong and early recovery in employment.

"This joyous event would be a problem because it is currently deemed so unlikely. There is a deep split between 'bears' who believe the weight of bad debts and the 'deleveraging' - paying down debts - that it causes will drag the economy into another dip, and 'bulls' who believe that government stimuli are jolting the corporate sector back to life.

"But both tend to agree that unemployment will stay uncomfortably high for a long time. The bulls' case is for a 'jobless recovery'. If companies start serious re-hiring, then the pressure would become extreme on central banks to exit from the current exceptionally low rates. Such a rise in employment would suggest that there really are inflationary pressures in the economy. Without a long drawn-out period of cheap money from the government, the bulls' case begins to fall apart.

"Any situation in which wrong-footed central banks need to scramble to change policy brings with it risks of mistakes, both by bankers themselves, and by the investors attempting to interpret their actions. Then there is foreign exchange. Persistent joblessness is one of the assumptions behind the attack on the dollar. This boosts the earnings of US companies, as most of S&P 500 companies' sales are made outside the US. A recovery in employment would mess up that scenario and create the risk of accidents as investors re-position in a hurry.

"There are good reasons why most expect unemployment to stay high. Stock markets, nudging their highs for the year, show investors can deal with this. But the way that investors are almost relying on unemployment to stay high demonstrates that the recovery, in markets and the economy, remains on shaky foundations."

Source: John Authers, Financial Times, October 12, 2009.

Barry Ritholtz (The Big Picture): How do you sell at the top?
"According to Raymond James Strategist Jeff Saut, who channels Ed Genstein, you don't:

"'The absolute price of a stock is unimportant. It is the direction of price movement which counts.

"'During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn't worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose.

"'In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price - by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.'"

Source: Barry Rithotlz, The Big Picture, October 13, 2009.

CNBC: Mishkin on US dollar doldrums
"Frederic Mishkin, former Federal Reserve Board governor and an economics professor at Columbia University, discusses monetary policy with CNBC."

Source: CNBC, October 14, 2009.

The New York Post: Dollar loses reserve status to yen and euro
"Ben Bernanke's dollar crisis went into a wider mode yesterday [Tuesday] as the greenback was shockingly upstaged by the euro and yen, both of which can lay claim to the world title as the currency favored by central banks as their reserve currency.

"Over the last three months, banks put 63% of their new cash into euros and yen - not the greenbacks - a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37% - compared with two-thirds a decade ago.

"Currently, dollars account for about 62% of the currency reserve at central banks - the lowest on record, said the International Monetary Fund.

"Bernanke could go down in economic history as the man who killed the greenback on the operating table.

"After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy - ravenous inflation on one hand, and a perilous recession on the other.

"Investors and central banks are snubbing dollars because the greenback is kept too weak by zero interest rates and a flood of greenbacks in the global economy.

"They grumble that they've loaned the US record amounts to cover its mounting debt, but are getting paid back by a currency that's worth 10% less in the past three months alone. In a decade, it's down nearly one-third.

"Economists believe the market rebellion against the dollar will spread until Bernanke starts raising interest rates from around zero to the high single digits, and pulls back the flood of currency spewed from US printing presses."

Source: Paul Tharp, The New York Post, October 13, 2009.

CNBC: The US dollar debate
"Discussing strategies for saving the dollar, with Brian Wesbury, First Trust Advisors, and Niall Ferguson, Harvard University."

Source: CNBC, October 14, 2009.

The Wall Street Journal: Commodities guru Rogers likes silver, palladium, agriculture
"Certain metals and agricultural products as well as natural gas are among the commodities ripe for longer-term gains, well-known commodities-investing expert Jim Rogers said Thursday.

"In an afternoon speech at an ETF Securities event where he reiterated his bearish stance on the US dollar and bullish views on commodities and Asian demand, Rogers said silver and palladium are better investments for the rest of 2009 than gold or platinum.

"Although he said he wouldn't buy sugar at the moment because it is near 28-year-highs, he noted that sugar - as well as silver and cotton - remain well below their all-time peaks, even as gold extends its own record.

"'Most agricultural products are hugely depressed on a historical basis,' Rogers said. 'Sugar is going to be much, much higher in the next decade.'

"He also noted that natural gas is down sharply and encouraged a long-gas-short-oil investment play.

"Although Rogers said he is 'terribly pessimistic' on the US dollar, he isn't selling the greenback at the moment because he sees too many sellers leaving the currency open for a rally. If that comes, he plans to unload some of his dollar holdings.

"'I don't think it's going to be a sustainable rally,' Rogers said, adding that he believes the greenback will be replaced as the world's reserve currency. 'The US dollar is in trouble these days.'

"Rogers said the bull market in US bonds is coming to an end and equities are entering into a sideways phase that could continue for the next decade.

"'Stocks are still very expensive,' he said.

"But raw materials remain in a secular bull market that started 11 years ago, he said, adding that historically, such bull markets for commodities last 18 years. Rogers noted that there has been little production capacity expansion for commodities, while demand from Asia will continue increasing.

"'The world is running out of natural resources,' Rogers said. 'If you diversify your portfolio, commodities are the best anchor.'"

Source: Matt Whittaker, The Wall Street Journal, October 8, 2009.

TheStreet.com: Jim Rogers talks gold
"Jim Rogers, global investor and author, reveals how high he thinks gold will go and what he is buying."

Source: TheStreet.com, October 12, 2009.

Richard Russell (Dow Theory Letters): Gold's magic patterns
"I always find it remarkable when technical patterns work out just as they are supposed to. Below we see weekly gold having formed a perfect symmetrical triangle which has served as a 'right shoulder' to a huge 'head-and-shoulders' bottoming pattern. Sure enough, gold broke upside out of the triangle and has since surged above 1,000. Who would have believed it? Your editor, of course.

"Below we see a weekly chart of GDX, the gold miners ETF. Here we see a perfect rising channel. If GDX hits the top of the channel it will have advanced to 53. Nice work if you can get it - particularly if you happen to own GDX. On the P&F chart, the upside 'count' for GDX is 62.0."

Source: Richard Russell, Dow Theory Letters, October 14, 2009.

Craig Farley (Ashburton): China - a Goldilocks liquidity result
"We vehemently disagree with the view that China is in 'bubble' territory but there is no doubt that the market is hot as far as current investor interest is concerned, reflecting the crucial role the economy is playing in the global recovery. September's macro data has just been released, generating plenty of debate amongst commentators regarding potential policy ramifications and we felt it appropriate to briefly summarise our thinking.

"All eyes were on the new bank lending figure which came in at RMB 517 billion (versus RMB 410 billion in August), above analyst expectations and clear evidence that Beijing is not engaging in any sort of policy 'tightening'. We hate to sound like a broken record, but this is an outlook we have reiterated several times this year, one clearly signalled in both private and public statements from Chinese officials.

"The People's Bank of China (PBOC) is concerned about the sustainability of the economic recovery now underway, not asset price bubbles or overheating, supporting our view that Beijing will continue to gradually reduce the level of economic stimulus that has worked (via lower growth and infrastructure spending) and is no longer needed as both private investment and private consumption recover. Expect a degree of 'fine-tuning' as the government ensures a 'Goldilocks liquidity result' - not too much, not too little, but just the right amount.

"From our perspective, the risk that the government will prematurely tighten and send the economy into a 'W'-shaped recovery is minimal, given that there are no bubbles in residential property or the A-share market, inflation is well contained and real urban unemployment is c.7%. Instead, Beijing will be focusing on steering the economy towards the all-important 8% GDP growth figure whilst maintaining a healthy balance between government and private spending.

"We do not expect to see any genuine tightening measures until the second half of 2010, but the caveat would be a very strong export rebound, rampant wage inflation or soft commodity prices spiralling out of control. The government has managed expectations extremely well in 2009 but will be swift to respond if necessary. Stay tuned."

Source: Craig Farley, Ashburton, October 15, 2009.

Financial Times: Sharp improvement in Chinese trade
"The recovery in China's economy gained new impetus on Wednesday with figures showing a sharp improvement in the country's exports and imports in September.

"The trade surplus also fell last month, providing evidence of some rebalancing of the economy at a time of persistent trade tensions over cheap goods from China, which is likely to become the world's biggest exporter this year.

"Chinese customs said exports had fallen by 15.2% in September against the same month last year, compared with a 23.4% decline in August. The stronger export performance follows a similar trend in South Korea, Taiwan and Vietnam.

"The improvement was even more pronounced in imports, which dropped by 3.5% in September after falling 17% the month before, an indication that domestic demand in China is recovering.

"Sun Mingchun, an economist at Nomura Securities, said: 'The sharp improvement in imports likely reflected strong domestic demand both for capital goods, as a result of stimulus investment, and for consumer goods, as a result of an unexpected consumption boom lately.'

"Boosted by an aggressive government stimulus plan including a massive increase in bank loans, China has rebounded more sharply than most other economies and analysts forecast that third-quarter GDP growth, which is to be announced next week, will exceed 9 per cent."

Source: Geoff Dyer, Financial Times, October 14, 2009.

Financial Times: Singapore GDP growth points to Asia revival
"Singapore, which led Asia into recession, on Monday pointed the way to further regional recovery with strong third-quarter economic growth and a substantial upward revision to its forecast for the year.

"The island state's gross domestic product estimates coincided with positive official comment from Australia, China and other countries, underlining growing optimism that Asia is undergoing a rapid and sustainable recovery.

"The Monetary Authority of Singapore (MAS) said GDP expanded 14.9% on a seasonally adjusted quarter-on-quarter annualised basis in the June to September period, after a comparable revised increase of 22% the previous quarter. Output rose 0.8% year-on-year, the first such gain in four quarters.

"The MAS said the outcome was 'better than expected' and trimmed its expected annual GDP contraction to between 2 and 2.5% from 4-6%. The central bank said the pace of growth was likely to moderate next year, noting that demand in key export markets remained depressed. It warned of 'significant challenges' as governments prepared to wind down extraordinary fiscal and monetary measures.

"Private sector economists were much more bullish. Robert Prior-Wandesford of HSBC said the past two quarters had provided the biggest GDP half-year rise since the quarterly series began in 1975.

"'While GDP will obviously not retain its current momentum, the economy is likely to expand by a healthy 6.5% next year. It's not impossible that year-on-year growth could hit double digits in the first quarter of 2010,' he said."

Source: Kevin Brown, Financial Times, October 12, 2009.

BCA Research: Canada - recovery well underway
"The Canadian employment report showed that 30,600 jobs were created in September, following a similar gain of 27,100 in August. Unlike in August, gains were driven by additions to full time positions, although they were concentrated in the public sector. The private sector actually shed jobs. Thus, while the report is encouraging, the BoC still has flexibility in timing its exit strategy. Moreover, policymakers are also likely to take a monetary conditions approach to tightening and will be slower to withdraw stimulus if the CAD continues to appreciate.

"In a speech given to a trade group yesterday, Senior Deputy Governor Paul Jenkins noted that 'growth has resumed ... however, some of this stronger growth reflects the effects of temporary factors, such as the impact of the US 'cash-for-clunkers' program on Canadian automotive production.'

"Policymakers will need further confirmation that a durable recovery is indeed taking hold. Bottom line: The BoC will not be swayed in action by today's jobs report, although it is a sign that a recovery is well underway. We expect the central bank to tighten during the first half of 2010."

Source: BCA Research, October 13, 2009.

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