Tuesday, May 5, 2009

Quick Notes of the Day - May 5

Bernanke - US Economy Bottoming - The U.S. economy is bottoming out and will turn up later this year, Fed Chairman Bernanke said. Bernanke's comments suggest Fed officials believe their actions to date are sufficient to generate a recovery. Bernanke said that the recovery is likely to be sub-par and will only gradually gain momentum. Inflation will remain low. Bernanke said. This means that rising prices won't be the big threat that many economists fear. Conditions in financial markets have improved and a gradual repair of the banking system is under way, Bernanke said. Any reversals would darken the economic outlook, he said.

April Non-Manufacturing Numbers Are Down But Slower - U.S. service-producing industries contracted again in April for the seventh straight month, but at a slower pace than in March, according to the Institute for Supply Management index released Tuesday. The ISM non-manufacturing index improved to 43.7% from 40.8% in March. Economists were looking for an increase to 42.0%. Seven of 18 industries were growing in April. The new orders index improved to 47.0% from 38.8%. Employment improved to 37% from 32.3%. *** Note - Any reading under 50% means the industry contracted. The item to note here is that it was slowing faster in previous months, but has started to move back towards 50%. Any reading above 50% shows growth.

Bernanke Says He Did Not Tell Lewis to Not Disclose Items - Federal Reserve Board chairman Ben Bernanke denied that he urged Bank of America CEO Kenneth Lewis to hold back disclosure on the true extent of Merrill Lynch's coming fourth-quarter losses until after shareholders approved the bank's purchase of the troubled brokerage. "I absolutely did not in any way ask Mr. Lewis to obscure any disclosures or fail to report information he should be reporting," Bernanke told the Joint Economic Committee of Congress. Bernanke said he has offered Congress full access to all Fed records on the matter. The Fed chairman said he met Lewis in the presence of top Fed staffers. Lewis told New York Attorney General Andrew Cuomo that Bernanke and then-Treasury Secretary Henry Paulson counseled Bank of America against disclosing details about the financial condition of Merrill Lynch.

US Might Tell "About 10" Banks to Raise Capital - The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, a move that officials hope will quell fears about the solvency of the financial sector, The Wall Street Journal reported Monday. The exact number of banks affected remains under discussion, the report said, though possible candidates for capital-raising could include Wells Fargo, Bank of America, Citigroup and several regional banks, the report said, citing unnamed sources. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, the report said, but that number has fallen in recent days. *** Note - The extreme variables used by the US for the stress tests were - GDP growth is assumed to be -3.3% in 2009 and 0.5% in 2010; the unemployment rate is assumed to average 8.9% in 2009 and 10.3% in 2010; and home prices are assumed to fall 20% in 2009 and 7% in 2010.

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