Lawmakers say they'll work to avert fiscal crisis | CBO: "Fiscal cliff" would trigger recession | U.S. exports rise; trade deficit sharply narrows
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09 November 2012
CFA Institute: Financial NewsBrief
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Lawmakers say they'll work to avert fiscal crisis
Some senior leaders in Congress said they understand the urgency of preventing the fiscal crisis that would strike the U.S. if spending cuts and tax increases take effect Jan. 1. Republican and Democratic lawmakers said they are moving fast on legislation that could be brought to a vote during the "lame-duck" session of Congress. The New York Times (tiered subscription model) (08 Nov.), The Hill/Blog Briefing Room (08 Nov.), USA Today (08 Nov.), Politico (08 Nov.)
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CBO: "Fiscal cliff" would trigger recession
The Congressional Budget Office issued a stark warning that heading off the "fiscal cliff" would send the U.S. into a second recession and drive joblessness up to 9.1% by the end of 2013. The nonpartisan CBO said the combined effects of higher taxes and reduced spending would cause the economy to contract 0.5% next year, and warned that the U.S. can't afford to allow its debt burden to grow much longer. CNNMoney (08 Nov.), Politico (08 Nov.), Forbes (08 Nov.)
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U.S. exports rise; trade deficit sharply narrows
America's trade deficit unexpectedly dropped 5.1%, to $41.5 billion, in September, as exports rose 3.1%, to $187 billion, marking the biggest gain since July 2011, the Commerce Department said. The increase in exports was broad-based, ranging from refined petroleum to aircraft and soybeans. Economists surveyed by Bloomberg had predicted the trade deficit would expand to $45 billion. Bloomberg (08 Nov.), Medill Reports (Northwestern University) (08 Nov.)
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Australian firm eyes Europe in widening S&P battle
An Australian company that successfully sued Standard & Poor's for misleading investors will discuss the case with investors from Germany, Austria and other European countries. IMF Australia won damages in a case tied to S&P's AAA rating for complex derivatives called constant proportion debt obligations. The China Post/Agence France-Presse (08 Nov.)
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Group suggests paring Libor variations
The British Bankers' Association says that to restore trust in the London Interbank Offered Rate, only 30 of 150 variations should be allowed to survive. The group laid out a phased plan to make the transition. Reuters (08 Nov.), Financial Times (tiered subscription model) (08 Nov.)
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Market Activity
Asian-Pacific markets end the week lower
Asian-Pacific markets lost ground Friday despite positive data over industrial production in China. Japan's Nikkei 225 and Hong Kong's Hang Seng Index each fell 0.9%. South Korea's Kospi and Australia's S&P/ASX 200 each gave up 0.5%. China's Shanghai Composite Index slid 0.1%. India's Sensex was down 0.9% at mid-afternoon. MarketWatch (09 Nov.), The Economic Times (India) (26 Feb.)
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Economics
European central banks keep rates steady
The European Central Bank and other central banks in the region declined to lower interest rates Thursday. However, comments from ECB President Mario Draghi and others indicate that, given the dour economic outlook, looser monetary policy might be in store next year. CNNMoney (08 Nov.), The Independent (London) (tiered subscription model) (09 Nov.)
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Analysis: World needs Obama to make a good budget deal
The most important challenge that re-elected President Barack Obama faces is concluding a bipartisan compromise to prevent the U.S. from going over the "fiscal cliff," according to The Economist. "A budget deal would act as a reminder that democracy works, especially at a time when China is changing its leadership in a more dictatorial way," the magazine notes. "The alternative, of four more years of angry stasis, would do America, and the world, huge damage." The Economist (free content) (10 Nov.)
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DOL: More new jobs are full time
As job creation accelerates in the U.S., private-sector employers are increasingly hiring people for full-time positions, rather than hedging their bets with temporary and part-time workers, according to Labor Department statistics. From July to October, job creation averaged 173,000 a month, but growth in the number of people employed by temporary-help services rose 2.2% a month, down from nearly 19% in the first half of 2012. Bloomberg (09 Nov.)
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Businesses could lose billions from corporate-tax rate cut
Reuters
Some of the biggest U.S. corporations stand to take big write-downs if Congress cuts the 35% corporate-tax rate. That would require companies including American International Group, Citigroup and Ford Motor to trim the value of their "deferred tax assets." Citigroup could take a $4 billion to $5 billion charge against earnings because its DTAs would be worth less. The Wall Street Journal (tiered subscription model) (08 Nov.)
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Financial advisers tell clients to make major gifts to heirs
Anticipating that the federal $5.12 million gift-tax exemption will be slashed, financial advisers are telling wealthy clients to pass large amounts of money to heirs as gifts before 2013. Although lawmakers have some time to prevent the exemption from automatically dropping to $1 million next year, wealth management experts doubt the exemption will ever be as generous as it is now. InvestmentNews (free registration) (08 Nov.)
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Geopolitical/Regulatory
Obama's victory saves Dodd-Frank from repeal
U.S. President Barack Obama's re-election means the financial industry will have to accept that the Dodd-Frank Act is here to stay, analysts say. Sheila Bair, former chairwoman of the Federal Deposit Insurance Corp., said Obama, with the election behind him, no longer has to worry about special interests and their money. "This should be all about his legacy now and providing a truly stable financial system, one that serves the credit needs of the economy," she said. The Washington Post (tiered subscription model) (07 Nov.)
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Warren might land on Senate banking committee
U.S. Sen.-elect Elizabeth Warren, D-Mass., has a good chance of securing a seat on the Senate banking committee, senior Senate Democratic aides say. It is rare for a freshman senator to get such a highly coveted spot, but Warren is seen as a logical fit. "The leadership and committee chairmen usually work together to try to accommodate incoming senators' preferences, within reason," an aide said. "If Sen.-elect Warren indicates she'd like to serve on the banking committee, given her prominent work on those issues, she would certainly have a very good shot." Reuters (08 Nov.)
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Battle brews over bill for cost-benefit analysis
Legislation to force U.S. regulators to improve cost-benefit analysis of rules is facing opposition. Critics say the bill is designed to paralyze agencies and block initiatives. Supporters argue that the measure would force regulators to develop strong justification for rules. The Washington Post (tiered subscription model) (08 Nov.)
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FSA urges wider ring fencing of banks
As envisioned, ring-fencing legislation for U.K. banks could leave key commercial functions, such as small-business lending, exposed in non-ring-fenced sections, the Financial Services Authority said. Unless this is addressed, the legislation might create "unwanted incentives for the authorities to support [non-ring-fenced banks] in times of stress," the FSA told a parliamentary commission. The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (08 Nov.)
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Republican fight to repeal health care law remains uncertain
U.S. House Speaker John Boehner, R-Ohio, said he no longer considers it his mission to work toward repealing the Patient Protection and Affordable Care Act, pushed by President Barack Obama. "It's pretty clear that the president was re-elected," Boehner told ABC News. The health care law "is the law of the land." However, his spokesman later said Boehner and House Republicans "remain committed to repealing the law, and he said in the interview it would be on the table." Reuters (08 Nov.), Politico (08 Nov.), The New York Times (tiered subscription model) (08 Nov.)
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Financial Products
Radiance aims to launch actively managed equity ETF
Radiance Asset Management and U.S. Bancorp filed with the Securities and Exchange Commission to market an actively managed exchange-traded fund that would invest in U.S. companies with growth potential. The Domestic Equity ETF would be authorized to invest in equities, other ETFs, common stocks, preferred shares, convertible debt and equity interests in partnerships, joint ventures and trusts. IndexUniverse.com (08 Nov.)
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Ethics
Whistle-blower reportedly gets $1.14M in BNY Mellon dispute
Whistle-blower Grant Wilson, who accused Bank of New York Mellon of cheating U.S. state pension funds in foreign-currency transactions, will receive a $1.14 million reward, a person familiar with the matter said. The payment to Wilson, a former trader at BNY Mellon, is part of a settlement of Virginia's lawsuit against the bank. Bloomberg Businessweek (09 Nov.), Fox Business/Dow Jones Newswires (08 Nov.)
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