The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

As discussed many times over the past few months, the Congressional elections in Nov will be a market mover but also of consequence short term for the markets (and obviously for the economy) will be the fate of the expiring tax cuts. According to the NY Times, Obama will reiterate today in a speech his belief that they should expire for the higher income earnings. With respect to actual economic decision making in the next few months, higher capital gains taxes in 2011 will directly impact sell decisions before year end not only for long term stock holders but also for many private and publicly held companies that may be influenced to sell out. On the prospect of higher dividend tax rates in 2011, maybe we see some one time dividend payments before year end from cash rich companies.

Sovereign debt in Greece, Portugal and Ireland are lower again (with yields higher) but off the lows after Portugal sold 3 yr and 10.5 yr paper. The yield in the 10.5 yr in particular was priced at 5.97%, well above the one done on Aug 25th at 5.31% but European markets did bounce after it was completed. Irish 5 yr CDS is rising to a record high at 402 bps, up 20 bps and the iTRAXX European financial CDS is up by 8 bps to just shy of a two month high. While somewhat dated news, July German IP rose less than expected and July exports, 40% of their economy, unexpectedly fell. ABC confidence rose 2 pts to -43, a two month high led by a rise in the Personal Finance component. With rates near record lows, the MBA said purchases rose 6.3% to the highest since May as just maybe we’ve cleared past the hangover impact after the tax credit expiration. Refi’s fell 3.1% after last week’s 16 month high. II: Bulls 33.3 v 29.4 Bears 32.2 v 37.7