The animal spirits are happy this morning encouraged by strong comments from Geithner and payroll data coming in above expectations.

While speaking yesterday afternoon, Geithner said yesterday before the Senate banking committee that there was "absolutely" no chance that a big US bank would fail.

Non farm payroll data this morning was both above expectations and included upward revisions to the previously two monthly reports. Tempering that enthusiasm is the knowledge that the current 3 month average growth of ~97k is well below the needed 125-150k needed to keep up with natural population growth.

If you work as a lobbyist, it's likely you pulled an 'all nighter' last night reviewing the leaked draft proposal of the Volker bill. The WSJ highlights the following section as particularly worrisome for fixed income trading divisions : "[trading] must be designed to generate revenues primarily from fees, commissions…or other income not attributable to appreciation in the value of covered financial positions it holds in trading accounts." I've noted repeatedly that you cannot have liquidity without capital. If regulations impede, restrict, or forbid the ability of banks/brokers/dealers to hold bonds (even for a short amount of time), clients liquidity will be impacted. Glenn Schorr (Nomura) cautions that this draft could intentionally be dire "in order to facilitate further discussion during the 60-day public comment period."

In falling markets or dwindling liquidity, one is often forced to sell NOT what one wants but rather what one can. A Goldman piece warns (via FT/Alphaville) that this soon may occur with the French banks; what they can actually sell at the moment is US assets. They opine that the sales could be focused on "(1) aircraft leasing, (2) commercial real estate, (3) equipment financing, and (4) leveraged loans."

Markets can handle both good news and bad news. However, markets detest uncertainty. I'm concerned that the imminent and pending clash between Congress and the White House over potential tariffs on Chinese goods (as result of them being labelled currency 'manipulators') adds yet another healthy and potentially dangerous dose of uncertainty. This opinion piece in The New Republic (via Poltico.com) sums it up nicely.

You'll note that yesterday's rumor of a new round of Euro bank stress tests has been officially denied. Also, Sarkozy and Merkel are meeting this Sunday over their differences about how to implement a bailout package.

OFF TOPIC - I heard this fellow interviewed on NPR this morning and found him to be intelligent, articulate and enthusiastic. He has written a non-consensus op-ed in today's NYTimes titled "This War Can Still Be Won" about his experiences in Afghanistan. He is a Special Forces major who speaks Dari and just spent twelve months embedded with the Afghan army (his impressive bio is here).