Thoughts From Joe - November 30, 2012

Top Eight

1. The Fiscal Cliff debate shifted to a new stage of positioning as President Obama provided the first straw man.  Initial offer is $1.6 trillion of taxes increases which is far from where the Republicans want to be, though no specific proposal has been put forward.  More than 40 percent of those receiving unemployment benefits are at risk of losing them January 1^st should an extension, as part of the compromise, not arise. 
2. The Fed is set to expand asset purchases at the December 12^th FOMC meeting.  Comments by several Fed officials, including Chairman Bernanke, are telegraphing an additional $45 billion of asset purchases per month to begin in January.  Jon Hilsenrath, author of the linked article, is widely believed to be the mouthpiece for the Fed.  This article can be read as if it were written by Bernanke himself.
3. Gross Domestic Product grew 2.7 percent in the third quarter, but much of the strength came from inventory growth.  Hurricane Sandy will distort most economic data to be released on fourth quarter activity.  Unfortunately, this will make it difficult to gain confidence in any positive figures.  GDP growth anywhere near 3 percent is solid, unfortunately very few believe third quarter's activity can be sustained.
4. Companies rush into transactions as tax hikes near.  Public companies are ramping up dividends and private company transactions are increasing as tax rates on both dividends and capital gains are scheduled to increase in January.  Time and again, free markets prove they are smarter than regulators - working around rules written to manage or manipulate private sector activity.  Instead of trying to drive outcomes through temporary structures, government policy should be stable so investors and consumers can appropriately allocate their capital for their own long term benefit.
5. The new governor of the Bank of England is…Canadian!  Mark Carney is moving from the head of Canada's central bank to the head of England's.  It is surprising, but not unprecedented, to hire a foreigner to oversee a nation's monetary system.  Perhaps Japan should try it.
6. Increasingly, Mexico is replacing China as a supplier of products for the U.S.  Today, Mexico is our third largest trading partner but according to The Economist, they could be number one as soon as 2018.  How important is Mexico?  One in ten Mexicans live in the United States.  Enough said.
7. Eleven year old Argentine default finally gives up the ship.  After a Ghana judge awarded an Argentine naval ship to an American hedge fund to resolve defaulted bonds they held, other creditors are due $1.33 billion.  An American judge followed suit trying to put the banking agents who process such payments on the hook as well as the actual obligor, Argentina.  Reading the linked article, it's possible both judges, uhm, overreacted.
8. Greece secured a bailout allowing them to attempt to retire debt at losses to investors.  The wayward country will borrow from the European Financial Stability Facility to tender for bonds held internationally at prices significantly below par.  The fact this was greeted as good news by the markets signifies just how much trouble Europe is really facing.

Key Indices

Source: Bloomberg

Looking Ahead

• Next Friday's employment data could go a little haywire due to hurricane Sandy.  Also, major central banks around the world will release their monthly statements.
• Earnings releases include:
  • Tuesday: Pandora Media
  • Wednesday: Finisar Corp.
  • Thursday: Palo Alto Networks
• Upcoming scheduled IPOs:
  • Solarcity, December 11, $150mm
  • GlobeImmune remains listed as  "day-to-day" ($65mm)