The Big Picture

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• Right vs. Left Brain
• RIMM: F**k U, World
• Succinct Summation Of Week’s Events (01/06/2012)
• Brian Wesbury: 22 Consecutive Months of Job Gains
• Trulia: Where Are People Searching For Homes?
• Presidential Approval/Disapproval Ratings, 1938-2012
• NFP Update: Jobs, Politics & Markets
• Themis Trading 2012 Market Structure Predictions!
• 10 Friday AM Reads
• Payrolls surprise to the upside

Right vs. Left Brain Posted: 07 Jan 2012 01:30 AM PST Logic versus Emotion > click for ginormous graphic Source: Marketo

RIMM: F**k U, World Posted: 06 Jan 2012 02:09 PM PST

Succinct Summation Of Week’s Events (01/06/2012) Posted: 06 Jan 2012 12:30 PM PST Succinct summation of week’s events: Positives: 1) Dec Payrolls surprise to upside with 3rd 200kish print of yr, unemployment rate falls to 8.5% although in part due to another drop in labor force 2) Initial Jobless Claims 4 week avg drops to lowest since June ’08 3) US ISM mfr’g rises to best since June 4) US vehicle sales hang in with estimates 5) Mfr’g PMI in China, India, Australia, Taiwan and UK all rise from Nov 6) German unemployment rate falls to lowest since reunification in ’91 to 6.8% 7) UK and Indian PMI services rises to 5 month high and China’s jumps back over 50 8) Euro zone CPI moderates to 2.8% from 3.0% 9) Euro basis swap, US$ 3 mo LIBOR and euribor/ois spread all moderate as yr end funding stress eases 10) Van Halen announces 2012 tour Negatives: 1) Bond yields continue higher in Europe, Italian 10 yr yield at 5 1/2 week high 2) Unicredit stock falls 38% after rights issue details are released. At what cost will the European banking system recap come to? 3) German Nov factory orders fall more than expected 4) EC economic confidence falls to lowest since Nov ’09 5) US ISM services a touch light, employment component remains below 50 and doesn’t confirm jobs data pace of growth 6) Refi apps fall 2.5% and purchases down by 9.6% even as mortgage rates fall to new low and the Fed’s Dudley still thinks that even lower rates is the magic solution 7) US Dec retail sales below expectations and margins get clipped.

Brian Wesbury: 22 Consecutive Months of Job Gains Posted: 06 Jan 2012 11:42 AM PST The ever chipper Brian Wesbury (US looks more like Europe? Huh?) Source: December Jobs Report: Good Economic News, Better Political News

Trulia: Where Are People Searching For Homes? Posted: 06 Jan 2012 10:00 AM PST From Trulia‘s database of home searches, based on their web traffic from 2006 through 2011: > click for timelapse > Hat tip Flowing Data

Presidential Approval/Disapproval Ratings, 1938-2012 Posted: 06 Jan 2012 09:00 AM PST As discussed earlier, Politics is a factor in markets. Fascinating set of long term charts showing Gallup’s Presidential approval ratings, going all the back to 1938: > Click to enlarge charts: ˜˜˜ > Disapproval ratings after the jump ˜˜˜ Source: Charts Of The Week Bianco Research, For the week of December 28, 2011

NFP Update: Jobs, Politics & Markets Posted: 06 Jan 2012 08:00 AM PST The post NFP story intrigues: This number was undoubtedly strong to anyone who read it (Rick Santelli excepted). Unemployment is trending downwards; revisions are positive; the average workweek ticked up 0.1 hours; average hourly earnings rose 4 cents (0.2%). And unlike last month, the labor force participation rate (64.0%) and the employment-population ratio were unchanged. This means that the Unemployment Rate actually improved in December, unlike November, when it only appeared to improve. There are seasonal reasons for the positive data — and they may fade by Q2. But for now, we must operate with the facts in front of us, and they are that Employment data is trending upwards. What will the fallout from this be? Consider these three aspects: • Federal Reserve: Has been watching the labor market closely. While the private sector is clearly improving, it is no where  near what is necessary for the Fed to remove its accommodation (glorious free money) or end ZIRP soon. The key for the Fed is not Employment, but rather inflation. They are likely expecting inflation will remain subdued even if employment improves substantially and wages tick up. Between consumer  deleveraging, mortgage overhang, and capacity under-utilization, they seem to believe inflation is years away. • Politics: The biggest challenge to any incumbent President is National Security, then the Economy. Following the termination of Bin Laden, Barack Obama needs only a modest improvement in the Economy to last until late Summer to lock up re-election. (I’ll dig up some long term approval/disapproval ratings and post later) As we noted above, that is far from a sure thing. ECRI’s recession call could be right (their track record is outstanding); this uptick could be merely due to temporary seasonal factors. However, this report could very well change the tone of the campaign season. These improvements are on the verge of becoming an actual trend — one or two more good NFP reports and the Presidential election, fight to retain the Senate, and campaign to expand control over the House could get very interesting. And that has huge potential repercussions for: • Markets: I have long since argued that politics and investing should not be intermingled. However, I am in the minority on this, and in order to get some further context, we need to consider Keyne’s Beauty contest: Its not what I think, but what the crowd believes. Let’s do a quick thought exercise: Based upon some of the more vociferous complaints, when it comes to Markets, the Incumbent is anti-business, anti-growth, pro-tax, pro-regulations, yadda, yadda, yadda. We do not know everyone’s collective opinion — but there is certainly a vocal subgroup saying that. If that is the crowd’s dominant beliefs and expectations (regardless of accuracy), and if it is acted upon (a big if), it could matter a great deal to trading. Regarding issues of taxation, regulation, health care, etc., there exists a possibility of improving economic data being a negative for the markets — at least for the short term. The bottom line remains thus: The Employment data continues to improve; perhaps it becomes problematic later on, but the overall trend is positive. The Fed’s policies are unlikely to change at least for the next 2 quarters. Yes, I am aware of their “promise,” but that can change very quickly if inflation returns. Lastly, the political ramifications can have an impact on markets, we will see what the rabid Pro and Anti voters do with their money.

Themis Trading 2012 Market Structure Predictions! Posted: 06 Jan 2012 07:30 AM PST Themis Trading 2012 Market Structure Predictions! January 5, 2012 OK. We hope this year we surpass the one-for-ten performance of 2011. The shame was unbearable! Here goes: 1) A major stock exchange will introduce options that expire in one hour. 2) Sal and Joe will publish a book about "how to HFT" from one's own home. Algorithms on Amazon will get caught in a predatory feedback loop and bid the price of the book up to $23,698,656.9301, beating the price those same algos set back in 2011 for The Making of the Fly by one hundredth of a penny. 3) The SEC will finalize its dark pool proposal, and mandate that all orders must be price improved by at least THREE thousandths of a penny, or otherwise be sent within a one-second time period through a smart order router eventually to the exchanges. 4) A major exchange will propose a SEC rule that will require corporate issuers to rebate and subsidize HFT market makers for making markets in ETF's that contain their company's stock. Oh wait…Nasdaq did this in 2011. 5) Exchanges will lower the price of co-location, trying to expand the appeal to retail traders, however they will also institute rules that automatically allow Liquidity Partners to be at the top of book a set percentage of the time, kind of like a "lifeline" that the LP's can utilize, rendering colocation useless, and that percentage at the top of book will be directly related to the frequency the Liquidity Partners were within 25% of the NBBO over a trailing 3 month period with those statistics calculated every three weeks and published monthly in physical form in the SEC's Public Reference Room. 6) A new product, called the Mutual Fund, will revolutionize investing by pooling investor's money into a fund operated by a portfolio manager, who will then turn around and invest those funds for the long term into equity shares. Funding/redemption will take place once/day. 7) "Liquidity" will be added to the FCC's list of dirty words you can't say on TV. 8 ) An ETF will be created that tracks the differential between the performance of VWAP strategies and Steve Cohen's gut, as well as options on those ETF's. 9) The Deutsche Bourse and the NYSE will finally merge, and after a long contest, will be renamed Sprocket Exchange. Touch my monkey. 10) Nasdaq OMX, not to be outdone, will propose a merger with the newly-formed Sprocket Exchange, but will fail, as a major Chicago HFT firm will swoop in and take over the two parties.

10 Friday AM Reads Posted: 06 Jan 2012 06:42 AM PST My reads to start the day: • Did Santorum Win Iowa? Could Typo Rewrite Caucus History? (KCCI) • What if the 2009 bull market is still alive? (Market Watch) • Congress Presses Rating Firms (WSJ) • Stores Pay Price for Holiday Bargains as Profits Sag (Bloomberg) • Yes, Virginia, Brokerage Firms Keeping Client Ripoff Provisions in Customer Agreements in the Wake of MF Global (Naked Capitalism) see also MF Global Inquiry Turns to Its Primary Regulator (Deal Book) • London: Save the City! (Economist) • Europe Adrift (I) (German Foreign Policy) see also Euro’s Resilience Is Tested (WSJ) • Bauhaus: How A Movement Failed to Protect Its Name (Spiegel.de) • Sorting Out an Avalanche of iPad Apps for the Best of 2011 (NYT) see also Apple's Siri Feature Doubles IPhone Data Usage (Bloomberg) • Americans buy record numbers of guns for Christmas (Telegraph) What are you reading? > Monthly NFP Changes Source: WSJ

Payrolls surprise to the upside Posted: 06 Jan 2012 06:03 AM PST Dec Payrolls totaled 200k, 45k higher than expected all aided by a 212k increase in private sector jobs, 34k more than estimated. The prior two months were revised lower by 8k. The unemployment rate fell to 8.5% from an upwardly revised 8.7% in Nov, as the employment survey added 176k jobs and the labor force declined again, this time by 50k and 170k over the past two months. The all in U6 rate fell to 15.2% from 15.6%. Avg hourly earnings rose .2% m/o/m and 2.1% y/o/y, up from 1.9% in Nov but still well below CPI running north of 3%. Mfr’g job gains were 23k, above estimates of 6k and there were job adds in construction, retail, IT, financial, education/health, and leisure/hospitality. Temp jobs fell and local gov’ts too shed jobs. The avg workweek did tick up by .1 and the avg duration of unemployment fell a touch. Bottom line, the best job gain since Sept brings the 2011 monthly average to 137k, very ordinary in a recovery but hopefully Dec begins a new higher level of trend. As we all know though, much of that will be determined by how Europe plays out in 2012 and what spills over to the rest of the world. Some think the US can skirt by a European recession but mathematically that will be tough without some impact.

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