The Big Picture

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• Weekly Eurozone Watch 12.21.12
• Somebody That I Used to Know
• ‘Tis four days before Christmas
• Succinct Summation of Week’s Events (12/21/2012)
• What going over the ‘fiscal cliff’ means . . .
• Quote of the Day: On Pledges
• Durable goods orders surprise to upside / Income
• 10 Friday AM Reads
• Mandelbrot: Fractals, Chaos and Other Mathematical Visions
• Boehner’s Plan B fails
• ACME Corporation: 126 Coyote Endorsed Products
• The Sequestration Vote Is Nothing Like the TARP Vote

Weekly Eurozone Watch 12.21.12 Posted: 21 Dec 2012 03:21 PM PST Key Data Points German 10-year Bund 3bps lower; France 2 bps tighter to the Bund; Ireland 18 bps tighter; Italy 16 bps tighter; Spain 17 bps tighter; Portugal 11 bp tighter; Greece 116 bps tighter; Large Eurozone banks up  -1.0 to 5.0 percent higher; Euro$ up 0.17 percent. Comments - Italy, Portugal, and Greece 10-year yields at lowest weekly close of the year; - Greece was upgraded five notches to B- by Standard & Poor's; -Ryanair said it's opening its first "Greek base" on the Crete city of Chania; -Handelsblatt, the German financial newspaper, named Greek prime minister Antonis Samaras as its politician of the year in Europe; -The Italian parliament passed Mario Monti's 2013 budget; - Mario Monti resigned as Italy's Prime Minister paving way for February elections; -Spain's parliament approved 2013 budget, cutting the deficit to 4.5% of GDP from 6.3% this year; -Finland slashed its forecast for growth in 2013 to just 0.5% from 1.0%; -Cyprus was downgraded by S&P Cyprus' to junk status, two notches to CCC+. Source:  Guardian and Telegraph Spain has made dramatic strides in cutting labour costs and reviving exports since the debt crisis erupted, turning the country into the new poster-child of Europe's austerity regime. Fresh data from the OECD show that Spain has narrowed the gap in "unit labour costs" with Germany by 5.5pc over the past year alone. It has clawed back 4.6pc against France and 6.6pc against Austria since late 2011, as it slashes pay and pursues a scorched-earth policy of "internal devaluation". - Ambrose Evans-Pritchard             (click here if charts are not observable)

Somebody That I Used to Know Posted: 21 Dec 2012 02:00 PM PST I know this Gotye Cover was played relentlessly this past year, but they do such a killer job on this, including 5 people playing the same guitar. Sure, its schtick, but its so well done I cannot help myself:

‘Tis four days before Christmas Posted: 21 Dec 2012 01:30 PM PST ‘Tis four days before Christmas By Art Cashin Prepared by UBS Financial Services Inc.   'Tis four days before Christmas and at each brokerage house The only thing stirring was the click of a mouse Down on the Exchange the tape inches along Brokers bargained and traded as they hummed an old song The Fed struggled and twisted but few jobs did appear They’ll keep pushing that button we’ll have QE all year In sports it was Giants from East Coast and West Who stunned fans and detractors to prove they were best The Mayans once told us this would be the last year But they miscalculated for it seems we’re still here Lady Gaga bulked up Honey Boo Boo appeared Our public taste levels may be worse than we feared A cruise ship keeled over in seas that were mild There was also some good news Princess Kate is with child At the movie box office Hunger Games was a smash Lindsey can’t seem to help it she’s still doing things rash There was flooding and riots they brought little to cheer But it's Christmastime, Alice and Santa is near So stop looking backwards have a cup of good cheer And kiss you a loved one raise your hopes for next year And amidst all the trading Christmas themes we will heed And share our good fortune with families in need And Monday they'll pause as we wait on the bell To sing a tradition a song for old "Nell" Don't let this year's problems impede Christmas Cheer Resolve to be happy throughout the New Year And resist ye Grinch feelings let joy never stop Put the bad at the bottom keep the good on the top So count up your blessings along with your worth You're still living here in the best place on earth And think ye of wonders that light children’s eyes And hope Santa will bring you that Christmas surprise So play ye a carol by Mario Lanza Unless you are waiting to celebrate Kwanzaa Hanukkah's just ended and Ramadan's gone Different folks, different holidays yet each spirit lives on Whatever your feast is we hope you all still Find yourself just surrounded by folks of goodwill Monday, as the bell rings hark to your heart's call And as Santa would shout Merry Christmas to All!

Succinct Summation of Week’s Events (12/21/2012) Posted: 21 Dec 2012 12:00 PM PST Succinct summation of week’s events: Positives: 1) Durable goods orders in Nov bounce and Oct revised higher as cap ex stabilizes after previous 4 mo’s of weakness. Still, cap ex basically flat y/o/y. 2) Philly mfr’g in Dec bounces unexpectedly to +8.1 from -10.7 as this region wasn’t hit as hard as NY/NJ during the storm. 3) Initial Jobless Claims normalize at 361k. 4 week avg back to pre storm level. 4) Existing Home Sales total 5.04mm vs 4.76mm in Oct and est of 4.9mm. It’s best since Nov ’09 when home buying tax credit juiced results. Months supply falls to 4.8 from 5.3, lowest since Oct ’05. 5) NAHB home builder index rises 2 pts to 47, best since Apr ’06. 6) Multi family permits jump 32k. 7) Real income grows .8% in Nov on bounceback from storm. Real spending up by .6% and Savings Rate rises to 3.6% from 3.4%. PCE inflation deflator falls to 1.4% from 1.7%. 8) German IFO business confidence up 1 pt to 102.4 led by expectations component as current conditions fall. 9) China property prices of new homes rise in 53 of 70 cities surveyed vs 35 in Oct. 10) If you like electronic money printing, BoJ adds another 10T yen to its program, Nikkei trades above 10,000 intraweek as exporters get breather with weaker yen. Negatives: 1) Another week without a fiscal deal but S&P’s still higher on week, notwithstanding last nights drama. 2) Dec UoM final confidence # falls to 72.9 from initial 74.5 and down from 82.7 in Nov mostly led by decline in the Outlook. 3) NY mfr’g doesn’t rebound as fast as Philly after storm as index falls to -8 from -5 and 7 pts worse than expected. 4) KC mfr'g negative for 3rd straight month at -2 but was better than expectations of -5. 5) Within Philly mfr'g, prices paid rise to 10 mo high, prices received at 19 mo high, KC region prices paid at 10 mo high. 6) Nov Housing Starts total 861k vs 888k in Oct (highest since July ’08 but near trough levels of ’74, ’81 and ’91 recessions with a much larger population) and est of 872k. Single family permits fall a touch. 7) Coincident with move higher in long term interest rates, avg 30yr mortgage rate rises to one month, albeit still at historically low levels. 8) More likely due to seasonals than anything, MBA said refi’s fall 13.8% and purchase apps down 4.8%. 9) FDI in China in Nov falls 5.4% y/o/y, more than expected and negative for the 12th month in the past 13. 10) UK CPI in Nov holds at highest level since May at 2.7%, above the 2% BoE target for the 36th straight month.

What going over the ‘fiscal cliff’ means . . . Posted: 21 Dec 2012 09:30 AM PST What going over the ‘fiscal cliff’ would mean . . . Source: The Washington Post

Quote of the Day: On Pledges Posted: 21 Dec 2012 07:48 AM PST From Jim Welsh, whose MacroTides have graced the Think Tank for several years now. Jim wrote this last night: “Fully 95% of Republican members of Congress have signed the Americans for Tax Reform Taxpayer Protection Pledge. Signors pledge that they will 'One, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and Two, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing rates.' We agree in opposing tax increases for the middle class, but to oppose any tax increase in a time of budget crisis is putting this pledge above country. Is this pledge always supportive of the common good? For any member of Congress, the most important pledge is this. "I pledge allegiance to the flag of the United States of America and the Republic for which it stands, one Nation under God, indivisible, with liberty and justice for all.' ” -Jim Welsh, December commentary Nicely said . . .

Durable goods orders surprise to upside / Income Posted: 21 Dec 2012 07:15 AM PST Durable Goods orders in Nov were better than forecasted up .7% headline, 1.6% ex transports and 2.7% for non defense capital goods ex aircraft vs expectations of up .3%, down .2% and flat respectively. Also positively, Oct was revised higher. Putting into perspective though, headline orders are up just .5% y/o/y, flat ex transports and up only .3% at the core cap ex level. Within the details, vehicle/parts orders rose 3.5% more than offset by a 13.9% in nondefense aircraft. Order gains were seen in metals, machinery, electrical equipment and a tiny gain for computers/electronics. Shipments, which go right into GDP, were up 1.5% after a .1% gain in Oct and because inventories were up just .2%, the I/S ratio fell to 1.65 from 1.67. Backlogs rose .1%. Bottom line, after weakness seen in the June thru Sept timeframe where core cap ex orders fell to the lowest since Feb ’11, they have bounced back over the past two months to the most since June notwithstanding the cloudy visibility seen in economy’s overseas and with our own political process. Cap ex has been a drag on economic growth during 2012 and we’ll see if the uptick in the past few months is sustainable into 2013. ~~~ Personal Income in Nov rose .6% m/o/m, twice expectations while Spending was up .4%, in line with estimates. Because the headline PCE inflation deflator was down .2% m/o/m, REAL income was up .8% and REAL spending was up by .6%. Core PCE was flat and the y/o/y gains are 1.4% headline and 1.5% core. The PCE is now the preferred inflation gauge of the Fed because I guess they don’t like the more housing heavy CPI which has been more elevated than PCE because of rising rents. The income bounce in Nov follows the Oct decrease in wages and salaries which “reflected work interruptions caused by Hurricane Sandy” according to the BEA. The y/o/y gain in wage and salary is 3.6% with a 4.1% rise in overall income. It’s an improvement to the best since Oct ’11 but still below the average in the 20 yrs into Sept ’08 of 5.6%. The Savings Rate rose to 3.6% from 3.4%. Bottom line, with revolving consumer credit outstanding hovering around the lowest since late ’05 and the consumer’s desire to further deleverage, income growth is the important statistic in leading consumer spending higher as more production and eventually more hiring will follow that. The Savings Rate at 3.6% remains well below the average since data going back to 1959 of 6.9% and the more limited access and desire for credit must be offset by higher income and savings. The savings part is being made much more difficult by the Fed of course. There is more than $8T of national savings yielding almost nothing where just a 1% fed funds rate would be $80b+ extra into the hands of savers.

10 Friday AM Reads Posted: 21 Dec 2012 07:00 AM PST My morning reads: • How Boehner's Plan B for the 'fiscal cliff' began and fell apart (The Washington Post) • ICE Deal for N.Y.S.E. Creates Global Powerhouse (NYT) see also NYSE, ICE Deal About Everything but Stocks (The Street) • Gen Y investors in the driver seat of ETF growth (Investment News) • Hedge funds: Rich managers, poor clients (The Economist) • For banks, nothing is illegal (The Physics of Finance) • The Fed's Century of Power Started With a Fateful Meeting (Echoes) • Corporate Short-Termism in the Fiscal Cliff's Shadow (Project Syndicate) • Instagram Does an About-Face (Bits) • Doctors Move to Webcams (WSJ) • Daily Gun Slaughter in U.S. Obscured by Newtown Rampage (Bloomberg) What are you reading?   Fed's $4 Trillion Rescue Helps Hedge Fund as Savers Hurt Source: Bloomberg

Mandelbrot: Fractals, Chaos and Other Mathematical Visions Posted: 21 Dec 2012 06:45 AM PST Source: Scientific American

Boehner’s Plan B fails Posted: 21 Dec 2012 06:35 AM PST Foreign ownership in Japanese debt has increased 11% YoY, with total debt held outside Japan rising to a record 9.1% (US$ 1tr) as at 30th September. However, I would guess that the percentage ownership will be lower at the end of this year. It is broadly accepted that Japan’s disproportionate local holding of its debt protects it from adverse fluctuations by international markets and that increasing foreign ownership may pose risks for this stability. The BoJ owns roughly 11.1% of outstanding Japanese government debt. (Source – Financial Times/Bloomberg); Mr Narendra Modi has won a landslide victory in the western Indian state of Gujarat. Modi has been tipped to be BJP's candidate for PM at the elections in 2014. Modi is seen as a Hindu nationalist, whereas the Congress Party maintains an inclusive multi denominational perspective. Italian December Consumer Confidence seasonally adjusted came in at 85.7 M/M, somewhat better than the 85.1 expected and the revised 84.9 in November. A slightly better number than the recent weaker economic data. Mr Monti is expected to step down as PM today. He intends to hold a press conference over the weekend to announce his future plans – looks as if he will run for PM. Polls suggest he will attract some 20% of votes; German January Consumer Confidence (GfK survey) came in at 5.6 M/M, slightly lower than the 5.9 expected and the revised 5.8 in December; French business confidence indicator came in at 89 M/M, in line with expectations and 88 in November. The outlook indicator improved marginally to -38 M/M, better than the -42 expected and -42 in November; Eurozone Consumer Confidence (December) came in at -26.6 in line with expectations of -26.5 (prev -26.9). Final UK Q3 GDP came in at +0.9% Q/Q, marginally lower than the +1.0% previously. Y/Y, GDP was flat, marginally better than the -0.1% expected. UK November public sector net borrowings came in at £17.5bn, higher than the £16bn expected, as income tax receipts were 12% less than expected. The budget deficit (year to 5th April 2013) came in at £92.7bn, up from £84.4 Y/Y, as at the end of November. I continue to believe that the UK will lose its AAA credit rating next year; The Philly Fed Index rose materially to +8.1 (Exp -3.0) in December from -10.7 in November. The new orders component surged to +10.7, from -4.6 in November, with employment up to +3.6, from -6.8. Prices paid was relatively unchanged at +27.8, from +27.9 in November. Importantly, the expectations component (looking 6 months ahead) rose to 30.9, from 20.0. Certainly a very good piece of data, though probably reflecting the recovery post Hurricane Sandy; US existing home sales rose by +5.9% to 5.04mn homes at an annual rate, the most in 3 years and above expectations of a rise of +2.3% to an annualised rate of 4.9mn homes. I will repeat – housing will make a material positive contribution to US GDP next year, which suggests to little old me that current US GDP forecasts need to be revised higher; Mr Boehner, the House Speaker called off a vote on his Plan B last night, as he did not have enough support from his colleagues to pass the bill which, in any event, was not going to pass the Senate. Seems to have been a crazy tactic and could jeopardise his position early in the New Year. It looks as if the resolution of the fiscal cliff will carry over into the New Year, with President Obama proposing a tax cut on most Americans – probably for those earning up to US$500k. Its all politics, but the markets have reacted negatively; US personal income rose by +0.6% more than the +0.3% expected and a flat reading previously. Consumer spending was up 0.4% (prev -0.1%) in line with expectations but the largest rise since February 2012. Durable goods orders rose by 0.7%, higher than the expected 0.3% (prev 1.1%); The Brazilian Central Bank has forecast growth of 1% next year. In efforts to encourage investment, Brazil has sanctioned the privatisation of the upgrade and management of Brazil’s public airports, including Galeao in Rio. The Central Bank also increased their gold holding to 67.2 tonnes and is at the highest since August 2000. Outlook Asian markets closed lower following the withdrawal by Mr Boehner of his Plan B. European markets are around -0.5% lower, with US futures over -1.0% down. Spot gold is trading around US$1650, with February Brent at US$109.79. The Euro is trading at US$1.3215, with the Yen slightly stronger at Yen 84.10 against the US$. I continue to add to my equity holdings. Kiron Sarkar 21st December 2012

ACME Corporation: 126 Coyote Endorsed Products Posted: 21 Dec 2012 05:00 AM PST Rob Loukotka watched every Coyote & Road Runner episode, then hand drew all 126 gadgets, explosives, and items that appeared in the cartoons, pulling them into a giant poster.     click for giant poster Includes Tornado seeds, Giant magnets, Dynamite, Rocket powered roller skates, Anvils, Giant Rubber Bands, illustrated, designed and researched from all 43 Coyote & Road Runner cartoons from 1949-1994. T How amazing would it be if The ACME Corporation were real? That’s why Rob made this poster, funding it via Kickstarter. Only a giant 24×36″ poster can capture the incredible detail of these fun items. The posters will be beautifully screen printed on thick ‘Wild Cherry Red’ French Paper, signed and numbered by me. One poster is $30 and includes shipping anywhere in the US; $40 for anywhere else in the world.     Source: Rob Loukotka KickStarter, Nov 26, 2012 http://www.kickstarter.com/projects/fringefocus/the-acme-corporation

The Sequestration Vote Is Nothing Like the TARP Vote Posted: 21 Dec 2012 04:20 AM PST The ongoing fiscal cliff foolishness continues to be a parade of bad data, ignorant commentary and media hype. The latest silliness: THIS IS JUST LIKE TARP. Only its nothing like TARP. Indeed, in nearly every significant way that we can c0mpare the two, they have almost no similarities: • Economy: During the TARP vote, the US economy had been in a recession for nearly a year. It would turn out to be the worst Recession since the Great Depression, and would not end until 9 months after the TARP vote took place. Currently, GDP was just revised up to 3.1%, income and spending are rising. The economy is not anywhere near full capacity, it is at least expanding modestly. • Markets: As of the close the day before the GOP revolted, the S&P500 was up 15% (17% TR) for the year. All major US markets had done well (Futures suggest that may change a bit today). 2008, on the other hand, was a full blown market debacle. When TARP vote came up, 6 of the prior 9 months the SPX was negative. September ’08 alone saw a market dive of nearly 10%. And the S&P500 ended the full year down 38.5%, the worst showing in decades. • Employment: TARP was voted on in a terrible, near panicky jobs market. The prior year had seen huge monthly drops in NFP — down 489,000 in October 2008, a 432,000 loss in September, and down 274,ooo in August (BLS). Only one month in 2008 had any job gains at all, and that was for a mere 41k. For the calendar year of 2008, we lost over 3.5 million jobs, averaging minus 300, 000 jobs per month. In 2012, we have been adding between 100,000 – 200,000 new jobs each month. The prior 12 months have added almost 2 million jobs, averaging 157,000 new jobs per month. • Timing: TARP was voted on a month before a presidential elections, with no incumbent running. The current vote is occurring a month after the incumbent won by a big margin 51% to 47%, with a 332 to 206 electoral college victory, picking up seats in both the House and Senate, and winning a majority of votes cast in Congress. • Leadership: I may not have agreed with what Hank Paulson and Fed Chair Bernanke were doing, but they were out front, and very public in pronouncements. George W. Bush had delegated dealing with the TARP to his economics team, and they showed real leadership. Currently, Bernanke has said its its outside of the Fed’s purview — and therefor its up to Congress to resolve this. The GOP position — no new taxes or rate increases, regardless — ultimately leads to a tax increase as the Bush cuts expire. Add to this a power play going on behind the scenes, with Boehner’s chairmanship at risk. • Repercussions for failure: The threat of failure of TARP was pretty dire: Firms like McDonalds and GE would not be able to maker payroll. ATMs might stop working, and there was even fear of having to impose Martial Law. If Sequestration occurs, we end up with $500B out of 16 trillion economy getting cut; add tax rates going up 3%, returning to 1999 levels. The impact of these are across all of 2013 — not just Jan 1. Let’s see, 3% tax bump versus Martial Law: Yeah the Sequestration is exactly like TARP. The best part about the fiscal cliff is how revealing it is of the scaremongers, fools and charlatans, Make your list of fools now, and save it for a future date. You may find it productive.       Previously: The Price of Paying Attention  (November 3rd, 2012) Apprenticed Investor: Lose the News (The Street.com, 06/16/05)

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