Same Song, Different Year? Or…

Daily State of the Markets
Friday, December 7, 2012

Good Morning. It is said that the definition of insanity is doing the same thing over and over again and expecting a different result each time. So, in listening to many of the Wall Street firms and big wig hedge fund managers espouse their views on what to expect from the markets in 2013, one could conclude that these guys must be insane because to me at least, it sounds an awful lot like d?j? vu all over again.

If you will recall, just about everybody on the street was negative on the stock market at this time last year. Most analysts expected the Eurozone to implode due to Greece’s debt situation and for the rate contagion to continue to spread. Some expected that even France and Germany would eventually succumb and need bailout funds. It was projected that Europe’s debt mess would take the global recovery down with it. There was talk of recession in most established economies and expectations for bear markets in stocks.

And how exactly did that glass-is-completely-empty approach work out for the macro bears in 2012? While it hasn’t exactly been a walk in the park and the markets have spent an inordinate amount of time waiting on any number of deadlines or big, bad events (becoming algo/news-driven in the process), the last time I checked, the S&P index sported a gain of nearly 12.5% on the year while the average hedge fund is once again underperforming. And for those of you keeping score at home, this year’s 12.5% gain is about 40% better than the average annual gain seen since 1900.

So, given that we’re rapidly approaching the time of year where anyone and everyone feels a need to peer into their crystal ball and tell us what to expect for the coming year, I find it interesting that an awful lot of folks are singing the same dour song they did last year.

Currently it is the fear of the fiscal cliff that appears to be driving the negative ‘tude on the street. Then there is the impact of Sandy, the fact that Europe is in recession, the regulatory environment, the upcoming tax increases on investors and the wealthy, that latest round of job cuts, the slowdown in corporate earnings, China’s slowing growth, and the idea that the Fed is out of bullets. Cheery, eh?

A lot of the worry has to do with uncertainty on many fronts – especially relating to jobs, the economy, taxes, and employer costs. And what happens when folks are uncertain or concerned or afraid? Oh that’s right, they stop hiring people. Just yesterday we saw a survey from the Wells Fargo/Gallup on small business hiring expectations. The bottom line here is that due to the election, the cliff, and/or the hurricane, hiring expectations among small businesses hit the lowest level since November 2008.

According to the survey, 21% of business owners plan to cut payrolls while only 17% plan to increase hiring. While the folks that run the survey don’t expect a repeat of the massive layoffs that occurred in 2009, they say “there is the potential for a serious decline in jobs early next year if small-business owners’ hiring intentions do not improve.” In other words, if something doesn’t happen to perk up the moods of small business owners, they may start voting with their pink slips.

Then there are the GDP predictions coming out of Wall Street for 2013, some of which suggest an economic growth rate below 1% – even if the fiscal cliff is avoided. Super.

While I’m sure the folks in Washington are far more concerned about their ability to come out of the cliff negotiations saying they won the fight than getting something done before the clock strikes midnight on New Year’s eve, I’m of the mind that a bipartisan resolution that occurs sooner rather than later might go a long way in improving the mood of small business owners. But then again, that could just be the optimist in me coming out.

While it would make SO much sense for Washington to change their childish ways and just get the darn thing done, I guess we shouldn’t expect too much from this bunch. As such, I’m not all that surprised that so many analysts are singing the same song they did last year at this time. So, here’s hoping that 2013 also surprises to the upside for stock market investors. (I’m still allowed to hope, right?)

Turning to this morning… Sentiment is diverging this morning as China’s Shanghai index rose +1.6% while macro releases in Europe (German Industrial Production and Bundesbank GDP Projection) and concern about the political situation in Italy are creating a fair amount of red numbers. Here at home, traders are waithing on the jobs report with futures following Europe lower at the present time.

On the Economic front… We will get Nonfarm Payrolls and University of Michigan Consumer Sentiment this morning.

Thought for the day… To be old & wise, you must first have been young & stupid.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

Major Foreign Markets:

• Shanghai: +1.61%
• Hong Kong: -0.26%
• Japan: -0.19%
• France: -0.21%
• Germany: -0.18%
• Italy: -1.02%
• Spain: -0.92%
• London: -0.13%

Crude Oil Futures: -$0.38 to $85.88 !========>!========>