NEW$ & VIEW$ (18 DECEMBER 2012)


I am partly re-committing to equities after having been cautious since April 2012.

  • The S&P 500 Index is 25% undervalued based on the Rule of 20.
  • Earnings have peaked but are not collapsing like in 2007.
  • Inflation has slowed and seems unlikely to re-accelerate soon.
  • The U.S. economy remains ok. Avoiding the fiscal cliff removes a big short term threat. Christmas sales look ok.
  • Oil prices are not a big threat although Middle East tensions remain.
  • The Fed keeps pumping.
  • China is not hard landing, actually showing signs of re-acceleration.
  • Europe remains in poor shape but the ECB will act as a backstop if things get worse.
  • Technically, U.S. equities look good with stocks above the rising 100-day and the 200-day moving averages. Technical downside is 1390 on the S&P 500, -3.3% from the current 1438 level.
  • Not a slam dunk but, all in all, the risk/reward ratio is very favorable and many catalysts are turning positive.



Obama Tax Concessions Signal Potential Bipartisan Budget Deal 

New Offers Bring Cliff Talks Closer

The White House for the first time abandoned its effort to raise tax rates on income above $250,000, one element of its counteroffer to Republicans as both sides try to craft a deal before the end of the year.

President Barack Obama backed away from his long-standing call for raising tax rates on households making more than $250,000 a year, a development that inches the White House and congressional Republicans closer to a budget deal.

During a meeting with House Speaker John Boehner (R., Ohio) Monday the president proposed allowing Bush-era tax rates to expire for households making more than $400,000 in annual income, people familiar with the meeting said. (…)

As part of the offer, the president lowered the amount of tax revenue he is seeking in a deal from $1.4 trillion to $1.2 trillion. He also agreed to accept a GOP proposal to slow Social Security growth by using a different inflation formula to calculate cost-of-living increases, people familiar with the matter said. (…)

Pointing up Another notable change in the White House’s newest offer was the removal of a push to extend the payroll tax cut. The change means the amount of tax paid by virtually all earners next year will increase.

A Democratic official familiar with the talks said Mr. Obama’s offer could pass the Senate but would still be a “tough sell” within the party because of the Social Security proposal and the retreat from the $250,000 income threshold on tax increases.

Stocks Rise on Cliff Deal Hopes

European stocks, German Bund yields, oil futures and gold prices climbed amid signs of progress in the U.S. budget negotiations.


Sun  All 50 States Have Gas Below $4 for First Time in 2012  Gasoline prices have been falling for weeks, and have now reached a new low for the year.

The national average pump price of regular gasoline fell 9.2 cents a gallon last week to $3.248 a gallon today, the lowest price since December 2011, AAA Daily Fuel Gauge reports. Prices are still a bit higher than they were at this time last year.

Prices have fallen each day this month on rising supplies and are down 16% since mid-September




Sales jumped 4.3% last week, past their Thanksgiving week peak, to their highest level since April. The 4-wk m.a. is back to its September 15 level, up 3.3% Y/Y.




Smile  Power consumption growth rate hits record for 2012  China’s electricity consumption reached 413.9 billion kilowatt-hours in November with 7.6 percent growth year-on-year, a record high in 2012.

The commission said on Monday that it was the first time all provinces and autonomous regions realized positive growth in power consumption since April. The country’s electricity consumption increased 5.1 percent year-on-year in the first 11 months.

Smile  Chinese Housing Provides Cheer

A government survey released Tuesday showed that average housing prices in China rose at a faster pace in November from the month before, following largely marginal gains since June. Sales and investment picked up in recent weeks in part because of a growing perception that prices have bottomed out, analysts said.

[image]The data came after Beijing signaled a potential subtle shift in its nearly three-year-long property tightening campaign. Policy makers at a weekend meeting reiterated a pledge to crack down on speculative investment but conspicuously refrained from emphasizing the need to bring prices down. (…)

The Wall Street Journal calculations based on data released Tuesday by the National Bureau of Statistics showed that average prices in 70 cities polled increased by 0.24% on average in November from a month earlier, compared with a 0.05% increase in October. Compared with a year earlier, prices fell 0.6% on average in November, decelerating from a 1% decrease in October. Prices of newly built homes in 53 of the 70 surveyed cities rose in November compared with the previous month, more than the 35 cities in October.

U.K. Inflation Holds Steady  The annual rate of inflation in the U.K. held steady in November after accelerating in October, underscoring Bank of England concerns that price pressures will persist despite weak economic growth.

The Office for National Statistics said consumer prices rose 2.7% on the year in November, the same annual rate measured in October. Prices rose 0.2% between October and November. The annual rate of core inflation, which excludes volatile food and energy prices, also held steady at 2.6% in November, official data showed.

Riksbank Cuts Main Rate

Sweden’s central bank lowered its main interest rate, seeking to help overcome a drop in growth as European demand for Swedish exports slows.

Red rose  Wal-Mart Takes An Assault Rifle Off Its Virtual Shelves  America’s biggest gun seller is backing away from a now-notorious assault rifle on sale on its shelves, removing the weapon from its online catalogue. Peace


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