“A loss never bothers me after I take it. I forgot it overnight. But being wrong — not taking the loss — that is what does damage to the pocketbook and to the soul.” — Jesse Livermore

1. Political uncertainty in Spain and Italy spooks markets — Spanish PM Mariano Rajoy tried to fight off allegations that he and other leaders in his party took bribes, while in Italy, Silvio Berlusconi’s party is surging in the polls ahead of upcoming elections as he promises to tear up “German-imposed” austerity policies and cancel a despised property tax.
2. Oil firms, environmentalists jockey for position over California shale — Oil companies such as Occidental Petroleum (OXY), Venoco (VQ) and Hess (HES) are looking to exploit California’s Monterey Shale, whose untapped deposits are estimated at 15.4B barrels, or over four times the reserves in the Bakken Shale. However, the industry is facing stiff opposition from the state’s environmental lobby, which is concerned about the substances used in fracking and the potential for setting off earthquakes.
3. Justice Department Filed Suit Against Standard & Poor’s, a unit of McGraw Hill Cos. (NYSE:MHP) — The DOJ’s lawsuit, joined by several states, seeks $5 billion in damages for losses to pension funds, banks and other financial institutions the government alleges were caused by the way S&P rated structured investments such as collateralized debt obligations in 2007.
4. BOE leaves policy unchanged — the Bank of England (BOE) has again left its monetary policy unchanged, with its benchmark rate staying at 0.5% and its QE program dormant.
5. Ireland’s hopes rise for debt refinancing — a reluctant ECB is close to agreeing to a refinancing of Ireland’s debt after the country’s parliament authorized emergency legislation to dissolve the former Anglo Irish and Irish Nationwide banks, now merged into IBRC, and sell their remaining assets of up to €14B to a bad bank.
6. Indian Economy to Grow at Weakest Pace in a Decade — per WSJ, India’s growth will decelerate this FY to 5% from 6.2% last year, the statistics ministry has said in a forecast that is lower than a recent finance ministry outlook of +5.8%. The slowdown is due to continued weakness in manufacturing and farm output, with the economy being hampered by a lack of reform, wide fiscal and current account deficits, and high inflation.
7. Consumer Sentiments Bullish — chart below shows Newsletters are the most bullish since 2010.

The week ahead — Economic data from Econoday.com:

“The four most dangerous words of all time, “It’s Different This Time!” — unknown

1. Cosco, China’s largest shipping company by fleet size Expects Large 2012 Loss — WSJ, Chinese shipping giant Cosco has warned it expects to report a large loss for 2012 due to the combination of weak demand in the dry bulk shipping market and escalated fuel costs.
2. Japan forecasts 2.5% growth — the government in Japan estimates GDP will increase 2.5% for the fiscal year which begins in April, higher than its previous outlook for 1.8% growth. Strong export outflows and higher capital spending from the government are both expected to provide boosts.
3. Shanghai Composite Enters Bull Market on Economic Growth — The Shanghai Composite Index (SHCOMP) climbed 0.5 percent to 2,358.98 at the close, extending its advance since Dec. 3 to 20 percent, a threshold signaling a bull market to some investors. The Shanghai Composite exited its longest-ever bear market. A 756-day stretch without a 20 percent gain from Nov. 8, 2010, through Dec. 3 is the longest on record, according to data compiled by Bloomberg and Birinyi Associates Inc. The gauge fell 38 percent during the period.
4. U.S. economy shrinks 0.1% in fourth quarter — MarketWatch, government data showed the U.S. economy shrank in the fourth quarter for the first time since the recession, but the nation appeared to still be on a mild growth path if unusual factors are stripped out. The fourth-quarter retreat mostly stemmed from lower inventories and a plunge in military spending. Spikes in those two categories had given growth for the third quarter an exaggerated pop, and economists expected them to be reversed.
5. S&P500 (SPX) Shows Triple Tops (Bearish) OR Inverse Head-n-Shoulder Pattern (Bullish)? — below is a chart of the SPX from 1993 to Present.

6. Japanese industrial output points to recovering economy — Japan’s industrial production recovered to rise 2.5% on month in December vs -1.4% in November, although the growth was below consensus of +4.1%. With the companies surveyed for the report expecting more gains in January and February, the data adds to other metrics which indicate that the economy could be rebounding from its recent slump.

The week ahead — Economic data from Econoday.com:

“For all the sad words of tongue and pen, the saddest are these: It might have been.” — John Whittier; an influential American Quaker poet

1. GlaxoSmithKline (GSK) flu vaccine linked to narcolepsy — per Reuters, GlaxoSmithKline’s (GSK) Pandemrix H1N1 swine flu vaccine, which was given to over 30M people in 47 countries during the 2009-2010 H1N1 swine flu pandemic, has been linked with hundreds of cases of the incurable sleep disorder narcolepsy in Europe.
2. China factory activity improves further in January — MarketWatch, according to HSBC, the so-called “flash” manufacturing Purchasing Managers’ Index (PMI) for January climbed to a 24-month high of 51.9, rising from a final reading of 51.5 in December and 50.5 in November. A reading above 50 signals an expansion in manufacturing activity.
The final reading of HSBC’s PMI, as well as the results from an official survey jointly conducted by China’s National Bureau of Statistics and the China Federation of Logistics & Purchasing, are slated for release on Feb. 1.
3. Apple Shares Plummeted as Sales Missed — Apple (AAPL) shares FQ1 revenue missed Street forecasts for the third consecutive quarter despite climbing 18% to $54.51B. iPhone sales jumped 29% to 47.8M, the figure was below predictions of 50M. Net profit was flat at $13.07B due to higher manufacturing costs as gross margins slid, while EPS came in at $13.81 and beat consensus.
4. Spanish unemployment hits record — Spanish 10-year bond yields may be only just above 5%, but the crisis in the real economy continued unabated in Q4, with unemployment rising to a record 26.02% from 25.01% in Q3. The number of people out of work reached 6M, or a third of the eurozone’s jobless citizens.
5. AAII Bullish Sentiment Jumps To A 2-Year High — the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment saw its largest weekly increase since June 2011.

6. U.K. economy returns to contraction — U.K. preliminary Q4 GDP fell a greater-than-expected 0.3% on quarter vs +0.9% in Q3. The economy is 3.3% smaller than at its peak in Q1 2008 and has only recovered about half the output lost during the financial crisis.

The week ahead — Economic data from Econoday.com:

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.” — Jesse Livermore

1. China May Open Capital Markets Further — per WSJ, the Chinese government could substantially increase the amount of money foreign institutional investors can invest in the nation’s capital markets, its top securities regulator said. China could boost quotas for foreign investment in its capital markets by 9-10 times, Guo Shuqing, the chairman of the China Securities Regulatory Commission stated.
2. PC sales fall as Windows 8 fails to make impact — Global PC shipments fell 4.3% to 90.3M units in Q4, Gartner said, due to the rise and rise of tablets, although the firm’s estimate is slightly less pessimistic than that of IDC.
3. Chicago Fed President Charles Evans “Fed could end QE if 1M-1.5M jobs created” — Chicago Fed President Charles Evans has said that the Fed could end its bond-buying if the economy creates another 1M-1.5M jobs over the next six months to a year. “That would be indicative that we could stop,” said Evans.
4. AAII Bull/Bear Sentiment — below a chart depicting Bull/Bear Sentiment indicating the market is short-term overbought;

5. Rio Tinto approved iron-ore expansion plan — Rio Tinto (RIO) has approved a major expansion of its Australian iron ore mines, in the latest sign that a roughly 80% rebound in the price of the steelmaking commodity since September is rekindling mining investment in the resource-rich country. Rio Tinto, the world’s second-largest producer of iron ore after Brazil’s Vale (VALE), said it aims to increase production capacity in the remote Pilbara region to 360 million metric tons a year by mid-2015. The Anglo-Australian miner had already approved lifting capacity to 290 million tons by the end of this year.
6. Global regulators ground Boeing’s Dreamliners — the FAA and regulators in Europe, Japan, India and Qatar have ordered the airlines under their jurisdictions to ground their 787 jets until Boeing (BA) can resolve problems with the aircraft’s lithium-ion batteries.
7. Chinese economy re-accelerates — China’s GDP rose 7.9% on year in Q4, slightly beating forecasts and topping Q3 growth of 7.4%. The re-acceleration confirms that the government’s stimulus policies and a boost in trade have started to pull the economy out of its slowdown, although the full-year growth of 7.8% was the lowest since 1999.

The week ahead — Economic data from Econoday.com:

“Never make predictions, especially about the future.” — Casey Stengel

1. Japan to Buy European Debt With Currency Reserves to Weaken the Yen — Bloomberg, Japan plans to use its foreign- exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken its currency, Finance Minister Taro Aso said. The purchase amount is undecided.
2. Growth in healthcare expenditure remains slack — Healthcare spending rose at a record low pace of 3.9% to $2.7T in 2011 as patients continued to cut back on medical services amid the economic slump. The growth was the same as in 2010 and 2009, and well below the 8% prior to the financial crisis. However, there are signs that the rise in spending could be speeding up again, with expenditure on drugs increasing by 2.9% in 2011 vs 0.4% in 2010, and on doctors’ visits by 4.3%.
3. China’s exports surged in December, Boosting Trade Surplus — per MarketWatch, China’s December exports jumped 14.1% from a year earlier, up from a 2.9% gain in November, while imports were up 6%, following on from zero growth the previous month, according to data released Thursday by the General Administration of Customs. Bank of America-Merrill Lynch noted shipments to the U.S. leapt 9.6% on year, while those to the euro zone edged up 1.9%, reversing from shrinking trade conditions in November, when the value of shipments contracted 2.6% and 18%, respectively.
4. China annual inflation slows in 2012 — According to the data from the National Bureau of Statistics in China, the Chinese consumers price index grew 2.5 per cent in the month, year-on-year. The producer price index, however, which is reflective of wholesale prices, dropped at a more-than-expected 1.9%.
5. Ford to hire 2,200 salaried staff in U.S. in 2013 — Ford (F) intends to recruit 2,200 white-collar workers this year in what would be the car-maker’s biggest expansion of new salaried positions in over ten years. Three-quarters of the jobs will be in engineering, manufacturing and IT as Ford expands and refreshes its product line-up globally, including in China, where the company plans to triple the number of models sold to 15.

The week ahead — Economic data from Econoday.com:

Adios 2012! — Happy New Year from Equity Guidance!
“The market will do what it does to embarass a large group of investors” — Leon Cooperman

1. US fiscal cliff deal averted — the deal has averted most of these measures, including:
– making permanent tax cuts dating back to George W Bush’s presidency, for individuals earning less than $400,000
– postponing the $65bn of automatic spending cuts for two months
– keeping benefits available for the long-term unemployed, worth $26bn, for another year
– postponing for another year an $11bn cut in Medicare payments

However, the deal did also allow some tax rises to go ahead, namely:
– the expiry of a payroll tax holiday, expected to raise $95bn in additional annual revenue
– allowing the Bush-era income tax cuts for individuals earning over $400,000 to come to an end, with the top rate increasing from 35% to 40%
– higher taxes on dividend income, capital gains and inheritance for these same top earners
– phasing out certain income tax deductions for individuals earning more than $200,000
2. Growth in China’s services industries speeds up – China’s non-manufacturing PMI rose to 56.1 in December from 55.6 in November, with the construction services sub-index increasing to 61.9 from 61.3. That’s consistent with a recovery in the property sector, which supports 40 other industries.
3. Investors swap stock-pickers for ETFs — WSJ, Investors are jumping out of mutual funds managed by professional stock pickers and shifting massive amounts of money into lower-cost funds that echo the broader market. Investors pulled $119.3B out of actively managed vehicles in January-November and poured $154B into stock and bond exchange-traded funds, with both figures the largest since 2008. The trends reflect the under-performance and higher fees of the stock pickers. Companies benefiting include Vanguard, BlackRock (BLK) and Pimco.
4. Some FOMC members turn hawkish, QE to end at 2013 — Fed policy officials “were approximately evenly divided” between those who want endless QE and those who surprisingly want to end it by the middle of this year, the minutes of the latest meeting show.
5. Ford F-Series Truck Sales Highest Since 2007 — courtesy of BIG, For the month of December, Ford sold 68.8K F-Series trucks, which was a slight increase from December 2011. For the entire year, total sales of F-Series trucks were 645.3K, representing a 10.3% increase from 2012, and the third straight year of annual increases.
6. American Association of Individual Investors (AAII) sentiment report — after five straight weeks of increases, bullish sentiment declined for the second week in a row, falling from 44.4% down to 38.7%.

The week ahead — Economic data from Econoday.com:

“While markets often make double bottoms, three pushes to a high is the most common topping patterns” — J. Bollinger

1. Government Eyed Refi Program Expansion — The Obama administration is considering expanding its mortgage-refinancing programs to include borrowers whose mortgages aren’t backed by the government and who owe more than their homes are worth, according to people familiar with the discussions. Currently only borrowers on loans held by Fannie Mae (FNMA.OB) or Freddie Mac (FMCC.OB) can qualify for the HAMP, leaving about 50% of the nation’s 10.8M underwater mortgages locked out of the program.
2. Holiday sales season looked weak — the early results suggest it’s been a weak holiday season for retailers, with MasterCard’s SpendingPulse reporting sales just 0.7% higher than last year. “It’s a lost season,” says the group’s Michael McNamera.
3. Bank Index (XLF) for 2013 — Will XLF moves higher for 2013? The technical chart below shows a bullish inverse Head-and-Shoulder pattern.

4. Home Prices Post Gain in 2012, Hit a Milestone — Home prices are on track to notch their first yearly gain since 2006, the strongest performance since the housing bust and a development that could accelerate the real-estate rebound even as the broader economy stutters. Since January, prices are up 6.9% so far this year, the largest year-to-date.
5. Ford to invest $773M on Michigan facilities — Ford (F) said it intends to invest more than $773M to upgrade and expand 6 Michigan manufacturing plants. It’s part of a pledge to invest $6.2B in U.S. facilities through the end of 2015.
6. 2012 Commodity Performance — courtesy of Bespoke, below is a chart of Commodity Performance in 2012 YTD.

7. Key ETFs YTD Performance in 2012 — chart highlights the month-to-date, quarter-to-date and year-to-date performance of selected ETFs.

8. Hewlett-Packard Says Justice Department Probing Autonomy — Bloomberg, The U.S. Justice Department opened an investigation relating to Autonomy Corp. after Hewlett- Packard Co. (HPQ) accused the software company of misrepresenting its performance before being bought last year.

The week ahead — Economic data from Econoday.com:

“Genius is the ability to put into effect what is in your mind” — F. Scott Fitzgerald

1. Fitch Rating Agency threatens downgrade if U.S. falls off cliff — Fitch has warned that a failure to avert the fiscal cliff will increase the likelihood that it will strip the U.S. of its AAA rating.
2. House-Senate Defense Conference Agrees on $640.7 Billion — per Bloomberg, House and Senate negotiators reached a deal over a $640.7B defense budget for the current fiscal year, including $88.5B for operations in Afghanistan. However, the spending doesn’t account for the automatic cuts that are due to take place if the fiscal cliff is not averted.
3. BOJ adds to QE but doesn’t increase inflation target — the Bank of Japan has bowed to the demands of incoming Prime Minister Shinzo Abe and increased the size of its asset-purchase program by ¥10T ($119B) to ¥76T, the third hike in the last four months.
4. U.S. unveils plan to manage huge Alaskan oil reserve — Reuter, Interior Secretary Ken Salazar yesterday presented a plan under which the government will open up 11.8M acres of Alaska’s North Slope for energy drilling. The area holds an estimated 549M barrels of economically recoverable oil, or 72% of the crude in the 23M-acre reserve, and 8.7T cubic feet of economically recoverable natural gas.
5. Boehner’s Plan B fiscal cliff bill pulled amid dissension in GOP caucus — House Speaker John Boehner’s proposal to avert the looming fiscal cliff’s automatic tax increases failed to gain enough Republican support. The House will recess until after Christmas with Speaker John Boehner saying it’s now up to the president to work with Senator Reid to create legislation to help the U.S. avert the cliff.
6. Dogs of the Dow strategy in 2012 — per Bespoke, the Dogs of the Dow strategy says to buy the ten highest yielding Dow Jones Industrial Average at the start of each year. YTD, this strategy underperformed the major averages.

The week ahead — Economic data from Econoday.com:

“The market is a voting machine, whereas countless individuals register choices which are the product partly of reason and partly of emotion” — Graham & Dodd

1. Monti’s plan to quit sends markets into turmoil — Italian shares have sunk 3.3% and 10-year bond yields soared 36 bps to 4.88% after Prime Minister Mario Monti said he plans to resign once the 2013 budget is authorized.
2. Japan slips back into recession — Japan’s Q3 GDP fell an annualized 3.5%, worse than a forecast of -3.3%. With the government revising Q2 from growth to slight contraction, the country technically slipped into a recession in the last quarter.
3. Ingersoll to Spin Off Security Unit in Peltz Accord— per WSJ, Ingersoll-Rand PLC (IR) is expected to announce a plan to spin off its security-technology business, launch a share-buyback program and increase its dividend as part of a compromise reached with Trian Fund Management LP.
4. Obama offers to revamp tax code — the White House has reportedly offered to include an overhaul of the corporate tax code in any deal on the fiscal cliff, although it didn’t provide specifics, such as how the reform would affect the overall tax burden. The Administration also cut its goal for new tax revenue to $1.4T from $1.6T.
5. Fed Sets Jobless Rate, Inflation Targets and to Purchase More Bonds — Fed Chairman Ben Bernanke and his colleagues agreed, for the first time, they would hold rates close to zero while the unemployment rate is above 6.5% as long as inflation is not projected to rise above 2.5%. As expected, the Fed announced a new $45 billion bond-buying program in fresh action to keep the recovery going in the languishing jobs market.
6. China manufacturing data show further improvement — MarketWatch, Business conditions for Chinese manufacturers improved further in December. HSBC’s so-called “flash” manufacturing PMI for December — a closely watched indicator of the world’s second-largest economy — came in at 50.9, compared to a final print of 50.5 for November and 49.5 for October. A reading above 50 signals an improvement in activity, while one under 50 represents contraction.

The week ahead — Economic data from Econoday.com:

“Winners never quit and quitters never win” — Vince Lombardi

1. China PMI Grows — MarketWatch, The privately compiled version of China’s manufacturing Purchasing Managers’ Index (PMI) rose to 50.5. The official PMI increased to 50.6 from 50.2, marking a seven-month high for the index.
2. House, White House aim for $32-$35 billion in farm bill cuts — Reuters, both sides believe that spending in the 2012 farm bill should be slashed by $32-35B, with major cuts for subsidies and soil conservation. However, the GOP wants reductions for food stamps, a move the White House is opposed to. Under the fiscal cliff, money for farm programs would fall by up to $10B.
3. Senate Passes $631 Billion U.S. Defense Legislation — Bloomberg, the Senate passed unanimously a measure authorizing $631.4 billion for U.S. defense programs this fiscal year. Huntington Ingalls Industries Inc., Boeing Co. (BA) and General Dynamics Corp. (GD) are among defense contractors that would benefit because the legislation increases funding over this year’s levels for fighter jets, missiles, submarines and other programs.
4. Germany faces possible recession — the Bundesbank has warned that Germany may be entering recession, saying that the economy could contract in FQ4 and FQ1. The bank also cut its 2012 and 2013 GDP predictions to +0.7% and +0.4% respectively from prior forecasts of +1% and +1.6%.
5. Generic Drug Accords Face Review by U.S. Supreme Court — per Bloomberg, the Supreme Court could say today whether it will review a case involving a “pay for delay” agreement in which a pharmaceutical company pays generic rivals tens of millions of dollars to hold off from launching copycat versions of medicines. The FTC says the practice costs customers $3.5B a year, while drug firms argue that it protects innovation. Companies that could be affected include Abbott (ABT), Watson (WPI), Merck (MRK), Bristol-Myers Squibb (BMY) and Teva (TEVA).

The week ahead — Economic data from Econoday.com: