“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:

“It wasn’t raining when Noah built the ark” — Warren Buffett

1. Euro zone, IMF secure deal on cutting Greek debt — per Reuter,Euro zone finance ministers and the International Monetary Fund clinched agreement on reducing Greece’s debt in a breakthrough to release urgently needed loans to keep the near-bankrupt economy afloat. Greece’s international lenders agreed on a package of measures to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020 and to reduce the debt pile, they agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and grant Athens a 10-year interest repayment deferral.
2. Profits at Chinese firms provide more evidence of GDP recovery — profits at Chinese industrial companies jumped 20.5% on year in October to 500B yuan ($80.4B), with growth accelerating from a 7.8% rise in September and providing further evidence that the economy is rebounding.
3. Cyber Monday sales soar 26% — online retail sales jumped 26% from last year on Cyber Monday, IBM said late yesterday, adding that purchases from mobile devices, including tablets, rose 10.2%.
4. Italian 10-year yields fall to two-year low in auction — Italy has sold €2.98B of 10 year bonds at a yield of 4.45%, down from 4.92% in a previous auction and the lowest in two years, indicating how the market tumult over the eurozone debt crisis has somewhat subsided. The government also issued €3B of five-year paper at 3.23%, down from 3.8%. The total sale of €5.98B was at the top end of the government’s target of €4-6B.
5. Fed Likely to Keep Buying Bonds in 1Q 2013— per WSJ, frustrated with the lack of substantial job gains, many Fed officials want the bank to continue buying long-term Treasurys even after Operation Twist expires. The purchases would be in addition to the $40B a month of mortgage-backed securities that the Fed’s been scooping up.
6. Detroit on the Verge of Bankrupcy, Again — courtesy of WSJ, with 2-3 weeks to receive $30M of state aid from Michigan in order not to run out of cash, Detroit is again teetering on the brink of bankruptcy. The aid is contingent on the city implementing the provisions of a deal in April, when Michigan agreed to provide $137M, but those measures haven’t been enacted.
7. Indian FQ2 GDP slows to three-year low — India’s GDP growth declined to a three-year low of 5.3% on year in FQ2 vs +5.5% in Q2 and consensus of +5.2%. The slowing growth comes as the government battles to implement reforms that it sees as vital to reviving the economy.

The week ahead — Economic data from Econoday.com:

“I am always doing that which I cannot do, in order that I may learn how to do it” — Pablo Picasso

1. US tax breaks worth $150bn face axe — per ft, the Obama Administration has reportedly proposed axing $150B of tax breaks over ten years as part of negotiations to avert the fiscal cliff. These include $28B for fossil fuel companies, $77B connected to inventory valuation, and $13B in low capital-gains rates for P-E funds, VC firms, and real-estate transactions.
2. Moody Downgrades France Credit Rating — Moody downgraded France from Aaa to Aa1 with a negative outlook.
3. Key ETF Performance — via Bespoke, below is an updated look at recent performance numbers for key ETFs across all asset classes. Quarter-to-date numbers, stocks in the US remain down. The S&P 500 tracking SPY ETF is down 3.36% in the fourth quarter, while DIA and QQQ are down even more.

4. Eurozone finmins delay Greek aid once more — Eurozone finance ministers have again postponed approving the next tranche of Greece’s bailout after failing to reach an agreement on how to make the country’s debt more sustainable.
5. Superstorm Sandy Seen Boosting U.S. With as Much as $240 Billion Rebuilding — per Bloomberg, Reconstruction and related purchases and hiring may range from $140 billion to $240 billion and increase U.S. economic growth by 0.5 percentage point next year, assuming $50 billion in losses, according to Economic Outlook Group LLC, a Princeton, New Jersey-based forecasting firm.
6. The S&P500 and Fed Intervention — below is a chart depicting the S&P500 performance as a result of the Quanlitative Easing (QE).

The week ahead — Economic data from Econoday.com:

“Darn the wheel of the world! Why must it continually turn over? Where is the reverse gear?” — Jack London

1. Greece raised 4 bln euros ahead of debt rollover — per MarketWatch, Greece appeared on track to redeem 5 billion euros ($6.3 billion) in treasury bills that are due, after selling 4.06 billion euros of one- and three-month bills at auction.
2. China Picks New Economic Chiefs, Zhou Seen Leaving PBOC — according to Bloomberg, China began installing a new economic leadership by indicating that central bank Governor Zhou Xiaochuan will step aside and Vice Premier Wang Qishan, the top finance official, will move to a new role.
3. Facebook braces for biggest lockup wave — Facebook (FB) shares are set to emerge from a post-initial public offering lockup last Wednesday, making them available for sale in the open market and potentially doubling the size of the company’s share float — about 800 million of the company’s shares held by insiders become eligible for sale.
4. Anti-austerity strikes sweep Europe — millions of workers in Europe are on strike to protest austerity as part of a “European Day of Action and Solidarity.” Spanish and Portuguese unions are carrying out their first coordinated general strike, while organizations in Greece, Italy, France and Belgium planned stoppages or demonstrations.
5. China Unveiled New Leaders — as expected, China unveiled the makeup of its top Communist Party leadership, elevating Vice President Xi Jinping to replace Hu Jintao. Vice Premier Li Keqiang was named the party’s No. 2, putting him on the path to take over as premier in March.
6. Euro zone slips into second recession since 2009 — Economic output in the 17-country euro zone fell 0.1 percent in the third quarter, the EU’s statistics office Eurostat said on Thursday, following a 0.2-percent drop in the second quarter.
Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy officially in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
7. Japan Election May Curtail Stimulus as Recession Looms — Japanese PM Yoshihiko Noda has called an election for December 16 after the upper house approved a bill to issue bonds that will fund government spending for the rest of the fiscal year and stop it from running out of money. Noda’s DPJ party is expected to lose to the opposition LDP, which favors uber-easing to help Japan get out of its deflationary black hole.
8. AAII latest sentiment readings – In prior bull market when the bullish sentiment dropped below 25%, the market rally over the next 3-month and 6-month;

The week ahead — Economic data from Econoday.com:

“The four most expensive words in the English language, “This time it’s different”” — Sir John Templeton.

1. Germany Economy Heading for Contraction — the euro zone relies heavily on Germany, its largest economy, to generate growth. Germany’s composite PMI fell to 47.7 in October from 49.2 in September, which, says Markit, “raises the likelihood of an outright GDP contraction during the final quarter of the year.”
2. Obama Wins Second-Term – faces fresh challenge with ‘fiscal cliff’ — Barack Obama won re-election, but the U.S. president faces a fresh challenge confronting the “fiscal cliff,” a mix of tax increases and spending cuts due to extract some $600 billion from the economy barring a deal with Congress.
At stake are two separate issues – individual tax cuts due to expire at year’s end and tens of billions of dollars in across-the-board federal spending cuts due to kick in the day after New Year’s Day.
3. Greeks Government Approved Austerity Vote — thousands of Greeks held a second day of a general strike to protest the latest round of austerity, which the country’s parliament passed. The approval of the €13.5B of wage cuts and tax hikes by 2016 is vital for Greece to receive the latest €31B tranche of its bailout before it runs out of money.
4. President Election Cycle Update — below is the updated chart (courtesy of the Bespoke Inv’t Group) which highlights the similarities between this year and prior Presidential Election years numerous times.

5. China begins congress to change leadership — outgoing Chinese President Hu Jintao has set his successor, who’s expected to be Vice President Xi Jinping, a target of doubling per-capita income by 2020.
6. Japan Data Show Signs Of Distress — per WSJ, Japan swung to its first current account deficit since 1981 in September, with the gap coming in at an adjusted ¥142B ($1.8B). The shortfall is a sign Japan is nearing the point at which it won’t be able to finance its mammoth debt from domestic sources only.

The week ahead — Economic data from Econoday.com:

Due to Hurricane Sanday and power outages, Weekly Recap of Nov 1, 2012 will not be posted.

Thank you for your patience.

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” —F. Scott Fitzgerald

1. GE Refinances to Counteract ‘fiscal cliff’ fears — according to FT, General Electric (GE) has refinanced $5B worth of bonds that mature in February just in case Barack Obama or Mitt Romney are unable to avert the fiscal cliff. “If it’s choppy, we are prepared,” CFO Keith Sherin said.
2. Home values rise most since 2006 — the Zillow Home Value Index rose 1.3% on quarter to $153,800 in Q3, representing the biggest rise since Q1 2006, although the recovery is uneven across America due to differences in foreclosure conditions and employment.
3. Companies Are Sitting on More Cash Than Ever Before — amid a lackluster earning season that has featured many companies missing sales expectations, cash balances have swelled 14 percent and are on track toward $1.5 trillion for the Standard & Poor’s 500, according to JPMorgan. Both levels would be historic highs.

The week ahead — Economic data from Econoday.com:

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money; focus on protecting what you have.” – Paul Tudor Jones

1. U.S. Postal Service hits borrowing limit for first time — per Reuters, the financially struggling United States Postal Service has hit its $15 billion borrowing limit for the first time ever, meaning it will have to rely on revenues from stamps and other products to fund operations.
2. BOE split on whether it might need to print more money — the Bank of England’s Monetary Policy Committee voted unanimously at a meeting earlier this month to leave its key lending rate unchanged at 0.5% and to maintain the size of its asset-purchase program at £375B, the minutes show.
3. China’s GDP growth slows but may mark bottom — according to MarketWatch, China’s economy cooled in July-September to its slowest pace of growth since the first quarter of 2009. China’s gross domestic product grew 7.4% in the third quarter compared to a year earlier, slowing from the second quarter’s 7.6%. However, data for September showed increasing retail sales, industrial production, and fixed-asset investment in urban areas, providing hope that China’s deceleration may be bottoming out.
4. Housing Starts And Building Permits 1959 – 2012 — courtesy of BIG, Housing Starts and Building Permits for the month of September exceeded forecasts by a wide margin as both indicators rose to their highest levels since July 2008. At current levels, Housing Starts have risen 82% from their recession lows, while Building Permits have increased by 74%. Even after these big increases, however, both are still well below their pre-recession levels.

5. European Central Bank will take responsibility for overseeing euro zone banks in 2012 — cnbc reported that EU leaders have agreed to give the ECB oversight of eurozone banks starting from next year, a critical step that will allow the ESM to begin recapitalizing troubled institutions.
6. 25th Anniversary of the Oct. 19, 1987, stock market crash — the Dow Jones Averages crashed 508 points, or nearly 23%. The collapse sparked fears of another depression, although a recession didn’t come for two years and was relatively mild reported by the NYTimes.

The week ahead — Economic data from Econoday.com: