Canadians! Love Em!

January 27, 2012

Expectations for earnings and economic growth have been rising with the stock market over the past few months (or vice versa). As I mentioned last week, earnings have been coming in soft overall with the under performance being driven by weak revenues. This morning GDP for the 4th quarter came in below expectations at 2.8%. I'm not sure if the Fed had much in the way of insight into these numbers when they met earlier this week, however, they decided to extend their present course of accommodative policy until the end of 2014 from 2013, and hinted at further quantitative easing. Moderating growth and easy money around the globe could be positive for risk assets in the short run. Copper and oil umped on the news.

Treasury Secretary Timothy Geithner said on Bloomberg TV that he will not stay on as treasury secretary for a 2nd Obama term. Remember he tried to quit in the summer of 2011 but was corralled by the administration to finish out his term.

Earnings have been rolling in heavy this week. A couple of the biggest positive surprises (outside of Apple's blowout) came from Netflix (NFLX) and Caterpillar (CAT). NFLX announced a reversal in their declining subscriber growth and a more positive outlook. The company presently has roughly 22 million subscribers generating just under $1.50 per month in EBIT, and is valued around $260 per subscriber. CAT announced a great quarter and gave very bullish demand guidance for 2012, citing North America as a source of strength.

Facebook has requested a halt in the trading of their shares in the private secondary markets for three days. Many are speculating this is being done in preparation of an IPO filing in the works.

As a result of the budget settlement last summer, defense spending is now set to decline for the first time since 1998. Although the economic times were different, the last decline preceded the last budget surplus in the US.

A study by the Economist concluded that private equity doesn't add nor subtract jobs on the whole. The study also concluded that investors overall receive poor returns as 2/3 of income to the managers comes in the form of fixed fees, as opposed to performance fees. A recent Wilshire Trust report concluded that private pension funds have increased their allocation to private equity from 3% to 11% of total assets over the past decade.

India plans to circumvent the US trade embargo against Iran by paying for oil with gold. After doing a near 180 against Iran, starting with appeasement and now a trade embargo, I'm sure US officials are just happy that India didn't decide to pay with enriched plutonium.

I love the Canadians, especially as their relative economic strength has given them a new level of courage in bashing questionable US policy. Bank of Canada Governor Mark Carney was critical of a provision in the Volcker rule that puts US treasuries in a category all alone, yet lumps Canadian, Ethiopian, and nearly all other sovereign debt into the risky bucket. Mr. Carney stopped just short of saying what I will say, that Canadian bonds are rated higher than those of the US, and should be included in the safe bucket or that those of the US should be included in the risky bucket. Energy, hockey, and smart bureaucrats, I love it!

I apologize about the lack of charts this morning, I had a couple for today, but am having some self-induced computer issues this morning. I will include them next week.

Have a great weekend.

Ned