Happy 2012!

January 4, 2012

“The Capitalists will sell us the rope with which we will hang them.”

-Vladimir Lenin

Happy 2012!

After closing the year with a pfff, the S&P 500 opened strong yesterday with a 20 point jump to 1277, similar to the first day of trading in 2011, when the S&P jumped 17 points to 1271. Let’s hope the similarities end there and we have a better 2012.

The ISM Manufacturing index (chart below) for December came in at 53.9 vs. expectations of 53.5, up from 52.7 in November. Mortgage application were down 4.1%, and factory orders came in at 1.8% vs. expectations of a 2% increase. Cash Shiller is reporting that US home prices fell 3.4% in October.

The President has requested another debt ceiling increase, this time a mere $1.2. If it is approved, it will raise the nation’s total debt to $16.4 trillion, over 100% of GDP. Combined with the proposed budget deficit of 9% of GDP, and we are looking very Greek these days.

The calendar may have rolled over, but the problems in Europe have not dissipated. While German unemployment fell to 6.8% last month, Spain’s jumped to 23%, double where it was four years ago.

Greek government spokesman Pantelis Kapsis warned that a rescue plan for the country must be agreed upon in the next three months or the country will leave the euro. They are presently in negotiations with the IMF, EU and ECB.

Forget traditional inflation measures that are heavily manipulated by government bureaucrats and yield no real value in determining the cost of living, let’s look at a measure that has remained stable for decades: The Cost of the 12 Days of Christmas. This year’s list would cost $24.3K to acquire, up from $23.4K last year. If you repeated the list as it is done in the song, the cost would be $101.1K vs. $96.8K last year. So much for deflation.

Over 500 European banks borrowed 500 billion euro from the ECB through a three-year loan offering. The amount is frightening, suggesting the problems in the European banking system are larger than many suspected. “The perceived stigma attached to central bank borrowing has not prevented Eurozone banks from making extensive use of the ECB’s offer” said Martin van Vliet of ING.

Chinese manufacturing declined in December for the second month in a row. Weak demand from Europe contributed to the weakness. In response to falling exports, China is reportedly in the final stages of structuring a program aimed at encouraging domestic consumption. The focus is reportedly on appliances, real estate and vehicles.

A year and a half after the Horizon oil spill in the Gulf of Mexico, BP will be facing criminal charges from the US. Investigators are convinced BP gave regulators false information prior to the spill.

Instability in Iraq has skyrocketed just weeks after the complete pullout of US troop. Oil prices have jumped, with some analysts looking for per barrel prices to jump from $103 to $120-$130. Iran has threatened to prevent shipments through the Strait of Hormuz, a key shipping channel for oil, after the US agreed to impose economic sanctions against the country. Iran’s rial fell by 12% yesterday.

As if California businesses don’t have enough problems, the legislature recently passed a slew of year end bills which included one mandating fitted bottom sheets on all hotel beds. Really?

It appears that the ethanol subsidy, in place for the past 30 years, has lapsed. Congress adjourned last week without renewing the subsidy.

The political race, which seems to have already been going for the past year, is officially under way as the Iowa Caucuses took place yesterday. The man the Republicans seem not to like, Mitt Romney, and America’s most boring politician, Rick Santorum, effectively tied as Romney won by eight votes. Both candidates had 24.6% of the vote.

My favorite quote so far in the election season came from Newt Gingrich, who said that President Obama is the "food stamp candidate" while Gingrich is the "paycheck candidate."

The bowl season has been entertaining, although there have been way too many games decided by kickers (sorry Stanford, Georgia Tech, Virginia Tech, San Diego State, Georgia, Air Force, Utah State, and Tulsa). The championship game rematch between Alabama and LSU will occur Monday night.

Have a great day and Happy New Year

Ned