Improving Economic Data Fueling Gains

January 18, 2012

December economic data is starting to roll in. The Producer Price Index (PPI) came in at 4.8% vs. expectations of 5.1% and the prior month’s measure of 5.7%. The core measure, ex-food and energy, rose by 3.0% vs. expectations of 2.8% and the prior period 2.9%. Industrial production rose 0.4%, slightly less than the consensus of 0.5%. The November measure was revised down from -0.2% to -0.3%. Capacity utilization ticked up to 78.1% from 77.8%, in line with estimates.

S&P cut the debt rating of most of Europe, including the EFSF. The rating agencies have become so irrelevant to the investment process that after the downgrades of the US and Spain, both markets rallied significantly. In other rating agency developments, the rating agency’s actions and role in the mortgage crisis are being investigated aggressively for criminal behavior.

China equities and commodities have been strong on anticipated easing by the Chinese central bank. Demand from China is helping to fuel copper and commodities while growth remains above that of most of the world, with GDP coming in at 8.9%.

The World Bank has reduced its forecast for global growth in 2012 from 3.6% to 2.5%. The bank cut Europe from a 1.8% increase to a decline, and the US from 2.9% to 2.2%.

Jerry Yang, the Chief Yahoo, has resigned from the firm’s board of directors and is now no longer officially involved in the operations of the company. This could open the door for a management sweep or potentially a sale of the company.

Earnings really kick in this week. CitiGroup (C) missed while Wells Fargo (WFC) beat. Loan growth for both increased better than forecast, reiterating what JP Morgan (JPM) said last week. Goldman Sachs (GS) beat lowered guidance, posting a 52% decline in earnings. Morgan Stanley (MS)announced that they are capping the cash portion of bonuses to $125K, a move that is expected to lead to an outflow of talent at the firm. In what could either be a sign of a turn in fundamentals or a dead cat bounce, the financials have been the second best performing sector in the S&P so far this year.

From a tax practitioners note: In January 2013, the highest marginal rate is scheduled to increase from 35% to 39.6%. With the Medicare tax increase, the highest marginal rate will be 43.4%. That’s a 24% increase for 2013 taxes due.

Research in Motion (RIMM) has been volatile over the past week. Yesterday the stock got a bump on a rumored sale to Samsung. Today the stock is down after Samsung went to the unusual effort of denying they are interested in the troubled handset maker.

A number of websites will voluntarily shut down today to protest the SOPA act making its way through the US legislative branches. SOPA is being pushed hard by the US movie studios as a way to protect against piracy. One analysis I saw said that the annual cost of piracy was less than the cost of shutting down the top five websites for a single day.

The Washington Post reported that 28% or 687K high-tech manufacturing jobs left the US over the past decade. The bulk of those jobs were outsourced to Asia.

Have a great day

Ned