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Seriously, the only thing holding the US economy back is Washington
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The financial markets are officially not OK with this fiscal cliff thing
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Five favorite charts of 2012 you won’t see in other year-end round-ups
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Maybe the US isn’t living in a world of 2% GDP growth, after all
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Auditor: “material weaknesses” at Bailey Bros. Building and Loan
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The death of equities: New York Stock Exchange sold for $8.2 billion
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Hedge funds will now accept their standing ovation on Greece bets
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Meet the new flight-to-safety trade: An apartment in Dusseldorf
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knock on wood
Why lumber prices are up 45% this year and could rise further
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Fifteen things to know about Australia’s incredibly effective gun clampdown
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After Japan’s election, the market thinks the Bank of Japan is about to join the money-printing party
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It’s that time of year again, when traders tended to square up their positions and await the imminent implosion of the US financial system. We figured it was worth showing you how you could have constructed a world-beating portfolio that would have destroyed the competition in 2012.
Looking back, it seems painfully obvious that one only needed to:
- dive into risky government bonds of countries such as Italy and Greece
- buy European stocks at the peak of the crisis
- carefully select assets denominated in Hungarian forints
- toss some money into risky European asset-backed securities
- go all-in on soybeans and Turkish stocks
It was, let’s face it, a no brainer. Here are some charts that tell the story:
Emerging market bonds (that’s the EMBIG) and European stocks were, broadly speaking, the big asset class winners this year. (Note: These numbers are about a week old, so there could be some minor tweaks before 2012′s results are in the books.)
Thank goodness all of my assets are denominated in Hungarian forints.
Lombard Street Research
And what’s not in forints is obviously in soybeans.
Lombard Street Research
As well as Turkish stocks, while skillfully ignoring Ukranian stocks. (That’s UAH.)
Societe Generale
Riskier BBB-rated bonds bonds issued by subsequently nationalized British mortgage lender Northern Rock were a hot trade in Europe this year. And Greek residential mortgage bonds were a decidedly bad wager.
Deutsche Bank
AP Photo / Steve Helber
Seriously, the only thing holding the US economy back is Washington
Consumers have been going strong for a while. Now it looks like companies are joining the party.
Everyone’s favorite gauge of business spending is showing fresh signs of life today. The key number in the US Commerce Department’s durable goods report is a little something known as non-defense capital goods, excluding aircraft, which strips out volatile airplane orders from the reading on capital equipment and includes the stuff that makes America run: cars, washing machines, toys. The latest reading for November shows this metric climbed 2.7% from the prior month. And what’s more, the October number was sharply revised higher to 3.2%, up from the already respectable 1.7% that was first reported. Here’s a look:
A couple solid quarters.
FactSet, US Commerce Department
Admittedly, it’s choppy data. But there are increasing indications that corporations ramping up spending.
And we know consumers on solid footing, but we got another update on their health this morning in the form of a fresh report on consumer income and spending. It showed the “real”, i.e., inflation-adjusted personal spending rose 0.6% from the previous month. Better than expected. Here’s a look.
Let’s just say it. This is starting to look like a broad-based virtuous cycle in the US economy—something that we haven’t really seen in a sustainable way since 2008. Oh, and the Fed is doing a ton of lifting too, pushing down on rates and shoveling money into the economy.
Except for one thing.
The one thing, that looks like it could derail this momentum are the politicians who Americans desperately want to stop prancing before the cameras and come to an agreement already. It’s as though they’re actively fighting everything that is working for the US economy. That is just madness.
So sure, we’ve been talking about the fiscal cliff for months. But the operational assumption of much of Wall Street has long been that no one in Washington, DC would be stupid enough to essentially drive the US back into the recessionary territory they’ve spent the last four years clawing out of. Think again!
Republican House Speaker John Boehner’s decision not to hold a vote on the so-called Plan B option, apparently because he could not even get members of his own party to vote for a plan that had any tax increases in it whatsoever, seemed to get the attention of financial players. Here’s a look at how equities futures took the news.
Yikes.
FactSet
One can’t help but be reminded of other prominent examples of Wall Street and Washington not being on the same page in recent years. Of course, who can forget Sept. 29, 2008 when stocks plunged after Congress voted down the first version of the bank bailout bill known as TARP. And then there was last summer, when the chaotic effort to raise the debt-ceiling and avoid a US default sent investors into a tizzy.
The markets seem a bit less ready to bet against stupidity leading to bad outcomes in Washington this morning. On the other hand, some argue that the markets have an important voice in the current debate, and the prospect of an ugly selloff similar to the previous episodes we mentioned above may help prod elected officials toward a deal. Or so you would think.
