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What's New, 1/9/12

Posted in "Summary" on my LinkedIn public profile:

What’s new 1/9/12: Last week better than expected US employ, ISM, China/global PMIs. German orders weak. WLI agr declines. Global earnings revisions remain negative but flattening, Europe worst. This week Merkozy, Italy debt, France rating (perhaps), CES. 4Q earnings est +6%, slowest since 9/09.

Indexes: SPX +1.6% last week to 1278. Global ex US -0.7%. Rotation from lead, staples, util, to lag, matl, fncl. Bulls upper hand above ~1260, next resistance at Oct high ~1290. Weak year-end rally in seasonal strong Nov-Jan aided by ECB Dec LTRO lowering bank funding concerns. Better US econ, low val vs Euro debt, EM growth; 4Q earn may decide. Rs trending pos SPY, KRE; neg ACWX, EEM, BKF.

Consensus forecast: 2012 year-end SPX around 1350, up 7% from 2011 at 1258, with eps $105, p/e 12.9x. 2012 global economic growth will slow to around 3%, narrowly missing global recession (below 3%), with US 2.1%, Europe -0.5%(or worse), China 8.6%. U.S. econ forecasts increasing, surprise indexes near peaks. Intl forecasts decreasing.

Consensus assumptions: Europe muddles thru. Second big ECB LTRO bank refi, more SMP country debt. Euro drifts lower. Greece defaults. Greek/French April elections don't undo Dec 9 Euro treaty deal. US decoupling from Europe. Profit margins won't decline in 2012. Consumer resilient. Housing bottomed. QE3 50+% chance. Romney candidate. AAPL uptrend, Facebook IPO. China soft lands, further RRR cuts, smooth leadership transition. EM continues to underperform, risks contained. Oil not >> $100, Iran risk. Metals remain weak.

Asset allocation issues: Falling VIX opportunity to hedge modest US equity upside against elevated downside tail risk from Merkozy "game of chicken," deleveraging? Are low global valuations underestimating upside tail risk as monetary policy further eases? Will slow global economy be good for corporate credit risk? Will correlations between/within asset classes retreat from highs?