Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Final Recap of 2012…
Markets struggled violently over fiscal cliff issues this week, and remained rather flat up until Friday’s trade when stocks began to sink. There was no particular news on Friday that we could see that sent stocks spiraling. It could be that tax-selling was the primary motivator or that stocks have finally tired amidst the ongoing charade in Washington. Thursday morning, Senate majority leader Reid cast a fairly negative pall on negotiations, making the assertion that “It looks like we’ll go over the Cliff”, and pointed to Boehner and his supposed “dictatorship” as to the reason why. To save matters, Geithner expanded the debt ceiling (to avoid “statutory default”) by $200B, while Obama and House leaders moved to resolve fiscal policy over the weekend. Regardless, selling ruled the day Friday. Stocks sank steadily into the close to finish with a decent loss for the week, while Bonds rallied, and the dollar managed a small gain.
Not helping matters, US holiday retail sales grew only 0.7% (reported by MasterCard) on a year over year basis, the weakest pace since the 2008 crisis. It may indicate that the consumer has run out of field, although the jury is still out on that verdict, as refinancing opportunities have begun to fade. Mortgage rates haven’t set new records as of late, now up 35bps from the lows set in September, despite sizable Fed efforts to influence that market to the contrary.
As we move into the New Year, it may prove important to the major indexes that a resolution is reached in Washington. Averages stand the chance to move higher on any agreement reached, if only for a short while. The hard pill to swallow, as we have mentioned here before, is that a solution proving bullish for the markets, is simply not going to happen. Spending cuts, higher taxes and/or incremental borrowing stand a chance to do the exact opposite – as proved to be the case in the U.K. where tax hikes impaired the economy further and subsequently lowered government revenues. So if a prediction for 2013 can be made, it may be a year, in which both private and public sectors fail, thereby singling out the central banks as the sole arbiters in the battle to fend off impending crises – crank up the presses?
Happy New Year
VP Investment Management