Dec 31, 2012. Happy New Year

–Happy New Year. Still no budget deal. The lack of new details in negotiations on Friday afternoon caused a sharp end of day sell off in stocks… visualization of a fall from a cliff. This morning stocks have found tentative footing with SP’s churning near the midpoint of November low and December high, supported in part by a jump in China PMI (HSBC) to 51.5. Little change in fixed income given the fall in equities, bolstering bond bears conviction that a move to higher rates is just around the political corner. However, economic data continues to be mixed at best. For example, Chicago PMI was up a bit and Jobless Claims have been trending lower, but the Employment Index in Chicago PMI plunged from 55.2 to 45.9. While increased tax bites relating to the cliff are still uncertain, Obamacare regulations are known, and are likely to weigh on employment at least in the beginning of the year.
–Henry Blodget has an interesting slide show on Business Insider saying “We Don’t Have a Spending Problem…” which shows quite visibly that we DO have a spending problem related to ‘transfer payments’ of Social Sec’y and Medicare.
–While total fed’l tax revenues as a % of GDP are around 17%, explosive growth in social programs now consume around 15% of GDP. So if everything else were cut to zero, (defense, interest, gov’t salaries, etc) then the budget would just about balance. Obviously we don’t need a balanced budget, but we do need to change the trajectory of some spending programs. The longer it takes to accomplish that, the more likely it is to dampen private business investment even though another byproduct is extremely low rates.

Posted on December 31, 2012 at 8:51 am by alexmanzara · Permalink
In: Eurodollar Options

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