The Week in Review and a Look Ahead

Anchors set for clients have performed satisfactorily.

Nick established the case for a weaker Euro vs $ on Nov/9 (1.3553). The recommendation was to use any strength as merely the opportunity to add to short positions.  This strategy has continued to perform well.  The Oct/11 low (1.3146) was the first objective.  Last, 1.3049.

We see no reason, either from a fundamental or technical view to alter course vs the US $.  In the broadest sense, the US (and Canada) will outpace the E-Z area, well into 2012 and most likely beyond. For background, see our Dec/6 piece - Investors, Politics and the Bottom Line. The ECB’s provision of 3 yr funds to troubled banks, the reed through which to breathe, does not alter this picture.

Next, as today’s UK Service sector data, combined with less-than-stellar holiday shopping illustrates, we were a tad too constructive for year-end activity, this credit.  She will get another look in the near term.

Finally, clients were directed early Q4 and reminded almost weekly since to set trades for surprising US vigor, not weakness (especially related to consumer activity and job creation) and/or to set trades for a US distancing of other developed credits.  With the typical lag of two to three months, other observers are now coming to understand.

Late Q3, when economists had the odds of another US recession at 30%, clients were prepped up front, sparing them the necessity of having to react. This foundation has held very well. As we stated then, these observers were driving forward with their eyes squarely in the mirror. Events have fallen nicely into place; we see that Holiday consumption has flattened estimates, that Claims for benefits are at a 3 ½ year low, far lower than observers expected - and - it’s not all just holiday hiring!

Some may say, “But wait!” “What about today’s Income and Spending print for Nov?” It is true that disposable income did not change, that tagged to a less-than-stellar employment market but one which we know is now on the mend. It is true that real consumer spending increased only slightly, but witness the Oct/Nov average which is 2.3% annualized above it Q3 level, making a solid contribution to Q4 GDP.

Not to worry. We are only interested in capturing price change ahead; this is not a history class.

Key to our service is that Qt / Qt , year to year we prepare our clients for economic reality just ahead vs expectations, thus equipped, the landscape in hand, they can anticipate financial headlines, spared of the necessity to react. Simple and effective.

Very little on the US agenda next week but - key - the view will continue to build for more US vigor, and, for the US distancing of other credits. This reality then can be worked by the way of FX, FI or equity.

Merry Christmas

Robert Craven