Global markets celebrated
the New Year on Wednesday with a rally in appreciation of the U.S. fiscal cliff
agreement, now known as The American Taxpayer Relief Act of 2012 (ATRA). Many
European, Asian, and American markets closed the day sharply higher. The FTSE 100
was up 2.2 percent, Hong Kong’s Hang Seng was up 2.9 percent, Brazil’s Bovespa
was up 2.6 percent, and the Dow Jones Industrials Index was up 2.4 percent for
the day.
While markets
embraced ATRA with unabashed enthusiasm, pundits were less keen on the new law.
They greeted the changes with the excitement – or lack thereof – many readers
reserve for books with cliffhanger endings. That’s because ATRA failed to
resolve key issues related to the fiscal cliff, including automatic spending
cuts and the debt ceiling limit. As a result, Americans can soon expect new additions
to the fiscal cliff series. The next, which may be called the Debt Ceiling
Debacle, will undoubtedly be accompanied by considerable melodrama and bipartisan
bickering.
On Thursday, U.S.
stock markets faltered after the minutes of the Federal Reserve Open Market
Committee meeting were released. The Fed has promised to continue quantitative
easing indefinitely; however, the minutes included considerable discussion
about ending the program during 2013. That notion spooked Treasury investors
and the yield on 10-year Treasuries rose to 1.9 percent.
On Friday, the
unemployment report showed the jobless rate unchanged at 7.8 percent. Stock markets
bounced higher as investors appeared to interpret the news as an indication the
U.S. economy is not yet strong enough for the Fed to end quantitative easing. However,
the news that some at the Fed thought easing should end caused gold to drop to
its lowest in two weeks.
For the week, the
S&P 500 was up 4.6 percent, the Dow Jones Industrials were up 3.8 percent,
and the NASDAQ rose by 4.8 percent.
The
Year in Review
2012
was a surprising year. Although many of the most notable events reflected
ongoing economic and fiscal issues – including crises in the European Union,
slowing growth in China, growing debt in the United States, government
intervention in Brazil, and worries about fiscal cliff – investors remained optimistic
and many global stock markets delivered rather attractive performance for the
year. Here are a few of the headline events which caught our attention during 2012:
- China
became an economic power, officially
All debate about when China’s economic importance
would rival that of the United States was put to rest when The Economist added a
section devoted entirely to China. The last time the publication introduced a
new country was 1942. It was devoted to The United States.
- It’s
all relative: the U.S. and global recovery
China’s growing importance did not
diminish the role of the United States. U.S. economic growth may have been modest
during 2012, but it was positively robust relative to that of other developed
nations. In fact, the U.S. was called the sole bright spot in global economic
recovery.
- Greece?
Really?
Greece’s ATHEX composite index was the
top-performing stock market in Europe during 2012. Despite five years of
recession and record unemployment, it closed about 33 percent higher at year’s
end, beating Germany’s DAX. The ATHEX remained significantly below its previous
highs.
- “For
Euro Crisis Relief Bang Head Here”
Bloomberg BusinessWeek’s tongue-in-cheek
headline reflected ongoing frustration with events in Europe. While Europe faces
complicated issues that are likely to take time to resolve, there are reasons
for optimism including the region’s pursuit of a banking union.
- The
Supreme Court did what?
Offering headlines that rivaled the
memorable ‘Dewey Beats Truman,’ both CNN and Fox News misreported the Supreme
Court’s ruling on the Affordable Care Act. The Act remains controversial.
- Like
a phoenix, Bank of America rose from the ashes
After delivering the worst performance in
the Dow Jones Industrial Average during 2011, Bank of America became the best
performer for 2012. One of the biggest beneficiaries was Warren Buffet who stepped
in when no one else would. He invested $5 billion in preferred shares and received
700 million in warrants.
- Not ready for prime time: NFL
replacement officials
Early in the
season, pundits tried to identify the biggest blunders made by the NFL’s
temporary referees each week. It wasn’t easy. From cheap shots to reviews for
teams that had no time outs to the infamous simultaneous catch call, the
temporary refs made fans appreciate the real thing.
- Australian police said Apple Maps
can kill you
Apple maps were
called a lot of things during 2012, but accurate was not one of them. San
Francisco had a French Quarter, Stratford-on-Avon disappeared, and the town of Mildura
moved to the middle of Australia’s Murray Sunset National Park. Since the park has
no water supply, Australian police issued a warning.
Weekly Focus – Think About It
Don't tell people how to do things, tell them what to
do and let them surprise you with their results.
--George S. Patton, U.S. Army general
Happy
New Year!
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