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Last week the Dow was up 3.8 percent, its best performance since December 2011, and at its Friday close, the S&P 500 was just 99 points from its all time high. Gluskin Sheff's David Rosenberg thinks markets are "getting ahead of themselves".
"Investor confidence reached such heights, in fact, that the VIX index plunged 39% to 13.8. One has to wonder if, in fact, this is more a story of complacency right now rather than merely confidence. But the stock market’s ability to climb the most recent wall of worry and do so in the face of sharply higher (to a five- month high and more attractive) Treasury yields and a rapid strengthening in the U.S. dollar, is impressive nonetheless.
That said, the market looks overbought right now with 88% of the S&P 500 now trading above their 50-day moving averages. Sentiment measures like Investors Intelligence are still flashing twice as many bulls than bears. And while several of the coincident economic indicators have recently surpassed expectations, forward-looking measures like ISM orders did not, nor did factory bookings for November which were released on Friday and came in flat. …ECRI’s leading indicator slid to 126.4 in the latest week from 127.6 in the steepest decline since last May and the smoothed index fell to 4.9% from 5.1%. That is not in the direction of economic acceleration that would otherwise validate this move in Treasury yields to eight-month highs — all the more so with the U.S. dollar firm and the CRB commodity index down fractionally to begin the year, which are hardly the hallmarks of an inflation resurrection."
Credit Suisse's global equity strategist Andrew Garthwaite and his team are reducing their exposure to stocks after the recent run-up in the S&P 500. Garthwaite points out that there has been a sudden increase in risk appetite in the last month, sentiment towards stocks has jumped to a two-year high, and financial advisors have turned bullish but insider selling continues.
He warns, "many of our tactical indicators point to a consolidation phase in the equity markets, in the near-term".
Ian Bremmer, head of the Eurasia Group is out with his top 10 risks for global investors in 2013. He thinks political risks in the developed world are "overstated" but should not to be ignored either. These risks include dysfunctional American politics, geopolitics in Asia, the impact of Indian politics on its economy, and the growing unease between the Chinese government and its people that are better informed thanks to the internet.
Morgan Stanley Ordered To Pay $1 Million To Former Manager (The Wall Street Journal)
Morgan Stanley Smith Barney was ordered to pay former manager Gregory Carl Torretta $1 million after he claimed he was unfairly forced to resign. In 2010, Torretta was about to fire a branch manger that worked under him, when the latter sent an email to Torretta's boss claiming that he was interviewing for a job at another company, and had said that he would bring the branch manager with him. Morgan Stanley then told Torretta he could resign or he would be fired. The award is short of the $8 million - $9 million Torretta was seeking.
Terrifying Presentation Shows What Would Really Happen If We Hit The Debt Ceiling (Bipartisan Policy Center)
The Bipartisan Policy Center has put together a presentation called "The X Date," which lays out what would happen if we really hit the debt ceiling. They argue that we would be in a situation of unprecedented legal and economic chaos. Even if the Treasury could "prioritize" interest payments over other payments, we would have a massive technical and legal problem.
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