News and Views

-The China/Japan Island dispute has moved up in our risk matrix. We expect broad shoulder nationalism to increase this year and dust ups to become skirmishes. This conflict needs to simmer down quickly before markets take notice.
-The Debt Ceiling showdown has morphed into a circus complete with Twitter feed Carnival Barkers. Our views on the government’s debts are well known to members. Our political thought is that the POTUS should have gone for the big fight but didn’t have it in him. We are not endorsing the administration view (far from it) but they held enough power and capital to go for a Grand Bargain. Time did not run out on them even though the Fiscal Cliff clocks gave them cover. As with other “big ideas”, the POTUS team was long of rhetoric and short of concrete ideas. That dog would not hunt. As we posted when the small ball bill went through- a bad swap was made. Austerity risk was swapped for default risk, the latter of which does not exist.The good news is, despite the media capture by the Coiners, the capital markets are too smart to pay attention. Unlike The Cliff, where believers could point to growth loss projections and move markets, the Debt Ceiling will be ignored until the Monuments begin to shut. The Coin should interest you far less than the fact that the entire financial media could be sucked into the vortex of a non-story. Imagine the frenzy when something important actually occurs.
-Back in December, we posted that our big surprise for 2013 would be the first sightings of V (velocity) in years. The solid growth in the M’s, improvement in C&I loans and Sandy continue to point to The Return of V. On the push back is the payroll tax hit which has ALREADY mitigated the Y growth seen in the employment figure. At roughly $20.00/week/50k up to 100k, the tax increase was masked by the decline in gasoline prices. The “jump at the pump” here in Chicago is nearing 24 cents in Jan – this hit could leave a mark.

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