Ringing out the Old


“Merry Christmas to all, and to all a good night!” – popularized by Clement Clarke Moore in The Night Before Christmas

It was another week of range-bound trading in the run-up to the holidays, and that’s not such a bad thing for a holiday newsletter writer – there wasn’t much to write about anyway. The market is largely just holding on before launching the Santa Claus rally on Tuesday. Given the sacred nature of the rally, we should expect an upward bias, but given the unusually good performance of the post-election time period, there might be less of a boost from Santa this year than normal.

The main sport seems to be either holding one’s breath for the latest tweet from you-know-who, or arguing about what the next administration’s economic program might really bring. We don’t actually know what legislation and budget will pass, of course, and probably won’t know for some time, as the inauguration is still four weeks away – and then there is something called the U.S. Congress, which likes to have a say in these matters.

The next economic program isn’t likely to be the full extent of what was promised, but then these things rarely are. Some tax cuts and some infrastructure spending are sure to happen, but how and when are very much up in the air. One would think that it shouldn’t take as long to pass as the Reagan tax plan – in his first term, he was up against Democratic control of both houses. On the other hand, Reagan’s promised tax cuts were a big factor in his election, as nearly a decade of double-digit inflation had ravaged the spending power of the middle class and pushed them into tax brackets that had been written for the well-to-do. Trump’s promised tax cuts, on the other hand, while appearing to be fairly popular with business, never seemed to be a decisive factor in his election (though supply-side one-noters might have it otherwise). A lack of urgency (the unemployment rate is 4.6%) could translate into some serious wrangling over details, despite the Republican majority in both houses. Expect some horse-trading ahead.

The cracks in Europe (Italian banking) and China (GDP downgrade) continue to widen. and while those are two things definitely worth worrying about, it’s unlikely anything serious will come to pass next week. That is, unless the Tweeter-in-Chief starts some trouble somewhere. I make no predictions.

I trust all readers had a very Merry Christmas, and are looking forward to the last column of the year!

The Economic Beat (in holiday time):

The report of the week was – durable goods? An upward GDP revision? Personal income and spending? It was hard to tell.

The almost-final estimate of third-quarter GDP was raised from 3.2% to 3.5% (seasonally adjusted and annualized), partly on an inventory build that will later reverse. With the revision, four-quarter nominal GDP rose from 2.84% to 2.94%.

Durable goods new orders fell 4.6% in November, but were up 0.5% excluding transportation (both numbers are seasonally adjusted). Year-to-date, new orders are down 0.3%, (-0.6%) excluding transportation. Business cap-ex spending was negative on a year-year basis for the ninth month in a row.

Personal income was unchanged in November, something of a surprise, while personal spending rose by 0.2%. A gain of 0.3% was expected for both. Year-on-year, personal income growth fell from 2.5% to 2.3%, while spending fell from 2.9% to 2.8%.

The sales rate for existing homes rose to 5.6mm in November, while the new-home sales rate rose to 592,000 (both annualized).

U.S. markets are closed Monday and the rest of the week may as well be. Tuesday will bring Case-Shiller home prices along with consumer confidence. Wednesday has pending home sales, Thursday the international trade goods report, Friday the Chicago purchasing mangers’ index. Enjoy the lull.

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