1st January 2012: New Year’s Day Outlook – Politics Will Dominate The Investment Environment For 2012

Quote of the Day:

This extraordinary crisis, without doubt the gravest since the second world war, is not over … you are ending the year more anxious for yourselves and your children

Nicolas Sarkozy – in his New Year’s Eve Speech

Macro Overview

Global Politics Dominating

• Mr Sarkozy is right, as the FT pointed out today, the French economy is staring a recession, credit downgrade and political turbulence right in the face … and it is not alone.
• Indeed, if, as investors, you thought 2011 was a year dominated more by politicking than by financial analytical prowess, I’m afraid you’re in for even more of the same in 2012. This year will be cram-packed with financial intensity and political fusions which are already at boiling point.

• • US: Of course there is the big one in the US in November and all through the year and all over the World this will set the tone for political posturing – let’s hope without protectionist clap-trap towards its trading partners.
    • Names to look out for: obviously all the republican front-runners.

• China: Speaking of which, despite the absence of democracy, this is a huge political year for the World’s biggest exporter. In this highly centrally planned country there is firstly the significant issue of the implementation of the next great 5 year plan (which I have written about extensively). Secondly, the small issue of leadership change and politically jostling that will take place behind the scenes on this (and believe me there will be some, even if we are not informed). Not only are the President (Hu Jintao) and Premier (Wen Jiabao) being replaced but the shakeup runs right through the Communist Party leadership – leaving only two of the original actors in the new cast. If you need more analysis on this I highly recommend reading this little white paper by Merk Funds – it is essential reading for investors all over the World.
  • Names to look out for:
    • Li Keqiang – leading candidate for Premiership
    • Xi Jinping – leading candidate for Presidency

• Russia: Yes, America’s old Superpower foe faces a turbulent election with riots in already brewing as living standards slip among the poor and accusations of rife corruption among the rich and political classes. George W’s old sparring partner, Vladimir Putin, right in the thick of it all as he runs for re-election.
  • Names to look out for:
    • Gennady Zyuganov – popular opposition candidate (Communist Party)
    • Vladimir Zhirinovsky – popular opposition candidate (Liberal Democratic Party)
    • Mikhail Prokhorov – independent, third richest man in Russia and owner of New Jersey Nets basketball team

• France: Nicolas Sarkozy has his work cut out right from the outset as he faces a potential downgrade by the rating agencies from the coveted AAA-status and has already practically admitted that France is headed right for a recession. After sticking his neck out to vilify Britain’s (poorly executed) veto on the new Union, to add insult to injury, there seems to be growing discontent within his nation as the Euro-hating, far right leader of the French National Front gains popularity and his main opponent Francois Hollande is already making disgruntled noisesabout the proposed treaty changes.
  • Names to look out for:
    • Marine Le Pen – Leader of Far Right National Front
    • Francois Hollande – Leader of Socialist Party

• Other Elections:
  • Taiwan Presidential and Legislative: Due imminently – 14^th Jan.
  • Finland Presidential (first and second round): Due imminently – 22^nd Jan.

Market Overview

First Red Alert of The Year

• If you remember I wrote in November:

Today I just want to focus on one thing. The Yen. Remember the MoF effectively smashed the Yen right the way back to 78 vowing to defend the level and slash any trader that dares to cross it. It looks like today the market had other ideas. As I wrote last month:

“Japanese Yen intervention is Chart of the Day. Trying to change the market is much like trying to change the weather… you can try … it may even appear to succeed for a long period of time. But a free market could just as easily turn around and take your head off on a whim – just ask the Bank of England.”

• Where is the Dollar-Yen today? Well my indicator at 76.5 is flashing at me – which was my alert to signify the utter failure of the MoF to impose any form of credibility into their ability to defend their rhetoric. Indeed the Euro just hit a 10-year low against the Japanese currency – you now receive less than 100 Yen for a Euro.
• So let’s just get this straight. Interest rates in Japan are effectively zero, so too is inflation and the nation’s demographics (severely ageing population) are crippling the long term growth-trajectory of the country… oh yeah and their debt to GDP ratio is the highest of any nation in the World; a whopping 200%+ of GDP… and this is the fiat currency that is beating all other heavy-weight contenders? That gives you an idea of just what is happening to other fiat currencies around the World.
• My Chart of the Day is a representation of the Yen/Euro which now trades below 100.

Chart of the Day

Euro-Yen Below 100 (Source: Bloomberg)

Events

Macro Events:

Notice I’m giving you alerts for 3^rd of Jan – nothing is really being reported on the 2^nd as it’s a bank holiday in many states so I thought I’d give you early warning of what is to come as these are some pretty important tidbits for setting the early tone in the year.

Update:

• Nothing Significant

Alerts:

• HK Retail Sales
• Singaporean GDP
• US ISM Manufacturing

Corporate Events:

Results:

• Nothing Significant

Dividends:

• Nothing Significant

Reading, Links:

Nothing Significant