Thoughts

On the Banks

Regulators are reportedly telling banks to estimate their potential mortgage putback liabilities.

According to a Journal piece, regulators are instructing banks to produce an estimate of their potential mortgage putback liabilities.

The U.S. and the IMF

The U.S. will probably not help further with the European bailout. Expect stocks and gold to sell off a bit.

Reason for the Ramp

The U.S. would reportedly be ready to back larger European financial stability through increased IMF commitments.

The November ISM headline was slightly better than expectations -- the new orders/inventory spread narrowed. As well, the production component, thought still strong, dropped by a fair bit from the prior month.

Some slowdown in new orders might be in the wind. Residential construction activity still is bouncing along the bottom. While spending beat expectations, prior months revisions were negative.

Marc Chandler had a good nose in his remarks yesterday, as euro futures seemed buoyed by Trichet's comments that he might be rethinking the end of ECB bond purchases.

More Good News

The ADP number continues a series of unambiguously better economic figures over the last two weeks.

I continue to believe that our economy will surprise on the upside in the months ahead.

Our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.

While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.

-- Doug Kass, The Edge

I continue to believe that our economy will surprise on the upside in the months ahead.

The wild cards? They seem recognizable, contained and controllable:

* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.

* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.

* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.

* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.

While it remains uncertain whether the recovery will be self-sustaining and smooth, I recognize that no market is an island and that our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.

Meanwhile, as evidenced by PMI's released in India and China last night, the emerging world continues to emerge.

Away from the fundamentals, the technicals of our market also seem to be improving as the oversold condition builds up, put-buying continues, retail investors continue to flee domestic equity funds and the S&P has held at critical points on three separate occasions recently.