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Gary Smith’s Market Take

Here’s my take on the markets today, November 30th, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly deteriorating today. The Italian/German 10Y Yld Spread is down -1.8% to 313.67 bps. The US sovereign cds is down -2.9% to 35.18 bps and the Israel sovereign cds is down -2.1% to 141.34 bps. However, the FRA-OIS Spread is gaining +1.5% to 19.75 bps. The TED Spread is jumping +4.4% to 23.95 bps. The 2Y Swap Spread is rising +.9% to 12.5 bps. The Germany sovereign cds is rising +1.1% to 30.50 bps. The Spain sovereign cds is rising +1.6% to 287.83 bps. The Spain 10Y Yld is rising +.26% to 5.35%. The Italy sovereign cds is gaining +1.7% to 248.12 bps. The Ireland sovereign cds is rising +.95% to 179.5 bps. The North America Investment Grade CDS Index is up +.5% to 99.72 bps and the Emerging Markets CDS Index is gaining +.65% to 236.95 bps. The China Blended Corporate Spread Index is jumping +4.89% today to 386.0 bps. Overall, most gauges have shown further improvement this week, but remain at stressed levels. 

Major Asian indices were mostly  higher overnight, led by a +1.0% gain in Taiwan. The Shanghai Comp bounced +.85%, but is still down -2.3% this week and down -17.0% since 2/27. Major European indices are mostly lower, led down by a -.5% decline in Italy. The Bloomberg European Bank/Financial Services Index is down -.02%. Brazil continues to trade poorly, falling -.6% today. The Bovespa is down -16.2% since 3/14.

The euro is +.2% higher and is still trapped in the same range it has been in since early-Sept. Oil(+.8%) is bumping up against its 50-day and continues to trade poorly. Copper still doesn’t trade very well, but is rising +1.1% today and is now back above its 200-day. The benchmark China Iron-Ore Spot Index is falling -1.1%, is back below its 50-day and is down -34.9% since 9/7/11. Gold is falling .1%. The Bloomberg-UBS Ag Spot Index is down -.6%. The 10Y T-Note continues to trade to well with the yield falling -1bp to 1.61%.

 While European credit markets have temporarily calmed, the economic fundamentals of the region continue to deteriorate. I continue to believe that more sovereign downgrades are coming early next year and that the crisis will intensify once again. Moreover, considering the extent to which monetary firepower has already been exhausted, the current state of the global economy, including the US, is even more worrisome.

Investor complacency regarding the ramifications of the eventual outcome of the US fiscal cliff talks is somewhat elevated, in my opinion. I expect one or both sides to completely walk away from the table over the next couple of weeks before eventually agreeing to a can-kicking or small deal. While I don’t expect a full cliff dive, the odds of this outcome are likely higher than the market perceives. While the can-kicking or small-deal I expect will likely boost stocks in the short-run, the growing macro headwinds and lingering uncertainty over likely impending tax hikes and spending cuts will begin to pressure stocks again in the first half of next year.

Alt Energy, Oil Service and REIT shares are holding up relatively well today. Education, Restaurant, Computer Service, Steel, Gold/Silver and Homebuilders are weak. I added to my index traded hedges this morning and I am positioned 25% net long.

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