In the last 10 days of 2012, Economic releases projected firming of the economies in the US and Asia. These releases were all but ignored as US lawmakers jockeyed for blame game positioning and moved from "grand bargain" to "quickie fix" legislation to avoid the fiscal cliff. In this environment, stocks in the US and Europe were lower and government bond markets were mixed. The US dollar was lower against the Euro, Pound, and Looney, but higher against the Yen; the Bank of Japan, borrowing the playbook from the US Fed has been taking actions that lower the value of the Yen in hopes of encouraging Japanese exports. Oil and metal commodity prices were higher.

Perspective:

The House of Representatives just approved the Senate's Budget Amendment Bill, the "quickie fix" to avoid the terms of the budget agreement from earlier this year. The provisions of the Senate's bill will "lead to fiscal tightening of about $250 billion or 1.5% of GDP" according to ISI's Andy Leperrierre. The capital markets are likely to react positively.

Yet, the bill does little to cut spending and kicks the can down the road; within a couple of months the US is likely to be in the midst of the debt limit debate, sequester could still go into effect, and the US debt could be down-graded once again. This "quickie fix" is unlikely to leave either party satisfied, but the bills approval was better than the alternative of allowing the sequester to drive the US economy into a recession. The bill gets us through this crisis, but does not solve the growing deficit problem.

Economic Releases:

The firming of the US economy was displayed in the economic releases in the last 10 days of the year. Releases for the US housing and employment sectors showed some positive signs. Those signs were especially encouraging because those sectors lagged in the recovery from the Great Recession.

Initial Jobless Claims fell to 350,000 in the week of December 22nd. The four week average of Claims (blue in the chart below) dropped to 356,750. Continuing Claims (red in the chart below) dropped 32,000 to 3.206 million. Both releases showed improvement from the pre-Sandy up-ticks.

The US Housing sector also experienced improvement. New Home Sales (blue in the chart below) increased to 377,000 in November. New Home Sales have shown improvment for the past couple of years, but still is well below the 640,000 pre-Recession numbers.

In other US Housing news the Case-Shiller Home Price Index increased +0.7% (seasonally adjusted) in October from the previous month and 4.3% from the previous year. In November Pending Home Sales increased 1.7% from the previous month according the the National Association of Realtors.

Other Economic Releases:

In an early look at what might come in the Purchasing Managers' Indices, the Chicago PMI increased over a point to 51.6.

Asia's economy also appeared to be recovering. China's PMI for Manufacturing increased a point to 51.5. On the other hand, Japan's Industrial Production fell -1.7% in November, its first decline in 2 months. On a positive note, Japan's Unemployment rate fell a tick to 4.1% and Retail Sales rose 1.3% YOY in November.

Equities Markets:

Most American and European equity markets were lower on the last 10 days of the year, but Asian markets were higher. Those markets would have been more negative had hopes not increased on Friday of an agreement to avoid the fiscal cliff in the US. Outside the US equity markets were higher for the quarter. For the year equity markets generated positive returns, many of the market returns were double digit.

Bond Markets:

Government Bond markets were mixed for the last 10 days of the year. Outside of the US Bond yields were lower for the quarter. For the year, Government bond yields were lower (prices were higher) across the globe for the year. Credit spreads narrowed for the quarter and the year, providing higher returns for credit markets for the fourth quarter and year.

Currencies & Commodities:

The US Dollar was lower against the Pound, Euro, and Looney for the last 10 days of the year and the calendar year. The Bank of Japan, taking a page from the US Fed's playbook, has been taking steps to lower the value of the Yen to improve Japan's exports. For the last 10 days of the year, Oil and metal commodity prices were higher, but Natural Gas prices were lower. For the quarter the reverse was true. For the year, WTI prices were lower, but other energy and metal prices were higher.

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Who is John Davidson?

John W. Davidson, CFA, started writing these Comments over a decade ago as a personal discipline when he was promoted to chief investment officer from portfolio manager.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts, and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income, and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he has appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services often quote his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and courses at the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a Naval Officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserves, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is treasurer of the Maine Conference of the United Church of Christ, serving on the executive committee and the coordinating council, the governing board of the conference. He is also on the investment committee of the Pen Bay Health Foundation.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.