US Nominal GDP And Money Supply Growth

For a long time money supply (M2) and GDP grew at about the same rate. Since the subprime crisis, however, money supply growth has exceeded the growth of the economy. It has taken more and more money to keep the economy moving forward. With the fiscal drag of increased taxes and reduced entitlements, we will have to be relying more on monetary expansion than ever. Is the Fed up to the task? Can this go on forever?
Byron Wien, Vice Chairman of Blackstone Group

Flows Into High Yield Bonds

The lower yields go, the riskier the assets we buy. Is the answer to the hole in your pension fund to buy riskier stuff? Noyou should probably just be saving more. But it works provided there's someone else piling in behind you.
Matt King, Head of Global Credit Strategy at Citi

Share Price of Apple

2012 has seen some big changes at Apple. Tim Cook completed his first year as CEO. The company launched the iPhone 5, a major update to its flagship mobile device line. In October, top executive Scott Forstall, the man behind the iPhone and iPad software, was ousted from the company. Apple, the largest company in the world by market capitalization, has suffered a major sell-off in recent months, making the direction of the shares a big open question as we head into 2013.
Contributed by Doug Kass, President of Seabreeze Partners Management

Net Outside Financing Of US Economic Sectors

The nonfinancial corporate and financial sectors issue equity and debt while the household sector and the federal government and state and local government sectors, of course, only issue debt. This chart reveals four important developments: 1) It was the financial and household sectors that levered up, the financial sector starting in the 1970s and households in the early 1980s. 2) Both sectors have started to delever. 3) But both have far to go to return to the earlier flat ratios, and we are strong believers in reversion to well established trends. This helps substantiate our belief the Age of Deleveraging (the title of my most recent book) has another five years or so to go, on top of the five years so far. That would add up to the normal decade of deleveraging after a major financial crisis. 4) Recently the federal government has leveraged up with the debt leaps to finance deficits covered by weak tax collections and massive government stimuli.

Gary Shilling, Economist

Chinese Retail Sales And Industrial Production

My chart of the year is China real retail sales year-over-year compared to industrial production. It is a test of Chinese rebalancing, and luckily, it is going in the right direction.
Jim ONeill, Chairman of Goldman Sachs Asset Management

Dividend Income Versus Interest Income

As the chart below illustrates, the income-starved retiring boomers are being forced to garner income more and more via the equity market, where dividends are up more than 8% over the past year and 55% since August 2009 and in a full-fledged bull market. That first chart is a chart you want to own. And because of ultra-low interest rates, the financial repression thereof has caused interest income growth to collapse down 2% in the past year and over 30% from the peak level in August 2008.
David Rosenberg, Chief Economist and Strategist at Gluskin Sheff + Associates

Overall Lubrication In The Global Financial System

When we consider collateral use/reuse in addition to M2 or the monetary base in U.S., U.K. and Eurozone, financial lubrication was over $30 trillion before Lehman (and one-third came via pledged collateral). This decline in leverage and re-use of collateral may be viewed positively from a financial stability perspective. The amount is largean estimated $4-5 trillion (difference between the green and the red line in Figure 7 from 2007-2011). Increase in M2 due to quantitative easing (QE) does not substitute for loss in financial collateral, especially if QE is in exchange of good collateral (e.g., buying US Treasurysee Singh and Stella 2012). The kinks in the red line in Figure 7 show M2 expansion due to QE. As of end-2011, the overall financial lubrication is back over $30 trillion but the mix is in favor of money which not only has lower velocity than pledged collateral but much of it sits in central banks.

Manmohan Singh, Senior Financial Economist at the International Monetary Fund

12 Month Price/Earnings Ratio

When P/E ratios are historically low, (say, below 12 times) they have been highly likely (84 percent probability) to rise over the subsequent decade. When they are historically high, (say, above 20 times) they have been highly likely to decline (87 percent probability), though in neither case did we know when the change was coming. Certainty about the future never exists, nor are probabilities always borne out. But P/E ratios are useful as a basis for reasonable expectations for the future.
Jack Bogle, Founder and retired CEO of the Vanguard Group

US Financial Conditions Versus Euro Crisis Risk

The chart below plots the Goldman Sachs Financial Conditions Index against a measure of financial market risk stemming from the euro area. It shows that the two have moved in lockstep since mid-2011, suggesting that developments in the euro crisis are still dominating the story.
Submitted by Jan Hatzius, Chief Economist at Goldman Sachs

Consumer Discretionary Stocks Versus The S&P 500

The biggest mistake an economist can make is betting against the resilience of the US consumer. And never was this more true than during this so-called New Normal, retrenching, deleveraging, jobless recovery. In the chart here, I submit to you the consumer discretionary sector priced in the total market (XLY in SPY ratio chart). In 2012, the best performing stocks were homebuilders (Pulte Homes, Home Depot), media companies (Comcast and Disney) and retailers (Amazon, Starbucks). In retrospect, of course they were.
Joshua Brown, The Reformed Broker and Author of Backstage Wall Street

U.S. Increase In Real GDP Per Dollar

This chart is perhaps a creative representation to help identify or disband critical structural linkages between debt and REAL economic activity. This narrative, of course, is important for both the policy community to prospectively understand and expand upon and for financial press and market stewards to assess what these relationships mean for the real economy, policy considerations, and investment prescriptions.
Russ Certo, Managing Director and Head of Rates at Brean Capital

Corporate Bank Borrowing Rates In Big-4 Euro Area Countries

This chart reveals two (important) things that have greatly influenced events in Europe over the past year: 1. That even within a single currency area, we can have very different financial conditions by country (one currency, many monetary policies); 2. The damage to monetary policy transmission (bank lending rates in Germany and France have followed the decline in official and market rates; but that has not been the case in Italy and Spain). It goes without saying that these developments have been key drivers of both macroeconomic performance (the increasing divergence between core and periphery) and policy decisions (the introduction of the ECBs new OMT programme) over the past year.
Huw Pill, Chief European Economist at Goldman Sachs

US Coincident Economic Indicators

Three of the four coincident indicators used to officially date U.S. recessions saw their high points in July (vertical red line), with only employment still rising. The size of the simultaneous three-month declines in industrial production and personal income since then has never occurred outside recession in over half a century but its occurred in every recession. If the business cycle peak was in July, how could employment be higher four months later? Actually, this was also true in two of the last seven recessions and in the severe 73-75 recession, job growth stayed positive eight months into the recession.

Lakshman Achuthan, Co-Founder and Chief Operations Officer at ECRI

US Nominal GDP Versus The Fed Funds Rate

All the big asset bubbles were caused by ludicrously easy money, in the form of Fed rates below nominal GDP. Asia came from 1992/1994 low rates, the dotcom and internet bubbles followed three cut in rates that were made after LTCM, and the big bad bubble followed years of monetary madness. The current gap between GDP and Fed funds is the biggest/longest ever. The bubbles are seen in EM FX valuations, or in commodities, and we all know thats all right because the alternative is even worseright?
Kit Juckes, Head of FX Research at Socit Gnrale

Gross Fixed Capital Formation In China As A % Of GDP

Chinas economy relies too much on investment. China probably has the highest gross fixed capital formation as a percentage of GDP ratio among the major economies throughout history.
David Cui, China Strategist at BofA Merrill Lynch

Trading Volume On US Stock Exchanges

Consider what may be the most deceptively simple chart you will see deceptive because it reveals so many things beyond its ostensible coverage of mere trading volume. Consider what the overall falling volume trend means: in terms of the industry (shrinking), commissions (falling), stock picking (replaced with ETFs) psychology (where's Main St. or Mom & Pop?) active trading (passive indexing), and even HFT (algos).
Barry Ritholtz, CEO and Director of Equity Research at FusionIQ

Foreign Holdings Of Local Bonds In Emerging Markets

In most cases, the proportion of non-resident holders of local debt has increased to historically high levels. On the one hand it shows a certain degree of confidence, but at the same time, we have little doubt that many of those inflows have been forced buying of risk in the yield-free world. At some point, going forward, this may pose a significant risk for stability of emerging markets, particularly if for some reason major central banks start withdrawing the stimulus.
Bartosz Pawlowski, Head of CEEMEA Strategy at BNP Paribas

Anxious America: The Income Divide

The Surveillance chart-of-the-year shows inflation-adjusted, median household income. I have had many "optimists" rationalize away the roll-over and decline back to the late 1980s. Stop. Many, not all of America, are ill-prepared for this 21st-century nation. We are transfixed by the Fiscal Cliff. We should be riveted on investment and growth. We must address the Income Divide.
Tom Keene, Host of Bloomberg Surveillance on Bloomberg TV

Relative Size Of Chinas Urban And Rural Populations

This chart shows China has a few more years of easy growth via urbanisation only 50% in 2011 (rest of Asia latest data is 2005). China/Asia finds it relatively easy to urbanise compared with the rest of EM. As urbanisation goes up, so does per-capita income. Urban incomes are 3-4x rural incomes today, so there is still a big reason to urbanise. Provides basic support to need for more housing, more infrastructure (although how this is delivered, at what price, etc. are still big questions). This means the investment-led growth model can go on for a few more years though clearly we need reform to help support the transition to services.
Stephen Green, Head of Greater China Research at Standard Chartered

The Reversal In Capital Outflows From Spain

With one short statement (Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough; 26 July 2012), ECB President Mario Draghi managed to reverse the process of financial fragmentation in the euro area capital markets, which was accelerating during the summer 2012 and threatening the single currency itself. At some point, capital outflows from Spain in particular amounted to roughly 50% of GDP, with only the public sector (Bank of Spain) left to refinance the domestic private sector. The process has reversed since then, but considerable uncertainty remains.
Frederik Ducrozet, Senior Eurozone Economist at Crdit Agricole

European Attitudes Toward EMU And The Euro

The greatest risk to the future of the monetary union is not the instability of financial markets, which can be tamed with the intervention of the central bank, but rather the declining popular support for the project.
Jacques Cailloux, Chief European Economist at Nomura

Japanese And Euro Area Nominal GDP Growth

Like Japan, the euro area faces an aging demographic profile. And similar to how Japan has suffered slow growth in recent decades as an aging population weighed on its economy, the euro area may now face similarly tough times ahead.
Submitted by Laurence Boone, Chief European Economist at BofA Merrill Lynch

Deleveraging In The Worlds Developed Economies

Deleveraging is difficult. However, the Western world has yet to start the process. The chart shows debt to GDP in the US, Europe and Japan: so far, in aggregate, the major developed economies have only stopped the process of leveraging up. There has not been a material reduction in debt relative to GDP. All we have seen is debt swapped from the private to public sectors. That averted depression, but has not solved the debt problem.
Gerard Minack, Head of Global Developed Markets at Morgan Stanley

Correlation Between BBVA And Peripheral Eurozone Spreads

I would like to think this was a year about FX, but it was one about credit and betting with the ECB here illustrated with BBVA and its apparent correlation with the spread between peripheral and core bonds. Something was broken in the system and the ECB stepped in to patch it up.
Sebastien Galy, Senior Forex Strategist at Socit Gnrale

The Price Of Gold And The Introduction Of The Gold ETF

Uncertainty, financial crisis, currency debasement, accommodative monetary policies, and central bank additions to gold reserves undoubtedly whetted investors appetite for the safe haven and storehouse of value attributes of the metal. We believe, however, that ultimately it was the accessibility and liquidity provided by the ETF structure that facilitated the momentum and scope of golds performance. Our chart illustrates the rise of gold eight years before and eight years after the launch of SPDR Gold Shares (GLD).
John Stoltzfus, Chief Market Strategist and Matthew Naidorf, Senior Associate Equity Strategist at Oppenheimer

Private And Public Sector Financial Balances

No understanding has been more important in the last 5 years than the understanding of the sectoral financial balances. Economists and traders who understood this important economic lesson that originated with Nicholas Kaldor and was made famous by Wynne Godley had an enormous advantage over the rest of the world in terms of understanding the future of the economy and the markets. When combined with the understanding of the Balance Sheet Recession it became obvious that the private sector was going to be too weak to sustain itself due to the destruction to private balance sheets as a result of the credit bubble. But understanding the SFB meant you understood that the government's deficit would drive income to the private sector when it was sorely needed. And this meant corporate profits would increase, markets would remain bolstered and the crisis would slowly become a healing process. 2012 was another clear example of this as austerity plagued many European nations and large budget deficits in the USA continued to steer the economy and markets higher.

Cullen Roche, Founder of Orcam Financial Group and Creator of Pragmatic Capitalism

Media And Market Reactions To The Fiscal Cliff

Without a [fiscal cliff] deal, the U.S. may be thrown back into recession, perhaps derailing the nascent global economic recovery. Even if a deal is reached, political turmoil similar to what occurred in the U.S. debt-ceiling debates of 2011 may lead to another downgrade of the U.S. credit rating this time possibly by Fitch Ratings or Moodys Investors Service. This chart monitors the use of the phrases Fiscal Cliff and Debt Ceiling across all Bloomberg wire stories with VIX overlaid. The number of stories mentioning the fiscal cliff still remains well below the use of debt ceiling in 2011 and the VIX has yet to show much of a reaction.
Michael McDonough, Bloomberg Brief Economist

Rising Dispersion Of Returns In Currency Markets

Diminished tail risks related to policy support in all of the US, China and particularly euro area economies will add to the impact from the collapse in G10 policy rate dispersion, and rate spreads volatility, to keep currency volatility at historically low levels in the year ahead. Special attention will be given to currency specific factors and relative value trades. These trades have already shown a little more promise in 2012, with the annual range between the strongest G10 currency (the New Zealand dollar) and the weakest (the Japanese yen) at 13%, which is up from the post-Bretton Woods all-time low of 7% in 2011 (but far below the 24% 40 year annual average for this metric).
Alan Ruskin, Global Head of G10 FX Strategy at Deutsche Bank

Aging Populations And Home Prices

It's what I like to call the most depressing slide I've ever created. In almost every country you look at, the peak in real estate prices has coincided give or take literally a couple of years with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young). In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then when the kids grew up and left home, we sold it to someone in our children's generation. Unfortunately, that doesn't work so well when there start to be more pensioners than workers.

Matt King, Head of Global Credit Strategy at Citi

Market Vectors Coal ETF (KOL)

As we head into 2013, I cant think of a more similar set up to the homebuilders than the coal space. These names are unloved, if not hated, with many people seeing no signs of recovery. With that said, most of the names havent made new lows since the summer, even after Obama was re-elected. The KOL ETF bottomed in August, and is showing signs of putting in a base. Keep an eye on this as 2013s upside sleeper.
Jonathan Krinsky, Chief Technical Market Analyst at Miller Tabak + Co

Foreclosure Inventories In Judicial Versus Non-Judicial States

This chart shows the breakdown of foreclosure inventory into states with a judicial vs. non-judicial foreclosure process. This is important for two key reasons: 1) The increasing share of foreclosures concentrated in those states with a judicial process helps to explain the extended timelines for foreclosures. It suggests that the pipeline of distressed loans will only be cleared slowly as courts struggle to process foreclosures. 2) Helps to explain some of the regional differences in the housing recovery. Broadly, states with a non-judicial process witnessed a sharper decline in home prices at the beginning of the downturn, but are currently enjoying price appreciation. This is due to a more efficient disposition of delinquent supply, leaving lean inventory in many markets. For example, home prices are recovering in the major metro areas in Arizona, California, Georgia and Michigan (for notably prices are up 20% year-over-year in Phoenix). In contrast, states with a judicial process, such as Florida, Illinois, and New York, are still struggling to clear the pipeline of distressed loans. As a result, home prices in the Chicago and New York metro areas have continued to edge lower.

Michelle Meyer, Senior US Economist at BofA Merrill Lynch

Spread Between The Prices Of Brent And WTI Crude Oil

Below is the spread between the US oil benchmark, WTI and the European benchmark, North Sea Brent. Historically, WTI should always trade at a premium to Brent, as it is more sweet, and the sulfur content is lower, making it easier (and less expensive) to refine. Today, however, WTI trades at nearly a $22/barrel discount to Brent. While there is some geopolitical instability in the Middle East to blame, the vast majority of this differential is due to supply and demand. North Sea Brent is in production decline, while the shale oil revolution and our expanding pipelines to bring Canadas oil sands volume into the United States is a systemic game changer. The USA is literally "awash" with oil, and If the spread continues to widen, not only does the US consumer have a tailwind with lower energy costs relative to EU, but many more European companies will consider shifting production factories to the USA to capture the lower energy costs.

Dave Lutz, Head of ETF Trading and Strategy at Stifel, Nicolaus & Co

The Federal Reserves Share Of The US Treasury Market

As the Fed gets set to add to its purchase program, investors continue to focus on the size of the Feds balance sheet. At $2.9 trillion, its much larger than the pre-crisis average and appears set to rise to at least $4 trillion. However, as our chart shows, while the Feds Treasury purchases have been large in an absolute sense, theyve served to merely hold constant its relative holdings. Agree or disagree with quantitative easing from a theoretical standpoint, the Fed is simply not the only reason Treasury yields are where they are.
Dan Greenhaus, Chief Global Strategist at BTIG

The S&P 500 And The Presidential Election Cycle

The S&P 500 followed a typical four-year election cycle pattern from 2009-2012 despite everything that seemed different this time.
Jeff Kleintop, Chief Market Strategist at LPL Financial

US Capital Expenditure And Residential Investment

The US is still being hit by a double drag of lower corporate spending and residential investment. The success of the economy depends on both rising in 2013 to offset contraction in government spending.
Sean Darby, Chief Global Equities Strategist at Jefferies

Banking Regulation And Money Velocity

While the Fed seems intent on dropping money out of helicopters, it appears that it is dropping directly into bank vaults as the velocity of money continues to drop. This can be explained at least in part to an ever-changing rules being imposed on the banking industry that make them likely to lend only to good credits.
Jason Trennert, Managing Partner and Chief Investment Strategist at Strategas Research Partners

US Housing Starts
The turn in housing is probably the biggest US economic story of the year. The graph shows that housing starts, and therefore residential investment, is now increasing. And even with the 20%+ increase this year, starts are still very low suggesting further gains over the next few years.
Bill McBride, Creator of the Calculated Risk Blog

The Price Of Gold And The Federal Reserves Balance Sheet

Chairman Ben Bernanke announced this week the Federal Reserves intention to purchase $85 billion a month of mortgage-backed and Treasury securities. The chart above shows the rise of the balance sheet assuming the Fed continued purchasing mortgage-backed securities. At $40 billion per month, this means Americas balance sheet would expand to about $4.5 trillion by the end of 2016. Now, the Fed will be forking over $85 billion per month. If this open-ended spending continues through the end of 2016, the [Feds] balance sheet swells to nearly $7 trillion! You can see in the chart the close interconnectivity between the gold price and the Feds rising balance sheet. This, combined with negative real interest rates provides a potent formula for gold, as investors seek the precious metal as a store of value.

Frank Holmes, CEO and Chief Investment Officer at U.S. Global Investors

Valuation Of High Yield Bond Spreads

This graph indicates when the high yield risk premium is at fair value (the zero line), rich (below zero), or cheap (above zero). The horizontal lines at +133 and -133 basis points, equivalent to one standard deviation, indicate when the misvaluation has reached an extreme. (Fair value is determined by a multiple regression model devised and maintained by FridsonVision LLC.)
Martin Fridson, CEO of FridsonVision LLC

Credit Default Swap Spreads On Greek And Spanish Debt

There are a million charts to show this, and this may not be the best one, butGreece defaulted and the world didnt end. The eurozone economies' woes go on, but the risk of further default has been seriously reduced by the ECB, and a bunch of aggressive leveraged market participants are left licking wounds. The European story now is one of addiction to ECB funding and an even longer period of easy money than the US faces, but the euro is doomed camp has fallen all but silent.
Kit Juckes, Head of FX Research at Socit Gnrale

Government Stimulus Driving Economic Growth In China

The Chinese governments ongoing efforts to thwart a continued slowdown in China through increased infrastructure investment are having a positive impact on growth. Chinas Industrial production growth rose back above 10 percent year-on-year in November, exceeding analysts estimates of 9.8 percent. Chinese officials will likely need to continue relying on fiscal stimulus to buoy growth over the year ahead as investment data shows growth in the manufacturing and real estate sector, key drivers of Chinas economy, remain well below averageWhile Chinas fourth quarter GDP growth is set to accelerate for the first time in seven consecutive quarters, the primary catalyst is swelling government support, not a substantial improvement in Chinas real economy, which is still fighting substantial overcapacity issues.

Michael McDonough, Bloomberg Brief Economist

US Treasury Yields Versus The VIX

From the beginning of the recovery until LTRO (October 2011), Treasury yields and the VIX moved in opposite directions. Put differently, when conditions got dicey, volatility spiked and investors would rush to Treasuries. This relationship broke down once investors became convinced that the ECB was more fully engaged under Draghi. 2012's strong returns are tied to actions taken in Europe more than successes here in the U.S.
Jonathan Golub, Chief US Equity Strategist at UBS

Low Wage Subsectors

The significant labor market slack that is at the heart of the sluggish economic expansion has resulted in a low wage bias in hiring. Given the surplus of labor in the market, sluggish wage growth should continue.
Joseph Brusuelas, Senior Economist at Bloomberg LP

Municipal Bond Spreads

This chart shows that 30-year municipal bond rates have tightened to almost-historical levels relative to Treasuries while 10-year municipal bond rates have tightened back to these levels. As a result, we expect a spate of new issuance in the coming year to advance-refund older municipal bond issues. These charts show the municipal bond market has essentially cured itself.
David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors

Expansion Of Central Bank Balance Sheets

We think this is a very important chart it supports our contention that investors are grossly under-estimating the risks outside the US, and over-estimating the risks within the US. Although many complain about the size of the Feds balance sheet, they apparently arent aware that the Fed has been relatively conservative when compared to the ECB and the PBOC. Chinas capacity utilization is now only 60%, and they are trying to stimulate their economy by building still more productive capacity. People are worried about inflation and buying gold, but it is hard to imagine that the US will be faced with a serious inflation threat when the remainder of the world is in worse shape than we are here in the US.

Rich Bernstein, Richard Bernstein Advisors

Performance Of US Stocks With High Foreign Sales

From the mid-1990s to mid-2011, tilting toward high foreign sales companies delivered substantially higher returns than those with only domestic revenues. Periodic exceptions include the Asia Financial Crisis and the US mortgage debt bubble, when financials outperformed tech. High foreign sales companies have higher earnings growth, margins, ROE, and pay a lower effective tax rate historically. They have been successful in replicating their business model overseas. We expect high foreign sales to be a winning trait again in 2013.
David Bianco, Chief US Equity Strategist at Deutsche Bank

Consumer Discretionary Net Margins And EPS Growth

The chart plots consumer discretionary net margins (inverted and advanced) alongside annualized EPS growth for the sector. What it argues is that today's all-time high in profitability points to a rather sluggish future earnings trajectory. At the same time, we note that the sector trades at a 35-year relative valuation high on measures like price-to-sales. Peak valuations on peak margins is not a great combination for future long-term outperformance. So, the market darling of the past 3-4 years might not remain that way over the next 3-4 years. Investors will need to look inside the sector for areas where margins are relatively low but improving and where there is also room for valuation expansion. And here we'd point to the housing-related segments which include homebuilding, home improvement retail, and household durables.

Myles Zyblock, Chief Institutional Strategist at RBC

Home Prices And Prospective Buyer Flow

A virtuous circle in US housing has commenced. The US has gone through a clearing process in housing using a combination of ultra low rates and regulatory changes.
Sean Darby, Chief Global Equities Strategist at Jefferies

Monetary Policy Rates

The liquidity trap narrative is ubiquitous now: against the backdrop of impaired household and financial sector balance sheets, private sector credit demand becomes inelastic, and if policy rates are falling from a sufficiently low base, they hit the zero lower nominal bound before credit demand constraints are alleviated. However, there is evidence that we are exiting the liquidity trap, shifting household deleveraging from a numerator- (debt reduction-) driven process to a denominator- (growth-) driven one. Below are estimates of Taylor & Mankiw rules as proxies for "optimal" policy rates, as well as adjusted models of these two ratesWe find it interesting that all of the policy rates calculated, modeled, and tested reflect positive nominal optimal rates, suggesting the US is close to breaking out of its liquidity trap. Rising house prices, five years of debt stock reduction progress, the replacement of stop-and-go monetary policy with calendar- and now outcome-based guidance, and aggregate household credit market debt outstanding breaking back above the 0% YoY level for the first time since before the recession, all reflect this new dynamic.

Naufal Sanaullah, Global Macro Portfolio Manager and Creator of Macro Beat

Yields On Spanish Sovereign Debt

Spain wont be able to cover its large 2013 funding needs (some 150bn) without official support. We expect Rajoy to ask for help on evidence, in early 2013, of a lack of investor demand. Once OMT buying starts, expect investors to join, since ECB purchases wont have a senior credit status. We then expect 3-year Spain to tighten to E+150-200bp, some 150bp tighter than current levels. That will support risk sentiment into spring.
Vincent Chaigneau, Global Head of Rate Strategy at Socit Gnrale

IMF Forecast Revisions To Greek Nominal GDP

I think this is a beautiful illustration of how shockingly bad crisis resolution efforts in Greece have been, and why the IMF has tried to change tack on Greece more recently, and on the euro-crisis in general.
Gabriel Sterne, Fixed Income Economist At Exotix

Share Price of Apple

Has Apple peaked out? If it did, the entire stock market will follow in 2013 its decline.
Marc Faber, Publisher of the Gloom Boom & Doom Report

US Government Bond Yields

The chart of the year should be the chart of the 10 or 30 year bond as it is going to be hit hard in 2013, I think, and it will be the story of the year unauthorized (by the Fed) rising long term rates.
Bill Fleckenstein, President and Founder of Fleckenstein Capital

FedEx Package Shipments Versus Real GDP

The shipments of FedEx packages began to slump as early as the first quarter of 2012. It appears to be signaling weaker economic conditions.
Richard Yamarone, Senior Economist at Bloomberg News

Quantitative Easing And The Stock Market

All markets have been doing this year as for the last two is responding to central banks' injections of liquidity. The S&P 500 has rallied 62 percent during the periods when the Fed was doing QE and dropped 14 percent when it wasn't.
Matt King, Head of Global Credit Strategy at Citi

Average Hourly Earnings And Labor Market Slack

Here is my favorite chart. This chart tells me that the Fed is faced with a cyclical labor market problem one that it believes it can solve with impunity (without the fear of inflation). Hence, QE til the cows come home.
Millan Mulraine, Director of Rates, FX, and Commodities Research at TD Securities USA

The Odds A Given Currency Will Rise If The S&P 500 Rises
The chart shows the odds that the indicated currency goes up or down versus the USD if the S&P goes upWhat is striking is how consistent the pattern is. With CNY and JPY excepted, almost all currencies tend to appreciate versus USD when the S&P is gaining and the odds for many are around 2:1 which is very high in financial market terms. The reasons: 1) S&P gains are on the back of extraordinarily expansive USD policy, which makes US fixed income assets unattractive; 2) currencies that were damaged by investor obsession with tail risk stand to gain as the tail risk is unwound, and; 3) the betas of many equity markets with respect to the S&P are greater than one, so a rising S&P is associated with even stronger equities abroad. This is probably the most hotly debated issue in FX right now and I find myself on the minority side. The consensus view has become that if the US is the cyclical leader in G10, the USD will outperform. I think one of the big surprises next year will be how poorly the USD does, even if the fiscal cliff is resolved and US growth is rebounding a reminder that FX is not about whose economy is better, but whose asset markets are most attractive relative to what is priced in.

Steven Englander, Global Head of G10 FX Strategy at Citi

Stock Performance Measured In Gold Under Fed Chairmen

The chart below shows the performance of the S&P 500 priced in gold during the tenures of the last four chairmen of the Federal Reserve, including current chairman Ben Bernanke. Stocks have underperformed in gold terms during Bernankes tenure, as they did under Arthur Burns, who preceded Paul Volcker and the latters monetary tightening regime. UBS economist Drew Matus says this suggests the Feds credibility is in question.
Submitted by Drew Matus, Senior US Economist at UBS

Interest Rates Implied By The Evans And Taylor Rules

The use of an Evans Rule or a policy heuristic that provides guidance for policymakers on the appropriate size of the balance sheet indicates that interest rates should be currently close to minus 480 basis points. Since the policy rate cannot breach the zero bound, using this approach, each 100 basis points is roughly equal to $1 trillion in assets added to the balance sheet. If the Fed would have implemented an Evans Rule at the outset of the crisis in 2008, the balance sheet would have likely expanded to $7.5 trillion in mid-2009. The implication is that the Feds balance sheet should currently be $4.8 trillion in contrast with the current $2.84 trillion.

Joseph Brusuelas, Senior Economist at Bloomberg LP

US Growth Versus European Growth

This is a very boring chart but we have opened up a gulf in Transatlantic growth that won't close because TARP was so much better than anything Europe did, because the Fed was not hamstrung the way the ECB was, and because EUR/USD isnt at parity. This growth gap is staying with usthe US lost the currency war and will win the economic peace.
Kit Juckes, Head of FX Research at Socit Gnrale

Residential Investment And State And Local Spending

This graph captures two important themes going forward. It shows that residential investment is now contributing to GDP, and that the drag from state and local governments is slowing and will probably end soon.
Bill McBride, Creator of the Calculated Risk Blog

Year-Over-Year GDP Growth In The Big-4 Euro Area Countries

While France, Spain, and Italy continue to contract and the contraction accelerates in the latter two nations Germany has been the only country in 2012 that has been able to rebound from the economic downturn and return to positive growth so far.
Submitted by Laurence Boone, Chief European Economist at BofA Merrill Lynch

Expansion Of Central Bank Balance Sheets In Dollar Terms

Since the crisis began, the major central banks have expanded their balance sheets by over USD 9 trillionGIDDY UP!!!
David Zervos, Managing Director at Jefferies

Hedge Fund Returns Versus Stock Market Performance

The chart below measures how well hedge fund performance moves with the S&P 500 on a rolling 21-day basis. "We have written about this extensively in the past. But again, we tend to view Macro HF beta as a contrarian indicator at extremes," writes Lee. In other words, when hedge funds move with the S&P 500, it's time to get out of stocks.
Submitted by Tom Lee, Chief US Equity Strategist at JPMorgan

Liquidity In The Corporate Bond Market

Market liquidity: since 2007, credit mutual fund assets have doubled, while dealers' corporate bond inventories have halved. So while in 2007, it would have taken a 50% outflow from mutual funds to double the size of the street's inventory, now if there were to be a 5% outflow it would double the size of the inventory.
Matt King, Head of Global Credit Strategy at Citi

MBS Primary-Secondary Spread

The direct object of the Feds affection. The mortgage backed primary-secondary spread, which is the target of the $40 billion in MBS [purchases], after sharply falling has moved sideways since mid-October, and remains roughly 100 basis points above where it was prior to the eruption of the financial crisis in 2008, suggesting that the Fed has much work to do to ease broader financial conditions in the housing market and the economy.
Joseph Brusuelas, Senior Economist at Bloomberg LP

Relationship Between Inflation And Unemployment

These charts couldn't be more relevant today as the Bernanke Fed pegs U.S. interest rate policy to the unemployment rate. Unfortunately, history shows that central bank money printing causes the unemployment rate to rise, not fall.
Michael Pento, President of Pento Porftolio Strategies

S&P 500 Homebuilding Index

Within the discretionary sector, I think its safe to say that homebuilders were the upside surprise of 2012. Coming into last fall, the housing recovery seemed bleak and the stocks reflected the pessimism. The S&P Homebuilding Index declined over 50% from 2010 highs to 2011 lows. The Index then staged an astonishing 247% rally to the 2012 highs in early November. At that point, the Index was up over 100% for the year, and many individual names were up even more. (HOV +290%, PHM +195%, KBH +158%, SPF +153%). So when we look back on 2012, the homebuilders have to be considered one of the most important charts.
Jonathan Krinsky, Chief Technical Market Analyst at Miller Tabak + Co

Federal Reserve Policy Versus Daytona 500 Driving Speeds

Fed policy is in NASCAR terms running under a yellow flag. While cars at the Daytona 500 typically vary around 175-200 mph as they go around the oval track, after a crash, officials send out a safety car to slow the cars down until the race is safe to resume. The Federal funds rate is normally much higher than it is today when the economy is operating around full speed. But following the crash of 2008, the Fed is playing it safe with the Federal funds rate at a very low level in an attempt to keep the economy on track. The yellow flag may remain out for quite a few more laps.
Jeff Kleintop, Chief Market Strategist at LPL Financial

The S&P 500

The market is up over 100% since its lows in 2009. This is misleading, however, given that the market jumped 80% in less than 14 months and has experienced more modest gains since. Unfortunately, many investors did not experience this large bounce.
Jonathan Golub, Chief US Equity Strategist at UBS

Yield Spread Between Junk Bonds And Stocks

The chart below shows the spread between the yield on junk bonds and the yield received from holding stocks. The spread recently turned negative for the first time ever, showing just how much the yields on high-risk bonds have come down as central banks keep benchmark borrowing rates depressed and investors search further out on the risk spectrum for yield.
Contributed by David Schawel, Fixed Income Portfolio Manager

Euribor And Eurodollar Spreads

The Eurodollar calendar spread has flattened from around 100bps (1%) since mid-2011 as cash traders pay increasing attention to the FOMCs rhetorical line that it wants lower rates for several years going forward. Currently this spread rests at 30.5 bps. Our view beyond the cliff is that as employment gains continue, investors will front run a less accommodating Federal Reserve and steepen the 2015 yield curve. The euribor calendar spread has for long been lower than the equivalent US yield curve. During the last several months it has flattened at a slower pace than its Eurodollar counterpart and currently shows a slight 4bp premium. Now look at the spread between the two calendar spreads the net displays that -4bps reading for the cost of the Eurodollar calendar spread relative to the same for Europe. We believe that shifting expectations surrounding the US growth outlook and how that translates for FOMC policy will drive a significant widening between European and US calendar spreads back to at least 50bps during the first half of 2013.

Andrew Wilkinson, Chief Economic Strategist at Miller Tabak + Co

Interest Rate Swaps In Emerging Market Debt

The chart below shows the average of 5yr IRS rates in Brazil, Czech, Hungary, Indonesia, South Korea, Mexico, Malaysia, Poland, Russia, Turkey and South Africa (index, 100 as of Dec09, simple average) against the QE/OT periods (shaded). In both 2010 and 2011, additional easing delivered by the Fed at least temporarily boosted 5yr rates across EM, thus suggesting that the market was more optimistic about growth prospects. With QE Infinity, we have not seen such impact yet, which indicates continued disappointing growth across EM. Another explanation would be that investors are remarkably complacent about inflation in EM, even with record low central bank rates.
Bartosz Pawlowski, Head of CEEMEA Strategy at BNP Paribas

Correlation Between Default Rates And GDP

One way central bank activity has made a dramatic impact on markets so far is in ensuring that defaults have remained significantly below where they would have been had central banks remained dormant. Up until the last two or three years, those of us that have spent our career looking at Western credit markets (US, UK and Europe) have generally assumed a reasonably strong correlation between GDP and defaults in each region. However through a combination of; i) divergent developed (weak) and EM (stronger) market growth but with increasingly global companies; ii) artificially low rates; and iii) most importantly the supportive action of the authorities, its fair to say that weve had to reappraise our default methodology and assumptions downwards. This is in spite of the fact we have a developed world where growth has ground to a halt across most countries with many in recession.

Jim Reid, Head of Fundamental Strategy at Deutsche Bank

Wages As A Percentage Of The Overall Economy

Real wages have steadily declined throughout the 20th century and into the 21st century. Many jobs created since the financial crisis have been in lower-wage occupations, and workers are also receiving less benefits than they did before.
From Jeff Gundlach, CEO and Chief Investment Officer at DoubleLine Capital

Corporate Profits Relative To GDP At All Time Highs

While companies are paying workers less, corporate profits are at their highest levels ever. Companies have been able to boost profits by cutting costs, but many fear that high margins are unsustainable.
From Jeff Gundlach, CEO and Chief Investment Officer at DoubleLine Capital

Interplay Between Central Bankers And Politicians

Seeking to leave behind the darkness of the global financial crisis, bold central bankers are leading everyone into still-muddy and unchartered territory. The outlook is uncertain. The traditional map is of little use. They are pulling along politicians who, rather than lead, are bickering and dithering. Then there are the citizens. Confused and uncertain, they are being pulled along reluctantly. And some (e.g., Greek citizens) are disengaging, having lost trust in both policymakers and politicians.
Mohamed El-Erian, CEO of PIMCO

Thank You
We'd like to thank all of the contributors to this list: Lakshman Achuthan (ECRI), Rich Bernstein (Richard Bernstein Advisors), Manmohan Singh (IMF), Bartosz Pawlowski (BNP Paribas), David Bianco (Deutsche Bank), Stephen Green (Standard Chartered), Jack Bogle (Vanguard), Kit Juckes (Socit Gnrale), Josh Brown (The Reformed Broker), Frederik Ducrozet (Crdit Agricole), Gabriel Sterne (Exotix), Gerard Minack (Morgan Stanley), Joseph Brusuelas (Bloomberg LP), Steven Englander (Citi), Martin Fridson (BNP Paribas), Russ Certo (Brean Capital), Dan Greenhaus (BTIG), Sean Darby (Jefferies), Dylan Grice, Jeffrey Gundlach (Doubleline Capital), Andrew Wilkinson (Miller Tabak), Jan Hatzius (Goldman Sachs), Jacques Cailloux (Nomura), Millan Mulraine (TD Securities), David Cui (BofA Merrill Lynch), Jonathan Golub (UBS), Doug Kass (Seabreeze Partners Management), Sebastien Galy (Socit Gnrale), David Kotok (Cumberland Advisors), Frank Holmes (U.S. Global Investors), Jim Reid (Deutsche Bank), Tom Lee (JPMorgan), Mohamed El-Erian (PIMCO), Laurence Boone (BofA Merrill Lynch), Huw Pill (Goldman Sachs), Jeff Kleintop (LPL Financial), Tom Keene (Bloomberg TV & Radio), Bill McBride (Calculated Risk), Myles Zyblock (RBC), Drew Matus (UBS), Vincent Chaigneau (Socit Gnrale), David Zervos (Jefferies), Jonathan Krinsky (Miller Tabak), Matt King (Citi), Michael McDonough (Bloomberg Brief), Bill Fleckenstein (Fleckenstein Capital), Barry Ritholtz (FusionIQ), Jim O'Neill (Goldman Sachs),Michelle Meyer (BofA Merrill Lynch), David Rosenberg (Gluskin Sheff + Associates), David Schawel, Gary Shilling, John Stoltzfus and Matthew Naidorf (Oppenheimer Asset Management), Michael Pento (Pento Portfolio Strategies), Jason Trennert (Strategas), Dave Lutz (Stifel Nicolaus), Byron Wien (Blackstone Group), Alan Ruskin (Deutsche Bank), Cullen Roche (Orcam Financial), Ellen Zentner (Nomura), and Marc Faber (Gloom Boom & Doom Report).