“The Business Roundtable, which represents chief executives of major U.S. companies, proposed shoring up Social Security and Medicare by raising the eligibility age without increasing taxes on income subject to the Social Security payroll tax.

For Social Security, the group’s plan released Wednesday in Washington would gradually raise the retirement age to 70 from 67, scale back benefits for wealthier recipients and switch to a method of calculating inflation that would result in lower cost-of-living payments for current and future retirees.

“We have tried to gather three or four very pragmatic, despite their political firepower, relatively straightforward proposals that do the trick,” said Gary Loveman, chief executive and president of Caesars Entertainment Corp., chairman of the group’s health and retirement committee.

“This proposal dovetails very nicely with the demographic realities of the workforce,” said Randall Stephenson, chairman and chief executive of AT&T Inc. “We are going to need our employees to work longer just to fill the needs that we have in the work force.”

The group also offered a plan for the Medicare health program for the elderly that would raise the eligibility age to 70 and create a system of private plans to compete with the government-sponsored program. The proposal is similar to that proposed by House Republicans as part of their budget and was rejected by the Democrat-run Senate.

Means Testing…”

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“Those four indicators are based on the performance of sectors that, prior to past market tops, either led or lagged the overall market. According to a study conducted by Ned Davis Research of returns over the last three months of each stock bull market in the U.S. since the early 1970s, two sectors stood out as usually leading the market: Consumer Discretionary and Consumer Staples.

Two other sectors, in contrast, typically lagged the market prior to those tops: Financials and Utilities.

The accompanying table, courtesy of FactSet, shows where we currently stand according to these four indicators.

A mixed picture, to be sure.

However, in my opinion, too much should not be made of the two sectors whose recent performance appear to be inconsistent with an imminent top.

Consider first the Consumer Staples sector, which has lagged the S&P 500 indexSPX +0.02%  over the last three months. This is a sector that, prior to past market tops, has usually led the market.

It turns out, however, that its market-lagging performance over the last three months can be traced to the final weeks of 2012. Might it be that this sector was artificially depressed by anxiety induced by the fiscal-cliff negotiations? This certainly seems plausible, since the consumer sentiment surveys covering the latter weeks of 2012 showed a marked pullback in consumer confidence….”

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“Great, Facebook launched something called Graph Search. But how does it actually help you? From content discovery to finding a restaurant, from recruiting to dating to a trip down memory lane, here’s what you can do with Graph Search. First, check out this quick hands-on video intro above. Then let’s look at some questions Google, Yelp, and LinkedIn couldn’t answer but Graph Search can.

First things first, go to facebook.com/graphsearch and click the button at the bottom to sign up for beta (or begin using it if you already have access). Starting today, Facebook is rolling Graph Search out slowly, but more people should get it in the coming weeks and months. Signing up means you’ll get it sooner.

When you do gain access, you’ll see a notice at the top of your Facebook homepage to activate Graph Search and take a quick tour. Then you’re free to start searching for things like:

DATING…”

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” “There are decades when nothing happens and there are weeks when decades happen.” – Vladimir Ilyich Lenin

“People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.” – Jean Monnet

“If something cannot go on forever, it will stop.” –Herbert Stein

As we begin a new year, we again indulge ourselves in the annual (if somewhat futile) rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.

This is my most-read letter of the year, by the way, and if you’re not yet a subscriber you can join my “one million best friends” and receive bothThoughts from the Frontline and my other weekly letter, Outside the Box, as well as Grant Williams’ rollicking Things That Make You Go Hmmm…, all for free, by simply entering your email address on my site: http://www.mauldineconomics.com/go/bwbsl/MEC

Unsustainability and Transition

Think back to 2001. It was the opening of a new millennium. While that was auspicious enough, several events then ensued that shaped the future for decades to come. China was admitted to the World Trade Organization, leading to a revolution in its production and global trade. The euro was launched with much fanfare – and a minor chorus of criticism.  We are now in a midst of a great trial that will determine whether the euro will be a brief experiment or a durable currency. This has dramatic implications not only for Europe but for the world. And, of course, the tragic events of 9/11 shaped a new global perception of what constitutes threats to democracy and security. …”

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“The World Bank just published an update to its latest Global Economic Prospects report.

“Four years after the onset of the global financial crisis, the worst appears to be over,” they write.  “However, the global economy remains fragile, as high-income countries continue to suffer from volatility and slow growth, says the World Bank’s latest Global Economic Prospects, issued today.

“Despite slow growth in high-income countries, prospects for the developing world remain solid (albeit between 1 and 2 percentage points slower than in the pre-crisis period). In order to regain those earlier faster growth rates, developing countries will need to focus on productivity-enhancing domestic policies, to assure robust growth in the long term.”

The report includes updates to the World Bank’s forecasts for growth.  Here are the key estimates and forecasts (June estimates in parenthesis):

• 2.3 percent global GDP growth in 2012 (down from 2.5 percent)
• 2.4 percent global GDP growth in 2013 (down from 3.0 percent)
• 3.1 percent global GDP growth in 2014 (down from 3.3 percent)
• 3.3 percent global GDP growth in 2015 …”

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“Reserve Chairman Ben Bernanke indicated that the central bank is weighing the potential costs from its $85 billion in monthly purchases of bonds while saying the unorthodox easing bolsters the economy.

“So far, we think we are getting some effect, it is kind of early,” Bernanke said Monday at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. “We are going to continue to assess how effective” the program is “because it is possible that as you move through time and the situation changes that the impact of these tools could vary.”

The Federal Open Market Committee last month decided to add $45 billion in monthly purchases of U.S. Treasury notes to its program buying $40 billion of mortgage-backed securities each month. The committee set no limit on the size or duration of the bond purchases….”

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In the past there was some balance based upon push and pull, but today all players are in one sided push action. We must ask what are the consequences and for how long can the insanity last?

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“(Reuters) – The message from automotive CEOs at the opening of this year’s Detroit auto show is deceptively simple: Sportscars are hot, electrics are not.

As General Motors Corp CEO Dan Akerson unveiled a new 450-horsepower Chevrolet Corvette and Fiat SpA CEO Sergio Marchionne extolled the Italian automaker’s $130,000 Maserati Quattroporte luxury sedan, their counterpart, Carlos Ghosn, chief executive of Japan’s Nissan Motor Co, announced a stunning $6,000-plus price cut on the slow-selling Nissan Leaf electric vehicle.

Despite that hiccup, executives generally seemed upbeat about the mood of the U.S. auto industry as it enters a fourth year of recovery from the 2009 meltdown and bankruptcies of GM and Chrysler.

“Without trying to read tarot cards and tea leaves, 2013 is structurally going in the right direction. It will be the best year on record since I’ve been here,” said Fiat’s Marchionne, whose company was handed control of Chrysler four years ago.

If U.S. consumers’ views of green cars remains skeptical, their unabated appetite for performance and luxury models is widely evident on the show floor at Detroit’s Cobo Center, even to industry officials from overseas.

“The U.S. auto market has revitalized itself with amazing speed and dynamism,” said Matthias Wissmann, head of Germany’s carmaker association (VDA). “The fascination of the car is again alive and well in the U.S.”

Part of that fascination is being driven by foreign brands such as Maserati, like Chrysler part of the Fiat group. But not every out-of-town executive is sanguine about prospects in the U.S. market….”

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“BofA analyst Michael Hartnett is out with his latest survey of global fund managers.

The biggest take away? Pro investors are BULLISH.

As this chart shows, risk appetite (as measured by the share of fund managers who are bullish) is surging to multi-year highs.

BofA/ML

And the flipside. The amount that pro fund managers are holding in cash is dropping to historic lows.

BofA/ML

Meanwhile, it’s interesting to note that we’re hitting these levels at the same time as retail investors are finally flooding back into stock funds.”

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“Stock prices have more than doubled since their lows of March 2009.

But when you look at the stock market since 2000, prices have effectively gone nowhere.

And Vitaliy Katsenelson, author of The Little Book of Sideways Markets, believes stocks could go sideways for another decade.

Click Here To See Katsenelson’s Presentation >

“12 years into this sideways market, valuations are still 30% above the historical average, while in 1982 they were about 30% percent below average!” he writes.  “Also, historically, stocks spent a good amount of time at below-average valuations before sideways market turned into a secular bull market.”

In a presentation he recently gave to the CFA Society of Atlanta, Katsenelson closely reviews the history of secular bull and secular sideways markets….”

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“Minneapolis Fed Chief Narayana Kocherlakota used to be among the more hawkish Fed chiefs.

Now he’s among the more dovish.

And in a speech today he provides an answer of how the Fed could provide even more stimulus.

Basically, the Fed could say that it won’t stop easing until unemployment hits 5.5%, rather than the current 6.5% target.

Here’s what he said in a speech today. Understanding this is crucial to understanding the Fed’s current thinking:

Based on my outlook for the next two years, I’ve concluded that the FOMC would better fulfill both of its congressional mandates by adding more monetary policy accommodation. But how best to do so? In its current forward guidance, the FOMC has stated that it expects the fed funds rate to remain extraordinarily low at least until the unemployment rate falls below 6.5 percent. In my view, it would be appropriate for the FOMC to provide more needed stimulus by lowering the threshold unemployment rate from 6.5 percent to 5.5 percent….”

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“Federal Reserve Chairman Ben S. Bernanke indicated that the central bank is weighing the potential costs from its $85 billion in monthly purchases of bonds while saying the unorthodox easing bolsters the economy.

“So far, we think we are getting some effect, it is kind of early,” Bernanke said yesterday at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. “We are going to continue to assess how effective” the program is “because it is possible that as you move through time and the situation changes that the impact of these tools could vary.”

The Federal Open Market Committee last month decided to add $45 billion in monthly purchases of U.S. Treasury notes to its program buying $40 billion of mortgage-backed securities each month. The committee set no limit on the size or duration of the bond purchases.

Minutes from the Dec. 11-12 meeting showed that even as they were preparing to launch new Treasury purchases, “several” FOMC members said it would “probably be appropriate to slow or stop buying well before the end of 2013.” A “few” others were willing to let the program run to the end of the year, while “a few others” didn’t give a time frame.

“What I think the market was hoping for was that he would come down on one side or the other,” said Drew Matus, senior U.S. economist at UBS Securities LLC in Stamford,Connecticut, referring to Bernanke. “He decided to say we are not sure, and that just ratifies the minutes.”

Combat Unemployment….”

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“China’s customs administration said every dollar of trade is documented, defending the quality of export data that analysts at UBS AG and Australia & New Zealand Banking Group Ltd. said may fail to capture the true picture.

“Customs import and export statistics are based upon actual customs declarations,” the General Administration of Customs said today in an e-mailed statement, responding to questions submitted by Bloomberg News on Jan. 11. “In our published export and import data, every dollar has a corresponding customs declaration document to back it.”

Last week’s customs report showing export growth of 14.1 percent in December from a year earlier, after a 2.9 percent gain in November, spurred skepticism from economists at banks including UBS, which cited discrepancies with other nations’ imports from China. Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown.

“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs Group Inc.’s Beijing-based economists Yu Song and Yin Zhang wrote in a Jan. 10 note. “Having said that, there is no concrete evidence to suggest this is what actually happened.”

Goldman Sachs and ANZ also cited a divergence from overseas orders in a manufacturing index, while Mizuho Securities Asia Ltd. said the increase could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to reach the official 2012 target of 10 percent growth….”

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“Prime Minister Shinzo Abe’s fiscal and monetary stimulus measures may trigger a collapse of Japan’s economy as early as this year, according to Takeshi Fujimaki, a former adviser to billionaire investor George Soros.

The yen has slumped 6 percent since elections last month returned power to the Liberal Democratic Party run by Abe, who’s demanded that the Bank of Japan (8301) undertake unlimited cash infusions to end deflation. The premier also unveiled 10.3 trillion yen ($116 billion) in extra spending last week, a step that will add to public debt that’s already more than double the size of the nation’s economy.

“Large-scale spending is ridiculous given the amount of debt Japan has accumulated, while I think highly of Abe in regards to his intention to weaken the yen to support growth,” the president of Fujimaki Japan, an investment advising company in Tokyo, said in an interview on Jan. 11. “Abe’s policies would have worked some 10 years ago, but now they will only accelerate an economic collapse.”

Fujimaki said in an interview last June that Japan may default on its debt within five years and the yen could weaken to as much as 400-500 per dollar. He advised Japanese investors then to hold assets in foreign currencies such as the greenback, Swiss franc, U.K. pound and the Australian and Canadian dollars.

Borrowing in yen and investing in those currencies would have returned an annualized 32 percent as of yesterday, Bloomberg data show….”

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“It is time to review some ancient stock market jargon, in order to understand the principle of the disappearing market volume.

A “lot” is 100 shares of stock.  In the era of specialists controlling trading on the floor of the NYSE, trading was done much more easily in “round lots”, meaning multiples of 100 shares which the specialist could apportion out to other traders, much like how an air traffic controller directs multiple inbound and outbound aircraft in the same airspace.  In the days before computers and calculators, putting transactions in round lots made things easier; figuring out how much money had to change hands for a stock at $93/share is much easier if the quantity is 100 shares.  That’s easy math: $9300.  It gets harder if the multiple is different than 100.

“Odd lots” means anything other than a round lot, and in the old days, odd lot orders would go to the “odd lot desk” in order to get aggregated with others into round lots, or otherwise married up with a corresponding opposing order or acceptance.

In the days of paper order slips, order ledgers, and share certificate clerks running paper back and forth across lower Manhattan, these were important functions….”

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“Volatility will deter investors from moving into stocks from bonds in 2013 even as dividend returns top fixed-income yields, according to Goldman Sachs Group Inc.’s U.S. equity strategist.

“It’s the drawdown risk that is inhibiting investors from reducing bond holdings and increasing equity holdings,” David Kostin said at a presentation in London “You need to have more stable markets. I do not anticipate flows into equities from bonds. It should happen, it won’t happen this year.”

The forecast is at odds with Goldman Sachs Asset Management Chairman Jim O’Neill’s comment this year that funds may be set for a “great rotation” into equities. Investor deposits with global equity mutual funds in the first week of January were higher than any other period except one, a sign they may be coming back to stocks after withdrawing cash for the past six years, according to data from EPFR Global.

The Standard & Poor’s 500 Index ended last year with a dividend yield that was 56 basis points, or 0.56 percentage points, higher than the yield on the benchmark 10-year Treasury, according to Bloomberg data. The spread reached a record weekly high of 1.16 percentage points in 2009 in favor of equities.

Most investors will probably sell U.S. government bonds if losses push the 10-year Treasury yield to 3 percent from 1.85 percent currently, Kostin said today.

2012 Advance…”

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