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Good morning,

Markets are called to open lower this morning. This is what's happening today:

  • Bank of Japan expanded its asset- purchase program in the first meeting since Shinzo Abe’s Liberal Democratic Party won elections;
  • Signs US budget negotiations are faltering. White House Communications Director Dan Pfeiffer said President Barack Obama would veto a tax and spending proposal presented by House Speaker John Boehner because it would put “too big a burden on the middle class.”;
  • 10-year Italian debt is yielding 4.388%, 10-year Spain is yielding 5.244%, 10-year Portuguese debt is yielding 6.891%;
  • Brent is trading at $109.80;
  • Gold is trading at $1668.14/ t oz;
  • Apple closed the session at $526.31.

We got the desired stimulus out of Japan but we didn't get the expected weakness in the Yen as investors rushed to buy the Yen which is seen as a safe haven amid concerns at a stalemate in US budget talks. Quoting from the FT this morning, 'Progress in Washington since the weekend had led many traders to believe the chances of an agreement remained quite good. But that generally positive mood is now being pitted against partisan salvos. After the White House’s statement, Republican Speaker John Boehner said – in a press conference lasting less than one minute – he would press on with “plan B”, regardless.

“Wow. If you think they are close [to a deal], boy, are you wrong,” Andrew Brenner of National Alliance Securities told his clients. “Doesn’t sound close to me.”

On Dec. 17, Obama gave Boehner his latest offer, which reduced his revenue demand to $1.2 trillion from $1.4 trillion, made a concession on Social Security spending and spared households with between $250,000 and $400,000 in annual income from tax rate increases. Boehner rejected it because Obama’s spending cuts weren’t big enough. He then started drafting his Plan B, which the White House says Obama would veto. Now, the path to a deal by the end of the year appears unclear, making a resolution less likely. Even beyond the divide on taxes, neither a Senate-passed bill nor the House bill addresses several parts of the so-called fiscal cliff, including expiring unemployment benefits and a scheduled payment cut for doctors under Medicare.

Moving on to Japan, the Bank of Japan eased monetary policy on Thursday by expanding its asset-buying and lending program, a widely expected move in response to intensifying pressure from incoming premier Shinzo Abe to deliver bolder steps to beat deflation. The central bank topped up its asset-buying and lending program by 10 trillion yen to 101 trillion yen by a unanimous vote, expanding stimulus for the third time in the past four months.

Unfortunately the disagreements taking place in the US regarding how to tackle the fiscal cliff are creating uneasiness in the markets. I am still confident that a solution will be found before the start of next year as we are now seeing more willingness from the Republicans to settle for the proposals of the Democrats. Hopefully a decision will be reached before year end.

If you hold Dollars on account, my opinion is to convert the USD to EURO becuase we should see further strengthening of the Euro in 2013. This arguement does not hold for investments denominated in USD. In a well diversified portfolio the currency risk is diversified away. The problem only applies to cash remaining idle on account. Going towards the close of 2012, I would remain invested in the markets because it is my opinion that 2013 will be another good year pricing in a recovery post 2013. Always make sure that your exposures in your portfolio allow you to benefit from gains and make sure to monitor it because a change in asset class, sector and currency could make a big difference to your bottom line.

Stock to watch: Harley Davidson (Price $48.73, Price Target $58)

Citi's comments: We rate the shares of Harley-Davidson Buy (1). Harley-Davidson holds a dominant share of the rapidly growing heavyweight segment of the motorcycle industry, with about 50% share of all new motorcycles sold in the U.S. (33% of worldwide heavyweight motorcycles). Thus, we believe the company is well positioned to capitalize on the industry trends, as it has the strongest brand recognition and the most loyal customer base within the industry. The company's cost cutting efforts should help profitability and retail sales have improved, which should help drive further sales growth and operating leverage. Therefore, we rate HOG shares a Buy.

For further information on Harley Davidson or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli