Good morning,

Markets are called to open flat this morning this is what's happening today:

  • Japan’s cabinet approved 880 billion yen ($10.7 billion) of stimulus ahead of next month’s elections and data showed output rose the most since December;
  • In the US, Treasury Secretary Timothy Geithner offered Republican House Speaker John Boehner a proposal to avert the so-called fiscal cliff;
  • Confidence in China’s economy is at the highest in more than a year, according to a Bloomberg investor poll;
  • 10-year Italian debt is yielding 4.553%, 10-year Spain is yielding 5.321% and 10-year Portuguese debt is yielding 7.521%;
  • Brent is trading at $110.63/barrel;
  • Gold is trading at $1730.30/t oz;
  • Apple closed the session at $589.36

Another good session out of the US yesterday as investors put risk back on the table. The market is more hopeful that a solution will be reached before year end on how to tackle the fiscal cliff. We also had positive growth data out of the US for Q312. The US grew at a rate of 2.7% which is higher than what the market expected before the elections which was 2%. However this growth rate is expected to slow in Q412 to 1.7%. Overall though the US economy is doing well and is expected to continue to do well going into 2013 if a solution is reached to solve the fiscal cliff.

We continue to hear of companies which are issuing special dividends before year end. Walt Disney raised its annual dividend by 25%, joining other companies boosting their payouts ahead of an expected tax-rate increase next year. The companies which that reported the highest special dividends so far in Q412 are:

  • Costco Wholesale
  • Las Vegas Sands
  • MetroPCS Communications
  • HCA Holdings
  • TransDigm
  • Carnival Corp
  • Dillards Inc.
  • Select Medical Holdings
  • Town Sports International

There will be many more companies that will issue special dividends before year end. Check out yesterday's blog to see a list of companies which Citi expect to issue a special dividend before the end of this year.

We had some dissapointing announcements yesterday from Yum! Brands and Tiffany. Yum! Brands shares were down 6.7% after hours after the company disclosed softer sales trends in China and backed a disappointing full-year forecast. Deutsche Bank came out with a report this morning, rating the stock as a HOLD.

Tiffany also disappointed the markets yesterday and the shares were down more than 6% during the session. Tiffany, the world’s second-largest luxury jewelry retailer, cut its annual profit forecast for the third time this year after higher diamond costs ate into margins and customers curbed spending in weak economies.

Research In Motion gained after Goldman Sachs upgraded the stock to buy, saying the new BlackBerry 10 phones could help it return to profitability in fiscal 2014. RIM advanced 4% to $11.54/share. Despite Goldman's upgrade I remain hesitant to invest in stock because many other analysts are doubtful on RIM plus the surge in price is only because the share has been beaten down alot this year. RIM is down 20% this year.

An interesting point to note before the close of the month is that US government bonds beat corporate debt this month for the first time since May as the pending fiscal cliff and Europe’s debt crisis drove demand for safety. Treasuries returned 0.5% in November as of yesterday, while bonds in an index of investment-grade and high-yield debt were little changed, according to Bank of America Merrill Lynch data. The S&P earned 0.6% last month.

Confidence in China’s economy is at the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will be better for the financial climate. The OECD this week said that China is expected to grow at a rate of 7.5% and 8.5% in 2012 and 2013 respectively. The renewed faith in the world’s second-largest economy reflects data from factory production to retail sales showing growth picking up this quarter after a seven-quarter slowdown.

My opinion is that it is good to be in and not out of the markets at this point in time. However, asset allocation is key to portfolio performance. Gone are the days when any stock in your portfolio would rise when things go well on sentiment improves. It is important that the stocks you hold are in the right sector that will benefit when things do well. Since things are changing very fast in the market, portfolios need to be managed in a way that reflects what is going on. At the moment my opinion is that a portfolio should be exposed to cyclical stocks. However I advice that you contact your adviser to make sure that the stocks you are picking match your risk-reward profile.

Stock to watch: Las Vegas Sands (Price $46.93, Price Target $52)

Deutsche Bank Comments – While visible positive catalysts are less abundant than they were earlier this year, we believe negative investor sentiment, and an ever improving FCF story have become the key tenets to the LVS thesis. We continue to believe that one or all of the following are likely to be positive drivers for the stock in 2012/2013: 1) potentially shareholder friendly uses of capital, given the strong free cash flow generation, rapidly declining leverage, and limited current development pipeline, 2) a decision concerning the conversion of Four Seasons apartment units into hotel rooms, thereby adding an incremental 300 rooms to the property, 3) further discussion concerning gaming expansion in Asia, and Spain to a lesser extent, and 4) potential non-core asset monetization activity. We rate the shares Buy.

For further information on Las Vegas Sands or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli