Good morning,

Markets are called higher this morning. This is what's happening today:

  • The world economy is in its best shape in 18 months as the US looks likely to avoid the tax increases and spending cuts known as the fiscal cliff, according to the latest Bloomberg Global Poll of investors;
  • Treasury Secretary Timothy F. Geithner meets today with congressional leaders after Republican House Speaker John Boehner said he is optimistic officials can “avert this crisis sooner rather than later”;
  • Japan’s Liberal Democratic Party leader, Shinzo Abe, called for unlimited monetary policy easing by the central bank until inflation reaches 2%;
  • 10-year Italian debt is yielding 4.584%, 10-year Spain is yielding 5.314% and 10-year Portuguese debt is yielding 7.619%;
  • Brent is trading at $109.80/barrel;
  • Gold is trading at $1719.35/t oz;
  • Apple closed the session at $582.94

We had a positive session in the US yesterday. President Barack Obama met up with top business leaders at the White House to discuss ways to keep the economy growing and find a way to reduce the US deficit. Goldman Sachs CEO left the meeting saying he was impressed with Obama's detailed analysis on how he plans to tackle the fiscal cliff. On these comments the markets rallied and we are seeing this optimism spill onto the Asian and European markets.

The difference between the Americans and the Europeans is that the Americans are more pro-active in getting things done. When there was need for stimulus, Bernanke dealt with the problem by buying MBSs in the market and said that he will continue to do so until the unemployment rates starts to come down. In Europe we lack this drive and for this reason I am confident Obama will not let his country down. Don't forget he was just re-elected so I don't think he wants to start his term by sending the US back into recession in 2013. A solution will be reached which will keep on adding positive momentum to the markets.

There are more positive reasons why you should be in the markets then negative reasons for remaining out. It makes sense to be overweight US cash rich corporates till the end of 2012 then switch back into European names. Why? Potential special dividend. Look for companies with a hefty amount of insider ownership. Above all else, this seems to matter most. Businesses dominated by founders and long-time employers will want to reward these veterans. Las Vegas Sands. Insider ownership: 52.6% of the float, owned almost entirely by billionaire founder Shelly Adelson. Next, Dillard’s. Insider ownership: 40.9%. And last, Brown-Forman. Insiders hold 29.3%.

Another factor is cash on the balance sheet. It’s an ages-old question (and problem) for businesses: How to deploy that mound of dollars? With taxes set to rise in 2013, sharing it among shareholders is wise. It might have gone to raising regular dividends, but those payouts now would be taxed at the higher rates. That explains why Costco, which has 99% of its float held by outsider shareholders, became today’s special dividend newsmaker; Costco has nearly $5 billion in cash.

Yesterday I gave you my thoughts on why I think you should be buying US corporates which could give a special dividend before the end of the year. Here is a list of companies which are good candidates to issue a special dividend by year end according to Citi. The markets are complex and things change very fast. It makes sense to change strategy and squeeze the most out of them. You need to have a strategic asset allocation for the long term – no one is arguing about that. But you also need a tactical asset allocation to profit on short term changes.

  • Best Buy
  • Devon Energy
  • eBay
  • Eli Lilly
  • FedEx
  • Gap
  • General Dynamics
  • Kohl's
  • Microsoft
  • Mosaic
  • Oracle
  • Reynolds American
  • Seagate Technology
  • Walgreen
  • Wal-mart Stores

However after 2012 comes to a close it would make sense to shift out of the Dollar and into European names. Why? Because American companies are more expensive, the discount European stocks are trading on makes them much more attractive. However what remains key is mainly the sector allocation not the geographical allocation. Make sure you are invested in the right sectors to take advantage of an rally in the markets.

Stock to watch: Mosaic (Price $53.17, $67)

Citi comments – Our $67 target price is based on a price/forward earnings methodology. We apply a 12x target forward P/E multiple to our calendarized FY 2013E EPS of $5.57 to arrive at a price of $67. Mosaic has traded in a normalized range of 2.3x to 20x forward EPS, with an average of 13x, over the past five years. Our target multiple is below the five-year average, reflecting the cyclical strength of current Ag fundamentals, partially offset by near-term demand uncertainty.

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

Good day and happy trading!

Kristian Camenzuli