A little update on the Financial Markets as we start the new year…. 

Now that the holidays are behind us markets are working back to normal with most all investors and traders back on the job. The last two weeks of Dec were marked with high volatility in the rate markets, after all was done the bond market was about unchanged in the period.  

The overwhelming consensus as the year begins is that the equity (stock) markets will have strong gains, commodity prices will continue to increase with some talk that crude oil will climb over $100.00, and money will continue to exit fixed income treasuries in favor of stocks. As noted previously we are more skeptical about the economic outlook than the consensus. The economy will do OK but it is projected that consumers won’t meet the lofty expectations on spending with the housing sector remaining soft and unemployment staying high through most of the year. Every year at the start the outlook is optimistic; lets wait and see what consumers do in Jan and Feb. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won’t meet the expectations currently out there. 

The Republicans are now in control of the House and have more strength in the Senate. How the two political parties get along and confront health care, the federal debt limit, spending cuts in the next couple of months will set the tone for the next couple of years. 

BofA resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6B to settle claims that it sold loans based on faulty information. The fourth-quarter results would include a $2B impairment charge and a $3B provision. The bank faced $12.9B in unresolved put back demands on soured mortgages, with about half related to government-sponsored entities. The stock is rallying this morning in the settlement.