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On Day One of Q4 2012, Consider the 'Disney Theme Park Concept of Investing'

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Have fun, manage your expectations, bring a raincoat, and carry a bottle of Pepto -- the rides are often more perilous than you think.

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France also chimed in at the end of the week when French President Francois Hollande proposed cutting their government's deficit by €30B ($39B) – 1.5% of GDP – with two-thirds coming from new taxes and one-third from spending cuts. But -- and this is a big "but" -- the proposal incorporates an increase in taxes from 41% to 75% (that's correct; this is not a typo) for incomes earned over €1M. And you thought the tax increases inherent within the fiscal cliff were bad. All in all, these announcements were somewhat ancillary and should be quantified as noise when it comes to assessing moves within the US equity markets.

With that said, this week should provide more directly-correlated catalysts. It begins on Tuesday with an announcement from the People's Bank of China (the PBOC -- their equivalent of our central bank), flows into the mid-week FOMC meeting, and finishes with a flurry of US economic data. As for the Beijing China announcement, they are in a similar boat as the US in that they are attempting to maintain liquidity to help foster a soft landing without the creation of further inflation. Last week China dumped ¥365B (yuan) (~$58B) into money markets through reverse repos (short-term loans), marking the largest weekly injection in history. These steps gave credence to the theory that they will announce a large stimulus package by cutting interest rates and/or lowering the reserve-requirement ratio for lenders. Even with China's national holiday this week -- National Day -- they will announce on Tuesday.

Nevertheless, with this being the first day of the fourth quarter of 2012, loaded with political, economic and social nonsense, investors may perhaps want to comprehend the "Disney Theme Park Concept of Investing." You see, many who travel to Disney may not completely grasp all the nuances of their trip; they only visualize the potential benefit and not the risk. However, they may be better suited to understand the challenges prior to paying admission.
No positions in stocks mentioned.

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