Morgan Stanley

• Bundesbank cuts growth outlook as crisis bites (Reuters)
• Strong quake hits off Japan near Fukushima disaster zone (Reuters)
• Greece to Buy Debt It Already Owns to Reach Target (BBG)
• Draghi’s Go-to ECB Seen Risking Credibility Through Overload (BBG)
• Judge urges Apple and Samsung ‘peace’  (FT) ... Alas only the US government has a Magic Money Tree; others need profit
• Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion (BBG)... make that $5 trillion this time in 2014
• Level Global, SAC Fund Managers Ruled Co-Conspirators (BBG)
• Egypt demonstrators reject Mursi call for dialogue (Reuters)
• Japanese Dealerships in China Retrench in Wake of Dispute (BBG)
• Apparel factory fire reveals big brands' shadowy supply chainsa (Reuters)
• Republican Defectors Weigh Deal on Tax-Rate Increase (BBG)

Just one more QE-episode... growth will come in two quarters, we promise... housing has bottomed... stocks 'signal' all is well. We have heard these 'meme's a thousand times and yet still what is borrowed is given to shareholders and animal spirits (judging by the dismal confidence among small business leaders) remain mired in the quagmire of uncertainty and risk aversion. Nowhere is this more evident than the roll-over (and now falling) demand for new loans across global credit markets. This is not large public companies borrowing at ultra-rich spreads, courtesy of Bernanke's financial repression forcing supply into IG and HY markets, to merely charm pension funds with dividends; this is real demand for credit (per loan officer surveys) all turning down as the balance-sheet-recession continues.

There are two approaches to being a sell-side, talking-head, strategist when it comes to China. If China is rising, then hey, global growth is recovering and China's transition is going well - so buy US equities levered to China. If, however, China is falling (or out of favor) then US equity markets are the cleanest dirty shirt and decoupling is the new normal. Thus, no matter what, being long US equities is your staple investment advice - heck it's worked for a few decades, why not? Well the truth is that, empirically, the correlation between US Machinery or Tech Hardware stocks and the Chinese market has risen for six years straight. In other words, there is no decoupling (ever); as goes China, so goes US equities - and that sensitivity has never been higher.

Just yesterday, Goldman Sachs suggested its clients should sell their gold (to them?) as the precious metal cycle had turned. It seems Morgan Stanley disagrees; the firm's preferred fundamental metal exposure for 20913 is Gold. Expecting Silver to outperform also (given its 'cheaper' store of value), MS believes nothing has changed on the fundamental thesis for owning gold as the adoption of QE 3 (and 4...) and the ECB's commitments (and BoJ) remain the most important factors for a continuation of weakness in the TWI trend for the US Dollar. They also add that low nominal and negative real interest rates, ongoing geopolitical risk in the Middle East and continued mine supply issues are also supportive. From India and ETF demand to central bank buying and USD weakness - MS seems to be buying what GS is selling (or is less about muppet-mauling).

Gold fell $3.10 or 0.18% in New York yesterday and closed at $1,693.60/oz. Silver climbed to $33.24 then slid to $32.51, but finished after an afternoon rally with a loss of 0.33%.

Gold inched down on Thursday, near the monthly low reached in the prior session under pressure from a stronger greenback as players await the European Central Bank rate decision at 1245 GMT and US Initial Jobless Claims at 1330 GMT.

Physical buying of gold bullion has increased on the dip, particularly in Asia, and many are seeing these levels as a floor for prices.

It seems like it was only yesterday when we were praising the miraculous 4 sigma move in AAPL stock, when it soared by nearly $40 in one trading session. It wasn't: it was November 19. Which is why it probably shouldn't be surprising that two short weeks later AAPL stock has just seen its biggest dollar fall in absolute terms in history, down $37 dollars or nearly 7%, its biggest one-day percentage drop since September 2008. Why? Nobody really knows, but when the world's biggest company by market cap trades increasingly like a penny stock, does anyone really care? In absolute terms, AAPL has lost nearly $35 billion in market cap in several hours today: more than the market cap of BlackRock, Morgan Stanley or Wal-Green, with no real material news except for the occasional weak order hearsay (which one didn't really need considering the US and global consumer is totally tapped out), and various other rumors. One thing is certain: the 240+ hedge funds who owned the stock as of September 30, and which did their best to paint the tape for November, are now at a complete loss what to do to delay what was certainly going to be a redemption avalanche for the second month in a row.

• Union solidarity rubs up against slow economy in LA port strike (Reuters)
• Geithner predicts Republicans will allow higher tax rates (Reuters). And "no risk" of a US downgrade, "no risk"
• Geithner takes hard line on fiscal cliff (FT)
• Narrowing LDP lead points to Japan post-election confusion (Reuters) - not to mention, USDJPY plunges if LDP loses
• Vietnam Says China Must Avoid Trade Weapon in Maritime Spat (Bloomberg)...  and real one, one hopes
• Greece unveils bond buyback plan (FT)
• ECB Can’t Deliver Spain Spread Rajoy Wants, Wellink Says (Bloomberg)
• UK’s euro trade supremacy under attack (FT)
• Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
• ECB's Noyer Says Bond-Buying Plan 'Is Bearing Fruit' (WSJ) - as long as just plan, and not execution.

With a late-day surge into the green for the S&P 500 futures on (as usual) absolutely no news at all (attributed to MSCI rebalancing) - that crossed the entire day's range in the space of 40 minutes, the Dow managed to just hold 13,000 and close green for the week. There was very significant volume and block size into the ramp as it pulled away from risk-assets as only a month-end move can magically achieve. In the same way as last Friday's close was just remarkably silly, today followed the same path - though we note that rates and credit were outperforming stocks most of the day and provided the target for the late-day surge. Once that target was closed, S&P 500 futures then melted-down around the close and after-hours. Utilities were the big winners on the week (+3.5%) as Financials and Energy lost around 0.7%. Silver crumbled to recouple with Gold (down around 2% on the week) while Copper gained 3%. Treasury yields steepened into the close with the 30Y pushing higher but ending -2bps (while the 10Y was -7bps). What a crazy stop-hunting, algo-driven, VWAP-reverting end to a week of political volatility.

• As this has been priced in since September 13, it should come as no surprise to anyone: Fed Stimulus Likely in 2013 (Hilsenrath)
• Bowles Says Fiscal Cliff Deal Unlikely by End of Year (Bloomberg)
• Argentina debt repayment order frozen (FT)
• Obama Is Flexible on Highest Tax Rates (WSJ)... not really
• Geithner deployed for fiscal cliff talks (FT)
• Audit firms Deloitte and KPMG sued in HP's Autonomy acquisition (Reuters)
• Euro-Zone Budget Proposal Is Unveiled (WSJ)
• EU Nations Clash on Thresholds for Direct ECB Oversight (Bloomberg)
• LDP leader Abe: BOJ must ease until inflation hits 3 percent (Reuters)
• SNB’s Jordan Says High Swiss Franc Burdens Many Companies (Bloomberg)
• EU to launch free trade negotiations with Japan: EU officials (Reuters)

It's that time of year when 2013 outlooks and strategy pieces bog down an otherwise already overloaded inbox. Some are wise; some not so much. We thought the following four wise fun facts noted from Morgan Stanley's Adam Parker would brighten-up an otherwise dull Wednesday evening. Full details below but: just 10 S&P 500 stocks accounted for 88% of 2012 EPS growth; those same 10 will account for only 34% of the growth next year; 5 stocks are projected to account for one-quarter of the entire S&P 500's EPS growth in 2013; and of the 20 firms expected to grow earnings faster in 2013 than in 2012, 8 of them will be swinging from major slumps to miraculous gains. It seems that once the fiscal cliff is behind us then the whole world is fixed, equities can initiate ramp-mode, and analysts' expectations have a chance of coming true. Parker, however, like us remains more stoic of reality with his 1434 end-2013 S&P 500 target (with downside 1135 possible).

Bankers in London, Europe's trading hub, are bracing themselves for significantly lower bonuses (and salary cuts) especially so relative to their New York counterparts. As Bloomberg Businessweek notes in the brief clip below, investment bankers and traders should expect a 15% pay cut compared to unchanged in the US and while hope is that these are temporary, many believe this shift is structural and reflects "US regulators [not having] the same obsession with pay structures that European regulators have." As is evident from the chart below, there are winners and losers (and we bet you can guess who the winner is).

• Egypt protests continue in crisis over Mursi powers (Reuters)
• Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
• Executives' Good Luck in Trading Own Stock (WSJ)
• Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
• Eurozone states face losses on Greek debt (FT)
• Spain's rescued banks to shrink, slash jobs (Reuters)
• EU Approves Spanish Banks' Restructuring Plans (WSJ)
• At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
• China considers easing family planning rules (Reuters)
• European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
• And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
• Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
• Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
• Iran "will press on with enrichment:" nuclear chief (Reuters)

• OECD slashes 2013 growth forecast (FT)
• Fiscal Cliff Compromise Elusive as Congress Returns (Bloomberg)
• China’s PBOC Chief Search Spurs Focus on Finance Regulators (Bloomberg)
• Elected, but Still Campaigning (WSJ)
• Pentagon Readies Options for Afghanistan Force After 2014 (Bloomberg)
• Greece Wins Easier Debt Terms as EU Hails Rescue Formula (Bloomberg)
• Monti presses Cameron for EU referendum (FT)
• Welcome, Mr Carney – Britain needs you (FT)
• Argentina seeks halt to $1.3bn debt order (FT)
• Asean chief warns on South China Sea disputes (FT)
• South Korea Tightens FX Rules to Temper Won Surge (WSJ)

• Goldman Turns Down Southern Europe Banks as Crisis Lingers (Bloomberg)
• Euro Ministers Take Third Swing at Clearing Greek Payment (Bloomberg)
• Chamber Sidestepped in Obama’s Talks on Avoiding Fiscal Cliff (Bloomberg)
• Republicans and Democrats Differ on Taxes as Fiscal Cliff Looms (Bloomberg)
• Republicans bargain hard over fiscal cliff (FT)
• Catalan Pro-Independence Parties Win Regional Vote (BBG)
• Shirakawa defends BoJ from attack (FT)
• Run-off looms in Italy’s centre-left vote (FT)
• BOJ rift surfaces over easing as political debate heats up (Reuters)
• Barnier seeks ‘political will’ on bank union (FT)
• New BOJ Members Sought More-Expansionary Wording (Bloomberg)
• Osborne May Extend U.K. Austerity to 2018, IFS Says (Bloomberg)

As we approached the debt-ceiling debacle last year, there was much wailing and gnashing of teeth among talking heads and portfolio managers and indeed the latter actually started to put their money where there mouth was - i.e. they sold/reduced exposure to US equities. A year or so later and the fiscal cliff and debt-ceiling SNAFU is once again upon us but this time, while sentiment is just as negative, real speculative positioning is at multi-year record high longs. It would seem to us that all those holding out for a hero in Congress and some compromise to provide a liftathon in stocks are already all-in (as the two charts below indicate oh so clearly). One can only hope they are not disappointed as the 'money on the sidelines' appears to be more exposed than ever and unlike last year's massive net short positioning, there is no more squeeze ammunition left for the next leg.