And so there it was, as predicted – the Sa-aa-nta Rally, hope you all had, had, had fun!

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“Super” Mario Draghi in festive mood!

The traditional “Santa rally” played out very well during December, in particular for Japanese & European equities – the former, precisely as we predicted here – and here –

US equities in contrast are struggling to close the month in positive territory, being hit on Thursday evening by the seeming inevitability now of the economy driving over the “fiscal cliff” with Boehner’s plan being voted down by the House of Reps.

We have “Super” Mario Draghi to thank for the cracking performance of European equities this year as he threw his weight behind the Euro in late summer and set off the explosive rally that continues today.

Let’s take a look at the following table, depicting the performance of the major markets over various timescales this year.

The Nikkei 225 tops our list for both November and December with rises of 5.8% and 5.2% in each month. Our stance is that Japanese equities are very undervalued and with the help of the new elected Premier – Shinzo Abe – it looks like for the first time in many years that the country has the potential ingredients in place to carry equities through a multi-year bull run. We have a special feature on Japan in the New Year edition of the magazine out early Jan so register on the right to ensure you continue to receive our insightful analysis, currently cost free.

European equities have also performed very well this month. The Spanish IBEX, the Italian MIB, the German DAX, and the French CAC, all saw rises ranging from 3.1% to 4.2%. We have also been bullish on European equities since early summer and in our last update ( we reiterated our bullish sentiment. Since that day, October 9, the IBEX, the MIB, and the DAX have all risen around 5% each.

The European debt crisis is now much less of a problem than it was a few months ago. Even Greece was able to wriggle out of the selective default the country was in and they are now buying their own debt! That’s good news for all, even though the path being followed with the never ending austerity will create heavy social costs. European equities are in a good position to continue their recovery through the New Year in our opinion. We continue to lean towards Italy and Spain as quite simply, in pure valuation grounds there is much upside potential still to go here just to return to their historic averages.

In the UK, the FTSE has been a relative laggard out of the major markets this year, being weighed on by the Miners in particular. We have very high conviction that this trend will turn in 2013 and that the sector re-rating will carry the FTSE towards its all time highs by the end of next year.

In the US, the failure of plans A & B to solve the “fiscal cliff” may cause a hangover into the New Year but again, we believe that it is simply not plausible that the 2 parties in the US do not come to a resolution. Any sharp sell offs that pull the FTSE, Spain, Italy & Japan lower in January will be used by us to re-build bull positions here.

Finally, a word on Gold. Christmas continues not to shine on the previous metal & the Magi may have to review the gold gifts they gave Jesus after his birth at this rate! Gold is down 4.4% on the month & 8% YTD. Yesterday’s US GDP revision from 2.7% to 3.1% hasn’t helped gold bulls nor the fiscal cliff issue. We similarly have a special piece on Gold in our New Year edition and set out the bear case that the technical’s are now clearly pointing to.

For now it is time to prepare for some days off. Markets are not likely to change much or at least they won’t move with significant volume and we intend to eat, drink & be merry! 

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