The markets have started 2012 on a positive note from basically the same place we were at the beginning of 2011, at 1257 on the S&P 500. This is also the fourth year that the S&P has gained over 1 percent on the first trading day of the year.

Manufacturing numbers out of China and the U.S. gave the initial boost to share prices, giving analysts positive feelings about the employment numbers coming out on Friday. Estimates are for a positive growth of 140,000 jobs with “whisper numbers” even higher.

Higher oil prices, up 4 percent to over $100 per barrel, has not deterred the positive sentiment. The tension with Iran is driving the price increase but most realize its dependence on oil sales, estimated at 60 percent of its economy, will keep the saber rattling to just that. When you look at the demand destruction that has become evident from global slowdown, and the U.S. now being a net exporter of refined products, oil should really be down around the $70 per barrel range.

Europe is also being discounted as they celebrate the 10-year anniversary of the creation of the Euro, which the German Finance Minister calls “a clear success story.” It has been for Germany with the Euro currency valuation making its exports competitively priced, but not so for Greece. The country is struggling to get its private investors to take a 50 percent cut on their Greek bond holdings so that Greece can qualify for its second tranche of about $169 billion in bailout funds. Greece is also talking about additional tax increases and spending cuts.

As we speculate about the January Effect (as January goes, so does the rest of the year), some were a little put aback by Morgan Stanley’s 2012 prediction of the S&P closing at 1167, which is 7 percent below today’s start. In the tricky business of forecasting, Morgan Stanley was just 20 points off 2011’s actual close. The estimate is based on weaker guidance from some major companies like Oracle, FedEx, Corning and Dupont; global slowdown and a stronger U.S. dollar create “headwinds” for these multinationals’ bottom-line.

Here in Hawaii, it will be a challenging year if oil prices stay as high as they currently are. Besides the effect on airfare to our tourists, higher gas prices just means more of our dollars leaving the state and not being funneled through the economy through consumer spending. Another concern is military spending, especially since we do not have the earmarks from Congress supplementing economic activity.