Monday, December 31, 2012

Markets rise on hopes US will avoid the fiscal cliff

Dow jumped 166, advancers over decliners 4-1 & NAZ added 59  The Financial Index was up 1+ to 220.  MLPs joined in the rising markets with the index exploding 6+ to 385 & the REIT index rose 2+ to 267.  Junk bond funds were higher & Treasuries pulled back as stocks rose.  Oil went up on optimism that negotiators will reach a last-minute budget deal that would avert $600B of tax increases & spending cuts that threaten economic growth.  Gold rose on central bank stimulus moves (betting against throwing money at problems).

AMJ (Alerian MLP Index tracking fund)

stock chart

CLG13.NYM...Crude Oil Feb 13...91.77 ....Up 0.97 (1.1%)

GCF13.CMX...Gold Jan 13.......1,677.10 ...Up 22.20 (1.3%)

Obama Says Budget Deal ‘In Sight’

Photo:   Bloomberg

Obama said that a deal with Congress to avoid tax increases looming at midnight, was close, but he warned that it was not yet complete.  "Today it appears that an agreement to prevent this New Year's tax hike is within sight, but it is not done," he said at the White House.  "There are still issues left to resolve, but we're hopeful that Congress can get it done, but it's not done."  Obama said the deal would ensure that taxes do not go up for middle income families.  He stressed that it would include an extension of unemployment benefits for the long-term jobless & extension of popular tax credits.  The agreement being worked out with Reps would not include a long-term solution to the gov debt problem.  "My preference would have been to solve all these problems in the context of a larger agreement, a bigger deal, a grand bargain, whatever you want to call it that solves our deficit problems in a balanced and responsible way," he said.  "But with this Congress that was obviously a little too much to hope for at this time.  Maybe we can do it in stages.  We're going to solve this problem instead in several steps."  The outlines of a deal in the Senate include raising income tax rates for individuals making more than $400K a year & households making more than $450K a year, but a sticking point remains on how long to delay automatic spending cuts to defence & domestic programs.  Obama stressed that a deal over those spending cuts had to include revenue.  "Any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced," he said.  "That means that revenues have to be part of the equation in turning off the sequester, in eliminating these automatic spending cuts, as well as spending cuts." 

Obama says fiscal cliff deal in sight, not done yet

Several hours remain in 2012 & the proposed deal is far from done.  As expected this is just a Scotch Tape approach to solve huge financial problems.  The House still has to sign off on it, although there is a fair chance it will bend to the pressure to "get something (that means anything) done."  The idea is continue with more out of control spending & tomorrow will take of itself.  I don't know about that.  Everybody has gotten used to solving problems by kicking the can down the road.  But really solving the problems & raising the debt ceiling (we are already maxxed out) will be dealt with in the next few months.  Unsaid, but a definite possibility, is a credit downgrade could be in the offing.  Markets are celebrating a little early.

In the meantime:

Happy New Year!!

Dow Jones Industrials

stock chart

Markets falter ahead of the fiscal cliff

Dow is even, advancers ahead of decliners 2-1 & NAZ jumped 17.  The Financial index added a fraction in the 218s.& is up 38 this year.  The MLP index rose 1+ to 380 & the REIT index was up 1+ to 266.  Gold rose, poised for a 12th consecutive annual gain (8%) as central banks pledge more steps to spur economic growth & US lawmakers near a deadline for budget talks.  I erased the reading below because it was a bad number.  Currently gold is $1664, up $8.

AMJ (Alerian MLP Index tracking fund)

stock chart

CLG13.NYM...Crude Oil Feb 13...90.39 .....Down 0.41  (0.5%)

Senate Majority Leader Harry Reid

House Speaker John Boehner

Photos:   Bloomberg

Congress hasn’t agreed on legislation to avoid any of the more than $600B in tax increases & spending cuts set to start taking effect TOMORROW.  Senate Majority Leader Harry Reid & Rep Leader Mitch McConnell worked thru the weekend on a deal without reaching an agreement.  Reid said last night that negotiations were continuing & that there may be announcements on the Senate floor at 11AM.  They are still divided over the estate tax, the income level at which higher income taxes would apply, the rates on capital gains & dividends, & how to prevent automatic spending cuts from starting.  Obama said on Fri after a White House meeting that if Reps & Dems couldn’t reach an agreement, there should be a vote on a scaled-back plan he outlined to raise taxes on annual income above $250K & extend expanded unemployment insurance benefits.  In all this confusion, there is little mention of spending cuts other than, DON'T LET THEM HAPPEN!

China’s Manufacturing Expands at Fastest Pace Since May 2011

Photo:  Bloomberg

Manufacturing in China unexpectedly expanded at the fastest pace in 19 months in Dec, boosting optimism that a recovery is gaining traction.  The final reading of a Purchasing Managers' Index was 51.5 in Dec, according to HSBC Holdings & Markit Economics.  That compares with the 50.9 preliminary reading on Dec 14 & a final 50.5 in Nov.  A level above 50 indicates expansion.  China’s economy may have rebounded after a 7-qtr slowdown as the gov increased spending on infrastructure & accelerated investment-project approvals.  The pickup may smooth the ruling Communist Party’s once-a-decade transition to a new generation of leaders headed by Xi Jinping, who took office as general secretary in Nov.  A separate, gov-backed purchasing managers’ index probably rose to 51 in Dec from 50.6 the previous month, according to the median estimate in a Bloomberg News survey (the highest reading in 8 months).  A rebound in China would be a plus sign a global economy that is stumbling at best.

China Manufacturing Pickup Shows Rebound Gains Traction: Economy

With taxes set to increase for almost every US worker at midnight, there is still no agreement & gaps between the 2 parties remain about going over the fiscal cliff.  Talks between Reid & McConnell stalled yesterday because of disputes over income tax rates, the estate tax & other issues.  McConnell reached out to Biden in an effort to break the impasse, while staffers worked into the night trading & reviewing offers.  The Senate will reconvene today at 11AM.  Reid said yesterday on the Senate floor that there would “perhaps” be further announcements then. “I certainly hope so,” he said.  “The sticking point appears to be a willingness or interest or frankly, the courage to close the deal,” McConnell said on the Senate floor. “I’m willing to get this done, but I need a dance partner.”  Deeply divided DC will press on in its deeply divided ways!

Taxes to Rise for Workers as Budget Deal Still Elusive

Markets aren't doing much as they await developments out of DC.  Whatever is decided, do not expect much to be accomplished as the problems are massive   Budget cuts are hardly mentioned beyond the usual, "don't cut my money!"  Wrangling will continue long after the markets close & probably into next year.  Even when they come up with a Band-Air solution, raising the debt ceilng is right behind this mess & that could get even uglier.  All this is BAD for the markets.

Dow Jones Industrials

stock chart