Monday, December 17, 2012

Markets rise on budget debate hopes

Dow rose 100, advancers over decliners 2-1 & NAZ was up 39.  The Financial Index had a very good day, up 3+ to the 218s.  The MLP index edged up to 380 & the REIT index gained 1+ to the 262s.  Junk bond funds were lower as were Treasuries.  The price of oil finished higher as political leaders in DC appeared closer to a resolution in critical budget negotiations.  Gold finished essentially even. 

AMJ (Alerian MLP Index tracking fund)

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CLF13.NYM...Crude Oil Jan 13...87.38 ...Up 0.65  (0.8%)

Manufacturing in New York Region Contracts More Than Projected

Photo:    Bloomberg

Manufacturing in the New York region shrank for a 5th straight month in Dec, while an increase in optimism about the next 6 months signals factories are poised to rebound should the federal gov resolve its impasse over fiscal policy.  The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1 from minus 5.2 in Nov.  Readings of less than zero signal contraction in NY, northern NJ & southern CT.  Companies have said they don’t plan to boost investment amid concern lawmakers will not avert more than $600B in tax increases & budget cuts slated to take effect in 2013.  Nonetheless, growing optimism about the outlook indicates manufacturers are looking beyond the short term as housing improves & consumer spending climbs.  The forecast called for minus 1.  In a supplemental question from the Fed, area factory managers were asked about superstorm Sandy’s effect on revenue.  Respondents in NY said they anticipated no effect on this month’s sales from the storm.  The Empire State gauge of new orders decreased to minus 3.7 from 3.1 in Nov, the 5th month in the last 6 showing contraction.  A measure of shipments dropped to 8.8 from 14.6.   Executives are delaying new contracts & investment decisions due to the pending fiscal cliff, potential tax reform & other policy changes that may take place.

Manufacturing in New York Area Shrinks More Than Forecast

  • U.S. Speaker of the House of Representatives John Boehner (R-OH) walks to his office in the U.S. Capitol after meeting with U.S. President Barack Obama at the White House in Washington December 17, 2012. REUTERS/Joshua Roberts
Photo:    Yahoo

Obama & John Boehner met today as hopes rose that DC will be able to head off steep tax hikes & spending cuts that could push the economy into recession next year.  The 45-minute meeting is viewed as a further sign that talks to avert the "fiscal cliff" could be yielding progress after weeks of stalemate.  Aides from both parties said they were optimistic that a deal could be reached in coming days.  Boehner has edged closer to Obama's demand to raise taxes on the wealthiest Americans but they have yet to make headway on possible spending cuts that are likely to face resistance from the Dems.  Boehner has agreed to a tax increase for those earning over $1M annually, while Obama wants that threshold set at $250K.  His offer knocks down a key Rep road block, & the question now boils down to what Obama will offer in return.  The 2 sides face a deadline of Dec 31.  Even if they agree to a deal this week, they may not have enough time to get it passed before the New Year.  In that case, they might agree to extend the deadline by a few weeks.  Confusion continues!

Obama, Boehner Meet as Hopes Rise for 'Fiscal Cliff' Deal  Reuters

Exxon Mobil, a Dow sock & Dividend Aristocrat, will begin exploring for oil & gas off the shore of South Africa.  Its local affiliate signed a deal with a subsidiary of Impact Oil & Gas Ltd. to buy a 75% stake in an exploration area of the east coast of South Africa.  It will also become the operator of the region, which covers about 2.8M acres offshore with water depths extending from the coastline to around 6500 feet.  Additionally, it has the right to buy a 75% stake in future exploration rights in 3 offshore regions.  This transaction is subject to approval from the South African gov.  The future exploration rights cover an additional 16M acres offshore.  The stock rose 79¢.

Exxon Agrees to Buy Stake in Offshore South Africa Blocksat Bloomberg

Exxon Mobil (XOM)

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Stocks found buyers on hopes of a compromise on the budget debate in DC.  So far, all that we have seen is hot air.  The biggest obstacle to a compromise is the Dems don't want to touch spending cuts.  Meanwhile businesses have expansion plans for next year & they have to factor in a possible recession if the debate is not settled.  As important as the budget debate is, extension for Social Security taxes at the lower rates & raising the debt ceiling are far from certain.  Chaos has become the standard in DC & anything less will be viewed as a big victory, which is far from reality.  Dow is only 400 below its yearly highs while NAZ went back over 3K.  Dow does not deserve a 100 point gain today.

Dow Jones Industrials

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