Thursday, December 20, 2012

Markets stumble, looking for direction from DC

Dow inched up 2, advancers ahead of decliners 3-2 & NAZ slipped 2.  The Financial Index went up 2 to 223, another yearly high.  The MLP index rose 1+ to over 390 & the REIT index gained 2 to the 266s.  Junk bond funds were higher as were Treasuries.  Oil & gold are also marking time, awaiting developments from DC.

AMJ (AlerianMLP Index tracking fund)

stock chart

CLF13.NYM...Crude Oil Jan 13...89.42 ....Down 0.09  (0.1%)

GCZ12.CMX...Gold Dec 12....1,650.40 ...Down 16.10 

Barack Obama and John Boehner

Photo:    Bloomberg

The House is moving ahead on a bill that would raise taxes on people earning over $1M a year, sparing most workers from a tax hike but leaving in place painful budget cuts to the military & domestic agencies as fiscal cliff talks appear stalled.  The move, dubbed "Plan B," seems to be aimed at upping the year-end pressure on Dems & Obama, but it looks to be a dead letter in the Senate & earned a White House veto threat.  A supremely confident Obama dismissed Plan B, saying that he & Boehner were just a few hundred $B apart on a 10-year, $2T+ deficit-cutting pact.  Reps should "peel off the war paint" & take the deal he's offering, Obama said sharply.  He noted that he had won re-election with a call for higher taxes on the wealthy, then added pointedly that the nation aches for conciliation, not a contest of ideologies, after last week's mass murders in CT.  He continues to press for a comprehensive budget pact with Boehner to replace an economy-jarring set of automatic tax hikes & sweeping spending cuts to the Pentagon & domestic agencies set to take effect in Jan.  Boehner countered that the president will bear responsibility for "the largest tax increase in history" if he makes good on his veto threat.  After more than a year to deal, this is the result from DC!  It's called "dead in the water."

Budget Talks Falter as Republicans Set Tax Increase Vote

  • A customer looks over produce at the Phoenix Public Market in Phoenix, Arizona August 23, 2011. REUTERS/Joshua Lott
Photo:   Yahoo

The US economy grew faster than previously estimated in Q3 as exports & gov spending provided a lift, but that boost is likely to be lost amid slowing global demand & a move towards tighter fiscal policy.  GDP expanded at a 3.1% annual rate according to the Commerce Dept, up from the 2.7% pace reported last month.  It was the fastest growth since late 2011 & also reflected a slightly better pace of consumer spending than previously estimated.  With imports falling for the first time since Q2 of 2009, that narrowed the trade deficit.  Trade contributed 0.38 percentage point to GDP growth.  But the drop in imports is a sign of weak domestic demand.  Gov spending was revised to a 3.9% growth rate from 3.5%, boosted by a rebound in state & local gov outlays.  It added three quarters of a percentage point to GDP growth.  The boost from exports is likely to be short-lived against the backdrop of a cooling global economy & gov will likely be a drag in the coming quarters amid belt tightening to trim the budget deficits.  Excluding inventories, GDP rose at a revised 2.4% rate.  Another inconclusive report on economic activity.

U.S. Economy Grew 3.1% Last Quarter, More Than Forecast

Last month US sales of previously occupied homes jumped to their highest level in 3 years, bolstered by steady job gains & record-low mortgage rates.  The National Association of Realtors said that sales rose 5.9% to an annual rate of 5.04M in Nov, up from 4.76M in Oct.  Previously occupied home sales are on track for their best year in 5 years.  Nov sales were the highest in 3 years, when a federal tax credit that was soon to expire spurred sales.  Excluding that month, last month's sales were the highest since 2007.  Sales are up 14.5% from a year ago, though they remain below the 5.5M pace that is consistent with a healthy market.  Job growth & low home-loan rates have helped drive purchases.  In addition, the excess supply of homes that built up during the housing bubble has finally thinned out as the number of previously occupied homes available for sale fell to a 10-year low in Oct.  The supply of new homes is also near its lowest level since 1963.

Sales of Existing U.S. Homes Climb to Three-Year High

Stocks don't know where to go.  The fiscal budget mess drones on with no sign of ending.  Both sides are dug in after more than a year of getting nowhere by ignoring the problem.  Whatever it produces, IT WILL NOT BE PRETTY.  Slapping together political favors at the last minute with Scotch Tape is begging for more problems next year.  Raising the debt ceiling, has hardly been addressed.  But Dow is not bothered by this chaos.  Maybe it will be soon.

Dow Jones Industrials

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