Friday, December 21, 2012

Markets tumble after House cancels plan B vote

Dow sank 135, decliners over advnacers 5-2 (not too bad) & NAZ was off 35.  The Financial Index fell 2+ to the 221s in what has been a very strong month.  The MLP index pulled pack 1+ to 390 after an outstanding 3 day rise & the REIT index was fractionally lower in the 267s.  Junk bond funds were soft but Treasuries climbed higher.  Oil fell for the first time in 6 days on concern that US lawmakers will fail to avert a fiscal crisis after the House canceled a planned vote on higher taxes on top earners.  Gloomy news brought out buyers for gold.

AMJ (Alerian MLP Index tracking fund)

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CLG13.NYM...Crude Oil Feb 13...88.27 ......Down 1.86  (2.1%)

GCZ12.CMX...Gold Dec 12......1,725.70 ...Up 80.80 (4.9%)

House Speaker John Boehner

Photo:   Bloomberg

The House Speaker's “Plan B” wasn’t supposed to be his real plan.  The proposal, which called for a tax increase on income above $1M, was designed in part to push Reps closer to Boehner’s original offering to the president in budget talks that called for a combination of revenue increases & spending cuts.  Plan B, though, proved more alluring within the speaker’s caucus because it would have raised taxes on fewer people than the larger deal Obama wants, & some Reps started to gravitate to it.  Even after Majority Leader Cantor said yesterday that the measure had sufficient support, Boehner had to pull the bill last night because it would have failed in a vote.  Dems were prepared to oppose it as a bloc, & they would have been joined by enough Reps who continue to oppose any tax increases to kill the measure.  The flawed approach left Boehner embarrassed & Reps without a clear alternative to Obama’s proposal to raise $1.2T in taxes on high earners & cut $1.2T in spending.  It also threw into doubt whether Congress can pass any agreement before Jan 1 to avert more than $600 billion in spending cuts & tax increases for all wage earners.  “The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said last night.

Boehner’s ‘Plan B’ Failure Leaves Him Without Alternative

Spain will struggle to meet its 2012 deficit target as a contracting economy hinders the impact of the deepest budget cuts in the nation’s history, Deputy Budget Minister Marta Fernandez Curras said.  “It will be difficult, but who says it’s impossible?” Curras said after Budget Ministry data showed the central-gov shortfall thru Nov was 4.4% of GDP.  Curras said the social security system, combining Spain’s tax-funded pensions & unemployment insurance, is expected to register a gap of around 1% of output in 2012.  The central gov & social security together have a full-year deficit goal of 4.5%.  Presently Prime Minister Rajoy has ruled out seeking European aid to curb a surge in borrowing costs while acknowledging Spain may miss its deficit target.  The European Commission suspended its budget-cut prescriptions for the nation last month as the euro region sank into a recession.  Rajoy said last week that Spain hasn’t sought aid because it doesn’t need it.  Exports rose 8.7% in Oct from a year ago after gaining 0.5% the previous month, Economy Ministry data showed.  Spain’s trade deficit is down 28% over the first 10 months of the year as declining labor costs helped make the nation’s products more competitive.  The EU has set Spain an overall deficit target of 6.3% of GDP for this year, after overspending swelled to 9.4% in 2011. This  budget mess will be around for a very long time.

Spain 2012 Deficit Slippage Looms as Recession Deepens

Walgreen, a Dividend Aristocrat, fiscal Q1 earnings sank 26% as chain filled fewer prescriptions & absorbed costs tied to acquisitions & Superstorm Sandy.  The storm system cost $24M, as it temporarily closed hundreds of stores.  Acquisition-related costs totaled $23M.  Prescriptions filled at stores open at least a year fell nearly 5%, a smaller decrease than the 8% drop it reported in the previous qtr . The drugstore chain said the improvement was due to its return to the network of Express Scripts Holding (ESRX), the nation's largest pharmacy benefits manager.  EPS was 43¢, down from 63¢ a year ago.  Revenue fell 5% to $17.3B.  Excluding one-time costs, adjusted EPS was 58¢, below the forecast of 70¢.  The stock dropped $1.05.

Walgreen Profit Drops Amid Loss of Express Scripts Sales

Walgreen's (WAG)

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It's unclear why not taking a vote in the house last night came as such a shock to the markets.  Actually it wasn't.  Selling could have been a lot worse, so the bulls are still trying to have their way.  As I've been saying weeks, & months, this fiscal mess is not going away anytime soon.  Even when some sort of deal is patched together with Scotch Tape, who knows what it will look like or what good it will do to fix overspending problems.  Economic considerations are only secondary, the political ones are of primary importance.  Additional indecisive word coming from DC will bring on more selling next week.

Dow Jones Industrials

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