Tuesday, December 4, 2012

Mixed markets on fiscal talks stalemate

Dow slid 2, decliners barely ahead of advancers & NAZ fell 18, hurt by a bad day for Apple (AAPL) stock.  The Financial Index lost a fraction to 210.  The MLP index fell 3 to 390 ( down 8 in just 3 days) & the REIT index was up a fraction to the 261s.  Junk bond funds were lower & Treasuries inched higher.  Oil & gold also pulled back, with gold slipping below the $1700 support level.

AMJ (Alerian MLP Index tracking fund)

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CLF13.NYM...Crude Oil Jan 13.............87.95 .....Down 1.14  (1.3%)

ZGZ12.CBT....Gold 100 oz. Dec 12...1,720.10 ...Up 0.90  (0.1%)

  • <p>               French Finance Minister Pierre Moscovici looks up, during a hearing of the Committee on Economic and Monetary Affairs, at the European Parliament in Brussels, Monday, Dec. 3, 2012. Details of a plan for Greece to reduce its heavy debt by buying some of it back at bargain prices will be presented Monday to finance ministers from the 17 European Union countries that use the euro. (AP Photo/Yves Logghe)
French Finance Minister Pierre Moscovici
Photo:   Yahoo

EU finance ministers are trying to set up a united banking supervisor to better deal with future financial crises.  The 27 ministers hope to have a deal by the end of the year that will give the ECB wide-ranging authority over banks.  But they remain divided over whether the ECB should oversee all banks or only the largest.  France's Finance Minister Pierre Moscovici came out strongly for an agreement "that covers all banks, and that is under the final control of the ECB."  The supervisor is a key part of a new banking union the EU is working on.  The 10 EU nations not using the € want to be included in a banking union but also worry it could stifle their financial sectors if too harsh.  This is the same group that has to deal with the debt mess over there.

EU Nations Eye New ECB Bank Supervisor Amid German Doubts

U.S. President Barack Obama

Photo:   Bloomberg

Negotiations over the fiscal cliff are stalled as the administration & Reps trade offers on ways to avoid more than $600B spending cuts & tax increases for 2013 that will start to take effect in Jan.  The fiscal cliff was created when congress & Obama in 2010 extended tax cuts for 2 years, meaning that tax breaks on income, capital gains, dividends & estates will lapse at the end of this year (AFTER THE ELECTIONS).  That's called worry about today's problems toady, tomorrow will take care of itself.  In 2011, as part of a deal to raise the debt ceiling, they set up $1.2T in spending cuts to occur over 9 years, starting in Jan 2013 (again, tomorrow's problems will take care of themselves).  In 2012, they extended a 2-percentage-point reduction in the payroll tax thru Dec.31.  That confluence of events is designed to put pressure on Congress to act on taxes, spending & the budget deficit.  Now all sides want to continue the tax breaks for individuals making up to $200K a year & married couples earning up to $250K a year.  House Speaker John Boehner sent a letter yesterday to Obama outlining the framework of a Rep proposal.  Within 2 hours, it was rejected with a statement saying that it “promises to lower rates for the wealthy and sticks the middle class with the bill.”  Call this, "dead in the water."

Toll Brothers fiscal Q4 net income soared, helped by a large income tax benefit & a 48% rise in revenue as it delivered more homes & its order backlog increased.  CEO Douglas Yearley  said that higher home prices, low interest rates, pent-up demand & improving consumer confidence prompted buyers to return to the housing market this year.  For Q4, EPS rose to $2.35, up sharply from 9¢ a year ago.  The latest qtr included an income tax benefit of $350M.  Excluding the tax benefit & other items, EPS was 35¢, above the forecast of 25¢.  Revenue increased to $633M from $428M, topping the forecast of $565M.  Homebuilding deliveries climbed 44% to 1088 units, while net signed contracts jumped 70% to 1098 units. The average price of homes delivered increased to $582K from $565K a year earlier.  Backlog, a measure of potential future revenue, rose 54% to 2569 units.  The cancellation rate declined to 4.6% from 7.9%.  Full-year EPS rose to $2.86 from 24¢ a year earlier.  Revenue climbed 27% to $1.88B from $1.48B.  TOL anticipates delivering 3600-4400 homes in 2013 at an average price of $595K-$630K per home.  The stock was up 36¢.

Toll Brothers Says Profit Jumped on Revenue, Tax Benefit

Toll Brothers (TOL)

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The markets are trading sideways, but with a bias to the downside.  Fiscal cliff uncertainties are weighing heavily, although the stocks have been adjusting fairly well.  Given all the problems, markets could have seen much more selling.  MLPs have had a major retreat recently, unusual for this low beta group.  Perhaps there are whispers in DC that their tax advantaged distributions are at risk when tax rules are rewritten.  Dow is back below 13K again, but that ceiling/support level has had little siginfcance all year.  Watch for the bears to start flexing their muscles. 

Dow Jones Industrials

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