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)

Treasury yields:

U.S. 3-month	0.091%
U.S. 2-year	0.242%
U.S. 10-year	1.611%

CLF13.NYM

...Crude Oil Jan 13

.............87.95

..... 1.14

(1.3%)

ZGZ12.CBT

....Gold 100 oz. Dec 12

...1,720.10

... 0.90  (0.1%)

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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




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."

Fiscal Cliff Talks at Stalemate Over Dueling Tax Plans

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)

 


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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Markets retreat amid fiscal cliff concerns

Dow dropped 59 (near its low), decliners ahead of advancers 3-2 & NAZ fell 8.  The Financial Index lost a fraction to 211. The MLP index dropped 4+ to the 393s & the REIT index was up 1+ to 261. Junk bond funds fell & Treasuries eased back.  Oil & gold lost much of the AM gains.

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Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.250%
U.S. 10-year	1.625%

CLF13.NYM

...Crude Oil Jan 13

...89.12

... 0.21  (0.2%)

Fitch Ratings warned in a special outlook that the impending tax increases & federal spending cuts that make up the US "fiscal cliff" pose the most significant credit risk to states in 2013.  "The risk that the fiscal cliff presents to the overall economy is the biggest concern for state credit, as state revenue systems quickly reflect changing economic conditions," said Laura Porter, managing director at Fitch.  DC's attention has recently focused on the tax section of the cliff but political leaders in states, cities & other parts of the public sector are growing increasingly alarmed about the spending side.  The automatic spending cuts set to take effect early next year are spread throughout the entire federal budget.  This would slice funds for states, many with revenues still bruised by the 2007-09 recession, & programs such as Medicaid that states operate with federal reimbursements.  "Decisions that shift cost of services from the federal to state governments, while requiring the states to provide the same level of services, would be most concerning," the report warned.  The fiscal cliff threat is enormous & that is not recognized by the stock market.

Fitch: Fiscal Cliff Significant Risk to States Reuters


US builders increased spending on construction projects in Oct by the largest amount in 5 months, led by a surge in housing.  The Commerce Dept said that construction spending rose 1.4% in Oct, the largest gain since a 1.7% increase in May.  The increase raised spending to an annual rate of $872B, nearly 17% higher than a 12-year low hit in Feb 2011.  Still, even with the gain, the level of spending on construction remains only about half of what's considered healthy.  Housing construction spending jumped 3% & nonresidential building rose 0.3%.  Superstorm Sandy had only a minimal effect on the figures.  Sales of new homes fell slightly in Oct, dragged lower by steep declines in the Northeast partly related to Superstorm Sandy.  New-home sales were still 17% higher in Oct than the same month a year ago.  Even though home building has been one of the bright spots for the economy this year, overall construction is still being offset by weakness in commercial real estate & tight state & local gov budgets.  The strong 3% increase in housing construction spending in Oct left the rate of annual spending 19% above the level of Oct 2011.  The pace of spending on nonresidential construction is now 10.7 % above its level a year ago.  Spending on hotel construction & shopping centers both rose in Oct.  Gov construction spending barely rose, to a level that's still below its rate of a year ago.  Public projects have been under stress because of budget problems at all levels of gov.

• U.S. Builders Boost Spending 1.4% in October AP

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Photo:    Yahoo

Superstorm Sandy gave an extra boost to already strong US auto sales last month, although carmakers warned that uncertainty over the fiscal cliff could undo some of those gains.  Most major companies, from Toyota (TM) to Chrysler, posted impressive increases from a year earlier.  Only General Motors (GM) was left struggling to explain its 3% sales gain & large inventory of unsold trucks.  Americans were already willing to buy a new car or truck last month because they're more confident in the economy.  Home values are rising, hiring is up & auto financing is readily available.  Also, the average age of a vehicle is approaching a record 11 years, so many are looking to replace older cars.  And Sandy boosted that demand.  The storm added 20-30K sales industry wide in Nov, mostly from people who planned to buy cars during the Oct storm but had to delay their purchases, Ford (F) estimated.  People who need to replace storm-damaged vehicles are expected to drive sales for several more months.  GM estimates that 50-100K vehicles will eventually need to be replaced.  Nov sales, when calculated on an annual basis, are likely to be 15M or more, the highest rate since Mar of 2008, according to LMC Automotive, higher than the 14.3M annual rate so far this year, even though Nov is normally a lackluster month due to cold weather & holiday anticipation.  Both GM & Chrysler predicted Nov sales would run at an annual rate of 15.3M.  Sales end up at 15M for the year, a vast improvement over the 10.4M during the recession in 2009.  But sales would still fall short of the recent peak of around 17M in 2005 & the ongoing fiscal cliff negotiations could derail the industry's recovery.  "Exactly how much growth we can expect next year will depend in part on how Congress and the president resolve the fiscal cliff issue," said Kurt McNeil, GM's US sales chief.  "Markets and consumers hate uncertainty."

Storm delays lift already strong US auto sales AP


Once again nothing was decided by the markets.  But the bears look like they want to take control after the markets pulled back in the PM.  The manufacturing data was disappointing & fiscal cliff worries are growing.  Make no mistake, both sides are far apart.  Obama's idea of compromise is higher taxes for the rich & more stimulus spending, something the Rep won't buy.  Be prepared for the debate to drag on for weeks, likely until Xmas at a minimum.  Dow continues to take the fiscal mess well, but closed below 13K.  Maybe this time it will prove significant.

Dow Jones Industrials

Markets waver after weak US manufacturing data

Dow lost 15, decliners slightly ahead of advancers & NAZ added 6.  The Financial Index was flat in the 211s.  The MLP index was up a fraction to 398 & the REIT index gained 1+ to the 261s.  Junk bond funds slid lower & Treasuries pulled back.  But oil & gold rose. 

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.252%
U.S. 10-year	1.632%

CLF13.NYM

...Crude Oil Jan 13

...90.13

..... 1.22

(1.4%)

CZ12.CMX

.....Gold Dec 12

.....1,721.80

... 10.90

(0.6%)

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US manufacturing shrank in Nov to its weakest level since Jul 2009.  The Institute for Supply Management’s (ISM) factory index decreased to 49.5 from 51.7 in Oct.  The projection was for a decrease to 51.4.  The impact of Superstorm Sandy & worries about automatic tax increases that could take effect in Jan combined to reduce factory orders & manufacturing jobs.  Less corp investment in equipment as the debate over the national budget, weaker orders from overseas & disturbances related to the biggest Atlantic storm in history are converging to slow manufacturing.  The data highlight an industry that’s contributing less to the economy than it had early in the expansion that began in 2009.  Additionally, manufacturing output in the euro zone shrank for a 16th month, with a gauge of manufacturing rising to 46.2 from 45.4 in Oct.  But in China the Purchasing Managers’ Index climbed 50.6 & in Russia it expanded for a 14th month.  The ISM’s index of new orders dropped to a 3-month low of 50.3 from 54..  The gauge of export orders dropped to 47 from 48 & the employment index decreased to 48.4, the lowest since Sep 2009, from 52.1 in the prior month.  The measure of orders waiting to be filled was little changed at 41 after 41.5. The inventory index decreased to 45 from 50, while a gauge of customer stockpiles slumped to 42.5 from 49.  Not encouraging news.

ISM Index of U.S. Manufacturing Decreased to 49.5 in November




Photo:   Bloomberg

Greece plans to spend up to €10B ($13B) in a bond buyback program that it hopes will help stabilize its mountainous debt.  The buyback is part of efforts to reform Greece's economy & reduce its debt to sustainable levels, & is among steps the country is taking to secure the disbursement of vital intl rescue loans.  If implemented on time, the new measures "are positive developments, which create plausible expectations of a recovery of the Greek economy," the Bank of Greece said.  "This outcome, however, hinges upon a consistent implementation of all the measures legislated, together with policies that will speed up the onset of recovery, including a broader program of structural reforms," it warned.  "Any delays will push the recovery back, with consequences that will be far more severe than anything that has so far happened."  The bond buyback was agreed in a meeting of eurozone finance ministers in Brussels last week, which also approved the release of a critical €44B ($57B) installment of rescue loans from the IMF & the EU.  It is hoped the buyback will shave €20B ($26B) off the country's debt.  Under the buyback program, private holders of Greek bonds have until Fri to register their interest in participating.  The sale will be conducted by a Dutch auction, in which prices start high and then decline.  The buyback should be completed by Dec 17.  The scheme is expected to be of particular interest to investors who bought the bonds on the secondary market at far cheaper prices than their original value.

Greece Offers 10 Billion-Euro Debt Buyback to Unlock Aid

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Photo:   Yahoo

Chrysler & Hyundai reported strong US new-vehicle sales in Nov as the industry rebounded from a storm-ravaged Oct while also benefiting from pent-up demand.  Auto sales are an early indicator each month of US consumer demand.  "We are expecting a strong December as the industry continues to recover from the East Coast hurricane," Chrysler US sales chief Reid Bigland said.  Superstorm Sandy hurt the last few days of sales in Oct, when results finished below expectations. In addition, the average age of cars on the road has risen to just above 11 years old, & industry officials say that will continue to drive demand.  Chrysler sales rose 14% to 122K cars & trucks, its strongest result since 2007.  Hyundai sales increased 8% to 53K vehicles, an all-time high for the month.  "The Black Friday sales period once again provided a strong boost," Dave Zuchowski, executive vice president of sales, said.  "We were also very encouraged by the strong sales recovery experienced in those northeastern regions that were ravaged by superstorm Sandy and expect continued momentum there for the balance of the year," he added.

Chrysler November Sales Gain 14% as Sandy Spurs Demand


Stocks continue to mark time awaiting developments out of DC.  US manufacturing has been fairly strong this year, but as lost its way recently.  Uncertainties about the fiscal cliff negotiations are weighing heavily on execs.  The Greek bond buyback program gives the gov a chance to buy debt at a fraction of what its worth.  It's difficult to tell if it will make a significant difference on resolving the debt mess.  The Nov jobs report will be out on Fri & that will get more attention at mid week.  Dow keeps stumblilng but has been able to barely remain above 13K.

Dow Jones Industrials