Сool tendency!
The U.S. national debt’s path from $5.8 trillion in 2001 to $15.9
trillion as of Aug. 1, plus two opposite scenarios for how Congress
could deal with the impending fiscal cliff.
The euro zone debt crisis
NEW YORK |
Uncertainty over progress in
the region, along with the potential for credit rating downgrades on
euro zone countries, have kept investors on edge and market volatility
high.
Even with a fairly busy U.S.
economic calendar, which includes a batch of data on the housing market,
the final reading on gross domestic product and durable goods orders,
markets will focus on developments from Europe.
"What
everybody is going to look at is the same thing they've been looking at
-- every time a German official opens their mouth we get crushed," said
Paul Mendelsohn, chief investment strategist at Windham Financial
Services in Charlotte, Vermont.
"I'm keeping my fingers crossed that Santa Claus is out there. But we've got to see something."
The benchmark S&P 500 index .SPX.INX is down about 3 percent for the year and would need to climb above 1,257.64 in order to end higher for the year.
A
rally by stocks on Friday fizzled, and the market ended with only
modest gains after the latest credit warning about possible downgrades
of European nations. For the week, the Dow fell 2.7 percent, the S&P lost 2.9 percent and the Nasdaq was down 3.5 percent.
Italy's
prime minister urged European policymakers on Friday to beware of
dividing the continent in the effort to contain the debt crisis, warning
against a "short-term hunger for rigor" in some countries, in a swipe
at Germany.
Stocks
have been whipsawed as investors weigh the threat from the euro zone
crisis against modest improvement in U.S. economic data and stocks that
many regard as cheap.
"There do
appear to be some improving economic indicators domestically, but it's
hard to see how they win the day if Europe continues to be a big
concern. It's not like the valuations are at such bargain-basement
prices that it becomes a one-way bet," said Stephen Massocca, managing
director at Wedbush Morgan in San Francisco.
As
volumes begin to dry up and market moves become more exaggerated during
the holiday period, the volatility may help lift the stock market into
the plus column.
CHANCE OF RALLY
"Can
you see an upside rally? Certainly, because you are going to have some
asset managers in the end who are going to try and just push it so the
market ends at the very least flat on the year, if not higher," said Ken
Polcari, managing director at ICAP Equities in New York.
"If
there is going to be a rally at all, it will happen on light volume
because there will be fewer and fewer participants. When there is less
volume, you do have the ability to have those exaggerated moves, but
people will take advantage of that."
Volatility in individual shares could also be affected by corporate earnings
preannouncements. There have been 97 negative earnings preannouncements
issued by S&P 500 corporations for the fourth quarter, compared to
26 positive preannouncements, resulting in a negative-to-positive ratio
of 3.7. That's the highest in 10 years, according to Thomson Reuters
data.
Companies that have provided outlooks in recent weeks include DuPont (DD.N), Intel Corp (INTC.O), United Technologies Corp (UTX.N) and Texas Instruments Inc (TXN.N).
Unexpected management shakeups could also be on the horizon and increase the tumult in stocks. Both Cablevision Systems Corp (CVC.N) and the New York Times Co (NYT.N) saw high-level executives suddenly leave their posts.
But
stock movements next week will ultimately be dictated by actions taken
in Europe, with the light volume exacerbating market swings.
"The
only thing that is going to be of any interest is certainly the
continuing headlines on Europe, whether or not they come any closer to
what looks like a potential agreement," said Polcari.
"You
may get a little bit of a push to the 1,250 to 1,270 range, but much
beyond that I don't see why it would go any higher unless you get some
explosive announcement out of Europe."
(Reporting By Chuck Mikolajczak; Editing by Kenneth Barry)
reuters
Superbad
Washington fails yet again to reduce the deficit. This time only one party bears the blame
The Nov. 21 demise of the congressional “supercommittee” on debt
reduction provided analysts, legislators, talking heads, occupiers,
anti-occupiers, and even the silent reasonable majority with another
opportunity to decry the scourge of American politics: gridlock.
“Washington is broken,” announced Representative Tim Walz (D-Minn.) in a
written statement. “Americans are understandably frustrated with the
bickering and gridlock that has become a staple of the way Washington
operates.” Said Representative Dan Lungren (R-Calif.): “With the failure
of the supercommittee, Congress once again has neglected to face
head-on a long-foreseen and fast-approaching crisis.” Goldman Sachs (GS)
equity analyst David J. Kostin predicted in a report that “the
inability of elected officials to act in the long-term best interests of
all Americans” could send the Standard & Poor’s 500-stock index
down 9.5 percent, to 1,100. Sure enough, in the hours before the
co-chairs of the supercommittee effectively closed up shop through
e-mailed statements released to the press, the stock market plummeted.
On cue, Republicans and Democrats sought to blame each other. “The
supercommittee’s failure is a direct result of President Obama’s
negligence and Democrats’ intransigence,” Republican National Committee
Chairman Reince Priebus said in a statement. Obama countered that
Republican lawmakers “refused to listen to the voices of reason and
compromise.” And so on.
The irony in all the fulminating is that the universe has finally
gone so topsy-turvy—and the political forces have run so amok—that
gridlock has become a stealth agent of change. Under the terms of last
summer’s on-the-precipice deal to raise the federal debt ceiling, the
supercommittee’s failure to agree on a deficit-reduction package means
that, starting in 2013, a combination of $1.2 trillion in spending cuts
and scheduled tax-break expirations will take effect. That would
accomplish more in the way of fiscal restraint than anyone with open
eyes expects from the current crop of posturing incumbents. “The problem
is not gridlock,” says Tyler Cowen, a professor of economics at George
Mason University. “If Congress would do nothing now, we would be O.K.
What we need is some gridlock.”
The do-nothing approach, of course, carries big risks. Unless the
economy strengthens considerably in the next year, lockstep
austerity—while it would achieve the goal of deficit reduction— could
plunge the U.S. into another recession. However, a third path to deficit
reduction does exist. The catch is that it requires one party to
abandon the only thing it seems to care about.
Let’s return, for a moment, to gridlock. Cowen, a
free-market conservative with iconoclastic tendencies, figures that if
lawmakers would simply adhere to the debt-ceiling deal struck in August,
the nation might actually get deficit reduction worth trillions of
dollars over the next decade, all of it done on legislative autopilot.
Runaway expenditures could be reined in, while revenue would increase
beginning in 2013 primarily from the “sunsetting” of the tax cuts
introduced by the George W. Bush Administration. “That would be huge,”
Cowen says.
Unfortunately members of Congress show no interest in taking
advantage of a perfectly good opportunity to wallow in stalemate. Before
the leaders of the 12-member bipartisan supercommittee announced that
their negotiations had ended in frustration, lawmakers on both sides of
the aisle were working various legislative levers to stop the
$1.2 trillion in automatic spending cuts from taking effect. To cite the
most conspicuous example, GOP lawmakers such as Senators John McCain
(R-Ariz.) and Lindsey Graham (R-S.C.) have vowed to prevent Congress
from reducing the Pentagon budget by $600 billion, a cut that would
ostensibly be “triggered” by the supercommittee’s inaction. They draw
support from Defense Secretary Leon I. Panetta, who has said the
proposed cuts would be “devastating” for the Pentagon.
In effect, Congress is gearing up for an election year of budget
shuffling that will expand the deficit rather than shrink it. So while
in theory gridlock might appear to be exactly what the country needs to
get its fiscal house in order, neither party will allow it to happen.
And since Americans can’t count on Congress to sit quietly and allow
automatic spending cuts and tax increases to take effect, it’s
imperative that the source of the immediate mess be identified with
clarity. That is the only way for the 2012 elections to provide voters
with meaningful choices and award the victors a mandate for reforms they
might actually get enacted.
The political and policy issues may seem complicated, but they are
easily simplified: Democrats want to reduce the deficit, in part, by
raising taxes on the wealthiest Americans (but maintaining current
Bush-era rates for everyone else). Republicans view even that goal as
blasphemy, no matter how often Warren Buffett insists that hedge fund
billionaires and even some mere millionaires can afford to pay higher
rates. Against the better (if muted) judgment of some of its more
traditional leaders, the Republican Party is now in the thrall of a
fundamentalist antitax ideology that precludes compromise. Republicans
freely admit this orthodoxy is what defines them. “It’s the one thing
that when Americans say, ‘What’s the difference between the two
parties,’ taxes is the last thing they can still look at,”
Representative Tim Huelskamp (R-Kan.) told the Wall Street Journal
on Nov. 18. Huelskamp was one of more than 70 Republicans to sign a
letter urging the supercommittee not to accept tax increases.
Republicans claim that during the supercommittee negotiations they
offered several proposals for raising revenue by closing tax loopholes.
What they actually said, however, was that they would trade $250 billion
in new revenue for a prolonged extension of the Bush-era tax cuts.
Extending those cuts would have an impact of $3.7 trillion through 2019,
according to the nonpartisan Congressional Budget Office. So what the
Republicans really offered was a bargain that reduced revenue by
trillions of dollars. No thanks, Democrats said.
For now, neither side perceives a great cost to intransigence. The
U.S. so far has gotten away with running up the tab on the national
debt. Investors continue to be willing to lend money to Washington at
low rates. But as governments across Europe discovered, the patience of
bond markets will run out eventually—and when it does, a long-simmering
crisis can become a sudden catastrophe. Republican extremism in
rejecting anything that anyone, no matter how misleadingly, could label a
tax increase, encourages mirror-image rigidity in Democratic
circles—namely, the liberal tendency to look away from the worsening
pressures we face in coming years as a result of an aging population and
rising health-care costs.
What everyone in Washington knows, but Republicans refuse to concede,
is that the U.S. can’t balance the budget with nonmilitary spending
cuts alone. Politicians who insist on the absolutist antitax position,
Cowen observes, are only obscuring the depth of our long-term fiscal
challenge—and ensuring that the country eventually pays a staggering
price for its profligacy. “We’re the next Italy,” he warns. “Maybe it
takes us 10 or 12 years to get there, but that’s the real danger.” We’ll
be lucky if it takes that long.
Photo Illustration by 731
