Fiscal cliff negotiations demand market’s attention

Overview and Observation: And the budgetary standoff saga continues….The rhetoric coming from both sides in Washington seems unending in their continuity of demands. I fully expect a deal to be struck before the deadline but that depends on two things…. The Republicans must re-consider the tax structure for the wealthy and the Democrats must consider that $250,000 does not constitute “millionaires and billionaires.” A compromise could be the elimination of certain tax loopholes for those earning more than $1,000,000 and a rate increase of 10% over and above their current rate. That compromise makes sense to me and perhaps could culminate in a deal….finally. Both sides maintain that the failure to come to an agreement could impact the middle class. I concur with an added caveat…the U.S. will sink into recession. In 2007 in a roundtable discussion that was published in a magazine, I was quoted as stating, in a response to a question as to why I thought the Dow should be sold, “we are going into recession, how’s that for a reason?” I see the same scenario taking place today with or without a “tax deal.” To reiterate my oft repeated comment, “An unemployed consumer does not consume anything and the producers of those un-consumed products will be next to lay off workers.” I also indicated that any reduction in the weekly first time unemployed number issued each Thursday would not be a sign of improvement in the labor situation, but merely the reality of “fewer people available to lay off without a company having to close its doors.” Now for some actual information…

Interest Rates:

A full week with the March Treasury bond closing at 149 20/32nds, only 7/32nds lower and down 28/32nds from Thursday. A report that the U.S. economy added more jobs than expected last month and concern over Superstorm Sandy’s effect on the U.S. economy abated prompting the selling on Friday. The Treasury market remains mired in a narrow range pending an eventual resolution of the current “fiscal cliff” concerns and ongoing negotiations. We suggest the two parties come to an agreement as I indicated in my overview before market participants find some other avenue of investment…like setting up “lemonade stands” or selling used cars…

Stock Indexes: The Dow Jones Industrials closed at 13,155.13, up 81.09 points on Friday after the better than expected November jobs report showed a drop in the jobless rate from 7.9% to 7.7% completely ignoring the December consumer sentiment decline. For the week the Dow gained 1%. The S&P 500 closed at 1,418.07, up 4.13 points and for the week gained 0.1%. The tech heavy Nasdaq lost 11.23 points to close at 2,978.04, and for the week lost 1.1% mostly tied to the decline in Apple computer company stock. We continue to await a disposition of the ongoing budget controversy to establish a determination of what the results will mean going forward for the U.S. economy and the equity markets. Our ongoing suggestion that holders of large equity positions consider the implementation of hedging strategies.


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