NEW$ & VIEW$ (14 NOVEMBER 2012)


Obama Sets Steep Target On Taxes

Obama will start talks by calling for $1.6 trillion in additional tax revenue in the next decade, far more than Republicans will likely accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011.

Mr. Obama, in a meeting Tuesday with union leaders and other liberal activists, also pledged to hang tough in seeking tax increases on wealthy Americans. In one sign of conciliation, he made no specific commitment to leave unscathed domestic programs such as Medicare, leaving the door open to spending cuts many fellow Democrats oppose. (…)

Treasury Secretary Timothy Geithner said higher tax rates on upper-income Americans were a central part of the White House’s deficit-reduction proposal because there was no way to raise enough revenue by only limiting tax breaks. Mr. Geithner’s comments, made at the Journal’s CEO gathering, marked the White House’s most forceful defense of its tax proposal since the election. (…)

Senate Majority Leader Harry Reid (D., Nev.), in his first floor speech of the session, signaled little interest in concessions (…)

Meanwhile, in the real world:

Companies Warn About Cutbacks

imageSome big American companies are making plans to slow investments, lay off workers and pay less-generous dividends if Congress and the Obama administration don’t find a way to avert the so-called fiscal cliff.

A range of businesses, including defense contractors and hospitals, will be directly affected by the $600 billion in cuts to government spending and end of tax breaks if Washington doesn’t otherwise lower the deficit.

Other employers worry the reduced spending will hurt them indirectly by slowing economic growth. (…)

David Cote, CEO of Honeywell International Inc., another big military supplier, said his company has reduced normal hiring in the U.S. and Europe—it now is replacing just one out of every four workers who leave—because of concern about the U.S. fiscal situation.

Home Depot Inc. is taking a similarly conservative approach to hiring and spending. The retailer says uncertainty around the budget could disrupt the expected housing-market recovery that underpins the company’s investment plans. Home Depot also has delayed borrowing money until the fiscal situation is resolved.

“We don’t want to get into a position where we have to lay people off,” Chief Financial Officer Carol Tome said. (…)

Industrial companies also are preparing. Xylem Inc. CEO Gretchen McClain said the water technology company’s customers are pulling back on capital spending, and state and local governments are waiting to place orders until their funding sources clear up. In response, Ms. McClain’s company is pulling back on investments and tightening discretionary spending. (…)

Corporations are finalizing their 2013 budgets amid all this uncertainty. Given what they saw from politicians since 2008, they have to place high odds on the worst cases and plan accordingly.

Call me  Broad Concern about ‘Fiscal Cliff’ Consequences Public Is Skeptical Deal Will Be Reached

The public is skeptical that President Obama and congressional Republicans will reach an agreement by the end of the year to avoid the fiscal cliff. About half (51%) say the two sides will not reach an agreement, while just 38% say they will. If no deal is reached, more say that congressional Republicans would be more to blame than President Obama (53% vs. 29%).

(…) nearly identical majorities say the effect of the changes would be mostly negative for the economy (62%) and their personal financial situation (60%).


Economic divergences remain, with the US economy a relative bright spot, China improving somewhat, and a renewed weakening in the eurozone. However, on a global combined basis, enough areas of growth have offset weakness, and the JP Morgan Global Composite Purchasing Managers Index (PMI) has stayed above the 50 level that separates contraction from expansion; coming in at 51.3 in October. (Liz Ann Sonders, Charles Schwab)


image(Chart from Markit)

Lightning  Euro-Zone Data Point to Contraction

[image]Eurostat figures showed industrial production slumped 2.5% on the month in September, the largest fall since January 2009 and compared with August’ s 0.9% increase. On the year, output dropped 2.3% after a 1.3% decline in August. (…)

A Eurostat statistician said poor car production was a key driver of the 2.1% monthly decline in German industrial production, which was the biggest drop since November last year. Portuguese output fell a record 12.0% on the month, hampered by strike action—being repeated Wednesday—across the country. (…)

Gross domestic product in Portugal reflected that steep decline, falling for an eighth straight quarter in the third quarter, by 0.8% on the quarter and by 3.4% on the year.

Other data, this time from Greek statistics agency Elstat, showed the contraction in Greek GDP deepened in the third quarter as activity fell 7.2% compared with a year earlier after a 6.3% drop in the second quarter.

Pointing up  The summer rebound was just a head fake. The Eurozone economy is literally nosediving!





  • German IP declined 2.1% MoM in September, -1.1% in Q3 after -0.7% in Q2.
  • Spain IP: -2.8% in September, -1.5% in Q3 after -0.5% in Q2.
  • France IP: -2.7% in September, -0.6% in Q3 after -0.4% in Q2.
  • Italy: -1.5% in September, 0 in Q3 after -2.2% in Q2. (Eurostat)


I missed that stat last week. Core retail sales dropped 0.6% in real terms in September. Core retail volume thus declined 0.3% in Q3 after -0.5% in Q2.image

Lightning  Euro Crisis Weighs on Germany’s Economy

Economic expectations in Germany fell well below consensus forecasts in November, the latest sign that the euro zone’s largest economy is likely to deteriorate over the next six months.

The Center for European Economic Research, also known as ZEW, said its closely watched economic index fell to -15.7 in November from -11.5 in October.

European Banks Still Hoarding Money

Worries about the euro-zone debt crisis, economy and regulatory uncertainty mean that European banks still prefer to hoard cash with their central banks rather than lend it out. WSJ’s David Enrich has been crunching the figures that show little change in the trend.


(Chart from Liz Ann Sonders, Charles Schwab)


Italy’s Banks Struggle Under Austerity

Italy’s two largest banks continue to suffer under the weight of deteriorating loans, but one-off gains from bond buybacks have helped offset sluggish core business.

Intesa said provisions for bad loans surged to €1.2 billion in the third quarter, up 72% from the same period last year. The bank said loan-loss provisions for the first nine months stood at €3.3 billion, up 48% from a year earlier.

Anti-austerity protests sweep Europe  Portugal and Spain focus of union day of action

Alien  Meanwhile, in the twilight zone:

EU standoff stokes tension before summit

Commission must draft new 2013 budget after talks collapse

The abrupt collapse of talks on the EU’s budget for 2013 has amplified concerns about the bloc’s ability to negotiate a seven-year €1tn budget, in what is set to be a fraught summit in Brussels next week. (…)

Under EU law, the commission will have to draft a new budget – a process that could take weeks and distract from other business. But the larger concern was that the failure to resolve a relatively small dispute could undermine a much more consequential negotiation over the EU’s long-term budget, which will take centre stage next Thursday when European leaders willconverge on Brussels for a special summit.

Some diplomats are already predicting the gathering will end in failure. The stand-off over the current-year budget rehearsed the same deeply entrenched positions that have featured in the larger negotiations, pitching the UK’s determination to curb spending against other governments – supported by parliament and the commission – that believe more EU funding is essential to revive the bloc’s economy. (…)

If you want a “good laugh”, read the whole FT piece. Pitiful! Crying face



Home Depot Begins to Believe in Housing


Chief Executive Frank Blake said the third-quarter performance was stronger than Home Depot itself expected, thanks in part to the start of a healing housing market.

“We can start to see the housing market as an assist to our growth rather than an anchor,” Mr. Blake said on a conference call to discuss results. (…)

RBC Capital Markets analyst Scot Ciccarelli noted that up until the last two quarters, Home Depot was among the more bearish firms about housing. “They’re starting to get comfortable that this isn’t a one-time blip, that this is the beginning of a home-improvement recovery,” he said. (…)

Fewer homes for sale in October, study finds

The number of homes for sale last month fell 17% year-over-year in the nation’s leading housing markets, yet median list prices remained flat, new data show. (…)

Other companies that track asking prices do show annual increases for October. Trulia’s data show asking prices up 2.9% for the month year-over-year. That was the biggest annual increase of the year. The increases were also broad, occurring in 69 of 100 major markets.

“We see no slowdown,” says Jed Kolko, Trulia economist.

On a year-over-year basis, the for-sale inventory declined in all but five of the 146 markets covered by List prices increased in 71 of the markets.

Both data trackers see prices rising faster in markets where inventories have shrunk the most. (…)

Pointing up  The nation’s homeowner vacancy rate fell to its lowest level in seven years in the third quarter, he says. That indicates that “builders are going to have to ramp up,” Newport says. “We’ve gotten rid of all of the excess supply.”


Rainbow  China’s power consumption growth quickens in Oct 

Growth of China’s electricity consumption accelerated to 6.1 percent year-on-year in October from September’s 2.9-percent rise, the National Energy Administration said Wednesday.

The country’s electricity consumption climbed 4.9 percent in the first ten months compared with one year earlier. The pace of increase was also higher than the 4.8-percent growth registered during the January-September period.

Japan PM calls December election  Ruling DPJ expected to lose the poll

Panasonic prepares for “garage sale”, to axe 10,000 jobs  About a fifth of Panasonic Corp’s 88 business units are losing money and only half so far meet a target for at least 5 percent operating margin, the Japanese electronics group’s finance chief said in an interview on Wednesday.


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