fiscal cliff bernanke

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CEOs, CFOs Voice Concerns over Crippling Fiscal Cliff

By , Money Morning -

While the fiscal cliff might not be at the forefront of concerns for the average American, it is deeply affecting the spending and hiring plans of many businesses.

Four recent surveys show that corporate chief executive officers and chief financial officers are taking measures to prepare for the Jan. 2, 2013 actuation of the fiscal cliff.

According to a recent study by the Congressional Budget Office, this could easily take the U.S. economy back into another recession. Despite that threat, it appears less and less likely that anything will be done by the Obama administration and Congress to avert the crisis.

Needless to say, this has not gone unnoticed by the high level executive leadership of corporate America.

"This complete Mexican standoff that we have now is not getting us anywhere," Jim McNery, Chief Executive Officer of Boeing Company (NYSE: BA) said about the looming failure of Congress and the Obama administration to mitigate the impact of the fiscal cliff.

Business Feels Bearish

Since businesses see fiscal cliff talks failing to deliver progress, growth expectations of the country's biggest companies have fallen.

Members of the Business Roundtable, an association of chief executive officers, expressed in a recent survey bearish sentiment for every business measure (sales, capital spending and hiring).

From the results of this research, the Business Roundtable has lowered its projections for a wide range of economic indicators for its most recent CEO Economic Outlook Survey. These were registered at the lowest level since 2009, the nadir of the Great Recession.

Those closest to the fiscal operations of a company, the chief financial officers, are similarly bearish due in a large part to fiscal cliff 2013.

The CFO Signals Survey found that 47% of chief financial officers are more pessimistic about how well their company will do this quarter.

According to the survey, that sentiment represents the "most somber year-over-year expectations" ever in the history of that research report.

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CEOs and CFOs view hitting the fiscal cliff as a huge failure in the economic leadership from the elected political leaders in Washington, DC.

John Engler, the former governor of Michigan who is now the President of the Business Roundtable, compared the negligence to the recent standoff between the National Football League (NFL) and its referees.

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As We Near Fiscal Cliff, Avoid These Vulnerable Stocks

By , Money Morning -

According to a recent study by CEO organization Business Roundtable, major corporations are preparing for the Jan. 2 onslaught of the fiscal cliff.

Unless an accord is reached, the fiscal cliff could lead to negative U.S. economic growth for the first half of 2013 and unemployment soaring to 9.1%, according to research from KBW.

The fiscal cliff will deliver a market-wide impact, but the brunt of vulnerability will be placed on a lot of the same sectors and companies that suffered during the Great Recession.

The good news for many of these stocks is they've all enjoyed good runs this year, delivering healthy returns for investors.

The bad news is that could all change by Jan 2.

Fiscal Cliff Danger Zone: Three Stocks to Avoid

Defense, housing and finance stocks are sure to be clobbered if the fiscal cliff is crossed.

Federal spending is the lifeblood of the defense industry, which will feel the most pain from fiscal cliff spending cuts. Many of these companies do not have the diversity in business operations to survive.

Lockheed Martin Corp. (NYSE: LMT) is particularly exposed as it is the nation's largest defense contractor.

Already Lockheed Martin has created fiscal cliff survival plans. According to its Chairman and Chief Executive Officer, Robert Stevens, Lockheed Martin has slowed down hiring new employees and is prepared to lay off workers.

LMT's share price fell about 50% from September 2008 to February 2009 due to the Great Recession, but the fiscal cliff effect could hit it much harder since defense spending was still strong during the stock's last tumble. Lockheed is up almost 17% this year to over $94, and 50% since 2009.

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The fiscal cliff spending cuts affecting the defense sector will have a ripple effect into related markets. That includes the Washington, DC housing market which won't be able to continue a recovery if people in the region start losing jobs.

That's why home builder NVR Inc. (NYSE: NVR) is in trouble.

Building luxury homes in the Washington, DC area, NVR had to file for bankruptcy back in 1992 due to adverse economic conditions in the mid-Atlantic region at that time.

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Fiscal Cliff Deals "Devastating" Blow to Defense

By , Contributing Writer, Money Morning -

The potential effect of the fiscal cliff on our national security spending just became clearer - and more unsettling.

Friday, amid pressure from Congress, the Obama administration for the first time outlined how some $100 billion in spending cuts scheduled to take effect Jan. 1 will disrupt thousands of federal programs if no action is taken to avert the fiscal cliff.

The automatic cuts, known as sequestration, are a kind of threat Congress implemented on itself in the 2011 Budget Control Act. Yet, they were never meant to actually happen.

As White House press secretary Jay Carney explained in Friday's briefing, the idea was to make the cuts so objectionable that Congress would come up with a more acceptable way to reduce the deficit.

"The sequester was designed to be bad policy, to be onerous, to be objectionable to both Democrats and Republicans," Carney said.

The detailed report is aimed at putting Congress into action. The Office of Management and Budget clarified in its introduction, "The specter of harmful across-the-board cuts to defense and nondefense programs was intended to drive both sides to compromise. The sequestration itself was never intended to be implemented."

But to date, no concessions have been agreed upon and the perilous looming cuts are coming closer to reality. The announcement brings the U.S. nearer to going over the dreaded fiscal cliff, which scores of analysts say will thrust the economy into a recession in 2013 by draining mountains of money out of the already besieged economy.

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Fiscal Cliff Not a Priority for This Do-Nothing Congress

By , Associate Editor, Money Morning • @DavidGZeiler -

With the United States poised to topple over a recession-inducing fiscal cliff in January 2013, you'd think Congress would be frantically working on a solution.

After all, that's what we elected them to do.

The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.

But rather than focus on figuring out how to avoid the fiscal cliff, Congress members are focused on figuring out how quickly they can get out of Washington for their next recess.

"Everyone wants to get out of town - fast," a top Senate aide told Reuters.

That would be fine if lawmakers were just finishing a grueling summer session, but they just returned from a five-week recess. The current session will last just two weeks, and then Congress departs for another recess, possibly as long as seven weeks.

And what lawmakers have placed on the agenda for their abbreviated session hardly compares to the flashing-red-lights, sirens-blaring crisis the United States faces with the fiscal cliff.

Instead Republicans and Democrats will spend much of their limited time voting on bills and holding hearings designed to score political points they can use in their re-election campaigns.

The Democrat-controlled Senate plans to vote on jobs bills they know the House Republicans will reject; the GOP-controlled House plans to repeal Obamacare for the umpteenth time, which obviously will get nowhere in the Senate.

"Democrats appear ready to ride out the rest of the year spinning tall tales that the economy is doing fine while doing virtually nothing about the problems we face as a nation," Senate Minority Leader Mitch McConnell, R-KY, told Politico.

Rep. Chris Van Hollen, D-MD, called the GOP moves an "example of Republicans wasting time that should be spent on finding solutions to the country's problems. We're up to zero votes on Obama's jobs bills and more than 30 votes to repeal Obamacare," he told Politico.

Meanwhile, America edges closer to the fiscal cliff with each passing day.



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Fiscal Cliff a Far Bigger Threat Than Most Investors Think

By , Contributing Writer, Money Morning -

The United States may or may not go over the fiscal cliff in January, but few investors are taking the possibility seriously enough.

That's the message Goldman Sachs (NYSE: GS) chief U.S. equity strategist David Kostin had for his clients in a recent note.

He believes investors are not focusing enough on the potential impact of the fiscal cliff, which could set the stage for jittery markets akin to last year when the debt ceiling debates sent stocks tumbling.

When it comes to anticipating the impact the fiscal cliff will have on markets, "portfolio managers have been swayed by hope over experience," Kostin recently said in his note.

Kostin compared the current situation to last year's debt ceiling crisis when Congress waited until the eleventh hour to reach a deal.

"Investors were stunned and the S&P plunged 11% in 10 trading days (and more than 17% from the level one month prior to the deadline)," Kostin said. "Eventually Congress reached a compromise on raising the debt ceiling."

"We believe the uncertainty is greater this year than it was 12 months ago," Kostin said. "Political realities and last year's precedent suggest the potential that Congress fails to reach agreement in addressing the "fiscal cliff' is greater than what most market participants seem to believe based on our client conversations. In our opinion, equity investors seem unduly complacent on this issue."

The market rally enjoyed this month is a markedly different from last year's showing as markets skirted past the one-year anniversary of the debt ceiling face-offs. But Kostin says the S&P 500 is headed for a fall-and a steep one at that.

Kostin warns: "Assigning a P/E multiple to various fiscal cliff and earnings scenarios is difficult because ultimately we expect Congress will the address the situation. But investors must confront the risk they may not act until the final hour."

His year-end target for the S&P is 1,250; quite a bit lower than the current 1,424.

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No Need for Vacation When You Can Fight Over the Fiscal Cliff

By , Contributing Writer, Money Morning -

Republicans are not willing to let Democrats go over the fiscal cliff and take all of us with them - at least, not without a good fight.

Just the sound of it - going off the cliff - echoes disaster. But that is where we're heading if Congress doesn't act to extend the Bush tax cuts or avoid the automatic spending cuts that will go into effect Jan. 1.

Little can be expected to be resolved over the next month as Congress takes off for its annual five-week August recess.

However, House Speaker John Boehner (R-Ohio) vowed Wednesday to call the House back into session to cement approval if Senate takes action to prevent fiscal cliff. The GOP has made its commitment to averting the fiscal cliff crystal clear and is encouraging the Democrats to work out some kind of agreement.

"If the Senate follows the House in passing legislation to stop the entire tax hike-including the small business tax hike-in a manner that requires House approval before it can be sent to the president, it is our commitment that the House will reconvene immediately to ensure the measure is enacted at the earliest opportunity. But, in order to avert the threat to our economy, the Senate must join the House in acting to stop the entire tax increase," Boehner and three other House GOP leaders wrote in a letter to Senate Majority Leader Harry Reid (D-NV).

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Expect QE3 After Geithner's Warnings

By , Money Morning -

In testimony yesterday (Wednesday) before the House Financial Services Committee, U.S. Secretary of the Treasury Timothy Geithner may have inched us closer to QE3 when he warned that the U.S. economy will be slammed by two major factors: the immediate danger from the Eurozone debt crisis and fiscal cliff 2013 that is fast approaching.

"The economic recession in Europe is hurting economic growth around the world, and the ongoing financial stress is causing a general tightening of financial conditions, exacerbating the global slowdown," Geithner said in his testimony.

As much of the revenue for major U.S. corporations such as Ford Motor Co. (NYSE: F), DuPont (NYSE: DD) and Cisco Systems Inc. (Nasdaq: CSCO) comes from Europe, the damage is already being felt by both employees and shareholders. Cisco, down 20.52% for the quarter, recently announced the layoffs of 1,300 workers, about 2% of its global labor force.

Geithner cited other factors harming the U.S. economy, including the rise in oil prices earlier this year, cuts to government spending and slow rates of income growth.

Possible adverse developments in the future, particularly the fiscal cliff, led Geithner to warn that, "These potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run."


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Fiscal Cliff 2013: Politicians Playing Chicken with Your Money on the Line

By , Contributing Writer, Money Morning -

Americans are caught in the crossfire as U.S. policy makers continue to battle over "fiscal cliff 2013."

Republican and Democratic lawmakers remain deadlocked over what to do regarding the expiring tax a nd spending cuts, but its taxpayers' money that's at stake.

On Dec. 31, if no action is taken, Bush-era tax cuts will run out, thrusting the struggling U.S. economy back to the lofty Clinton-era tax rates. Plus, steep spending cuts will kick in, hitting a broad range of sectors from education to national defense.

U.S. President Barack Obama and his administration want a tax extension for those making less than $250,000. They are also calling on the top 2% of earners to pa y higher rates on income exceeding $250,000, maintaining it's their duty to do so.

Republicans, however, want the tax breaks to remain intact for all.

So it goes, and so it has gone for months. If Democrats get their way and let some $600 billion worth of tax hikes and spending cuts go into effect in January, it will drive the nation back into a recession. But that can be avoided if Republicans back off on their opposition of higher taxes for our nation's wealthiest.

While the two parties clash, Americans of all tax brackets are stuck in a wait- and- see mode--waiting for action and not seeing much except their nest eggs getting fried.

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Fiscal Cliff: Bernanke Urges Congress to Take Action

By , Contributing Writer, Money Morning -

U.S. Federal Reserve Chairman Ben Bernanke on Tuesday once again reiterated Congress' need to prevent the economy from succumbing to the "fiscal cliff" that as of now will hit taxpayers and the country in 2013.

The fiscal cliff refers to the numerous tax increases and steep spending cuts slated to go into effect Jan. 1, and will throw the already struggling U.S. economy back into a recession.

In his semi-annual monetary report to the U.S. Senate, the chief voiced his concerns. What was missing though was what Congress should actually do to hammer out a budget deal that would prevent a fiscal cliff.

"I don't have a specific recommendation, other than to think not just about the individual policies, but of the collective impact. Congress is in charge here," Bernanke said.



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How the Fiscal Cliff will Deal a Blow to U.S. Defense Industry

By , Contributing Writer, Money Morning -

The fiscal cliff is taking down more than U.S. taxpayers - it will tear through the U.S. defense industry.

At the end of this year, current tax policies are set to expire and new ones will go into effect at the start of 2013. What Americans can expect if the policies are not extended is a painful combo of tax increases and spending cuts that will thrust the struggling U.S. economy back into a recession.

If U.S. lawmakers fail to act, scores of economists agree what we'll get is a $600 billion drag on the already sluggish economy. The tax implications have been widely discussed, but there has been little chatter about the impact on the defense sector, which stands to sorely suffer since it is subjected to half of the proposed spending cuts.

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What is the "Fiscal Cliff"?

By , Money Morning -

Now that we've explored the dangerous repercussions of the looming Taxmageddon, investors have another important question: What is the "fiscal cliff"?

Fiscal cliff anxiety has increased since May 22 when the Congressional Budget Office spread some gloom and doom by citing a potential 2013 recession.

As we reach 2012's midpoint, we still have November's presidential election and a ticking clock for Congress and the president to reach an agreement on policy issues by year's end.

The likelihood of this doesn't look good. That's why now's the time to prepare for the potential effect from the fiscal cliff.

What is the Fiscal Cliff?

You can thank Federal Reserve ChairmanBen Bernankefor coining the phrase.

Fiscal cliff refers to the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013 unless Congress and the White House agree and take some action to either delay or change them.

Should these two actions marry, you'll watch $7 trillion tagged onto the nation's debt over the next decade, or about $500 billion next year, according to CNN.

How will investors be impacted?



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How I Learned to Stop Worrying and Love the Fiscal Cliff

By , Associate Editor, Money Morning • @DavidGZeiler -

Taking a header off the "fiscal cliff" might be the best thing that could happen to the United States.

It sounds crazy, given all the dire predictions economists are making about the "Taxmageddon" that will arrive on Jan. 1, 2013.

While true, no one is talking about what would happen to the economy after the fiscal cliff crisis of 2013.

If Congress fails to act and allows all the bad things to happen - the expiration of the Bush-era tax cuts and the payroll tax cut, as well as the enforced spending cuts (sequestration) agreed to in the budget deal last year - the federal budget deficit would start shrinking dramatically.

And the fiscal discipline, while brutal in the short run, would jump-start the economy by early 2014.

It's all in a recent Congressional Budget Office (CBO) report, "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013."

The CBO ran projections based on two scenarios.

One looks at what would happen if Congress does nothing and lets the country go over the fiscal cliff. The other scenario looks at what would happen if Congress dodges the fiscal cliff by extending most, if not all, of the current policies.

Choosing to take a leap off of the fiscal cliff--as has been widely reported-- would slam an already faltering U.S. economy. The CBO report says GDP would shrink by 1.3% in the first half of 2013, pushing the country back into a recession.

On the other hand, extending current policies would push GDP up 5.3% in the first half of 2013.

That may sound great, but a funny thing happens after those first six months.



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