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Pessimism About Fiscal Gridlock Extends a Losing Streak

December 28, 2012 by Leave a Comment

Stocks fell for a fifth day, the longest such streak since July, on concern that lawmakers in Washington would fail to reach a budget deal before a year-end deadline.

The Dow Jones industrial average dropped 158.20 points to 12,938.11, with losses accelerating in the last 20 minutes of trading as reports circulated that President Obama would not be making a new budget proposal in a meeting with Congressional leaders.

The Standard Poor’s 500-stock index fell 15.67 points to 1,402.43, its longest losing streak in three months, and the Nasdaq composite index fell 25.59 points to 2,960.31.

“The reality, late in the day, is that a deal is just not going to get done,” said Ryan Detrick, a senior technical strategist at Schaeffer’s Investment Research. “We could be greeted by a big sell-off at the start of January.”

President Obama returned from a Christmas break in Hawaii to meet with Congressional leaders at the White House in the hopes of preventing across-the-board tax increases and government spending cuts beginning Jan. 1. Economists have said that if those measures are put in place, it could push the economy back into recession.

Traders have been focusing on Washington and the budget negotiations since the Nov. 6 elections returned a divided government to power. Stocks closed lower Thursday but erased most of an early loss after Republicans said they would reconvene the House of Representatives on Sunday.

“I can’t wait till this is done, so we can start talking about markets again and not just about politics,” said Doug Cote, chief market strategist at ING Investment Management.

Mr. Cote said that he expected that lawmakers would not reach a deal before the deadline and that when people assessed the extent of tax increases on the way, “the market is going to reel.” Mr. Cote also expected slowing earnings growth to drag down stocks.

Despite the fiscal gridlock in Washington, major stock indexes are holding on to gains for the year. The Dow is up 5.9 percent, the S. P. 500 is 11.5 percent higher, and the Nasdaq is up 13.6 percent.

Stocks rose in 2012 on optimism that a recovery in the housing market, coupled with an improving job market, would support economic growth. The Federal Reserve had also extended its bond-buying program, which is intended to lower borrowing costs and encourage spending and investment.

While stocks declined on Friday, reports suggested the outlook for the economy was improving.

A measure of Americans who signed contracts to buy homes increased last month to its highest level in two and a half years, the latest sign of improvement in the once-battered housing market. The National Association of Realtors said Friday that its seasonally adjusted pending home sales index rose to its highest reading since April 2010.

The Institute for Supply Management’s Chicago-area purchasing managers index for December came in at 51.6, beating estimates for a gain to 51.

Bond prices rose as investors moved money into defensive investments. The Treasury’s benchmark 10-year note rose 9/32 to 99 10/32 and the yield fell to 1.70 percent from 1.73 percent late Thursday.

Stock in Hewlett-Packard, the computer and printer maker, fell 36 cents, or 2.6 percent, to $13.68 after the company said the Justice Department was investigating its software unit Autonomy. H.P. bought Autonomy for $10 billion in 2011 and has accused the company’s former management of falsifying its accounting before the acquisition.

H.P. has lost almost half of its market value this year, making it the biggest decliner among the 30 stocks in the Dow average.

Barnes Noble shares rose 62 cents, or 4.3 percent, to $14.97 after the British publishing and education company Pearson said it was making an $89.5 million investment in the company’s Nook Media division.

Article source: http://www.nytimes.com/2012/12/29/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Obama Calls for Debt Deal; Congress Still Widely Split

July 29, 2011 by Leave a Comment

After a caucus meeting to round up the votes needed for House passage, Republicans said that Speaker John A. Boehner had agreed to modify his plan, which raises the debt ceiling only enough to last a few months, to make the next round of spending cuts and debt relief contingent on Congressional approval of a balanced-budget amendment to the Constitution.

That, lawmakers confirmed, won pledges of enough votes to allow Mr. Boehner to pass his bill, which was put on hold at the last minute on Thursday, with only Republican votes, including those of many from the Tea Party faction.

But Democrats said it only made the House bill more unpalatable. “This is the most outrageous suggestion I have heard,” said Senator Richard J. Durbin, the assistant Democratic leader.

“Any solution to avoid default must be bipartisan,” Mr. Obama said. “I urge Democrats and Republicans in the Senate to find common ground on a plan that can get support from both parties in the House, a plan that I can sign by Tuesday.”

Mr. Obama urged Republicans in the House and Senate to abandon a bill that “does not solve the problem” and has no chance of passage in the Senate.”

“There are a lot of crises in the world that we can’t always predict or avoid,” he said. “This isn’t one of those crises.”

In an effort to break the logjam, Senator Harry Reid, the majority leader, called on Senator Mitch McConnell, the Republican leader, to meet with him on Friday to try to resolve to the stalemate, given the failure of House Republicans to advance their own budget proposal.

“My door is open,” Mr. Reid said as the Senate convened. “I will listen to any idea to get this done in a way that prevents a default and a dangerous downgrade to America’s credit rating. Time is short, and too much is at stake, to waste even one more minute.

“The last train is leaving the station,” he said. “This is our last chance to avert default.”

It appears that the Senate will be in session around the clock this weekend.

The Democrats said they would file a motion on Friday that would start the Senate debate, running down the procedural clock while Republicans, presumably, filibustered against the Reid proposal. The first vote on breaking the filibuster would come shortly after midnight Saturday. Unless the Democrats can win over enough Republicans to cut off debate and move to approving the Reid bill or some variant, the Republicans would be forced to hold the floor continuously, awaiting some kind of deal.

Mr. McConnell, who had been working with Mr. Reid on a fallback plan, abandoned that attempt and has been supporting the effort by Mr. Boehner to push through a proposal that would raise the debt limit in two stages — an approach flatly rejected by Senate Democrats and the White House even before it was toughened with the latest demand for a constitutional amendment.

Mr. McConnell, too, came to the Senate floor on Friday and offered little indication that he was ready to deal, accusing Democrats of devoting recent days to undermining the House plan. “Our Democratic friends in the Senate have offered no solutions to the crisis that can pass either chamber,” he said.

Mr. Reid said he would be making changes to his measure to attract more support but made clear that he considered the Senate plan the final effort to avert a default next week.

“There will be no time left to vote on another bill or consider another option here in the Senate,” he said. “None.”

Mr. Reid said he had also had a “sobering” conversation on Friday with Treasury Secretary Timothy F. Geithner about the consequences of a default.

“It is really precarious for our country,” he said.

Until now, the White House and Senate Democratic leaders had been waiting for the House to act before making their next move with an eye on the Tuesday deadline set by the Treasury Department for raising the debt ceiling or facing the possibility that the government would not be able to meet all its financial obligations.

Failure to pass his proposal would have represented a significant defeat for Mr. Boehner, the first-year speaker who has invested significant political capital in trying to get his fractious majority behind the legislation, which had the strong support of the entire leadership team.

Facing that prospect, he adjusted his proposal to the right, and his opposition within the caucus evaporated.

Article source: http://www.nytimes.com/2011/07/30/us/politics/30fiscal.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Shuttle’s End Leaves NASA a Pension Bill

June 15, 2011 by Leave a Comment

The shuttle program accounts for a vast majority of the business of United Space Alliance, originally a joint venture of Boeing and Lockheed Martin. With the demise of the shuttle program, United Space Alliance will be left without a source of revenue to keep its pension plan afloat. So the company wants to terminate its family of pension plans, covering 11,000 workers and retirees, and continue as a smaller, nimbler concern to compete for other contracts.

Normally, a company that lost a lifeblood contract would have little choice but to declare bankruptcy and ask the federal insurer, the Pension Benefit Guaranty Corporation, to take over its pensions. But that insurer limits benefits, meaning not everyone gets as much as they had been promised. United Space Alliance’s plan also allows participants to take their pensions as a single check and includes retiree health benefits, neither of which would be permitted by the pension insurer.

United Space Alliance, however, has a rare pledge from a different government agency to pay the bill. The National Aeronautics and Space Administration says in its contract with the company that it will cover its pension costs “to the extent they are otherwise allowable, allocable and reasonable.” NASA interprets this to include the cost of terminating its pension plans outside of bankruptcy.

The pension fund now has about half the amount needed. The president’s budget proposal for the 2012 fiscal year requests $547.9 million for NASA to provide the rest. That is nearly 3 percent of the agency’s total budget and just about what the Science Mission Directorate at NASA spent last year on all grants and subsidies to study climate change, planetary systems and the origins of life in the universe.

“We know that it’s NASA’s obligation to fund this, and NASA will do so,” said a spokesman for the space agency, Michael Curie.

Other federal agencies have made promises to pay contractors’ annual pension costs — the Energy Department, for example, for companies that run nuclear sites — and some government auditors have been warning for years that investment oversight was lacking and that the potential costs had been underestimated. This appears to be the first time, though, that a company’s main contract has expired and an agency has had to bear the cost of terminating its plans.

Although NASA was reimbursing the contractor for the annual pension contributions, it had no say over how the money was invested. United Space Alliance put most of the money into stocks.

The backstop will be unusually costly because of market conditions. While United Space Alliance has made its required contributions every year, the fund lost nearly $200 million in the market turmoil of 2008 and 2009. When interest rates are very low, as they have been, the cost of the promises rises rapidly as well, creating a bigger shortfall.

The cash infusion is also being readied at a time when some members of Congress are demanding cuts in spending and threatening to block anything that could be construed as a taxpayer bailout.

“It’s unfortunate that it’s coming in this fiscal environment,” said Bill Hill, NASA assistant associate administrator for the space shuttle.

He said that he hoped Congress would appropriate the money before the fiscal year ended on Sept. 30. If not, he said, NASA will have to divert funds from space-related activities.

Already, United Space Alliance has had five rounds of layoffs and has shrunk to about 5,600 employees from a peak of 10,500. Its workers have performed a wide range of jobs for the space shuttle program, mostly in Florida.

Beth Robinson, chief financial officer of NASA, said that even if United Space Alliance declared bankruptcy at this point, the pension agency would go after NASA for some of the cost. She said the contract was issued during a stock market boom, with a clause saying that if the plans should terminate with a surplus, the extra money would go to NASA. At the time, no one expected them to terminate with a deficit.

The cost of the termination may fluctuate along with market conditions as Congress considers what to do.

Tracy E. Yates, a spokeswoman for United Space Alliance, said the company could not predict the outcome. “However, we have not seen or heard anything to date that indicates that NASA will not receive funding for this obligation,” she said.

Article source: http://feeds.nytimes.com/click.phdo?i=b184592771890c39733649b4bf388be6

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