Washington moves dangerously close to the Fiscal Cliff – 12/28/2012

We hope you are enjoying the holiday season!

Unfortunately, the fiscal cliff is turning into the last minute drama that we all anticipated.  The American public has voiced its displeasure with the political games being played, which now seems to be a behavior that is becoming commonplace in our political process.  The end result of all this drama (theater actually) will likely be either 1) a last minute “mini” bill or 2) a promise to pass a more substantial bill in January.  Regardless of the outcome, it seems to me that our political leaders are either oblivious to the negative ramifications their political posturing has on the economy or they are simply more concerned with their own political agenda.

The latest news is that President Obama is back from Hawaii and found time at 2:00 today to host a meeting on the fiscal cliff.  The President apparently pushed the ball in the Senate’s court today and it is more likely that we will have to wait until January to get a bill passed to avoid the fiscal cliff.  This will allow Republicans that have pledged not to raise taxes to now vote to in effect lower taxes because after January 1 the Bush tax cuts will expire.

As the media remains fixated on Washington, U.S. economic data continues to show signs that the economy is trudging forward.  The Chicago PMI (leading barometer used to gauge national business activity) moved further into expansion territory this December — the highest reading since August — indicating business activity expanded at the fastest pace since August.  Meanwhile, pending home sales rose more than expected in November, increasing 1.7% month-over-month, compared to the 1.0% gain that economists had projected.  Moreover, compared to last year, sales were up 8.9% in November.  Pending home sales reflect contract signings and are used to help gauge expectations for existing home sales, which rose more than expected in November, jumping 5.9% from October.  These indicators suggest that the housing market seems to have bottomed out and is beginning to make some strides, which will be a positive catalyst for consumer confidence going forward.

We are working on our 2012 year-end investment outlook now and will send it out with your quarterly reports in early January.