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The Day Ahead: Remorse for Excessive Fiscal Cliff, and Some Other Stuff To
Posted to: MBS Commentary
Thursday, November 29, 2012 7:19 AM

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Have you ever procrastinated with a deadline? Did you find a legitimate justification for making the delay, and if so did it make the "crunch-time" just before the deadline any less painful/stressful/crazy than if you'd simply said "I don't wanna!"  Such justifications might help us reconcile such delays and may even be the more prudent decision in some cases, but they're more helpful near the beginning of a period of procrastination and completely out the window near the end of it.  The Fiscal Cliff is an epic case of justified procrastination and we're now getting into the pre-deadline freak-out period.

Why procrastination?  Quite simply because this has been very visible threat for a very long time.  Markets, Politicians, and Mass Media began using the term as early as the summer of 2010 in specific reference to the expiration of Bush-era tax cuts.  In December of the same year, said cuts were extended for two years, which brings us to, well... now-ish... (12/2010 + 2 years = 12/2012).  It's not the expiration of the tax cuts that's the core issue here as much as it's the self-imposed fail-safe built into Budget Control Act of 2011 that makes automatic spending cuts on January 2, 2013 if Congress couldn't come up with an alternative by the end of 2011.

Of course, the "Supercommittee" failed to hit that deadline, and ever since then, the broader topic of the Fiscal Cliff was pushed to back burner.  After all... January 2013 felt like a long way away from November 2011!  By the time the issue really began to heat up again as a major looming threat, garnering the attention of market participants via scholarly and well-reasoned "warning" papers/articles in the middle of the year, the presidential election was close enough to justify additional procrastination.  For evidence of this, simply consider past 3 weeks since the election.  The issue has simply exploded in terms of visibility.

All that to say, "sorry!"  I know it's tired, tedious, and moderately annoying, but this is the current mega issue.  Markets' willingness/eagerness to move based on Fiscal Cliff news has increased almost as rapidly as its post-election visibility, and would have been even faster had it not been for the Greek diversion offered up over the same time frame.  But just as Europe finally came to a tentative agreement on Greece this past Monday, the correlation between Fiscal Cliff headlines and market movement has exploded with relevance, especially for equities markets, but also detectable in bond markets.

So there's my "sorry," but with a justification.  If it's important to markets, it's important to us. 

Other data?  Oh yeah, there is some of that.  Can it still matter?  Certainly so, but muted, of course, by the automatic "yeah but" provided by the unknown evolution of the Fiscal Cliff dialogue.  Today's contenders include a mixed line up of economic data led by Q3 preliminary GDP, with Jobless Claims in tow at 8:30am.  By 10am, Pending Home Sales may be a mere afterthought.  The afternoon brings the last of the week's Treasury Note auctions with the 7yr.

MBS Live Econ Calendar:

Week Of Mon, Nov 26 2012 - Fri, Nov 30 2012

Time

Event

Period

Unit

Forecast

Prior

Mon, Nov 26

08:30

National Activity Index

Oct

--

--

0.00

Tue, Nov 27

08:30

Midwest manufacturing

Oct

--

--

93.4

08:30

Durable goods

Oct

%

-0.5

9.8

09:00

CaseShiller 20 mm SA

Sep

%

0.4

0.5

10:00

Monthly Home Price mm

Sep

%

--

0.7

10:00

Consumer confidence

Nov

--

73.0

72.2

13:00

2-Yr Note Auction

--

bl

35.0

--

Wed, Nov 28

07:00

Mortgage refinance index

w/e

--

--

4645.8

07:00

Mortgage market index

w/e

--

--

846.1

10:00

New home sales-units mm

Oct

ml

0.390

0.389

13:00

5-Yr Treasury Auction

--

bl

35.0

--

Thu, Nov 29

08:30

Initial Jobless Claims

w/e

k

390

410

08:30

GDP (Preliminary)

Q3

Pct

+2.8

+2.0

10:00

Pending sales change mm

Oct

%

+0.8

+0.3

13:00

7-Yr Note Auction

--

bl

29.0

--

Fri, Nov 30

08:30

Personal consumption mm

Oct

%

+0.1

+0.8

08:30

Personal income mm

Oct

%

+0.2

+0.4

08:30

Core PCE price index mm

Oct

%

+0.2

+0.1

09:45

Chicago PMI

Nov

--

50.5

49.9

* mm: monthly | yy: annual | qq: quarterly | "w/e" in "period" column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: "Purchasing Managers Index"




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