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  • GAME NOT OVER AFTER JANUARY 1ST By David Urani 0 comments
    Dec 28, 2012 1:02 PM

    The market has decided that even though the House will be in session on Sunday, that's no reason to expect that something is going to pass. As of yet, we are still waiting to see what bill is going to get there, if any. The market came off the lows, however, on news that the President will offer a scaled-back budget plan today. Details are scarce, but the plan is said to include extending the tax cuts on people earning less than $400,000, extending unemployment insurance, and preventing some of the cuts in Medicare and defense.

    The thing is, Speaker Boehner's Plan B bill already reportedly failed to pass the House because so many of the GOP will not vote for a perceived tax increase, and the tax threshold for that bill was $1 million. Therefore, you have to wonder what the President's proposal could change that would spur congressional Republicans to change their minds and even take it a step further by lowering the threshold to $400,000.

    That being said, there's a theory out there that it's all about perception. The average Joe doesn't know all the details about the Fiscal Cliff, they just know that it's bad and it'll raise their taxes. Oddly, some say that the House would prefer to allow the Fiscal Cliff to be triggered, and then pass a bill similar to Plan B or the incoming plan from the President. That way, the lawmakers could technically say to their constituents that they voted to cut taxes. Again, it's only speculation, but in a way, it would be plausible; it's the kind of cheapness one could expect from politicians.

    I'm not so sure about that one myself, but it does go to show that the game isn't necessarily over after January 1st. There's a possibility they could still pass a deal, and undo the Fiscal Cliff after the fact. And if there's a little bit of extra incentive to do so as noted above, then perhaps they don't mind debating the issue some more to make sure they craft the best deal possible.

    That's why I say that the panic selling could be overdone. Even if January first comes without a deal, and the market takes another dive, in a way it could become a buying opportunity if the government continues to address the issue with the expectation that they can undo the Fiscal Cliff later.

    Pending Home Sales

    The National Association of Realtors' Pending Home Sales Index rose by 1.7% month to month in November following a 5.0% increase in October. It was essentially in line with the 1.8% consensus estimate. All regions were up except for the South, which was flat. Nothing groundbreaking here, but it is further evidence of housing demand continuing to recover. This latest reading pins pending home sales at the highest point since April 2010; same as with the new home sales report that came out yesterday.

    And as a reminder, home sales in April 2010 had been boosted by the Federal home buyer tax credit; there had also been a tax credit in 2009. If you exclude the sales bumps from those tax credits, pending home sales are the best since February 2007.


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