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As We Near Fiscal Cliff, Avoid These Vulnerable Stocks


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October 4, 2012 By Leave a Comment

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


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September 18, 2012 By Leave a Comment

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


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September 11, 2012 By Leave a Comment

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


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August 3, 2012 By Leave a Comment

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


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July 26, 2012 By Leave a Comment

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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