Dow drops amid debt committee deadlock

Lawmakers are expected to announce that they have failed to reach an agreement to reduce the deficit. Global markets plunge as Europe struggles to contain its debt crisis. Home sales rise. Gold and oil fall.

By TheStreet Staff Nov 21, 2011 8:26AM

TheStreetImage: Wall Street sign (© Corbis/SuperStock)By Chao Deng

 

Updated at 1:05 p.m. ET

 

Stocks were dropping 2% Monday, putting the Dow on track for a losing, as political deadlock over U.S. deficit cuts and ongoing uncertainty in Europe overshadowed a surge of mergers.

 

The Dow Jones Industrial Average ($INDU) was down 294 points, or 2.5%, at 11,502. 

Sinking to the bottom of the Dow were Boeing (BA), Caterpillar (CAT) and Hewlett-Packard (HPQ).

 

Industrial, financial and energy stocks were dragging down the S&P 500 ($INX), which was falling 27 points, or 2.2%, at 1,188. The Nasdaq ($COMPX) was shedding 58 points, or 2.3%, at 2,515.

 

On top of consternation about Europe's debt crisis, debt matters in the U.S. are pressuring stocks. Trading was thin given the shortened week ahead of Thanksgiving holiday. With three hours left in the session, some 1.9 billion shares had traded on the New York Stock Exchange and 1 billion on the Nasdaq.

 

Post continues below.

Disagreements about tax policy has prevented a government panel from reaching an accord on cutting the U.S. deficit by more than $1 trillion over the next decade. The so-called supercommittee is expected to announce that it has failed to reach its budget-saving goal Monday, the last day the panel can submit a plan for analysis to meet its Nov. 23 deadline for delivering a plan, according to Bloomberg. Drastic spending cuts will kick in if the committee fails to reach an agreement.

 

"There was no great news from Europe over the weekend. The fact that the budget committee is throwing in the towel already suggests lawmakers weren't even close," said Uri Landesman, president of New York-based hedge fund Platinum Partners. Landesman added that consumer confidence and hope for possible stimulus from the Federal Reserve are some of the "last weapons" for the market.

 

The super committee's impasse sets a downbeat tone for the shortened Thanksgiving week. However, the news hardly comes as a surprise for many investors who had low expectations for lawmakers to accomplish much. Furthermore, it is unclear what immediate effect the super committee's failure will have on the U.S. heading into the election year.

 

Investors have continued to seek safety in the greenback with the perception that the U.S. will make good on its debt payments. According to Bloomberg, foreign banks doubled their dollar deposits at the Federal Reserve so far this year and the greenback has appreciated 7.2% since the U.S. lost its triple A credit rating from Standard & Poor's in early August.

 

The dollar was strengthening against a basket of currencies, with the dollar index rising 0.2%. Bond demand increased, boosting the price of the 10-year Treasurys by 14/32, diluting the yield to 1.96%.

 

The rising value of the dollar is hurting demand for gold. December gold contracts were down $49.30 at $1,675.80 an ounce.

 

Credit Suisse issued a research note saying the euro is likely facing its "last day" as debt fears spread to larger nations. European stocks were down sharply with London's FTSE off 2.5%, and Germany's DAX plunging 3.2%.

 

The threat of unsustainable borrowing costs in Italy, Spain and France put investors on edge last week. Today's decline comes after stocks had their biggest weekly loss in two months, with the Dow losing almost 3%. Eurozone officials may consider ways to fund their emergency rescue fund by allowing the European Central Bank to take on an expanded role.

 

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In corporate news, Gilead Sciences (GILD) agreed to buy Pharmasset (VRUS) in a deal worth $11 billion. The transaction price of $137 a share in cash is an 89% premium to Pharmasset's closing price Friday of $72.67. Pharmasset shares were jumping 85% to $134.49.

 

Hewlett-Packard (HPQ) will report fiscal-fourth-quarter earnings after the close. The report is the first under the watch of CEO Meg Whitman, who joined the company in the middle of the quarter. Analysts expect HP to have earned $1.13 a share on revenue of $32.06 billion. Shares were falling 5% to $26.58.

 

Alleghany (Y) is close to buying Transatlantic Holdings (TRH) for about $3.4 billion, Reuters reported. Alleghany is expected to pay $59 to $60 a share in cash and stock, a source told Reuters. A deal could be announced as soon as Monday. Shares of Alleghany were falling 8.3% to $288.09.


Pfizer (PFE) will pay more than $60 million to settle federal probes into whether it paid bribes to win business outside the U.S., according to The Wall Street Journal. The settlements are expected to be made public by the end of the year, according to the report, published Sunday on the Journal's website. The report cited anonymous sources familiar with the situation. Shares were falling 2% to $19.13.

 

The Chicago Fed National Activity Index for October rose to a reading of minus 0.13 from minus 0.2 in September, according to the Federal Reserve Bank of Chicago.

 

Existing home sales rose 1.4% in October, after a 3.2% loss in September, according to the National Association of Realtors. Sales came in at an annual rate of 4.97 million, better than economists expected, following sales of 4.9 million in September.

 

The January crude oil contract was slipping $1.95 at $95.72 a barrel.

 

Asian stocks closed down after Japanese exports fell for the first time in three months and economic growth in Singapore was projected to slow. Japan's Nikkei Average fell 0.3%, and Hong Kong's Hang Seng lost 1.4%. 

494Comments
Nov 21, 2011 8:44AM
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Once again, those that are supposed to be LEADING and representing the overall good of the American people are failing to do the right thing in the name of politics and reelection.  I can't say this is a surprise.....The question I would beg to ask......WHY should we give you another opportunity, you have had your opportunity to make the needed changes and you are failing miserably.  If you care about the future of the American people, step up to the plate and do what is right and not just for the special interest groups that so heavily line your pockets.
Nov 21, 2011 8:35AM
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Well.... for all of you that keep complaining that the Market should not be reacting to news outside of the States, today is TAYLOR MADE FOR YOU!!!

IT'S ALL ABOUT AMERICA TODAY BABY!!!

We should all be so proud.....

Nov 21, 2011 9:06AM
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Blithering IDIOTS in Washington D.C!.

They are destroying the lives of every citizen, and worst of all, they don't seem to care!.  There inability, and ineptness to do the job is profoundly glaring.  America must vote these incompetents out of office.  Sure, tough decisions must be made, and nobody is going to like those decisions, problem is, the so-called "SuperCommittee" cannot agree on any decision.  No decision is just as bad, if not worse.  The futures being down already today, means another painful hit to America's wallet.  We cannot sustain these hits to our financial well being.  Washington better get it's act together REAL FAST!.

Nov 21, 2011 8:53AM
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This should be treated as treason against the United States Of America! Yell Vote Them Out !!! today.They were asked to do a job by voters so since they were unable to it is clear to me that they cant do there job so vote them out!! They would be fired at any other company. Plain and simple they dont work for our country anymore! As far as Wall Street it has been a joke for months like our politicans it is chasing rumors and bad information all along and has taken its investers down over gossip and no hard fact!
Nov 21, 2011 12:11PM
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Dear Congress:

I am one of your constituents.  I, like many, have not only lost faith in your ability to do your job, but I believe US taxpayers are due a refund of your salaries and benefits for the last 3 years. I will explain the position of the US taxpayers to you, as follows:

 We do not care whether or not you like the President, we do not care whether or not you were in favor of bailouts, we do not care what your opinion is of your co-workers or the employees of the other branches of OUR government.  

We care deeply about our country.  We understand that taxes will rise, budgets will have to be cut and that the government cannot be expected to fulfill our every desire.  So, why don't you understand these simple concepts?

Please clean out your offices, fire your staff and leave the building by close of business today.  We cannot continue your employment any longer.  We will find and train your replacements with people who actually care more about our country than themselves.

Sincerely,
US Taxpayers
Nov 21, 2011 11:29AM
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More taxes are inevitable, but like many Americans we would like to know where our tax dollars are going. Apparently they are not going toward paying the bills. What needs to be done is get rid of this super committee and create one with people other than politicians, and then maybe something might get done without making cuts to Medicare and social security. There are other places to make cuts, like cutting benefits of our congressman since they are not capable of doing their own jobs.

Nov 21, 2011 12:39PM
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It is time. It is time for the core of this nation to stand up and demand

1)term limits,

2)the eradication of lobbyists,

3)the immediate cessation of any and all perks and special treatment for politicans and government officials,

4) the immediate application of all laws and policies to the scumbags that pass them just as they apply to the rest of us,

5) the elimination of special retirements, special healthcare for these derilicts.

 

 

Nov 21, 2011 11:35AM
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If the super comittee fails, they must do the honorable thing and resign. Their ability to govern is over. If they are the best of our Congress, we are done as a nation.
Nov 21, 2011 9:41AM
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There is plenty of fat to cut out in many areas of government.  I have heard President Obama e on numerous occasions say  waste and fraud was going to be addressed.  But neither party has the ***** to do anything because they are all running for reelection.

 

I would be OK with raising taxes on the wealthy - only if the increased revenue was used to pay down our ballooning debt and not spent for programs.

 

Why are 12 people now representing the whole nation.  We are suppose to have 100 Senators and 435 Representatives representing us - not a hand picked 12.  What do we expect?  We do not have a budget and have not had one for 3 years.  We are spending like there is no tomorrow.

 

I hope the AMERICAN CONSUMER is holding back and not taking on debt.

 

Our debt crisis is getting very serious and it must be addressed.

Nov 21, 2011 1:56PM
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The people of the United States should be ashamed of themselves if even one of these people is in office after their respective elections. We must go back to the butcher, the baker and the candle stick maker and remove the career politicians from office in order to bring back what was initially instituted 235 years ago. They have taken from us what may never be replaced and that is our self respect as we are becoming the laughing stock of the world. We, the voting public of this country can make these changes in an attempt to turn our country around.
Nov 21, 2011 11:15AM
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The problem is simply that we have the most inept bunch of political leaders in the history of this nation, on both side of the isle.
Nov 21, 2011 10:55AM
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If the USA goes bankrupt will the congress still get a pay check?
Nov 21, 2011 11:26AM
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Cut ALL pay checks in Washington, beginning at the top, President first, then right down the line. Pay for their own health benefits, live like ALL other Americans! Cut all of them, Let them see how the real world lives! Cut their pay, and they will see reality
Nov 21, 2011 11:37AM
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I am a retired teacher and am a member of the diminishing middle class.  We have put money into the stock market as part of my portfolio for 39 years since we began working so that we could retire comfortably.  My investments are now losing money because they are, in a  large part,  being affected by Congress' inability to get their act together.  They are "playing around" with my money.  We are the people who should be protesting their partisanship and demand they protect our interests for which we have worked, for so many years.  Everyone learns through life that there is such a thing as compromise.  Congress is not compromising; they are digging their partisanship heels in, unwilling to do so.  The market is diving this morning because they are not doing their jobs; again, more money lost.   They should all lose their incomes for poor job production.  Give them no more perks, such as health care, mailing privileges, etc.  Sadly and Unfortunately, our nation is no longer great.  It's a joke. 

Nov 21, 2011 11:24AM
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If they were working for a business and failed to do a job they would all be fired, why should it be different in this case? they think their job goes on no matter what they do I SAY FIRE THEM ALL  NOW!!!!!
Nov 21, 2011 9:41AM
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Shrink46

 

Once again, those that are supposed to be LEADING and representing the overall good of the American people are failing to do the right thing in the name of politics and reelection.

 

What should we expect when politicians appoint other politicians to a "supercommittee"

to make political decisions that the ones who appointed them were incapable of making.

 

And they even made it 6 republicans and 6 democrats.  What a joke.  And to make it worse

most, if not all of them , are secure in their next reelection. 

 

How do you expect that to work.

Nov 21, 2011 1:50PM
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Most Americans are deaf, dumb, and blind to the 2 biggest problem(s) we face - Democrats and Republicans; i.e. partisan politics and career politicians. Get off your Donkeys and Elephants and elect honest free-thinking Independent candidates, who are not controlled by big money, corporations, and GREED.
Nov 21, 2011 10:15AM
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Remember everybody, these are the same congressmen that approved the big bank bailouts. then the banks paid millions of dollars in bonus' for doing a horrible job of running their banks? Certainly, you wouldn't want to tax these culprits! They built wealth on our taxpayer dollars, so why would we want to tax them. We need to clean house in congress, plain and simple! They certainly don't look to help the unemployed or elderly. I am so fed up with this situation, it makes me want to puke.
Nov 21, 2011 1:17PM
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The "Committee" can't reach an agreement. I am shocked I tell you, shocked! Both parties are self-serving, self promoting stiffs.

The entire House and Senate should have their pay docked and their travel and entertainment expenses frozen until they come up with a meaningful solution. They should also be forced to reduce their staffs by 10% by the end of the year. When are the American people going to wise up and rise up to put an end to this nonsense.

A once great country is declining daily because of our political class. The term public servant is a joke. These people are beyond contempt.

 

Nov 21, 2011 12:11PM
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Restructure. Limit the house and Senate to 2 terms each. Limit the President to 1, six year term. It would limit corruption as they would not be there long enough to loose their ideals. That will also eliminate this re-elect me nonsense and perhaps they will actully get a few things done.

 

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