In Between Days: SuperCommittee

by CC November 13, 2011 11:26 pm • Commentary


Mario Monti has been asked to form a new Italian government to tackle an acute debt crisis which prompted the resignation of Silvio Berlusconi.

Mr Monti, an ex-EU commissioner, said he was starting urgent talks on his cabinet, aiming to restore finances.

Most parties, including Mr Berlusconi’s, approved his nomination.

Italy’s borrowing costs have spiked, threatening the eurozone. Hailing Mr Monti’s appointment, EU leaders vowed to monitor Italy’s austerity measures.

Mr Monti’s candidature was announced after President Giorgio Napolitano spent the day in 17 meetings with senior politicians.

Speaking to reporters shortly afterwards, Mr Monti said Italy should be an “element of strength and not weakness” within the EU.


The euro rose for a third day on prospects investor confidence in Italy’s ability to contain its debt will be revived after Mario Monti, a former European Union competition commissioner, takes over as prime minister.

The 17-nation currency gained against the yen after Greece’s finance minister said his priority is to ensure the country receives a sixth loan under an EU-led bailout after Prime Minister Lucas Papademos took charge as head of an interim government. Australia’s dollar climbed as rising Asian stocks boosted demand for higher-yielding assets. The New Zealand dollar strengthened against most major peers after a report showed retail sales increased by the most since 2006.

“We’ve seen a more positive start to the week with the new technocrat governments in Italy and Greece, but there’s still a lot of uncertainty,” said Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney. “We’ll try and test to the upside for the euro and the Aussie.”


TOKYO — Japan’s economy grew at a 6 percent annualized rate in the third quarter, signaling a strong recovery after the devastating tsunami in March. Still, a slowing global economy and a stubbornly strong yen cloud the outlook for Japan, the world’s third-largest economy.

Helped by a rebound in exports and consumption, the gross domestic product expanded 1.5 percent in the three months through September, compared with the previous quarter, numbers released by the Cabinet Office showed Monday. The widely expected uptick, equivalent to an annualized rate of 6 percent, was the first expansion in the Japanese economy in four quarters.

The rebound underscores the speed at which Japanese industry has been able to get back on its feet after the March 11 earthquake and tsunami, rebuilding factories and re-establishing supply chains severed by the destruction.

Still, economists also worry that the punishingly strong yen of recent months as well as weak growth in major trading partners, like the United States and China, will take a toll on Japanese exports. Because global investors see the yen as a safe haven in times of global economic turmoil, its value has climbed to historic highs in recent weeks amid fears over Europe’s debt crisis. A strong yen hurts the competitiveness of Japanese exports and erodes the value of exporters’ repatriated earnings.

Government intervention in currency markets to try to weaken the yen has been unable to reverse its rise.


What is the supercommittee?

The Joint Select Committee on Deficit Reduction—better known as the “supercommittee”—was created as part of a law that Congress passed in early August in exchange for raising the federal debt-ceiling. The committee, which is composed of 12 members of Congress, must come up with a plan by late November to reduce the deficit by $1.2 to $1.5 trillion within the next ten years, beginning in 2013. The supercommittee’s cuts, combined with $900 billion in separate cuts agreed to in the debt-ceiling deal, will be accompanied by a debt-ceiling increase by the same amount.

A simple majority of the supercommittee must approve a plan by Nov. 23. But before the members can vote on any plan, they must receive an estimate of its budgetary impact from the Congressional Budget Office by midnight of Nov. 21. The CBO will need a few days to a week to score any proposal, so the supercommittee must budget time for that, too. If the supercommittee is close to coming to an agreement but is running out of time, Congress can vote to amend the debt-ceiling deal and grant the members an extension.

What happens if the supercommittee fails to come up with a plan?

The trigger will take effect beginning in 2013, enacting $1.2 trillion in across-the-board cuts: 50 percent from defense spending and 50 percent from domestic spending, excluding Social Security, Medicaid, Medicare benefits, and low-income entitlement programs.

What happens if they do produce a plan?

The plan must then pass both houses of Congress, which must vote on it by Dec. 23. Unlike regular bills, the plan is protected from the filibuster and cannot be amended or otherwise changed. The president then needs to sign the plan into law. If the supercommittee passes a plan, but it fails to pass Congress or the president’s desk by Jan.15, then the automatic trigger goes into effect.


The week closed with four up (the US and Europe) and four down (Asia/Pacific), with the downside in the East far greater than the upside in the West. The Eurozone has been focus over that past week, as will probably be the case next week as well.

However, the markets will soon swing their binoculars to the congressional Super Committee for signs of progress in fixing the US budget. The committee faces a November 23rd deadline, although anyone who thinks they’ll actually deliver a viable solution by the deadline is, well, lost somewhere in Cloud Cuckoo Land.

Also, we’re nearing the time of year when investment companies are pondering the odds of a year-end rally. After all, there are only seven weeks left in 2011. Of our International gang of eight, only one, the S&P 500, is showing a year-to-date gain (a fractional 0.49%). The FTSE is a distant second, down 6% with all the other markets sporting double-digit losses thus far in 2011.

This Week’s Tape- WSJ

Economics and FedSpeak:




Chicago Fed President Richard Evans speaks

St. Louis Fed President James Bullard speaks

Empire State manufacturing survey for November

Retail sales for October

PPI for October

Manufacturing inventories for September

San Francisco Fed President John Williams Speaks

Dallas Fed President Richard Fisher speaks


CPI for October

TIC data for September

Industrial production and capacity utilization for October

NAHB housing market index for November

Richmond Fed President Jeffrey Lacker speaks

Boston Fed President Eric Rosengren speaks


ECB Governing Council meeting

Jobless claims

Housing starts for October

Philly Fed index for November

Cleveland Fed President Sandra Pianalto speaks

New York Fed President Bill Dudley speaks


ECB President Mario Draghi speaks

EU finance ministers meet in Brussels

Leading indicators for October

San Francisco Fed President John Williams Speaks




J.C. Penney

Urban Outfitters



Home Depot


Jacobs Engineering




Agilent Technologies


Abercrombie & Fitch


Limited Brands


Applied Materials



Helmerich & Payne

J.M. Smucker

Sears Holdings


Ross Stores



H.J. Heinz