What's Important Today in the Financial World (11/22/2011) Super Failure In DC

Yields on what Spain had to pay for $4 billion in debt reached record levels. That is similar to what happened to paper issued recently by France and Italy. Rising yields are a sign that capital investors do not believe the ECB will rescue debt-ridden nations in the region. The debate continues about whether the bank will aggressively buy sovereign debt from the eurozone’s financially weakest nations. ECB management has been against the idea, as has the most powerful nation in the region — Germany.

PC industry sales results showed once again that traditional laptops and desktops have been bulldozed by tablet PC and smartphone sales. Hewlett-Packard (NYSE: HPQ) announced earnings from its most recent quarter. Its PC numbers were dismal. The company’s former CEO had planned to sell or spin off the computer unit. The board of directors may now wish he had. The HP earnings confirm the reasons for sales trouble at Dell (NASDAQ: DELL). By contrast, Apple (NASDAQ: AAPL) iPad and iPhone sales have been strong. So have sales of Google (NASDAQ: GOOG) Android-powered devices. Growth prospects for the PC industry are gone.

The lack of any budget reduction plan by the “supercommittee” may cause more good than harm. Automatic cuts are now supposed to begin. This will mean large reductions in expenditures by the Defense Department and sharp cuts to social programs. The Bush tax cuts could disappear, as could long-term unemployment benefits. Taken as a whole, these cuts will further weaken the economy, many experts believe. In place of the cuts, Congress may elect to reduce the deficit, but with more balanced reductions, which finally could include Medicare.

Increasing numbers of retail experts predict that major store chains and e-commerce firms will cut the cost of their inventories to gain revenue as consumer optimism falters. The lack of a deal  in Washington to set budget cuts could add to consumer malaise. The possibility that unemployment benefits and tax cuts could be negatively effected will cause further concern. Stores may hold their own in sales in November and December. Profits are another matter.

Douglas A. McIntyre