Nov.22/11

President Obama "hasn't had any role, he's done nothing. It's another example of failed leadership. He has not taken personal responsibility to get this supercommittee to find ways to balance our budget and cut spending."
- Mitt Romney, Republican presidential candidate

"Despite the broad agreement that exists for such an approach, there are still too many Republicans in Congress that have refused to listen to the voices of reason and compromise that are coming from outside of Washington."
- U.S. President Barack Obama

Blame in Washington DC is like fertilizer (not the potash variety) and it is being spread thickly all around. The so-called supercommittee reported its widely anticipated failure to arrive at a series of miniscule deficit-cutting measures yesterday, concluding simply that it has ended the "process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve." The committee, however, can leave it until at least after the long weekend and "the uniquely American holiday of Thanksgiving." Perhaps that is why the supercommittee delivered such a colossal turkey to the American people. Anyhow, global financial markets don't have the luxury of waiting and will strive to price in a new level of uncertainty. While the failure of the supercommittee is supposed to trigger automatic cost cuts of $1.2 trillion over 10 years – called "sequester" – mostly in defense spending, CIBC Chief Economist Avery Shenfeld points out that Congress has the ability to override the deal it cut when debating the debt ceiling back in August. So what are the most likely outcomes of the super failure? Will tax breaks expire? Will consumer confidence suffer another blow as election campaigning picks up? Will the U.S. military be forced to stop buying $3,000 toilet seats? What is the bottom line impact for U.S. GDP in 2012 and 2013 and the knock-on effects for the Canadian economy?

Markets took yesterday's announcement mostly in stride and global stocks are higher heading towards the North American open, helped by the affirmation of the U.S. credit rating late in the day. "No cuts… for now" hardly seems the sort of credit report that would prompt such a response, but sometimes you take what you can get. The first sale of Spanish notes since the election of a new government underscored the lack of confidence in the economic outlook for that country specifically and the rest of the euro-zone generally. The average interest rate paid on 3-month bills rose to 5.1 percent from 2.3 percent at the last auction in October. It's worth noting that I can pick up a 30-year mortgage for almost half that rate. As BMO Chief Economist Sherry Cooper puts it, the "combination of the European debt crisis and the US supercommittee failure has spiked the level of financial and economic uncertainty, reducing both business and consumer confidence. All businesses and households are impacted by these developments, even in stable prudent Canada."

Carson Block's Muddy Waters took a shot at a new target late yesterday and it is already bloodied and bruised. Shares of Focus Media Holding, a New York-listed advertising network based in Shanghai, tumbled 39 percent yesterday, wiping out almost $1.5 billion in market cap, after Block alleged the company has overstated the number of screens its ad network by half. Again, what is particularly interesting about this story – like the ongoing Sino-Forest story – is the level of confidence in the company shown by Wall Street sell-side analysts. Bloomberg data shows that prior to Block's report, the stock had 10 buy recommendations, including bullish reports from heavyweights Goldman Sachs and Bank of America. I'd like to hear from a big institutional investor about his or her level of confidence in sell-side research on China-based, North American-listed companies. How can a report from a two- or three-man shop completely outweigh the combined investment judgment of the world's biggest stock research teams? A few minutes ago, Goldman put the stock "under review."

We've got earnings today from the likes of George Weston, Alimentation Couche-Tard, Campbell Soup and Tivo. HP reported after the close of trading last night. We'll also examine Canadian retail sales for September and a final read on U.S. GDP which came in below expectations. This afternoon, at 2:00 pm Eastern, we'll get the minutes of the last Fed meeting.

Your Canadian moment: Sydney Crosby tallied four points last night in his return to the NHL after a 10-month layoff to recover from concussions.