Transcripts For CNBC Squawk On The Street 20121231

One final trading session for 2012. And it comes, of course, with the add eed drama of a fiscal cliff set to take place 15 hours from now. Im carl, with melissa lee. Cramer and faber are off today. Good morning to you, dan. Good morning. The house gaveling into session just a few moments ago. Business there is going to start at 10 00 a. M. Eastern time. Futures are showing some resilience as becky said, despite no deal yet in congress. But remember, the selloff on friday and friday night was pretty severe. The dow is set to open below 13,000. Markets in europe mixed after a shortened session in the uk, france and spain. Our road map starts right where we were months ago, waiting for the 112th congress to agree on a Debt Reduction package. The senate convenes at 11 00 a. M. The dow had its worst day in a month on friday. Set to close december with a loss. The question is, does it continue to sell off if there isnt an accord in congress. We will always have china. Manufacturing pmi data from last night is the best in 21 months. Can we finally say the chinese economy has been stabilized. But of course, we start in washington. As you know, Congress Comes back today. The house gaveling into session now with legislative business starting at 10 00 a. M. The Senate Returns at 11 00 a. M. Eastern. There are only a few hours left to get a deal done. Eamon . Youre already hearing people talk the way they talk on new years day. A lot of people wish they could go back in time and do things differently. Thats the way people are talking in washington about this fiscal cliff. Feeling as if this thing suddenly got off the rails. Take a listen to Mitch Mcconnell last night talking about the pace of the negotiations here and the frustration that hes experienced going through all of this over the weekend. Take a listen. Now, im concerned about the lack of urgency here. Like we all know were running out of time. This is far too much at stake for political gamesmanship. We need to protect the American Families and businesses from this looming tax hike. Everyone agrees that that action is necessary. So now all eyes are focused on the senate for 11 00 this morning when they do reconvene. There were reports there was major progress overnight for something that could pass on the senate side. The question is whether it can pass on the house side under the leadership of speaker john boehner. Ive talked to a couple of republicans this morning who are fairly optimistic that whatever comes out of the senate, whatever that deal is, it will pass the house this afternoon. Although hardcore republican antitax folks are not going to vote for it. It still would likely have enough votes to pass. Thats at least the mood of some folks im talking to today. Guys, one of the Big Questions thats unresolved here was raised on a Conference Call with ceos arranged by the white house on friday night, on that white house Conference Call with ceos. One of the ceos asked tim geithner, im told by a participant on the call, whether a small deal would be enough to are prevent ratings agencies to downgrade u. S. Debt. Im told by this person on the call that the administrations response to that, they think a small deal would in fact be enough, but they wouldnt speak for the ratings agency. Still a big unknown hanging out there, guys. And we know about some of the tough conversations well have 30 days from now, 45 days from now, eamon. It does sound, though, judging from some of the latest rumors that theyre almost comically close to a deal, especially when you talk about the income level at which tax rates would rise. Is it 4, 450, settle on 5. Is that the main thing youre interested in over the next couple hours . Yeah, once theyve gotten rid of the question about the changed cpi and Social Security over the weekend, which the republicans asked for, democrats denied, republicans backed down on that, then it becomes a matter of hammering out the details and making sure that you have the votes before you go to the floor. It does seem like theyre very close to this deal. But it is the last day. Theres not a whole lot of wiggle room for mistakes here in counting the noses. Eamon, thanks for that. If we do go over the cliff tonight, how does that impact the economy . Joe, good morning. Good morning, carl, how are you . Good. Are we going to feel this right away . I think so. Even if we get a trimmeddown deal, which is our base case, i think the growth in the First Quarter will be very soft. Maybe around 1 . Because the payroll tax cut is expiring. Thats going to take a lot of income off the table for people. And youve already seen Consumer Confidence tank a bit. Youre going to feel a bite. You wont go into recession, but youre going to feel a bite. The expiration of the tax holiday, will we see that in the first half of the year . Will people get used to it . In terms of how the Commerce Department will measure it, well see about a 4 annualized drop in income in the First Quarter. People will gradually adjust. And our guess is over the full year youll lose about 80, 85 basis points on gdp. In an economy thats only growing at 2 , 2. 5 , thats a big number. This assumes we avoid the full cliff. If we go off the cliff, if a deal falls through, were probably going to shrink in the First Quarter, well be negat e negative. Joe, hi, this is dan. Happy new year. Same to you. A big debate among wall street economists right now about whether or not temporary go off the cliff is no big deal. If we go off bungee jump. Bungee jump, its reversible, where do you come down on that . I dont even want to try it. If there is a bungee jump. The economy is very adaptable. It actually did okay in the debt fiasco in 2011. The economy is an incredible to heal itself. But i dont want to take that chance. Monetary policy is completely ineffective at this point. Really, confidence is the name of the game. So why chance it. I do think it potentially is a big deal. I dont want to take the chance of going off and doing this bungee. There is still discussion that even if we get a bandaid done today in congress, holiday sales werent that hot, there is a sequestration of funds that is going to hurt health care. There are pitfalls no matter what happens today. Well get a little bit of relief ral qly, and then well come back and deal with the debt ceiling in january or february. So this thing is far from over. I think equity markets are extraordinarily complacent. I actually think theres going to be down side risk because i dont see the economy helped in the short term and i dont have a lot of confidence that washingtons going to do the right thing. What sector is most in jep r jeopardy if we go over the cliff . I think the Housing Market is okay, because the fundamentals are so good. It will slow, no question, if we go off the cliff. I think the sector thats most vulnerable is the Consumer Discretionary side. People are treating the payroll tax holiday as theyre treating the marginal tax hikes. I dont think theyre prepared for these higher taxes. The payroll tax holiday expiring is going to hurt people. Therefore, the consumer side is the most vulnerable. Finally, just to put a bullish note on it, joe, a lot of discussion about what the coming year is going to bring. Housing is in decent shape. Natural gas, Energy Exploration in this country is turning into a big tailwind. How much do you dismiss those, if at all . I think theyre all great stories. Second half 2013 could be excellent and growth could really accelerate. All the things you mentioned are important. I would also allow the fact that Household Debt to income is going to fall back by the end, we think of next year, back to the longterm equilibrium level. The Health Sector is healthy. Raised a lot of capital. Europe has stabilized. But the problem is the politics. Its hard to quantify the politics. And weve seen Business Confidence also move lower. So its really all about washington. If we get some clarity on the fiscal side, i think growth next year could be much better than what were looking at at the moment. That is a big if. Joe, have a great new years. See you in 2013. Same to you, carl. The markets are set to open lower. The nasdaq closing in negative territory for the last five sessions. The major indices are still on track to end with gains. Having the best year in 2010. The s p 500 up more than 11 this year. And the nasdaq up more than 13 . But it is, of course, the past five sessions that are the most concerning. It seems to some extent weve been pricing in the fact we were going to come to a deal. The past five trading sessions, theres a realization that that may not materialize. Nowhere is this more evident than the defense sector. As you talked about recently on fast money, its basically at or near its highs. I count myself as one of those wall street guys that said stay away from the defense sector. That clearly hasnt worked. You take a listen to what joe just said in terms of the impact being felt on Consumer Discretionary. The payroll tax holiday, if it expires, that could make taxes go higher by about 3,400 per average household. Thats quite a bit for the average american household. The funny thing is, were deep in a fight over average versus marginal tax rates. Thats a worthy debate to have. But lost in this whole thing is the impact on the middle class and lower income individuals, that the payroll tax is going to have. 2 right out of your paycheck starting on january 15th. Something the aarp has lobbied quite forcefully against. Its continuation. And as joe noted and just about everybody would acknowledge is absolutely going to have an effect on the economy. Bill gross over the weekend said stocks and bonds will return over 5 next year. Unemployment stays over 7. 5 . That seems out of your play book to some degree. To some degree. There were a number of responses. There is a real question Going Forward with u. S. Productivity, Profit Growth and where equity returns are going to be. I talked about this on squawk box last week. Robert gordon, who is quite prominent, argued perhaps the last 200 years was a blip of innovation. The steam engine, weve got the industrial revolution, and weve got a little dotcom act n action. And that generated more response than i dont think he thought. But theres a big debate about the returns that can be expected from equities Going Forward. I count myself among one of the more optimistic in that regard. Im very warren buffetty, if thats a word, in that regard. I think the u. S. Will figure it out. At the same time you can think there may be decent returns for u. S. Equities in the next year. That doesnt mean those will be the best returns around the world. Perhaps weve already seen sort of a rotation out of u. S. Equities and into other markets which have seen much better returns for the past year. Look at germany. A lot of hong kong, germany, you name it. Germany up 29 yeartodate. That has a lot to do with the ucb and the eurozone. This is a relative gain. Lost in this conversation for a lot of u. S. Investors, they are u. S. Investors. They cant really invest globally to the same degree that we talk about, we say germany is up 29 , for a lot of investors thats out of their reach. If we didnt have the cliff today, we would have best trades of the year, jamie dimon buying jpmorgan when the whale hit. Things looked really dark. Some of the best trades happened obviously when it looked like the stocks were in for real trouble. Look at the greek stock market. Look at greek debt. I think it was third point that established a prominent position in greek debt and saw x number of returns thereafter. Draw the lessons to today. As we teeter on the cliff, what would be the fear trade that people are shunning right now but may turn out to be the best trade looking back . I think its something we already mentioned, and thats the defense sector. The sequestration sector is out there . It has to be. This was a surefire loser, yet its done the exact opposite. Youre going to be around here for the whole hour. Were excited about that. Until they fire me. Congressman barney frank will join us with his take on everything thats going on in washington. Also ahead, gold sliding more than 6 over the past few months. Is that trend going to continue into the new year. One more look at futures. Clearly the market is having some trouble deciding exactly what will happen over the next few hours. Well cover it all for you. Squawk on the street is back at post 9 in just a moment. I am probably going to the gas station about once a month. Last time i was at a gas station was about. I would say. Two months ago. I very rarely put gas in my chevy volt. I go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and its not just these owners giving the volt high praise. Volt received the j. D. Power and associates appeal award two years in a row. You wont just find us online, youll also find us in person, with dedicated support teams at over 500 branches nationwide. So when you call or visit, you can ask for a name you know. Because personal Service Starts with a real person. [ rodger ] at scottrade, seven dollar trades are just the start. Our support teams are nearby, ready to help. Its no wonder so many investors are saying. [ all ] im with scottrade. Senators mcconnell and reed over the weekend. Meantime, while the u. S. Economy is uncertain, there are signs of strength in china. Chinese manufacturing rebounding in december, according to hsbc. China pmi rising to 51. 5. And that is a result of manufacturing in china in a year and a half. The shanghai index ended the day about 1. 6 higher, highest close since june 20th. It has been a nice run that weve seen also in china to our point before. Its been up 16 since its fouryear low in december. For the year the index is up 3 right now. For those who missed it, this will be the first annual gain in, i believe, three years time. This has not been a positive stock market, despite the economy growing 7 , 8 , 9 or so. As the chinese president said this morning, there will be policies put in place to support growth. And whatever nervousness in the transition is going to fade and policymakers can get more involved. Weve seen this play out in the metal stakes. The best Fourth Quarter in two years, up 56 . Iron ore prices. Thats a real lead on demand. And especially as the Chinese Government makes all these nods toward urbanization plans and the need to update and invest in infrastructure. These are the areas where you want to be. Yeah. Also ties into what clearly will be one of the bigger stories of next year. And that is central banking wars. Japan is right next door, dan. This is a story that is getting not as much play as it should. But the dispute going on between china and japan is quite stark right now. And i see on the interweb that is a chinese think tank has come out and said conflict between japan and china is inevitable in 2013 and 2014. This is a real debate. Simultaneously lost in the debate over the election of abe and his push for abenomics is the fact that this is a very nationalistic individual. His first term in 06 was characterized by a lot of nationalistic policies. Well see how that plays out with respect to the ongoing debate. We have to take a break here. The markets are looking for some direction after fiscal cliff negotiations stall. We get the word from the nyse floor, next on what you should be watching in todays session. Later on, the antitax man himself is here to tell us about how he feels about the latest developments in the fiscal cliff negotiations. What a wild ride here weve seen all morning long. Right now the dow up about 25. Welcome back to squawk on the street. Im john harwood in washington. I want to bring you up to date on the latest of the talks between Vice President biden and Mitch Mcconnell. Theres some concern among democrats who have heard that the income threshold for tax rate increases may be going up to 400, 450, 500,000. A source familiar with the talks just phoned me to say the democrats are only considering that under a couple of conditions. One is that if the threshold goes up to that level, the top income tax rate would go all the way back up to the clinton era rate of 39. 6 . Not some mid point of 37 talked about a couple of weeks ago. Secondly, that it would be accompanied by more revenue from the estate tax than is happening under current policy. Remember, current policy is 35 tax on estates of 35 million or more. Democrats are going to be insisting on somewhat more revenue than that, if not all the way up to the level in president obamas budget. Finally, that an agreement would include a significant extension of Unemployment Benefits. Remember, there are 2 Million People who would lose about 300 a week if this fiscal cliff passes and theres no deal whatsoever. Guys, back to you in d. C. All right. John harward, thanks for keeping us posted. Were about six minutes before the bell rings in the final session of 2012. Lets bring in matt. Good to have you with us. The futures are not too bad. Were coming off five straight losing streaks. On friday we saw the vix post the low of the session. What do you think it will happen today . Im not going to put a lot of credence in the futures this morning. I think thats out of the picture for a lot of people. They didnt really notice it because it happened after the close. Were really not going to put any credence in it downstairs today. Obviously everything has to do with what theyre going to negotiate starting at 10 00. Funny thing is, why 10 00 . Why are we waiting so long . This is a question that everyone has down here, and everyone has across the country. You guys are in here at 7 00 a. M. Yeah, why not start then . This is an important issue. Obviously this is the only issue right now for them to consider. Lets get it started. Lets get it done. Were not going to get a whole deal. Its too late for that. Maybe we get something that gets us through to the new year. Its probably not going to be enough to get the market on a significant rally Going Forward. It seems this is the kind of market one would want to stay away from. Probably lighter than expected trading volumes. A lot of institutions have closed their books for 2012 already. And then youve got the fiscal cliff situation. You see unusual trades. But i talked to a couple of Money Managers this weekend and they said they may book some gains. Which is an unusual comment coming out today. Usually you book your losses, maybe do regular nonregular way trading. But today they may do nonregular trading for gains. Thats what happens when the Capital Gains taxes go up. Obviously theyll try to do whatever they can to book more for their clients. All of this uncertainty could turn the socalled january effect, could invert it almost, make the first week of the year more painful rather than more constructive. I havent heard anyone talk about small caps january effect. Whos going to invest in something that has less liquidity when we can invest in Big Companies that may have been on a swoon over the last week. Maybe capitalize on some kind of deal if we get a deal. But i dont think that will make much interest for any Money Managers out there. Straight ahead, congressman barney frank will weigh in on negotiations between democrats and republicans, tell us what needs to happen now to get a cliff deal done. The opening bell is just a few minutes away. Ready for another final and big day of trading on squawk on the street. Tonight, the fiscal cliff deadline just hours away. Will d. C. Leaders avert the plunge . Stay with cnbc for realtime people really love snapshot from progressive, but dont just listen to me. Listen to these happy progressive customers. I plugged in snapshot, and 30 days later, i was saving big on car insurance. With snapshot, i knew what i could save before i switched to progressive. The better i drive, the more i save. I wish our company had something this cool. Youre not filming this, are you . Aw camera shy. Snapshot from progressive. Testdrive snapshot before you switch. Visit progressive. Com today. [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. Countdown before the opening bell. The final opening bell of 2012. As we do this one last time. The s p, of course, negative for december, hasnt done that since 2007. Dow hasnt been negative for december since 2008. Theres the bell at the big board this morning. Over at the nasdaq, the times square alliance. No matter what kind of gain we end up for the year, could be 11 on the s p, sure beats last year when the s p was almost unchanged. Remember that . What a weird mathematical trip that was. I remember for the outlook for the year we were talking about the s p bei ining up or d 5 for the year. Being flat two years in a row, thats a near absurdity. I think you have to go back to the 50s. Very strange. Well keep a close eye on washington this morning. One of the big names that will move probably will be facebook. Not often you get an analyst bearish with a bmo, now going to outperform. Goes from 15 to 32. Theyre saying that theyre experiencing a reacceleration in apps from a lot of large brands, hoping to cash in on the mobile trend there. We do see facebook bucking the trend in terms of the overall market. That is up 1 . Right now, we are looking at six straight sessions of gains for the s p. The dow as well as the nasdaq. The vix not quite open yet. Were at 22. 75 . It will be interesting to see what the vix does after friday. A huge jump on the vix. The biggest gain since 2011. The New York Post this morning says the biggest lesson to business in 2012 was from facebook, and how not to conduct an initial public offering. They suggested that twitter in 2013 may be the one that restores confidence in that process overall. Was there a bigger business story, on a single stock level . Probably not. Lets not forget facebook was restoring confidence in ipos. People were able to get into facebook, and make quick money. Which was a dumb idea to begin with, but was proven to be inaccurate. Bristolmyers and pfizer with the anticlot treatment called eloquist. They point out that the labeling to this drug are significant because they will actually be able to say that it is superior to warfrin, which is a dominant anticoagulant out there, and causes significantly bleeding episodes and lower death rates. When youre taking drugs, those are terms you like to hear. A Real Advantage for this. Pfizer is down 3 4 of a percent. Watching that. Zinga shutting down not just petville, but ten other titles, as they try to control some costs going into the new year. One of those names, along with the groupons names this went public a couple of years ago now. It had a rough year all year long. Trying to find sea legs over the last 12 months. We have a sell on zinga, so ill not comment too much. But whats interesting about the story is going into the social media ipo prefrenzy, there was lot of skepticism on the heels of what happened in the nasdaq, in the late 90s. A lot of that based on stock performance. Thats what ive heard. Which at this rate, you never know. Take a look at shares of apple. This is one weve been watching throughout the year. The last trading session of the year. Apple shares are hanging in. Theyre citing comments from brian white saying in china the ipad mini is apparently all the rage, that theyve actually sold out on the mini in hong kong and china last week. Brian white has been told by contacts that the mini is more popular than the fourth generation ipad. Bullish commentary there on apple. Of course, this is one of those stocks, matt was talking about Capital Gains selling for some people. It was Capital Gains selling. Fueling this decline weve seen in apple from its highs. 700 in september to where we are now, which is 514 and change. Lets check with Mary Thompson. Shes in for bob this morning. The dow is down 54 points. Now just down about 34. The market is expected to move in tandem with any headlines across from washington. Right now, we dont have the deal, not really a problem for the markets. Of course, that could change as we head toward the close and the uncertainty builds. Quick check of the european boards today. Most of them were closed. Those who did trade, i should say, were only traded a half day. The session there was mixed. The concerns over there continue to be will the u. S. Go over the fiscal cliff. That kept pressure on some of the indices there. Were keeping watch on the bank stocks right now. Weve seen a dournaround in those there. Futures popped earlier half an hour before the open. They have opened broadly to the down side in todays session. You guys were talking about it earlier, another positive reading on the pmi out of china. That seems to be lending some support to the material stocks in todays session, as you take a look at the shanghai composite, which is closing at a sixmonth high, or closed the new year at a sixmonth high, well off the lows we saw earlier in the day. Gold stocks, gold is higher on track for its 12th increase, annual increase. And those gold stocks also, i guess we dont have them there, are higher as well. The indices on track for a positive year. But for the month and the quarter, all the three major indices are in the red. Back to you guys. Thanks so much, Mary Thompson, joining us here on the floor today. Were hours away from tonights midnight deadline for washington to reach a deal. They start legislative business at 10 00 a. M. Eastern time. Barney frank of massachusetts, in what i hope is not his last interview on squawk on the street. Mr. Chairman, good morning. Good morning. Last member of congress, but not last. Lets talk about whats happening today, before we move on to broader topics. If in fact mcconnell and reid can put something together, are you convinced House Republicans are ready to receive it . Yes, john boehner has honestly acknowledged that he was not able to get his alternative on the floor. And there has been this policy that they wouldnt bring up a bill when the republicans were in power unless it had enough votes to pass among the republicans. But Speaker Boehner has, i think, quite appropriately said hes not going to abide by that. He is committed, as ive read and heard, to bring anything the Senate Passes through the floor. If that has, the senate was able to pass something, what would probably happen then, it would clearly pass the house, perhaps with a minority of the republican votes. The issues that were holding back some democrats has been resolved, the reduction and cost of Social Security, that wont be part of the package. The optimistic view is the senate will pass something, it will come to the house. Speaker boehner might personally be against it, but will allow it to be coming to a vote, and if so, will pass with a very large number of democrats and enough republicans to put it over. How does that set us up for discussions with the debt ceiling as a back drop . How dramatic is that going to be . I would hope that this would be a good precedent for not making a big issue over the debt ceiling. The debt ceiling is, of course, entirely artificial. The debt ceiling is simply a decision by the United States government to pay its debts. I am very troubled by the fact that that came into play. There are legitimate concerns about what level of taxation we should have, how much military spending there should be, should we reduce medicare. But whether or not we should pay or debts ought not to be a political issue. And hold the reputation for america as someplace that pays its debts hostage is a terrible idea. Im hoping this will be a good precedent for getting the debt limit issue out of the way. And then there will be legitimate Public Policy debates about how much and what kind of spending cuts. Congressman, this is dan greenhaus. Let me say, youre hilarious and im going to miss you. Jonathan tweeted, obama has utterly caved on taxes and inviting future hostage tactics by the gop. Does that sound right to you . No. In the first place, he has insisted on raising taxes, letting taxes go up, is what were doing, for people above a certain income level. He does not control the house of representatives. Part of this issue, you know, people forget, the American People are the ones who set this stage. They voted for one set of people in 2008, then they changed their minds. At least those who voted, and voted for a different set of people in 2010. We have an unusual constitution. In america youre governed by the results of the last three elections, not just the last election in most other democracies. Thats why you have this deadlock. I do believe the 2012 election moved us in this direction. So no, i dont think the president s caved totally. Hes made some reasonable compromises with reality. The point that hes inviting, hesitating, is just wholly inaccurate. He doesnt have to invite hostage taking. The notion that the president pounds his fists and makes things happen the way he wants, its the american political system. You spent three decades in that building. You know how parody congress has become, how disappointing the recent negotiations has been, pushed up against this deadline. Do you feel like youre going out on a low note . No, i dont personalize these things. I do want to stress, it is not people getting too bess mystic. Congress was functioning well with the president up until 2011. In 2007 and 2008 when george bush was president , i became chairman of the Financial Services committee. Im very proud of what former secretary paulson said in his book about the cooperation and reforming fannie mae and freddie mac and putting through the emergency measures we needed. In fact, when george bush came to harry reid and nancy pelosi in late 2007 and said the economy is slipping, i need a stimulus, they worked with him to do it. It was when barack obama got elected that the republicans followed Mitch Mcconnells declaration that defeating the president was his number one agenda item. Deadlock came in when the American People decided, as they have obviously every right to do, that they didnt like the people they voted for in 2008, and were going to vote for diametrically opposed people in 2010. But if you look before that happened, before 2011, youve got a pretty functional system. The problem is not structural. Its who the people are. I do believe that as a result of the 2012 election, some of those who were elected who really dont believe in governance, are losing their ability to screw things up. Mr. Congressman, i know well have you back again. But it will be as a participant in the private sector debate. Congratulations on everything. Happy new year. Thank you. Congressman barney frank from washington. Possibly as an author. His plans are to write a book. That should be interesting. Lets check in with Rick Santelli in chicago. Morning, rick. Good morning, melissa lee. The treasury market is pretty darn predictable. As the equities have rebounded, you can look at the charts of tenyears. Yields have rebounded a bit, were up a couple of basis points at 172. Were down 15 basis points for the year. We settled last year on this date around a yield of 187. The s p chart holds the key. As you look at the futures for two days, what you see is in the last 15 minutes after the s p, cash was closed, we had a big selloff. Then we had a big selloff that continued. We rallied a little bit last night. We can see right now if you look at the s p, it isnt that much from unchanged. The dow is basically unchanged. All this crazy volatility really was just an adjustment process that put the cash in futures back in line. The big story continues to be with the real trending market, the dollar yen. Look at this chart going back to august of 2010. A fresh 20month high on the dollar versus the yen, but its not just the dollar, its pretty much every currency. Its going to be an interesting year watching big economies deal with the way the japanese are trying to help their export market through weakening the yen. Back to you. Thank you very much, Rick Santelli. As gold heads higher on the last trading session of the year, we look at what could be ahead for the commodity trade. And Grover Norquist is with us live to give us his take on the latest fiscal cliff developments and what it all means for the economy. Before we head to break, look at the early movers on the final session of 2012. Ive always kept my eye on her. But with so much health care noise, i didnt always watch out for myself. With unitedhealthcare, i get personalized information and rewards for addressing my health risks. But shes still going to give me a heart attack. Thats health in numbers. Unitedhealthcare. We dont let frequent heartburn come between us and what we love. So if youre one of them people who gets heartburn and then treats day after day. Block the acid with prilosec otc and dont get heartburn in the first place [ male announcer ] one pill each morning. 24 hours. Zero heartburn. Check out some of the latest moves in energy and metals. Jackie is at the nymex. Good morning, carl. The Energy Complex trading slightly lower across the board this morning. Lets take a look at the west texas intermediate price, lower by about half a percent. Brent price slightly more than that today. Nat gas is the biggest loser, more than 2 of a decline there. Temperatures across the country, not cold enough to keep that demand up right now. Keep in mind, that the Energy Complex is fairly well supplied, as we head into the end of the year. Meantime, the fiscal cliff, of course, is a concern here. But traders are saying that they do think were going to get some sort of a deal within the foreseeable future. Thats why prices are not breaking down even more than that. On the year, looking at wti, the price showing 7. 25 decline. A quick look at how the metals are trading as well. Gold is getting a bid today. Those gains are somewhat muted. Still under the 1,700 mark. Copper is the bigger mover as were looking at the pmi data out of china. Last but not least, gold on track to show a 5 gain as the best performer in the metals con flex. Lets head to chicago for more on the metals. The first thing you think about when you think about the gold trade is the race to base around the world. Its clearly japan as well. So what happens in 2013 with gold . Well, interestingly enough, we think that this actually could be golds first down year since 2000 when it posted a negative gain. It seems to us that gold should actually be much higher, if in fact all the global debasing was going to push it in any sort of fundamental way. Not even through 1700 and 1800, but well through 2000. So the bid has faded. I think theres kind of a cyclical exhaustion that has infected the Investment Community with gold as well. I want to also talk about copper. We did get china pmis out this morning, the highest reading since may of 2011. Youre still skeptical of the copper trade. Why is that . Think about it, melissa, its been trading between 3 and 4 a pound here for the post sort of crash time period. And thats really been the point in time where china has been very aggressive in terms of its capital expenditures. The rest of the world has been also quite innovative in terms of trying to stoke demand in its global Housing Markets. Those things, too, while we see some recovery in global housing, will begin to wane in 2013. And those are pretty big headwinds to see any kind of significant gains in the copper complex. At the same time, there was an approval for a jpmorgan copper etf. Dont you think that could have an impact . This metal is going to sit in warehouses, physically back etfs, and to get approval for its own physically backed etf for copper. Absolutely. It will definitely play havoc with the trading in the futures markets weve seen. Weve seen it in gld and silver etfs. That will only stoke the fuels to the fires around the futures and Commodity Trading im afraid. Lincoln, well leave it there. Happy new year. Happy new year to you, too. Apple stock down 20 . Can shareholders look forward to Better Things in the new year . Thats coming up a little bit later. Squawk on the street continues in just a moment. He gas station about once a month. Last time i was at a gas station was about. I would say. Two months ago. I very rarely put gas in my chevy volt. I go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and its not just these owners giving the volt high praise. Volt received the j. D. Power and associates appeal award two years in a row. We believe the more you know, the better you trade. So we have ongoing webinars and interactive learning, plus, inbranch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. Our teams have the information you want when you need it. Its another reason more investors are saying. [ all ] im with scottrade. Simon hobbs here to show us whats shaping up. We have Grover Norquist in the next half hour. Were also going to talk about apple. For how long can it trade at a 20 discount to the s p. Well also explore why your doctor could be facing a big cut in her income as a result of the fiscal cliff. Thats coming up in the next hour of cnbc. If youre missing cramer, dont worry, hes back on wednesday. But to hold you over, here are some of jims best moments in 2012. Next thing you know, im covering sports in tallahassee. There you go. You look good in that polyester. It was a corduroy suit that i got. You were in florida. Ooh. Felt like sweatpants. I need freedom of movement. Sherri wakes me up every morning. How does she wake you up . She has no morning breath. Im actually kind of a gandhilike figure these days. Divided by ten, its a 50 ah its a 58 stock for goodness sakes. Im sick of this. Give me my telestrator. What the heck. Im going to go home and learn the nopick circle draw. The circle draw. Look at this. Let me do a supercal i straighter on r. I. M. Did you get that . Down here. Ive got to go commando here. Its down here. Thats where it is. All work and no play makes jack a very dull boy. There you go. It may be the 17 sued a feds i took before the show. Oh, the memories. Good times, right . When hes gone, you really miss him. Hell be back on wednesday, in time to trade the fiscal cliff. All right. The deadline, of course, just hours away. If lawmakers wind up kicking the can down the road, they may want to come up with a way of saying so. That son the annual list of words to be ban issued. Spoiler alert, trending and bucket list, not surprisingly the phrase that got the most nominations this year, fiscal cliff. So that brings us to this mornings squawk on the tweet. What other phrases should be banned and why. And remember, try and keep it clean. Tweet us at squawk street. Weve got your responses throughout the morning. Fiscal cliff definitely has to go. I cant wait for hash tag to go away. Well start hearing about the debt ceiling in two months. A ban on 2013s list. Have a great new year. You as well. I have no special plans. I have a 3monthold daughter thats very special. Im prohibited from going anywhere. We have dinner reservations about 4 30 p. M. , though. Early birds. Happy new year. Same to you. President s of americans for tax reforms, Grover Norquist ond how his tax pledge has played a role in the cliff negotiations. Were back after a quick break. My eye on her. T but with so much health care noise, i didnt always watch out for myself. With unitedhealthcare, i get personalized information and rewards for addressing my health risks. But shes still going to give me a heart attack. Thats health in numbers. Unitedhealthcare. We are hours away from the fiscal cliff itself. When a series of automatic tax hikes and spending cuts will take place in this country. The house of representatives of beginning legislative business in about 60 seconds or so, as we await any word on whether any potential deal is reached. Negotiations involving Mitch Mcconnell and Vice President joe biden, two men who worked together for more than 20 years in the senate. Of course, the Senate Reconvenes at 11 00 a. M. Eastern time, in about an hour. A quick look at how the markets are reacting on this final day of 2012. Obviously a lot of indecision here, riding the flat line, trying to hedge as many bets as people are willing to make. Yeah, if you look deeper into the markets, it looks like were pretty much hugging the flat line at this point. Weve seen a massive turnaround when it comes to the Consumer Discretionary names. Home builders higher across the board. Technology high as well, with apple leading the charge up by 2. 8 . A lot of interesting moves below the surface in the markets. Lets head down to john harwood in d. C. With the very latest. John . Melissa, were hearing signs of optimism about a potential deal. Somewhere with an income Tax Threshold in the 400,000 to 500,000 range, not the 250,000 that president obama had been insisting on. Although a source familiar with the talks told me a few minutes ago, if it goes between 400 and 500, democrats would get the full increase to 39. 6. That is the clinton era rate, extension of Unemployment Benefits and increase in the estate tax. Still the signs are that something is going to happen. In fact, bob corker, the senator from tennessee, was on with joe and i here from washington on squawk box and said there will be a deal, even if one that doesnt solve all of our longterm debt and deficit problems. Heres bob corker. I do think theres going to be a resolve to this. The problem is, you know, we created this fiscal cliff to make some tough decisions. And none are going to be made. Not one. So the question is going to be then, do the tough decisions on spending get made in january and february, running up to the debt limit. Well see how that goes. Well see if it actually gets done today. You hear positive things from talk, but you cant trust anything until reid and mcconnell come out on the senate floor and say they have a deal. And then boehner puts it on the house floor. Its interesting now, that mcconnell has reached out to the Vice President and is doing a deal, specifically that way, rather than involving it would appear at this stage the democrats in the senate. Are they now more fractious in actually passing a deal potentially from the gop in the house . No. I think it is just dynamics of latestage negotiations that when you get to the really hard parts, youve got to go higher and higher up the food chain to get people willing to sign off an a deal. And joe biden as noted in the introduction, has been in the senate for three decades. He has a unique ability to work with Mitch Mcconnell, his longtime colleague to try to close this deal. That doesnt mean they can do it, but its a sign that things are getting close to the end zone if those two were talking all night. The report i got early this morning at 6 00 a. M. Is that their talks had been good, constructive and continued very late into the night. Thank you, john, for that. John harwood in washington. Lawmakers, as john say, continue talks this morning as we inch closer to the cliff itself. What role is the notax pledge playing in the negotiations. Founder of americans for tax reform joins us this morning not too far from where john is sitting. Grover, good morning. Good morning. Good to be with you. Youve been quoted as saying that rates will not increase. That kind of flies in the face with what john just told us. Whats true . Well, two things. Earlier, my point was that as long as these negotiations were conducted with cspan cameras there, and everybody could see how everybody in the senate voted, as well as everyone in the house, that we would have exactly what we had two years ago, which was an extension of all the tax cuts. Theyve kept the negotiations in the dark. The senates been avoiding voting on anything. Remember, the house has passed a budget that reforms entitlements, reforms taxes, brings the debt the deficit down to zero, saves 6 trillion over the next ten years. Called the ryan budget. Theyve done that more than once. The senate has passed nothing. The democratic senates passed nothing. The president s put nothing on the table that comes anywhere close to solving the problem as ryan does. The president s budget cuts were all phony. He wanted 1 trillion credit for not occupying iraq for the next ten years. Right. But were talking about what biden and mcconnell are putting together as we speak. Yeah. Well, were going to end up with something that, who knows exactly what its going to be. I mean, were all focused on these sort of semisecret negotiations. Remember, thats what a magician does when they want you to look in the wrong place. What are we not looking at . 1 trillion of obama care taxes begin in january. Thats not even part of the fiscal cliff. Thats in addition to the fiscal cliff. Were looking at an avalanche of regulations that were drawn up in the first four years of the obama administration, but then conveniently only beginning to be made public after the president s job was secure. His job is secure. Now yours may not be, because hundreds of billions of dollars in regulatory costs are hitting the economy. Look at what epa and others are doing. Right. But grover, speaking of magicianship, you appear to be doing that right now. It looks like rates will increase. That technically is not a good thing for you and your pledge. Its a very bad thing for the economy, because what theyre talking about is some allowing the rates to go back up, not just back up. Remember, we go back the bush tax cuts disappear and you add the obama care tax increases. So theyre taking the top rate not to 39. 6, but to 43. 4 for half of all Small Business income in the country. And people at high income earners of the United States. Add to that the 35 Corporate Income tax and the increases in cap gains. Its a very damaging tax increase that may well be taking effect. Its a very difficult position. The members of the gop that have signed your pledge now find themselves in. Because either they break the pledge now, which is what appears to be happening, and they acquiesced to these higher tax rates, or we go over the fiscal cliff, or the taxes go higher, and effectively, the democrats could steal your clothes, your political clothes. They could then talk about cutting taxes from those elevated levels. We assume well talk about the obama tax cuts and the bush tax cuts, will long since have died. Thats a very difficult situation for your guys. Well, it would be, except the Taxpayer Protection pledge is not made to me, its made to the American People. And the American People know that restoring the bush tax cuts is not a tax cut. Its a continuation of the status quo of the last 12 years. As was done two years ago. When you allow some of those tax cuts to lapse, taxes are higher than they were before. So the idea that obama could run as a tax cutter when hes been demanding tax increases his entire presidency, and were about to start the conversation of 1 trillion of obama care taxes over the next decade, obama and the democrats tax cutters will be laughed out of the park. With respect, hes just won the election on that basis, hasnt he, that he would tax the rich more, and give away candies to those on 250,000 or below. You know, the democrats have long opposed the bush era tax cuts. But now they have this as a new pledge, simply to win power. Well, interestingly, whats happened is the president has moved 98 of the way towards the republican position. He opposed the bush tax cuts. He said they were a bad idea, both in 2001 and 2003. And now hes talking about wanting to maintain 98 of them or so. Its very interesting. The collapse of obama towards the taxpayer position, not all the way, is notable. But on the other hand, what he gives with one hand, or doesnt take away with one hand, he does take away with the other, and thats the 1 trillion of obama care taxes, and the hundreds of billions of regulatory burdens that are coming out and hurting the economy now. I think we have a very rough road ahead with the economy. Not because of the fiscal cliff, but because of the spending that continues unchanged, the tax increases from obama care, and the regulatory costs being imposed by epa and others. They may shut down fracking in this country which is one of the few positive things thats been happening over the past few years. If it does appear were going to get increases, that youve long opposed, do you at least think youre going to get 72 hours . The other thing youve been arguing for . Well, that i think is very important. If we can all look at this, the present house rules say 72 hours for the American People. The president of the United States said he wouldnt sign anything up for days as well. But hes broken that promise a bunch of times. I had argued it should be there for weeks so that you and all the folks in the media and the press and the American People could actually read the small print of any deal. The one biggest fear i have is that theyre going to sell it as one thing, and when you look at it in the cold light of day, its going to be even worse. Thats what happened in 90 with the bush deal, thats what happened in 82 when they cheated reagan. It is not good that theyre trying to hide what theyre doing by having the negotiations in secret, and if they try and get people quick, quick. Thats what they did with obama care and they had a lot of stuff in there that they didnt mention. I would say happy new year, but i have a feeling you wouldnt say it back. Oh, its always happy new year. Washington is always messed up. Grover norquist joining us from washington this morning. Lets talk about the situation we find ourselves in. And the prospect we could go over the fiscal cliff and what specifically that would mean for the u. S. Economy. Diana is a former Labor Department chief economist under george w. Bush, and senior fellow at the manhattan institute. Here at post 9 in new york is rock johnson u. S. Senate banking committee, and now at the institute for new economic thinking and senior fellow at the roosevelt institute. How would you explain what is going on at the moment for people sitting at home worried about whats happening in the new year . Its the same old stuff in washington. Its just haggle, haggle, haggle. And theyre not addressing the real problems of america, which are jobs, productivity, education, science research, and withering infrastructure. This is appalling, and the American People should watch whatevers happening with a sense of disgust. You feel clearly very strongly. Yes. Why do you think weve got to this stage . What could turn it into a more positive narrative . I think we are at this place because the role of muddle in politics has overwhelmed, the lobbying process has overwhelmed the sound Financial Planning for the American People. We have a mess in the Health Care Spending in the out years, which is real. But the costs of providing medical care through pharmaceutical monopolies, insurance monopolies and hospitalization monopolies means American People pays more than double what the rest of the people pay in the world. Were not fixing that. Diana, is that your assessment of what we witnessed today . We are not making real attempts to cut spending, which is the problem. We have 16 trillion in debt. 1 trillion deficit. And what were talking about today is just at the edges. Were not making any attempts to cut spending. We need to be looking at entitlements in the out years as well as today. Because with seniors living longer and longer, which is a great thing, the cost of these programs is rising. And we need to do something to keep it down. Its interesting that all the entitlements, of course, diana, theyve now taken off the table, the proposal they should change the way in which they calculate the increases. Obama had offered that, but that appears now not to be on the table. Do they in a sense have to do that because this sa forerunner of another negotiation were going to have to have on the debt ceiling in february, and theyre going to save that, if you like . I think that they dont really want to tackle these problems. They need also to be tackling medicare, which is the largest source of growth. They need to be thinking about giving seniors options for other kinds of programs other than traditional medicare. As paul ryan has proposed. And have competition between these different programs. And that would lower the cost of medicare, just as costs of lasix and cosmetic surgery has gone down. We need to look at Larger Solutions to our problems so we dont end up in the situation europe is, or greece with riots, or france with a top 75 tax rate thats driving people offshore. The problem may be that paul ryan coming through with solid plans on the deficit issue, and ultimately didnt win the white house. Is it possible to have the conversation with america get voted in, and then take action . Personally, i think the ryan plan was an abomination, because it was so vague, that you cant tell whether it was a real plan or not. It was not vague. It was written down in the house budget. It is absolutely unspecified across all kinds of loophole closings and other things, which makes it filed under category of fiction for anybody thats ever worked in the United States senate. Specifically its written specifically in the path to prosperity. It was passed by the house. You can look at path to prosperity in google. You see many of the details. At least the house passed a budget, which the senate has not done for the past three years. The house has laid out solutions. Also, laid out changes to the sequester, which is also going to take place, i think, tomorrow. I am not here to argue for the democrats or the republicans. That is not my point at all. But i do not think the ryan plan measured up. I think theres too many vagaries there. I agree the democrats have not stepped to the plate either. We have a structural problem in our society. And the fiscal cliff is just a manifestation of that. In the meantime, happy new year to you both. Happy ne yew year to you, to why your doctor could be facing a huge pay cut. And more than 60 this year rally. Well tell you how to play it. Much more squawk on the street straight ahead. [ male announcer ] at northern trust, we understand that if you pick three people, odds are theyll approach everything in their own unique way including investing. So we help clients identify and prioritize their life goals. Taking that input and directly matching assets and risk preferences against them. The result . A fully customized plan. We call it goals driven investing. You have unique goals. How about a portfolio specifically designed to achieve them . Expertise matters. Find it at northern trust. One group of professionals that will be severely impacted if the u. S. Goes over the cliff, doctors, with no solution medicare will start paying doctors up to 29 less. More on the doctor cliff. The amas website has a countdown clock ticking down to what they call crippling medicare cuts. The automatic fiscal cliff cuts will mean 2 reduction for medicare. On top of that, doctors face a 27 rate cut, because of a medicare formula that all sides say is broken. The Sustainable Growth rate formula, nicknamed the sgr, triggers doctor reimbursement cuts when health costs outpace economic growth. For nine Years Congress has passed doc fix funding to keep rates from being cut. This year its being held hostage by the fiscal deadlock. Without a fix, one Physician Group has calculated that most solo Family Doctors will see a 27,000 cut in terms of their revenues this year. A typical threedoctor practice will lose 80,000. The centers for medicare and medicaid notified doctors that they may not see a cut right away, because of a 14 to 29day in terms of when they actually pay the bills after they are received. If Congress Reaches a deal by midmonth, they wont see a problem. The cms says theyll provide an update on january 11th. Not knowing how much youre going to get paid for a couple of weeks as youre starting to see patients. Theres bipartisan support to change the sgr. The sticky point is how. Physicians are the second largest line item in medicare, behind hospitals. We do need to do something at some point. Im just not sure a blunt cut costs approach is going to be successful. Now, the cbo has estimated it could cost up to 300 billion over ten years to avoid this annual doc fix cliff. Thats a heavier lift, though, than finding funding one year at a time. More on the doc fix on my piece live now on cnbc. Com. Simon, back over to you. Bertha, thank you very much for that. Bertha coombs, as we count down to this midnight deadline. Defense sector facing major cuts if we do go over the fiscal cliff. How that industry will be affected if we dont get a deal today, well talk about that after the break. Stay with us. Any way you want. Fully customize it for your trading process from thought to trade, on every screen. And all in real time. Which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. Try our easytouse scottrader streaming quotes. Its another reason more investors are saying. [ all ] im with scottrade. They say the biggest priority is making sure we deal with the debt in a serious way. The way theyre behaving is their only priority is making sure that tax breaks for the wealthiest americans are protected. Theres no single issue that remains an impossible Sticking Point. The Sticking Point appears to be a willingness and interest, or frankly, the courage to close the deal. The deadline to get a deal done, steadily getting closer and closer. The Defense Industry will be one of the most affected. Lets bring in Hampton Pearson for more on this. Stocks recently have to make you think otherwise. Well, the issue is what happens if we go over the cliff, if you will, as far as those spending cuts kicking in. Especially for defense. Right now, the pentagons looking at something in the neighborhood of a 55 billion cut in 2013, about 10 of its programs, and specifically, the wall street journal, among others, reporting that the pentagon is making contingency plans to notify 800,000 civilian employees about possible furloughs. So this is front and center right now. And among those also sounding the alarm, senator Lindsey Graham after getting a call from defense secretary leon panetta over the weekend. Last night at 7 30 during dinner, he said, lindsey, im told theres not going to be anything in this deal to avoid sequestration going into effect. There you have it in a nutshell. Again, number one, we are getting hopefully a little more optimistic about either a shortterm patchwork deal, setting the table for something bigger after the first of the year. But again, weve been talking primarily just on the tax side of the equation, the issue for the pentagon, the Defense Industry, and frankly, a whole lot of civilian employees, what about the sequester Going Forward. Michelle . Hampton pearson from d. C. The phrase fiscal cliff topping the words to be ban issued this year. That brings us to this mornings squawk on the tweet. What other phrases should be banned and why. Remember, keep it clean. Weve got your responses throughout the morning. Or dont, right . Or dont. Well clean it. When we come back, unquestionably one of the most mentioned stocks in 2012, for good and bad reasons. Yeah, apple, posting gains of almost 30 for the full year. Well find out what the new year could hold for the Iconic Company and its stock when we return. Elcome to chevys yearend event. So, the 5. 3liter v8 silverado can tow up to 9,600 pounds . 315 horsepower. Whats that in reindeerpower . [ laughs ] [ pencil scratches ] [ male announcer ] chevys giving more. Now through january 2nd, no Monthly Payments until spring for qualified buyers. Get the silverado for 0 apr financing for 60 months plus 1,000 Holiday Bonus cash. Plus trade up for an additional 1,000 tradein allowance. [ male announcer ] how can power consumption in china, impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u. S. . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Apple is up more than 25 this year. Its recent slide has rattled some investors. Lets get insight from a pair of longtime apple shareholders in what to expect in the new year. Guys, great to have you both. Channing, ill start off with you. Apple is the largest leading on 4. 8 or so of the portfolio. Have you been managing that position so it doesnt get too big . We cut it back a couple of months ago. We recently added to the position. You know, its interesting, if you look at apple stock earlier in the fall, we think investors might have got a little overly optimistic on the prospects for holiday quarter. Today you had the opposite situation where investors are overly pessimistic. Were on the cusp of an enormous product upgrade cycle. We think apples earnings are going to be dynamite in the Fourth Quarter. What exactly is this product cycle that youre citing . I think part of the problem with apple is there isnt too much clarity on what next new big product is going to spur sales, and if the mini and release of the iphone 5 couldnt do it in the Fourth Quarter, calendar Fourth Quarter of this year, what is going to do it next year . You believe apple is going to key claim the alltime highs we saw in september. Yeah, we do. We think the iphone 5, the ipad mini, the fourth generation ipad is enough. We dont think you need another product category at this point. Theres still tremendous growth in both the iphone category and the tablet category. The tablet category is a category thats going to triple over the next couple of years. The iphone will grow 30 . We want to maintain market share and grow these product categories. We think thats enough. Eric, youre also bull. You think apple could head to 900, 1,000 a share sometime in 2013. If the fiscal cliff situation is resolved. Is it really just because of the fiscal cliff situation, or do you actually see some new product, maybe an apple tv, spurring to 900 . I would argue you need to see a new product in order to get there. I think apple always vacillates between the two extremes of fear and greeand ri hitting that kind of max fear point with people all worried about margins and what the future products will be. And what only kind of shatters that fear and gets people greedy again, what led to the big runup this year, is when people realized that the current Product Portfolio are going to be much bigger than they expected. You were talking about the ipad mini. I still think thats one thats widely underappreciated. I think theres an opportunity for huge growth as ipad mini alone this year. I think well see iphone move to a sixmonth cycle instead of a 12month cycle. Apples seeing that people anticipating a couple of quarters ahead and holding off on sales. So i think there will be new products, though. I think itv is definitely one. I think november is likely the target there. And i think 2013 is going to be the year we actually see a surprise, a new product that we havent anticipated before. And possibly one that i think apples looking at is Something Like icar, basically where they take over the navigation, and Entertainment System in your cars. All the things you guys are saying makes sense. But a lot of the yourend review stories maps may be the biggest Strategic Companies all year long. Were not operating in a vacuum here. Samsung continues to make a big progress. I wonder if there are events that make you have second thoughts this year how management is operating strategically and tactically. Yeah, the navigation, that was an enormous failure. Unexpected. But i think the issues that apples been dealing with, is not really structural. Ive heard a lot about the growth margins. If you look back at apples history, what you see when you see product introductions is the Gross Margins go down. Were in that right now. The new iphone, new ipads, weve seen it on the ipods. So weve seen all these products. Margins are going to go down. This is the time to buy. What youll see after the product introductions is the Gross Margins will start to accelerate. Thats when investors want to buy the stock. Carl, this stock is at ten times, should grow earnings by 20 over the coming years and trades at 20 discount to the s p. It doesnt make sense. If you think apples franchise is in trouble, you sell the stock. We dont think thats the case. We think that theres tremendous growth in these categories, and that earnings are going to surprise on the upside come january when we hear about the earnings reports. But eric, to the point that carl makes, theyre not operating in a vacuum, and obviously the competition is getting more intense. Just over the weekend, there was talk about chinas te making a big push into the American Market on smart phones. Conversely, youve got the new google phone thats going to be launched at some point in the near future. The competitions getting the hang of it, eric, thats the concern, isnt it . Yeah, but i think we downplay the pressures that the competition is facing just as well. You mentioned the new google phone, simon. You know, what ramifications is that going to have on the whole Android Community . How will samsung feel with google really putting a strong push behind its own phone . How will a player like sony and htc, which have been riding the android horse up until now, how will they react to that . Why wouldnt they be more attracted to a Microsoft Windows phone or research in motion . 2013 could be a story of potential fracturization of the whole Android Community as well. There are challenges for every company in this space. Its just the hottest space to be in. And apple is facing those challenges as well, but i think theyre managing very, very well, considering. Guys, we have to leave it there. Last word, channing. I was just going to say, if you look at the gardner study that came out about a month ago, theyre predicting 821 million smart phone or tablet devices to be sold this year. Theyre expecting 1. 2 billion to be sold next year. Googles going to get their fair share, but so is apple. Those two stocks are where you want to be going into 2013. Guys, with that, thank you. Happy new year. Happy new year. Want to remind you the senate will reconvene in less than half an hour. The house has already begun business. We will keep bringing you live updates on the negotiations which are really happening in a separate arena, as we get them. In the meantime, were continuing on with our 2013 predictions. This time around none other than simon hobbs, whos taking a look at major travel trends in the new year. Take a listen. In 2013, blackstone will return hilton to a stock market listing. Six years after it paid an embarrassing 26 billion to take it private at the top of the market. Blackstone should list hilton in 2013 because it will be the last cycle. Probably the next one to two years is the most opportune time for a company to go public. Travel by groups and organizations, banqueting has yet to recover. But hotel ceos will be able to charge you more for a room next year, because so few new rooms are being built. They like to see 8 , 9 inkreeflgs. Probably not going to be that much. Probably more 4 , 5 in terms of increases. Cruise lines still dont have pricing power. I think its very temporary. In terms of the bookings that they have right now for 2013, remember, consumers, cruise consumers book six months in advance. Those are looking very healthy. Finally, half a million more Foreign Tourists will visit america. Thats because to the 37 nations currently eligible to travel here without a visa for 90 days, congress will add brazil, israel, poland and possibly seven others. They may have a very different view of their food and beverage needs. So restaurants need to be reconstructed and reformatted to appeal to these new markets. I really enjoyed that. That was good, wasnt it . Who was that guy . Who was that masked man . Handsome. The most provocative of all those, what would you say . The most provocative, i guess for i mean, outside the Investment Community would be the idea that the hotel owners will be able to raise prices. Youve got your volume back up kind of to 2007 levels, albeit without the groups, without the conferences, now this is the year that potentially they get the pricing power. And that instantly comes back into your margins. I would imagine the fiscal cliff negotiations and the longer this thing is dragged out into the First Quarter, they may not have that absolutely no question about it. That is a major issue. During the election there was concern in particular businesses had stopped traveling. Lets not forget, public budgets. Federal budgets. Under huge pressure. Those are being cut. Thats where your groups and conferences have not come back as strong as they might have done. Great stuff. Thank you. New troubles for the u. S. Economy if a deal to avert the fiscal cliff cannot be reached. Jpmorgans chief u. S. Economist will join us live a little later on to explain the biggest risks in his view now that investors face. Were back in two. If lawmakers fail to create a plan to avoid the fiscal cliff by january 1st, federal work study will be cut by over 76 million. And over 51,000 fewer students would receive aid. [ male announcer ] this is joe woods first day of work. And his new boss told him two things cook what you love, and save your money. Joe doesnt know it yet, but hell work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. Hell start investing early, hell find some good people to help guide him, and hell set money aside from his first day of work to his last, which isnt rocket science. Its just common sense. From td ameritrade. Id like to be optimistic. But it looks like theyre going to blow. The real linchpin is whether john boehner can bring his troops along. Thats a real tough one for him. We really need to get this right. Its not something we can do in the next couple of days. The president is not going to make a new offer in this meeting today. The dow has fallen to near the lows on the session. Im optimistic we may still be able to reach an agreement that can pass both houses. Congress, its easier to smash stuff than you think. Smash some deficits, smash some deficits, smash some deficits, smash some deficits. That was gallagher, too . That was gallagher. One of our more memorable moments with Rick Santelli, who can do incredible things with a very large mal let. Rick, good morning. Happy ne year to you. Were going to do smashing here if things dont happen in the next few hours. They are. As a matter of fact hold on. Got to get some props that you cant see. You know, i think its almost time for us to do a big whoopee, because maybe we are close to a deal. But after listening to that spot, i think im going to modify whoopee to maybe whooppea. Because i think we went from Smashing Pumpkins to potentially smashing a pea. And maybe even the pea is going to be a little bit too big. So we went from gallagher there we go. Theres our debt smashing for the end of the year. Okay . Its basically a pea. And maybe we dont even get that. Because most likely, what we are dealing with here, unlike with gallagher and the watermelons and big hammer, is pretty much about a tax deal. Okay . Weve done all of this to arrive at an arrangement on taxes. You know, i know that the tweet of the day is what words we would like to banbanish. One thing i would like to banish right off the bat balance. This is not balance, okay . Because the debt would be the empire state building, and this is maybe something were going to be talking about. Its not balance. The other thing id like to toss into the Wild Blue Yonder is fairness. I tell you what, people, anybody who reads history, when your leaders start using the word fairness. Fairness is a really loaded term. Fair to who . I think thats one of the cornerstones of why capitalism and personal liberties have done so much in a couple hundred years in this country. Because it empowered people. We are not empowering people when we have to take whats fair from somebody elses mouth, other than a Group Dynamic based on the freedom of individuals. All right. Lets switch gears a bit. Housing. Just today alone, i counted seven guests had talked about the great positives of housing. Im not going to dismiss the idea that housing has improved. But i think we really need a little perspective here. If we look at how many homes are still underwater, its a significant amount. About four months ago it was one in five. I dont know how much thats changed. And if it has, it isnt much. Its not even the underwater, its people whose houses arent underwater that used to be worth 400,000 that are 300,000. In illinois, the prices are significantly lower. This is something that were going to have to deal with. We are coming off of something that was at a hypercrisis low. So improvement marks are easy. And the other point, today ive heard a lot as well, and especially over the last couple of weeks, before november 6, which was the election, a lot of analysts out there and economists all, according to the administration, they all agreed with everything they said, they talked about how the economys improving, were so much better off. Then boom, when you get after the election, you go to the fiscal cliff issues, the same analysts and economists are saying, oh, my gosh, the economy is too weak to do any deficit reduction. It cant handle the stress. If you kick the tires, the cars going to fall down. Do you see what im saying . They just shovel and shovel. Until the election. Afterwards, to support the agenda, its not so great anymore. Whats the moral of the story . The moral of the story is that americas a great country, and some people are deemed as extreme. If those fiscal conservatives are extreme, then count me in. Happy new year to everybody. Back to you. The same to you, Rick Santelli. Still no deal out of d. C. Over the weekend. The clocks officially down to the wire to this evening. What needs to be done to get a deal signed, sealed and delivered. Stay tuned. In just over ten minutes, the senate is going to reconvene in washington. As you may know by now, Mitch Mcconnell just arrived on capitol hill a few moments ago. Well be waiting to see whether senator mcconnells discussions with the Vice President , joe biden, have produced a working deal. Weve bp getting headlines all morning long, major progress, not at all like the headlines we were getting last night which was quite the opposite. Of course, as the headlines become available, well be bringing them to you live. For the last day of the year, it is more high drama than were used to. It is. The markets really are holding pretty steady in light, despite this dram a i should say. The dow down by about. 10 . The nasdaq has been powering higher in this session, in terms of the major indices. Up by about. 6 . Fairly calm in the markets so far. Well see if john harwood changes any of that. We go to washington with breaking news. John . Carl, i just spoke to a republican source close to the talks who gave this update. Vice President Biden and Senate Republican leader Mitch Mcconnell last talked at 6 30 this morning. They not only talked at 12 45 a. M. This morning, they again talked at 6 30. A couple of points this source was making. The budget sequester, the other half from the tax piece of the fiscal cliff, will not be turned off. What will happen is that there will be cuts identified that would satisfy the sequester as an alternative to the across the board indiscriminate cuts to domestic and defense programs that everybody wants to avoid. Probably 60 to 90 days worth of cuts. That would be 20 to 30 billion or so. And finally, on timing, a lot of people expected that when the senate opened again, to 30 billion or so. And a lot expected when harry reid opens the senate that might be the point at which we find out a deal. This source said do not expect that. It takes longer than you think. Theres scoring that has to be can done. Expect to be here all day long. In essence youre saying the sequester as we know it would be funneled into areas which would bring less pain to the broad economy . Yes, they can identify cuts that would be an alternative to the sledgehammer cuts to defense and domestic programs. Didnt know what those are. And what i was told is its a lot of nerd stuff. Some of it may skeptics may call it accounting maneuvers. I dont know the answer to that because we havent seen them. But what were expecting is that instead of turning off the sequester and saying, no, were not doing any cuts here, they might come up with must have to tide them over until they get to the full spending debate. But that would be Discretionary Spending presumably. That isnt an attempt at entitlement reform. Dont know what the cuts would be. Could be some entitlement. I dont know. And it sounds like youre saying those who are counting on a vote today might want to hedge those bets, as well. Well, no, not necessarily. What im suggesting is that we may not hear a definitive word on a deal at 11 00 when harry reid opens the senate and it may go deep into the day before we get votes one way or the other in the senate and then subsequently in the house. I would expect based on what im hearing and the time table that it would be voted on today december 31st, it just may be later on december 3 1s than weve been expecting and a lot of us would wish on new years eve night. John, well come back to you many times between now and then. Thanks so much. As the deadline for the fiscal cliff does loom, what does it peen if your money if we do not get a deal . Steve liesman has more on that. We talk about a lot of these big numbers that are out there and we dont talk about what it means to individuals. So let me see if i can break down the big numbers into something that might mean something to individual people here. 620 billion, thats the number thats the total revenue increases and spending cuts. About 130 billion of the automatic cuts that john harwood was just talking about, talking about trying to ally for a little while. 1920. Thats if you break it down by every man, woman and child in america. Thats the per capita fiscal cliff effect. But that effects a lot of people differently here. 26. 2 million. Thats the number of americans that will be caught by the amt, the alter naf tax system, unless Congress Comes up with a patch and thats part of the whole fiscal cliff effect. Come on over here, well show you more. 2. 1 million, thats the number of long term unemployed americans who will lose the extended benefits again if theres no fix to the fiscal cliff. 1,000, thats the amount that the average family will see a tax hike from the expiration of the payroll tax cuts. I would point out this is probably both away. Both sides seem to be on board with undoing that temporary tax cut. 9 is the percent Deutsche Bank sees the Unemployment Rate up from the 7. 8 where we are right now if we do go over the fiscal cliff. And then this number here, again, john harwood was talking about this, 8. 2 , thats the across the board automatic cuts. Fema, education, and of course state and local aid which is something that you would see on an individual basis. One more chart i want to show you. Again, we talked about big numbers. But it will affect different states differently. This is a chart organized by federal spending as a percent of state gdp. The maryland, virginia, d. C. Area would be heavily affected. But also hawaii, a big percent comes from defense spending. The green is nondefense. Ala kass, new mexico, kentucky. So we talk about 620 billion being spread across the economy that will be individual hits to individual states and individual people that will be hit harder if this qulif does take effect. Some sobering numbers. The phrase that got the most nominations on the list of words to be banished, fiscal cliff. So we want to know what other phrases should be banned and why . Tweet us. We have your responses coming up next. [ male announcer ] at scottrade, you wont just find us online, youll also find us in person, with dedicated support teams at over 500 branches nationwide. So when you call or visit, you can ask for a name you know. Because personal Service Starts with a real person. [ rodger ] at scottrade, seven dollar trades are just the start. Our support teams are nearby, ready to help. Its no wonder so many investors are saying. [ all ] im with scottrade. Its no wonder so many investors are saying. Ive always kept my eye on her. But with so much health care noise, i didnt always watch out for myself. With unitedhealthcare, i get personalized information and rewards for addressing my health risks. But shes still going to give me a heart attack. Thats health in numbers. Unitedhealthcare. When the doctor told me that i could smoke for the first week. Im like. Yeah, ok. Little did i know that one week later i wasnt smoking. [ male announcer ] along with support, chantix is proven to help people quit smoking. It reduces the urge to smoke. Some people had changes in behavior, thinking or mood, hostility, agitation, depressed mood and suicidal thoughts or actions while taking or after stopping chantix. If you notice any of these stop taking chantix and call your doctor right away. Tell your doctor about any history of depression or other Mental Health problems, which could get worse while taking chantix. Dont take chantix if youve had a serious allergic or skin reaction to it. If you develop these stop taking chantix and see your doctor right away as some can be lifethreatening. If you have a history of heart or blood vessel problems, tell your doctor if you have new or worse symptoms. Get medical help right away if you have symptoms of a heart attack. Use caution when driving or operating machinery. Common side effects include nausea, trouble sleeping and unusual dreams. It helps to have people around you. They say, youre much bigger than this. And you are. [ male announcer ] ask your doctor if chantix is right for you. Our final squawk on the tweet, you know the phrase kicking the can down the road is on the list of words to be banished. The phrase that got the most nominations this year, fiscal cliff. So we asked you what other phrases should be banned and why. Sean writes the term job creator should be banned. It was coined to make the wealthy sound like economic saviors. Rob writes it really means im about to disrespect you. And armando writes im moderately optimistic because that is the epitome of getting nothing done. Get rid of them all, thats my attitude. Start some new ones. You have a busy night tonight. As you heard john harwood just saying, it might be hours until we actually get something done so well be on fiscal cliff watch on fast money. Hopefully well have a deal to talk about. Its also about 2013 trades. Predictions on the commodity front. Top trade in the internet space. All of our traders will be prepared to give their top trades, as well. And of course we have broadcasting tonight in times square, heart of the Biggest Party in the universe. Good luck getting home. Really. Have a great new year. Thank you. You, too. Well see you in 2013. Heres what you missed if youre just tuning in. Welcome to hour three of squawk on the street. Heres whats happening so far. The real question is whether or not the president will weigh in and push the democrats in the senate to move forward with a bill today. If that happens, then i think that we can solve this current challenge. We ought to be concentrating on how to get government out of the way. Get them off the back of small and medium sized businesses, even large corporations. Let our economy grow. The economy is an incredible ability to self heal itself, but why want to take that chance. Monetary policy is completely ineffective at this point and really confidence is the name of the game as im sure youd agree. So why even chance it. As we teeter on the cliff, what would be your trade that people are shunning that may turn out to be the best looking back . I think its the defense sector. Theres the bell. The optimistic view is that the senate will pass something, it will come to the house. Speaker boehner myself himself personally be against it, but he will allow to be coming to a vote and if so will pass with a very large number of democrats and enough republicans to put it over. What are we not looking at . A trillion dollars of obamacare taxes begin in january. Thats not even part of the fiscal cliff. Thats in addition to the fiscal cliff. Good morning. Were live at the new york stock exchange. Of course the moment weve been waiting for, the senate reconvening as we speak. 11 00 a. M. Eastern time. We are waiting to see whether any progress has been made between republican senator Mitch Mcconnell and Vice President joe biden. John harwood has told us they have not only had constructive talks, but talked past midnight, at 6 30 a. M. This morning. Markets reacting quite like this, the dow down about 12 points, s p positive by about three, and the nasdaq up about 15. Meantime in hong kong, they are already celebrating the new year. This is a live picture of whats happening on the other side of the planet and that scene will be a lot more familiar to those on the east coast in just a few hours time. Meantime just a few hours to go, still no deal on the fiscal cliff. How are the markets going to be impacted heading into the new year . Head of research joining us from new york, andrew, happy new year to you. All kinds of predictions because theres this big blob of uncertainty facing us in the near term. Overall, whats your sense for how the next year goes . Our major message to clients is that we expect equities to be up between 5 and 10 next year. The First Quarter probably will be a little bit choppy with fiscal policy uncertainty, but having said that, earnings will grow, china market is much better, u. S. Residential housing is in good shape. So we expect stocks to be higher 12 months from thousand. You think the market trade is cheap cyclicals. Thousand. You think the market trade is cheap cyclicals. Explain the logic. Its very clear that the u. S. Housing market is in much better shape, so there are industrial stocks Stanley Works as an example that should be growing through the year almost regardless of whether the fiscal cliff gets settled in a satisfactory fashion. What i mean is if you look at usgdp estimates, were around 2 . If fiscal policymakers dont do a good job, that number probably is 1. 5, maybe a little less. If they do a good job, maybe 2. 5, maybe more. But within that range, you still should see some early cycle pro cyclical names do relatively well. U. S. Housing sensitive names cheap among those. So the hottest big cap name for the year is pulty up for 2013. Is there no on top of that . The next trade is probably more towards the companies supplying the companies. Search the Home Builders have had a nice move, but the companies that supply the Home Builders are the place that we would be oriented to. And the other thing we think thats been lost totally in this discussion is substantial improvement in the conditions of equities and economies outside of the u. S. In blaur asia x economies where he had reviss being roundly negative have now turned flat to slightly up. And so we think you get support from china and we think you get support from asia k367x economi. Thats a good point and people we talked a lot about china this morning, i wonder if you have the flexibility to trade both in and outside of the United States, is the better trade, does it continue to be in markets like we see in some areas of Eastern Europe or china . Yeah, would probably be a little more towards china and asia x than Eastern Europe. The potential for before you finish that thought, i apologize, i just want to take viewers to the senate floor and harry reid. Under the previous order then, the senate will proceed to appear morning business until noon. This is for debate only. Senators are permitted to speak 10 minutes each. The senator from iowa. From mr. President , i understand were in morning business. The senator is correct. Give you a little window into the proceedings on the senate floor. Majority leader reed just said negotiations are continuing as we speak. We just missed his comments and you saw Patrick Leahy speaking in the meantime. John harwood is live in washington with the latest. John, what might we expect at least over the next hour or two . Well, i wasnt able to hear what harry reid just said because we were on the air. And i had the piece in my ear. So i dont know exactly any other time table he gave. But what i mentioned as you and i talked a few minutes ago was the republican source was telling me expect the negotiations to keep going, that we werent going to get a deal immediately, that things have to be scored and prepared and then members have to get briefed. So well go deeper in to the day in terms of this process and when any potential votes might happen, but i would expect that if biden and mcconnell spoke at 6 30 this morning, their staffs are probably buttoning up the results of that phone call. There may be more phone calls. And then when they have got a deal, when they have it scored and agreed upon, they will come out and well all know it pretty quickly. But not just yet. Reid says fiscal cliff negotiations continue. Differences remain. Mcconnell is not on the floor. Good sign . Too busy working things out in the back room somewhere . I would think thats a good sign. If youre not going to have a deal and negotiations are going on, Mitch Mcconnell is a key player. I think some of the things that are still in play is exactly what the Tax Threshold level is. Weve talked about 400 which was the president s last offer to boehner. Weve weve talked about 450, 5 oorks all of those are possibilities about and theres an inner play between those levels and things like what happens on the estate tax, what happens on the sequester. Do they come up with two months of cuts, do they come up with three months of cuts to try to satisfy those who say, well, we may not want the across the board budget cuts that are called for under current law, but we want some cuts if were going to agree to tax increases. Thats a key republican demand. So all of those things are in play. Each movement in any one part affects the others and well vus have to s just have to see where it comes out including Capital Gains and dividends which is im assuming would go 20 . Thats down from 39. 6 which is where they would go under current law if we go over the cliff. But its up from 15 in both areas from where we are right now. Last question, john, and ill make this question. If were talking about things like Capital Gains and seques r sequester, does that mean we have moved past the biggest elephant in the room, that being income levels at which taxes increase . I dont think weve moved past it because until they announce what a level is and until the other parts of the puzzle get settled, we cant know that for sure. And the other thing we cant know for sure is how many republicans will vote with the democrats both in the senate and in the house and will john boehner put it on the floor. My guess is he will, but well see when it happens. John, appreciate you staying close to us. John harwood in washington. Well come back to you in a couple minutes and well wrap things up with andrew, head of u. S. Research. Your general point is there will be a lot of drama as we get into the new year. You say beware of adopting an automatic risk off mentality. Is that fair to say . Yeah, i think thats exactly right. If earnings continue to grow, strong themes like mobile data, u. S. Housing will continue to offer opportunities to make money, and so its a mistake to be out of the equity market all together. Easy to say despite the sentiment surrounding all the emotion today. Andrew, thank you for your time. Thank you. Obviously still no deal out of washington over the weekend, the clock officially down to the wire this evening. We have an economist who says this whole fight might not even matter. Hes jpmorgans chief u. S. Economy irs. Well talk to him next. But first Rick Santelli is working on something a little bit later on. Something a little more substantial than a pea will be coming up in about 10 to 15 minutes. Well have sean egan, one of the founders of Egan Jones Rating Agency, and well discuss whats really important and that is the fiscal cliff leading up to it, how we resolve it, and how all of that may or may not affect our rating. Make sure you want to see this one. Singlemost important goal is to protect middleclass families. Whether or not we reach whether or not we reach an agreement in the short time we have left, well need cooperation on both sides. I repeat, there is still some issues that need to be resolved before we can bring legislation to the floor. That was senator reid moments ago. Of course were keeping a close eye as to how the issues come about, whether or not they get resolv resolved. As we near the new year with no deal, our next guest says it might not matter who gets the upper hand at all. Mike, happy new year. Good to see you again. Same to you. Youre talking about a ten year time horizon even with all the drama that were witnessing todaynd at uncertainty among investor, you say long term, i think you use the words virtually guarantees the focus on the ten year guarantees longer run sustainability will not be attained despite this battle. Thats right. If you look at the long run projections, the problems really intensify after 2025 when the baby boom retirement interacts with Rising Health care costs. 2013 to 2022 basically misses when we really start to see sustainability issues get much worse. So i do think that the focus on the ten year horizon kind of guarantees that whatever solution well get doesnt address those longer term issues. I guess a lot of people would agree with you. Is there any chance though that somehow Congress Finds some discipline deep down and surprises us all . Is that even possible . Well, one can always hope, but it certainly sounds like some of the longer term entitlement reform has been taken off the table. So it sounds like if all these reports are to be believed, well just get stop gap measures here and nothing really addresses the long run growth particularly in federal health care spend which go is the really budget buster when you look out 20 to 30 years. Is there a trade behind this long term . Im not sure about that. Im just hoping that we get through and get a little bit of fiscal discipline here in the longer run without imposing too much austerity in the short run. Our concern, one of the concerns were thinking about right now is that its almost guaranteed well lose the payroll tax holiday which would imply slowdown to Consumer Spending early next year. But im not really i wouldnt really push a big trade on that myself. Judging from the kinds of numbers were looking at in the near term austerity, see questions trags and so forth, i guess im wondering, obviously you want to support the economy near term, but we need to attempt to address the longer issues. Where is that balance, what kind of cut back in the growth of spending is appropriate . I think things like, for instance, the cpi is something that does give you discipline longer term, but doesnt impry too much austerity in the short run. I think that would be ideal given the fragile state of the recovery and long run bunch the issues. Those types of reforms are ideal. And we know how far that got politically. Exactly. Do you have a 2013 view on gdp . Were looking for about 2 next year which is pretty similar to what we have for this year. A little slower in the first half of the year in large part because of some of the austerity we are forecasting. We do think things pick up in the second half of the year. Some of the austerity starts to fade. So were looking for a better second half than first half. We had another economic discussion about the return of capex somewhere in the middle of the year once we get past the tough discussions. Do you see that, as well . Yeah, over the last weeks durable goods report, were starting to see a pretty decent rewou rebound in the Fourth Quarter. So some of the slowdown is already passing. I guess the last point would be consumers. We had such hopes somewhere in the Third Quarter that they really were coming back and then these confidence numbers kept getting chipped away. We got some of the holiday sales figures that werent too hot. Would you agree with the more optimistic or pessimistic sets of data . I think for the Fourth Quarter, consumers look like they held up okay actually when we add up the numbers. We are, though, a little concerned as i said about Going Forward into january and february when you are going to see higher taxes almost certainly for almost all american taxpayers. And probably some reduced social benefits, as well. So i think that could have a potential to drag on Consumer Spending early next year. Mike, have a great new year no matter how gdp comes in. See you next time. Back to the moves within the markets here this morning. One mining stock leading the gainers. Better sha Bertha Coombs watching that for us. Iron ore player there is the best performer today. Ironically it is the seventh worst performer in the s p this year, down some 40 . And there are some who hold that if you buy the bottom ten at the end of the year, they often are among the best performers coming in to the new year. So a long way to go. The old trash to treasure trade. There you go. Also Home Builders having quite the solid run, but is the trade about to turn in the he new year. Egan jones became the first u. S. Rating agency to downgrade the countrys sovereign Credit Rating from aaa to aa. On that note, lets get to Rick Santelli in chicago. You nailed it. Sean egan of Egan Jones Rating Agency beat s p by 19 days. And i think thats admirable. Welcome, sean egan. I guess on this new years eve where the main topic is the fiscal cliff, where the main topic isnt debt and deficit reduction, what say you about how the current proceedings and the future issue of the debt ceiling will maybe impact what youre thinking about with the rating of the country as it currently stands . Rick, a number of people view this argument and the back and forth discussions in washington as negative. We take a more positive bend on it. First step is recognizing the problem and certainly washington is doing that. Theres a fundamental clash in ye yeet yol gis. The largest issue is the discussions that have to take place next year, not only with raising the debt ceiling, but also dealing with the unfunded liabilities which are estimated north of 80 trillion. On the debt clock today, i thought i saw 122 trillion. But whats a few trillion among friends. Okay. I remember the first chapter of will this book regarding rating agencies and fiscal issue and the debt ceiling. And there was an interpretation by many saying that it was the fiscal conservatives in the house of representatives that really were at fault. Do you see it that way, to you see group of fiscal conservatives in the house who are trying to totally address the issues of debt and deficits, are they the problem in your opinion, are they muckrakers that ought to be dispensed or are they the ones pointing us in the right direction . Thats my thought. What is your thought on that small group . We take the view of long term institutional investors. And they are comforted by minimal deficits and minimal future liabilities. On the other side obviously are people who view that taxes are the main issue and that taxes have to be raised. So we take a completely different view and well see how it plays out. Now, if the debt ceiling gets raised to 1 trillion, 2 trillion, its currently 16. 4 trillion, lets say it gets raised over the next couple of months to 20 trillion. Is it that level that would be your trigger oir is it what is being done or not done to address it . So is it the shear size or is it how to control it in the out year shs whats t year . Whats the trigger to pay closer attention . Good o one of the primary might bes is debt to gdp. And you can even use adjusted debt to gdp to include some off Balance Sheet liabilities. If the economy glow grows it a same right or faster than debt, that doesnt cause a problem. A lot of people point to the high level of debts post world war ii. What happened is the gdp rose and hopefully there will be know cuss focus in the next congress on growing the economy. We need to lift all votes and hopefully well see more of that in the next 12 months. Do you as a rating agent care about about tax levels, or are wretch news revenues no matter how they a rise through growth or through taxes . It depend what is were trying to accomplish. Were trying to grow the economy. And if its a tax of 75 on the rich as france has pursued, theres strong argument that that is not going to grow the economy. That therehas to be some balance to it. There has to be some simplification. There also has to be some realization take that there are limits to how fast you can grow the debt without growing the gdp without negative consequences. Youre always a good sport to come on. And should there be any adjustments to your current status of the credit quality of the u. S. , hopefully youll be on that today and we can discuss it. Happy new year. Thank you. Same to you, rick. Carl, all yours. Thanks so much for that. Negotiations on the fiscal cliff still going on of course. We have a former economic adviser to john mccain and a former economic adviser to the president to debate what going over the cliff could mean for the economy and washington. If Lawmakers Force the economy off the fiscal cliff, over 2 million jobs will be at risk, including over 956,000 Small Business jobs from Supplier Companies and mom and pop stores. Er ] at scottrade, we believe the more you know, the better you trade. So we have ongoing webinars and interactive learning, plus, inbranch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. Our teams have the information you want when you need it. Its another reason more investors are saying. [ all ] im with scottrade. While europe has been trading in large part around what were going to do or wont to in this country, thats driven trading overnight in asia. But you tonight have pan i go. You have an absence of panic on both sides. Many european markets today didnt open at all. Half days in the like of london, for example. Similarly over in spain and in amsterdam, they also had a half day today. And it was a negative bias to what was going on. London certainly fell for a second day. And this really big cap below the 6,000 level on the ftse 100. So throughout the day its been unable to break through and has made a gain now of just 5. 8 . European stocks or eurozone stocks because of course the uk isnt in the eurozone, theyve done much better because there you have the effect much the ecb. Dow jones euro stocks up slightly more now than the s p 500. And really getting a bid as draghi said that he would do all that was necessary to save the euro and specifically that it would be enough. And although youre up 14 overall, it was really the banks of course that took the bulk of that up side. And if you have a look at the bank stocks index there, from the day that he said that the day before the london olympics, you remember in july you see actually the banks are up a whopping 34 . So thats how we close out. The effect of the ecb promise to go come into the markets has had a huge effect on the price action this year. To go come into the markets has had a huge effect on the price action this year. But its clear next year will be tough. Angela merkel in a recorded address to be broadcast tonight is telling them very clearly that it will be a more difficult year next year in 2013 for them because of course while the u. S. Economy is arguably improving, the German Economy is deteriorating and much of the eurozone economy is also deteriorating. They will be in recession throughout 2013. And as the Financial Times points out today, its been fine for the ecb to promise it would wait in for 2012, but it may physically have to do that for 2013 and that may not be enough for draghi on their own. Youll have to have more Political Action from the politicians and of course you also have the question as to whether the likes of greece will hit their deficit target. So next year is tough, but for the moment lets have a pass. I think they will do that and so are we. Happy new year. Lets bring in Mary Thompson at the big board. Down 2 points. What were mostly listening for are any comments out of washington. As you mentioned, we have a mixed market. Dow down slightly, but nasdaq and s p holding on to gains. The market reacting to any comments, the latest from harry reid who at around 11 00 was saying that some issues still need to be resolved before they bring legislation to the floor. So in the wake of that, the dow has come off a bit. And also these are a couple other indicators that were watching today to get an idea of where the markets think well end up with possibly some kind of band aid deal to avoid the fiscal cliff. Take a look at the vix. This is a measure of investor fear. And today the vix is declining. Right now its on track to post one of its biggest one day decline since november 12th. So obviously that suggests that there is some hope that we will avoid going over the fiscal cliff. Weve also been watching defense stocks because they were weaker earlier today and of course they would be largely impacted by sequestration or those automatic spending cuts that are going to go into effect if indeed we fall into the fiscal cliff. However, they have actually moved higher although coming off the best levels of the day. So this group again suggesting perhaps a deal will get done. Also the euro, were watching that because it sold off sharply in the wake of senator reids comments. The dollar benefiting and remains slightly lower today. A quick check of the sectors. A bit of a risk on trade back in focus as you see gains in materials, technology and industrial stocks within the dow you see strength in caterpillar as well as ge. And a couple of stocks weve been telling you to keep watch on include douff and phelps, it has until february to look for a better offer, but it stock moving on the news of the bid. So the dow at the flat line. Back to you. Lets get to Jackie Deangelis for a check on some of the latest moves on energy and metals. Wti turning positive for the session trading above 91 a barrel right now. Traders seeing this as a positive sign for the new year in a that we would see a move. If we break through 91. 25, you could see 92 or 93. Traders are commenting that oil is turning second to gold in terms of an asset class. Thats how should you look at this investment the in 2013. Nat gas is the big loser. Declines near 3 . Seems to break down every time we get to that 3. 45 to 3. 50. If we break through, look for 3. 10 or 3. A check on gold, higher for the session. The next level there to watch is 1680, but still a lot of gold bugs out there who are bullish, they feel the uncertainty with the fiscal cliff right now lends itself to gold being a good investment. Meantime the cme also lowering its margins by 11 nap will be effective january 2nd. So you could see more boouying the precious metal. A check on copper also seeing bullish moves there as a result of that data out of china. Back over to you. Jackie, thank you very much for that. We are now in the 11th hour. Senate has reconvened. Harry reid saying at the top of the hour negotiations over the fiscal cliff still going on, but cooperation is needed on both sides. Doug holtz ekin is the president of the American Action forum. Austan goolsbee. I cant think of two guys id rather talk about this with than you two. Happy new year. Happy new year. Let me start with you, austan. You dont think its likely we get this done today. No, i really dont. I know ive been more publicly skeptical over the last couple of months than most anybody, but i still think even today, if they reach some deal, it still has to go back to the house and bring it up and vote on it, and that was kind of the root of the problem before. So i still feel like its pretty high chance we go over. Though i do think theres a pretty good chance that early in 2013 were able to short out Something Like a grand bargain and that would be pretty good. Doug, it reminds me of i just said this on twitter, all the all nighters i pulled in college where i worked really hard at the last minute, it didnt matter. I started too late, still ended up getting a crummy grade. I wonder whether you think the sequester as a tool is a success because it is going to cut spending. That was part of the point. Or a failure because it did not has not so far at least gotten the two sides together on a grand compromise. I think its terrible policy and someone who used to run a federal agency, you cant run an agency under these circumstances. So its a ridiculous thing to try to impose on managers of those agencies a quarter of the way into the physical called year and obviously it didnt force a deal. Im a little more optimistic than austan for two reasons. Theyre finally focused on the right problem. This is not the time and it has never been the time to come down with a grand bargain that changes the debt outlook for the u. S. Thats very necessary and the first order of business next year. The problem has always been the fiscal cliff and potential recession if we go over it. I remain very worried about that, but since theyre focusing on the right problem, keeping the tax increases to a minimum, trying to get past the sequester and because if they go to the house, nancy pelosi will have to deliver some votes. I think this can still get done. Austan, there a is a big economic argument whether the economy can survive as a lavatory. The term bungee jump ive heard. We do it, its quick, we bounce back, its over. Is that remotely possible . Its possible you got to hope the rope doesnt break as with the bungee jump. But i would say one of the problems of sorting it out the way that doug just described even though on some rational basis what we ought to do is just sit down and say, hey, lets not go over the cliff right now, lets sort it all out, one of the problems with that is that we lived through 2011 and the debt ceiling insanity, so i think most of the people in administration 100 will not the relive that where at the end of 2010, we put off the tax increases because the economy is weak, and then that put everything on to the debt ceiling and sort of enabled the hostage takers to do something that was very detrimental to the economy. So i think its unlikely they do that. If they can agree on lets call it the top line numbers of what a grand bargain could be, and they were willing to move the debt ceiling, then maybe they would get more traction on it. But just extending everything and putting us into a middle of february fight over the at the time ceiling again would be a catastrophic move for the economy. Doug, thats a of. That would suggest they have not evolved at all, right . I dont think theres a fair characterization. Republicans put revenue on the table, higher marginal rates on the table. What we havent seen is serious approaches to entitlement which is are part of any grand bargain. So but it is now too late for that. It is a conversation in the spring. The issue now is whether well have a selfinflicted recession. And for the administration to say, well, we want a political victory at the expense of is deal is dangerous. We wont solve our debt problems in a recession. The president has a choice. Can he get he can get a victory or he can get a deal which would be better it for the long run and better for the short run. So both sides will have to give something to get the deal done. Youd be willing to watch that play out again with the debt ceiling as a backdrop . We will have to raise the debt ceiling. And well also have to take care of the debt which is the real problem and which triggers the debt kreelg again and again. I would much rather see us get through this without a selfinflicted reserks sit down and have what will be difficult, no question talks about the trade on entitlement reform for tax reform, how that will play out. But thats a necessary part of our fiscal future. We cant avoid. To say we want to avoid that discussion is to miss the the point. Listening to you two talk, what a juxtaposition as we watch the live feed of the senate floor. Have a great 2013. Thank you. You, too. 2013 will not just ring in the new year and the potential fiscal cliff, there are a number of new laws set to take place. Jane wells will bring you some of the more interesting one ones coming up after the break. A special report on the Housing Market in 2013. Will this years turnaround see an even higher run up. If a budget is not agreed upon by congress, americans in the top 1 will see a federal tax increase of over 7 . [ cows moo ] [ sizzling ] more rain. [ thunder rumbles ] [ male announcer ] when the world moves. Futures move first. Learn futures from experienced pros with dedicated chats and daily live webinars. And trade with papermoney to testdrive the market. All on thinkorswim. From td ameritrade. Coming up at the top of the hour, phil gross is live to defend the forecast thats the talk of wall street. Hell tell you the best place to mauk mon make money in the new year. And tom lee gives you his prediction to stocks. And Green Mountain has had a big comeback. One stock, two opinions. Definitely cant afford to miss. Carl, see you in about 15. 2012 of course marked a real turnaround in housing. A major mortgage settlement gave thousands of borrowers a break on debt. Diane maa olick what is out the market for 2013. The Housing Market will continue on the road to recovery barring any unforeseen economic disasters. Thats not a prediction. Thats a fact. As the jobs picture slowly brighten, household formation is expected to grow off its lows and thats good news for both the Home Builders and for investors in the rental market. Housing starts which will end in the 800,000 range in year will top the 1 million mark in 2013 as big builders continue to see a jump in new orders. And fewer loans will become newly delinquent in 2013, but the 5 million already delinquent loans will head to foreclosure at an even faster pace as states requiring a judge in the process finally put their collective feet on the gas. The key to recovery, home prices should also continue their gains. 2013 could bring annual appreciation nationwide of 3 to 5 . But price recovery will vary widely market to market. There are of course still many unknowns facing housing. First and foremost, new mortgage regulations set to be unveiled in early 2013. Increased mortgage availability is the key to a robust recovery. So how should you play the housing recovery in the new year . David goldberg is a Home Building analyst. Good g. Mornimorning. What a year its been. List will the gainers almost somewhere near the sector, but the Builder Sentiment numbers havent been red hot lately. Does this warrant caution . I think diana hit the nail on the head there in terms of the mortgage availability, thats the real question when we look at 2013. We think about price, we think about volume. The ability to continue to get volume to increase while youre getting price. Its a lot about mortgage availability. I dont think it will get traumatically looser. Its tough to get a mortgage. Volume will slow down. So when we hear an neecdotal from various banks that theyre about to open the levers, you think thats misguided . I think you have to think about what they mean. What are the floodgates that were opening. A lot of times its banks going from not doing any lending on their Balance Sheets to doing very high quality jumbo prime loans. Well make loans that dont meet conforming loan limits, but we want 20 , 30 down, high fico scores. The marginal buyer cant get financing outside of the fha and i dont think that will change dramatically. You like beazer . We can to do like beazer. Pulte is well positioned. Beazer is a turnaround story. It is one that over the next year, year and a half, could do quite well and theres a lot more juice left in the stock. For a long time during the year people kept trying to argue the real story is one level below. Its sherwin williams, usg. True or pot . I think there was a rotation trade that happened. Builders ran up quite a bit in the beginning of the year. Ran up again in the second half. People look for ancillary ways to play housing. Those names have caught up a lot in terms of valuation. You can be choosy. We like mohawk a lot. But i think you have to be choosy in terms of valuation because thief had big runs, too. You point out for december traffic perspective buyers. Pretty good, right . How would you characterize it . I think what we did see this year which is pretty interesting, normally there is a lot of seasonality. Summertime, things drop off. Gets better for a little bit in fall and then slows down toward the end of the year. We havent seen that seasonality. Things have stayed strong. A lot has to do with afford ability. We have inexpensive 30 year fixed rate mortgage. The other thing is if you already own a home, if youre a move up buyer thats owned a home, great rates, great time to be in the market. The real concern is the entry level buyer. We need them to come back into the Home Ownership market to drive this to be a more robust recovery. And there youre talking about demographics and household creation, things like that. And mortgage availability. Thats the big thing. Normally youd see the Mortgage Market be pro cyclical. How about policy land mines. Do you believe that a mortgage Interest Deduction could be changed and if so the Realtor Association always it wod be armageddon. True or not . I dont think it would be armageddon. I think you have a psychological bump that happens to buyers. The truth is the real meat of the market here where it would be impactful is the entry level buyer, the person buying 150,000, 250,000 house. Most dont itemize their taxes any way. Its psychological. Creates a negative press in the media. It lasts for a bit of time and then kind of wears off. There is room for regulatory issues. We look at qualified mortgage standard in early january trying to define what is a qualifying mortgage. What is somebodys ability to repay. We look at qrm, capital adequacy rules. There is the potential for land mines. Landmines, i dont think they are going to happen. I think what we have to think about is in a housing cycle, mortgage underwriting should get easier. It is very procyclical. I dont think you will see that as before. It will be kind of just, hey, it will get a little looser than where it is now, but well put a line in the sand that you cant go beyond as a lender. And that prevents the robust recovery. It will get better, just not that much better. Really interesting viewpoint. It must be fun to cover one of the things going right for the economy at large, at least. David, thank you for your time. Thank you, carl. Appreciate you having me. Happy new year. What will dogs, bobcats, motorcycles and inline skates have in common in the new year . Jane will tell you coming up. Dont go away. Hundreds and hundreds of new laws take Effect Tomorrow all across the country with the start of the new year. Quite a few of them on the rather peculiar side. Our own jane wells is here to talk us through a few of the more interesting ones. Jane, good morning to you. Hey, carl. Well start in the golden state. Beginning tomorrow you can no longer use a dog to go bear or bobcat hunting in california, which totally screws up my hunting season because i was going to take princess lea with me seen here in my christmas card. Speaking of the bulls, motorcycle owners have won the critical longfoughtfor right to buy sportsthemed license plates. Yes, it has happened in our time. Also in illinois, motorcycles can now run red lights if they wait a, quote, reasonable period of time, which is not defined. This is to avoid waiting forever for the light to change because the bicycles dont weigh enough to trigger sensors. And they have to share the road with inline skaters like those seen here in illinois. Skaters can now legally skate on roads where the speed limit is as high as 45, except in chicago. I see no problems with this. And down in florida, starting tomorrow, you can legally flash your lights at oncoming traffic to warn driver that is police have a speed trap ahead. Someone was actually threatening a classaction suit over this. Okay. I asked folks on twitter for new laws they would like to see. This is one im talking about from duck42l. Mandatory jail time for creating new reality shows. From macdsurry we haver. 20 to life for people that go to sub shops and go all deerin highlights when asked what fixins they want on sub. And guyadami says nba players should not be allowed by law to slap teammates hand. And finally, osubmeyr says, Congress Works for free in 2013 since we paid them to do nothing in 2012. I think that would get 100 of the vote. Good luck getting that through congress. Jane, happy new year to you. Jane wells in los angeles. Tweet time. The phrase that got the most nomination this is year on lake superiors list to banish fiscal cliff. What other phrases should be banned . Tweet us squawkstreet and well get your responses after the break. But shes still going to give me a heart attack. Thats health in numbers. Unitedhealthcare. Time for squawk on the tweet. The phrase of fiscal cliff is on the list of words to be banished. We have asked you, what other phrases should be banned and why . Got a lot of good ones this time. Jeff writes, ban the phrase greek bailout, just leave the euro and bring back the drachma. And tom writes, at the end of the day, the most overused phrase in the world today is at the end of the