By Isobel Kennedy

NEW YORK, Dec 5 (MNI) – The debate over whether the U.S. will or will not
go over the fiscal cliff already dominates the financial markets and might start
to dominate the consumer sector soon.

“Only 25 more shopping days until we go off the Fiscal Cliff,” one funny
mortgage trader said.

People might plan holiday parties with the caveat that they will be
cancelled if we go off the cliff.

People might contract to buy a car or a house as long as the deal can be
voided if the cliff takes place.

They might also buy furniture, clothes or jewelry as long as they can get a
full refund if the U.S. plunges off the cliff.

Will doctors and hospitals take patients and schedule procedures only if
they are assured of getting paid? Will it begin to affect registrations for
schools, ballet lessons and gyms? Will people demand paychecks in advance?

While the White House continues to make positive statements that a deal can
be reached, they also admitted that the Office of Budget and Management put out
an order earlier this week telling federal agencies to prepare for possible
spending cuts.

And the difficult thing for the financial markets is knowing who to believe
and who not to believe.

Are the players just putting out happy talk to sound confident? Are the
naysayers talking tough to scare the opposition into submission?

More importantly, is anyone doing or saying anything constructive in
private?

There was news Wednesday that 100 members of Congress finalized a letter to
the Joint Select Committee on the Deficit Reduction saying “everything should be
on the table and the goal should be closer to $4 trillion rather than the $1.2
trillion in deficit reduction required under the Budget Control Act.”

This letter finalizes the announcement they made Nov 2, It sounds like
progress, but is it?

The Treasury market rallied in mid-morning as stocks dove. The 10-year note
hit a low yield of 1.576%. No one was quite sure what prompted the move in
stocks or bonds but it is proof that the Treasury market is very nervous.

The issue quickly returned to 1.59% as the market could not hold the higher
levels. There is just too much uncertainty on either the up or the down side due
to the fiscal cliff for the market to move too far from home right now.

Another piece of the puzzle will be revealed this Friday when the monthly
jobs report is released. Economists are calling for gains in the 70,000 to
112,000 area.

The ADP private payroll date showed a gain of 118.000 jobs in November.

Traders said the ADP report also said, “Superstorm Sandy wreaked havoc on
the job market in November, slicing an estimated 86,000 jobs from payrolls. The
manufacturing, retailing, leisure and hospitality, and temporary help industries
were hit particularly hard by the storm. Abstracting from the storm, the job
market turned in a good performance during the month.”

The November nonmanufacturing Institute for Supply Management Index printed
at 54.7 versus a storm depressed 54.2 in October. New Orders rose to 58.1
following 54.2 prior.

October factory new orders rose 0.8%, much better than expectations of a
0.1% decline. Durable goods orders were revised up to show a gain of 0.5% after
the previous flat reading. Nondurable rose 1.1% in October.

Stay tuned. It could be a rocky road leading up to the holidays this year.

NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury
trading rooms, as well as some sister market trading rooms, and is offered as a
gauge of the mood the financial markets. It is not necessarily hard, verified
news.

–MNI New York Bureau; tel: +1 212-669-6434; email: ikennedy@mni-news.com

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