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Is fiscal cliff getting a 'bad rap' for all the market angst?

These are stories Report on Business is following Friday, Nov. 16, 2012.

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The cliff
Avery Shenfeld notes today that the so-called fiscal cliff may be getting a "bad rap" for all the angst among investors.

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There has to be more behind the market fears, the chief economist of CIBC World Markets said .

"It might be that the impending deadline is a factor hitting risk assets, but it can't be the whole story," he said.

"There are other reasons beyond the Washington beltway, for equities falling under pressure, which will not be as quickly reversed by a budget deal stateside," Mr. Shenfeld added.

The fiscal cliff, a phrase used by Federal Reserve chairman Ben Bernanke and adopted widely, refers to a combined hit from tax hikes and spending cuts that would go into effect Jan. 1 if no deal is reached in Washington.

President Barack Obama met in Washington today with congressional leaders, and, according to the White House, everyone agreed to do what they can to avert catastrophe.

Indeed, there are other troubles weighing on the minds of investors, including the uncertainty that still dogs Europe and some troubling corporate earnings reports. Not to mention the hostilities in the Middle East.

"Q3 earnings for the S&P 500 have done little to inspire, and the guidance for Q4 looks downright ugly, with nearly four downgrades for every upgrade," Mr. Shenfeld said in a report.

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"Concerns about specific tech companies have dented the index's largest component. Another part of this story is the darkening cloud over Europe, a region that typically accounts for 15 per cent of S&P 500 profits. Euro zone GDP didn't do any worse than expected in Q3, but higher frequency data bodes ill for Q4."

As Mr. Shenfeld and others have noted, a Band-Aid solution would likely be found early in the new year if no deal is reached. Perhaps a short-term deal to defer some of the tax increases and cutbacks, he said.

"That won't be enough, however, to accelerate economic growth on its own, or return equities to a sustained bull run," Mr. Shenfeld said.

"For that, we will need more progress in lightening up on Europe's own fiscal cliff (one it jumped over, unfortunately), stimulus to kick in in China, and the U.S. to get through enough of its still measurable fiscal drag in 2013 to have investors looking ahead to better times in 2014."

Chief economist David Rosenberg of Gluskin Sheff + Associates also cited the host of issues today.
"Concerns over the heightened tensions around Gaza (the rockets are now hitting Tel Aviv), the fiscal cliff, earnings season (Dell's the latest to release poor results, especially on the revenue line) and the euro area (particularly a Greek insolvency) … are at the heart of the renewed investor anxiety," he said.

Hostess to shut down
Hostess Brands Inc. says it's shutting down amid a strike that "crippled the company's ability to produce and deliver products" across the United States, throwing some 18,500 people out of work.

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Hostess, whose well-known brands include Twinkies, Wonder Bread and Ding Dong, among others, had warned the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union it would close up shop if the strike didn't end by late yesterday.

Today, the strike-bound food manufacturer said it is "winding down operations" and has filed documents with the U.S. Bankruptcy Court for permission to shut down completely and sell off assets.

"Hostess Brands is unprofitable under its current cost structure, much of which is determined by union wages and pension costs," the company said.

"The offer to the BCTGM included wage, benefit and work rule concessions but also gave Hostess Brands' 12 unions a 25-per-cent ownership stake in the company, representation on its board of directors and $100-million in reorganized Hostess Brands' debt."

Affected are 33 bakeries, more than 550 distribution operations and 570 stores in the U.S. Montreal's Saputo Inc. holds the rights to Hostess in Canada, though George Weston Ltd. holds Wonder Bread.

The Hostess workers have been on strike for a week as the company sought concessions and the union held firm. The International Brotherhood of Teamsters, the biggest union at Hostess, had already struck a deal with the company.

Employees say they have given enough for the struggling firm.

"We want to go back to work," Dan Carlson, who has worked at the Hostess operation in Lenexa, Kansas, for six years, told Reuters yesterday. "We can't keep giving."

The company, however, which started up in 1930, said it can't go on under its current cost structure. The motion to close was made to the court overseeing its Chapter 11 credit proceedings.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," said chief executive officer Gregory Rayburn.

"Hostess Brands will move promptly to lay off most of its 18,500-member work force and focus on selling its assets to the highest bidders."

The company added it has access to $75-million in debtor-in-possession financing as it winds down its operations and moves to sell its brands, of which there are about 30.

"I'm certainly hopeful we can sell the brands and that the brands can live on," Mr. Rayburn told CNBC today.

"They are iconic."

Hostess said that in September, the union rejected its final offer that was "designed to lower costs so that the company could attract new financing and emerge from Chapter 11."

Astral confirms BCE talks
Astral Media Inc. confirmed today it's in talks with BCE Inc. to amend a $3-billion takeover agreement one month after it was rejected by Canada's federal communications regulator, The Globe and Mail's Jacquie McNish and Simon Houpt report.

Sources suggested a new deal could see some of Astral's assets sold off separately to ensure Bell does not exceed thresholds of market concentration set by the CRTC.

The stakes are high for BCE to complete the Astral acquisition. It is on the hook to pay a $150-million break fee to Astral if its takeover bid fails.

The deal, one of the largest in BCE's history, would finally give the Montreal-based company a fully national media presence.

Petronas goes back to Ottawa
Malaysia's Petronas is taking  a second run at Progress Energy Resources Corp. after being rebuffed by the Canadian government.

Petronas and Progress had already said they were in talks with Canadian officials.

Today, news outlets reported that a revised offer has now been put in.

Canadian officials rejected the bid for Progress, saying it failed the country's "net benefit" test.

Also under scrutiny is a bid by China's CNOOC Ltd. for Canadian energy giant Nexen Inc.

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