Just Explain It: Why the Fiscal Cliff May Trigger a Recession

Lawmakers in Washington appear to be making little to no progress in avoiding the impending so-called fiscal cliff. House Speaker John Boehner, R-Ohio, said Friday the negotiations are "almost nowhere." On Thursday Boehner rejected a proposal from the Obama administration saying that the Democrats need to "get serious about real spending cuts." President Obama's offer continues to call for higher taxes on the wealthy and an extension of the payroll tax cut. But Republicans say they will not agree to a plan that raises taxes. As the country continues to head toward the fiscal cliff, this Just Explain It helps to make sense of what it is. On December 31st, most of us would like to be thinking about a prosperous new year ahead…drinking bubbly and singing Auld Lang Syne with friends. But there's a chance we could be singing a different tune if President Obama and Congress don't agree on measures to avoid the fiscal cliff. First, let me explain what the fiscal cliff is. The fiscal cliff refers to the potentially disastrous situation the U-S faces at the end of this year. At midnight on December 31st, a number of laws are set to expire. If the President and the Republicans don't reach an agreement before then, Americans could face broad government spending cuts and tax increases on January 1st. The combined amount would total over 500 billion dollars. Those 500 billion dollars equal about three to four percent of the nation's entire gross domestic product. This is what's referred to as the fiscal cliff. If there isn't a resolution, here are the specifics of what will happen. Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past. So would President Obama's payroll tax cut which added about a thousand dollars a year to the average worker's income. Government spending would be slashed. That means less money for most military, domestic and federal programs. $26 billion in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11 billion. Federal programs would take the biggest hit. They stand to lose a total of $65 billion. If the fiscal cliff isn't avoided, some investors will be hit hard. Those who receive qualified dividends could see the tax rate on those dividends go from 15% to almost 40% in 2013. Many business owners believe going over the fiscal cliff will cripple the economy, triggering a deep recession. They fear demand for their products or services will decrease because consumers will have less money to spend. It also means that they won't be able to afford new hires or expand their businesses. Since most Americans would be paying more in taxes, they'd be less inclined to make big purchases, like a home or a new car. None of this is set in stone, but that's part of the problem. Markets, businesses and people in general hate uncertainty. The fear of the unknown facing us at the beginning of next year is exactly why so many people are so worked up over the fiscal cliff. Did you learn something? Do you have a topic you'd like explained? Give us your feedback in the comments below or on twitter using #justexplainit.

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Legendary Indian sitarist, composer Ravi Shankar dead at 92

Sitarist and composer Ravi Shankar, who helped introduce the sitar to the Western world through his collaborations with The Beatles, died in Southern California on Tuesday, his family said. He was 92. Shankar, a three-time Grammy winner with legendary appearances at the 1967 Monterey Festival and at Woodstock, had been in fragile health for several years and last Thursday underwent surgery, his family said in a statement. "Although it is a time for sorrow and sadness, it is also a time for all of us to give thanks and to be grateful that we were able to have him as a part of our lives," the family said. "He will live forever in our hearts and in his music." In India, Prime Minister Manmohan Singh's office posted a Twitter message calling Shankar a "national treasure and global ambassador of India's cultural heritage." "An era has passed away with ... Ravi Shankar. The nation joins me to pay tributes to his unsurpassable genius, his art and his humility," the Indian premier added. Shankar had suffered from upper respiratory and heart issues over the past year and underwent heart-valve replacement surgery last week at a hospital in San Diego, south of Los Angeles. The surgery was successful but he was unable to recover. "Unfortunately, despite the best efforts of the surgeons and doctors taking care of him, his body was not able to withstand the strain of the surgery. We were at his side when he passed away," his wife Sukanya and daughter Anoushka said. Shankar lived in both India and the United States. He is also survived by his daughter, Grammy-winning singer Norah Jones, three grandchildren, and four great-grandchildren. Shankar performed his last concert with his daughter Anoushka on November 4 in Long Beach, California, the statement said. The night before he underwent surgery, he was nominated for a Grammy for his latest album "The Living Room Sessions, Part 1." 'NORWEGIAN WOOD' TO 'WEST MEETS EAST' His family said that memorial plans will be announced at a later date and requested that donations be made to the Ravi Shankar Foundation. Shankar is credited with popularizing Indian music through his work with violinist Yehudi Menuhin and The Beatles in the late 1960s, inspiring George Harrison to learn the sitar and the British band to record songs like "Norwegian Wood" (1965) and "Within You, Without You" (1967). His friendship with Harrison led him to appearances at the Monterey and Woodstock pop festivals in the late 1960s, and the 1972 Concert for Bangladesh, becoming one of the first Indian musicians to become a household name in the West. His influence in classical music, including on composer Philip Glass, was just as large. His work with Menuhin on their "West Meets East" albums in the 1960s and 1970s earned them a Grammy, and he wrote concertos for sitar and orchestra for both the London Symphony Orchestra and the New York Philharmonic. Shankar served as a member of the upper chamber of the Parliament of India, from 1986 to 1992, after being nominated by then Indian Prime Minister Rajiv Gandhi. A man of many talents, he also wrote the Oscar-nominated score for 1982 film "Gandhi," several books, and mounted theatrical productions. He also built an ashram-style home and music center in India where students could live and learn, and later the Ravi Shankar Center in Delhi in 2001, which hosts an annual music festival. Yet his first brush with the arts was through dance. Born Robindra Shankar in 1920 in India's holiest city, Varanasi, he spent his first few years in relative poverty before his eldest brother took the family to Paris. For about eight years, Shankar danced in his brother's Indian classical and folk dance troupe, which toured the world. But by the late 1930s he had turned his back on show business to learn the sitar and other classical Indian instruments. Shankar earned multiple honors in his long career, including an Order of the British Empire (OBE) from Britain's Queen Elizabeth for services to music, the Bharat Ratna, India's highest civilian award, and the French Legion d'Honneur.

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McAfee arrives in U.S. from Guatemala

Computer software pioneer John McAfee, who is wanted for questioning in Belize over the murder of a fellow American, arrived in Miami on Wednesday evening after he was deported by Guatemala, according to fellow passengers on an American Airlines flight. After landing, McAfee, 67, was escorted from the plane by airport security officers, passengers said. Shortly afterward, he tweeted, "I am in South Beach," referring to the popular tourist area on Miami Beach. "Some people felt uncomfortable that he was on our flight. ... We all knew the story," said Maria Claridge, 36, a South Florida photographer who was on the Silicon Valley entrepreneur's flight to Miami. McAfee, who was seated in the coach section and had a whole row to himself, was wearing a suit and was "very calm" during the flight, she added. "He looked very tired, he looked like a man who hadn't slept in days. I'd say he even looked depressed," said another passenger, Roberto Gilbert, a Guatemalan who lives in Miami. McAfee had been held for a week in Guatemala, where he surfaced after evading police in Belize for nearly a month following the killing of American Gregory Faull, his neighbor on the Caribbean island of Ambergris Caye. Police in Belize want to quiz McAfee as a "person of interest" in Faull's death, although the technology guru's lawyers blocked an attempt by Guatemala to send him back there. Authorities in Belize say he is not a prime suspect in the investigation. McAfee has denied any role in Faull's killing. The goateed McAfee has led the world's media on a game of online hide-and-seek in Belize and Guatemala since he fled after Faull's death, peppering the Internet with pithy quotes and colorful revelations about his unpredictable life. "I'm happy to be going home," McAfee, dressed in a black suit, told reporters shortly before his departure from Guatemala City airport on Wednesday afternoon. "I've been running through jungles and rivers and oceans and I think I need to rest for a while. And I've been in jail for seven days." Guatemala's immigration authorities had been holding McAfee since he was arrested last Wednesday for illegally entering the country with his 20-year-old Belizean girlfriend. The eccentric tech pioneer, who made his fortune from the anti-virus software bearing his name, has been chronicling life on the run in a blog, www.whoismcafee.com. He said he had no immediate plans after reaching Florida. "I'm just going to hang in Miami for a while. I like Miami," he told Reuters by telephone just before his plane left. "There is a great sushi place there and I really like sushi." BELIZE STILL WAITING Residents of the Belizean island of Ambergris Caye, where McAfee has lived for about four years, said McAfee and Faull, 52, had quarreled at times, including over McAfee's unruly dogs. McAfee says Belize authorities will kill him if he turns himself in for questioning. He has said he was being persecuted by Belize's ruling party for refusing to pay some $2 million in bribes. Belize's prime minister has rejected the allegations, calling McAfee paranoid and "bonkers. Belize police spokesman Raphael Martinez said the country still wanted to question McAfee about the Faull case. "He will be just under the goodwill of the United States of America. He is still a person of interest, but a U.S. national has been killed and he has been somewhat implicated in that murder. People want him to answer some questions," he said. Martinez noted that Belize's extradition treaty with the United States extended only to suspected criminals, a designation that did not currently apply to McAfee. "Right now, we don't have enough information to change his status from person of interest to suspect," he said. Residents and neighbors on Ambergris Caye said McAfee was unusual and at times unstable. He was seen to travel with armed bodyguards, sporting a pistol tucked into his belt. The predicament of McAfee, a former Lockheed systems consultant, is a far cry from his heyday in the late 1980s, when he started McAfee Associates. McAfee has no relationship now with the company, which was sold to Intel Corp. McAfee was previously charged in Belize with possession of illegal firearms, and police had raided his property on suspicions that he was running a lab to produce illegal synthetic narcotics. He said he had not taken drugs since 1983. "I took drugs constantly, 24 hours of the day. I took them for years and years. I was the worst drug abuser on the planet," he told Reuters before his arrest in Guatemala. "Then I finally went to Alcoholics Anonymous, and that was the end of it.

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Mick Jagger love letters fetch $300,000 at auction

A collection of love letters written by Rolling Stones frontman Mick Jagger to American singer Marsha Hunt, believed to be the inspiration for the band's hit single "Brown Sugar", sold at Sotheby's on Wednesday for 187,250 pounds ($301,000). The 10 letters, dating from the summer of 1969, had been expected to fetch 70-100,000 pounds, according to the auctioneer. "The passage of time has given these letters a place in our cultural history," Hunt said after the London sale. "1969 saw the ebbing of a crucial, revolutionary era, highly influenced by such artists as The Beatles, The Rolling Stones, James Brown and Bob Dylan. "Their inner thoughts should not be the property of only their families, but the public at large, to reveal who these influential artists were - not as commercial images, but their private selves." Hunt, with whom Jagger had his first child, Karis, told Britain's Guardian newspaper last month that she was selling the letters, written in July and August 1969, because she had been unable to pay her bills. "I'm broke," Hunt, who lives in France, told the newspaper. Jagger wrote them to Hunt while filming the Tony Richardson movie "Ned Kelly" in Australia. They showed a sensitive side of the then-young singer, who wrote about the poetry of Emily Dickinson, meeting author Christopher Isherwood and an unrealized multimedia project. Jagger's relationship with Hunt, who is African-American, was kept under wraps until 1972. Hunt has said she was the inspiration for Brown Sugar, which Jagger wrote while in Australia. The rock star also cites in the letters the disintegration of his relationship with singer Marianne Faithfull, whom he was also dating at the time, and the death of Rolling Stones' guitarist Brian Jones. There has been a surge in interest in the rock band this year, as Jagger and his three surviving bandmates celebrate the 50th anniversary of the Stones with a series of concerts, a photo book and a greatest hits album.

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Singer-songwriter Carole King to receive U.S. Gershwin prize

American singer-songwriter Carole King will be awarded the Library of Congress Gershwin Prize for Popular Song, the U.S. national library said on Thursday. The multiple Grammy Award winner co-wrote her first No. 1 hit at age 17 with then-husband Gerry Goffin and was the first female solo artist to sell more than 10 million copies of a single album, with her 1971 release "Tapestry." The prize honors individuals for lifetime achievement in popular music, the library said. It is named after songwriting brothers George and Ira Gershwin. King, now 70, topped the charts with the song "It's Too Late" in 1971, but is best known for her work performed by others, including "You've Got a Friend" by James Taylor and "(You Make Me Feel Like) A Natural Woman" by Aretha Franklin. "I was so pleased when the venerable Library of Congress began honoring writers of popular songs with the Gershwin Prize," King said in a statement. "I'm proud to be the fifth such honoree and the first woman among such distinguished company." King and Goffin wrote some the biggest hits of the 1960s before their nine-year marriage ended in 1968. They rose to prominence in 1960 writing "Will You Love Me Tomorrow" for the Shirelles. The duo also scored hits with "Take Good Care of My Baby," performed by Bobby Vee in 1961, "The Loco-Motion," performed by Little Eva in 1962 and "Pleasant Valley Sunday," performed by The Monkees in 1967, among others. New York-born King did not hit it big as a singer until 1971, when "Tapestry" topped the U.S. album charts for 15 weeks, then a record for a female solo artist. Past recipients of the award include Paul Simon, Stevie Wonder, Paul McCartney and songwriting tandem Burt Bacharach and Hal David.

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Analysis: Rating agencies won't cut U.S. on fiscal cliff - yet

NEW YORK (Reuters) - The stalled progress in the Washington budget battle may be rattling markets but the gridlock among policymakers will not move the rating agencies to downgrade the United States - yet. The U.S. credit rating is far from safe. All three major agencies have negative outlooks on the United States, which suffered its first downgrade in history last year when Standard & Poor's stripped it of its triple-A rating. But the fiscal cliff is only one event in a series of issues that will see ratings agencies looming over Washington for months. Investors sold off riskier assets such as stocks on Friday and scooped up safe-havens such as the dollar and U.S. Treasuries after Republican Representative John Boehner failed to find enough support from his own party to push a measure raising taxes on millionaires through the House of Representatives. With Boehner's leadership as speaker of the House on the line, markets worry he can't get any tax plan through Congress at all - much less the stricter terms Obama wants in what's becoming the latest drawn-out political budget debacle. Dysfunction in Washington was specifically cited as one of the reasons Standard & Poor's cut the U.S. debt rating to AA-plus in August 2011. The "fiscal cliff" itself will reduce the deficit, but Fitch has said that a continuing political standoff could cost the country its top-notch rating. "This potential for continued gridlock among legislators could have profound effects for the U.S. economy," Standard & Poor's said in a report after the November elections. Without a budget deal among lawmakers, the fiscal cliff, a package of $600 billion in automatic tax hikes and spending cuts, will begin to kick in January 1 and could push the economy into recession. If investor hope is fading, though, the rating agencies still have some confidence. Fitch still sees a compromise before year-end, spokesman Brian Bertsch confirmed. "That base case has not changed" from a previous view, he said. But failure could lead to a rating cut. If the fiscal fracas drags into next year and looks set to hurt the economy, "the U.S. sovereign rating could be subject to review, potentially leading to a negative rating action," Fitch said in a report on Wednesday. Moody's will probably resolve its negative outlook on the U.S. rating in 2013, as well, but how remains to be seen. A spokesman for Moody's said on Friday that the rating agency's view hasn't changed since it issued a report in September saying that the United States could be off the hook for a potential downgrade if there is a medium-term plan that stabilizes the debt and reduces it as a percentage of GDP. In the event of a plan without such policies, "we would expect to lower the rating, probably to Aa1," according to the report, co-authored by Moody's lead sovereign credit analyst on the United States, Steven Hess. Moody's might take some time to assess a plunge over the fiscal cliff - but not beyond 2013. In contrast, of the three major agencies, Standard & Poor's is the least likely to act soon, since the agency cut the U.S. rating to AA-plus last August after intransigence on the debt ceiling debates dented confidence in policymakers.

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ICE's NYSE swoop creates derivatives giant

LONDON/NEW YORK (Reuters) - IntercontinentalExchange Inc agreed as part of its $8.2 billion takeover of NYSE Euronext to pay the New York Stock Exchange operator a termination fee of $750 million if it fails to gain antitrust clearances, suggesting a high level of confidence the deal will go through. Big Board parent NYSE could get out of the arrangement for a fee of $300 million if a sweeter deal were to come along, according to a regulatory filing on Friday. ICE failed last year to buy NYSE in a joint bid with Nasdaq OMX Group . At the time, NYSE was involved in year-long pursuit to sell itself to Frankfurt's Deutsche Bourse . In the end, regulators killed both deals, saying they would be anti-competitive. On its own, Atlanta-based ICE lacks the massive equities operations of Nasdaq or Deutsche Bourse, so there is less overlap between the two exchanges, antitrust lawyers said, making regulatory approval far more likely. Some in the industry have suggested that CME Group could table a competing offer for NYSE, but they said that would not be likely for several reasons, including the break-up fee. People familiar with the deal said other issues include potential antitrust concerns and the fact that under the latest agreement, NYSE's Liffe business will do all its clearing through ICE regardless of whether the deal goes through. "The clearing deal they signed is like a second break-up fee," one of the people said. Also, CME has not been known for making large deals. "It does not seem to be in its DNA," said Adam Sussman, director of research at Tabb Group. NYSE CEO Duncan Niederauer acknowledged a higher bid could come along, but that NYSE would not chase after a deal unless it was almost certain it would pass regulatory muster. "If we did that for another year and at the end we are told, 'we are not going to allow you to do this because of the overlap of your businesses,' we would look beyond foolish," he said in an interview on Thursday. FOUR-WAY BATTLE The deal, announced Thursday, would give 12-year old commodities and energy bourse ICE a powerful presence in Europe's lucrative financial derivatives market through control of NYSE Liffe, Europe's second-largest futures exchange, and a major advantage over U.S.-based rivals CME and Nasdaq. All three want to challenge Deutsche Boerse's European dominance. A shake-up in banking regulation is expected to increase demand sharply for clearing financial derivatives through such exchanges. "The deal would place a bigger and more aggressive competitor on Deutsche Boerse's doorstep," said Richard Perrott, an analyst at Berenberg Bank. Regulatory changes in the wake of the financial crisis are forcing banks to channel derivatives business through clearing houses and regulated exchanges to ensure their risk positions can be better monitored than they were when bank dealers were trading complex contracts directly among themselves. The reforms are expected to be fully operational in Europe in 2014. ICE's takeover of NYSE Liffe will give it an advantage of existing presence in Europe over Chicago-based CME, owner of the world's largest futures market, and New York's Nasdaq, both of which plan to open their own London-based exchanges next year. THE PRIZE While the New York Stock Exchange, an enduring symbol of American capitalism, is NYSE Euronext's prestige business, London's Liffe is the real jewel in the crown. With profits from stock trading significantly eroded by new technology and the rise of other places for investors to trade, the stock market businesses like NYSE are less valuable to ICE. The company has said it will try to spin off NYSE's Euronext European stock market businesses in a public offering. This has generated speculation, which the company has denied, that it may also have little interest in the NYSE trading floor on Wall Street. NYSE made an operating income of $473 million from Liffe in 2011 on revenues of $861 million compared to an income of $533 million on revenues of $1.3 billion from its equities business. ICE's Jeff Sprecher will be CEO of the combined organisation and Duncan Niederauer, the NYSE Euronext CEO, will be president - a post he said he plans to remain in until at least 2014. The two are longtime friends. ICE started out as an online marketplace for energy trading before Sprecher initiated a string of acquisitions, from the London-based International Petroleum Exchange in 2001, to the New York Board of Trade and, most recently, a handful of smaller deals, including a climate products exchange and a stake in a Brazilian clearing house. A combined ICE-NYSE Euronext would leapfrog Deutsche Boerse to become the world's third largest exchange group with a combined market value of $15.2 billion. CME Group has a market value of $17.5 billion, Thomson Reuters data shows. Hong Kong Exchanges and Clearing is the world's largest exchange group, with a market cap of $19.5 billion.

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California jobless rate dips below 10 percent

SACRAMENTO, Calif. (AP) — After a long twilight, business is booming again at Matt Construction as high-end orders come in for hotels and office complexes. The Los Angeles-area company increased hiring by about 20 percent this year, adding 30 employees as more construction jobs — and bigger ones — piled up. Such stories are a major reason California's jobless rate dipped below 10 percent last month for the first time since the recession began. The 9.8 percent unemployment rate reported Friday by the Employment Development Department is down from 10.1 percent in October. The last time the unemployment rate was in single digits was in January 2009, when the number was 9.7 percent. The improvement, led by a surge in technology jobs that have spurred a wave of new construction, comes as something of a surprise. Leading economists had predicted that California's unemployment rate would remain in double digits through 2013. Al Matt, executive vice president of Matt Construction, said his Santa Fe Springs-based company has seen a strong recovery from the height of the recession in 2009, when revenues dropped by half. "Overall, our revenues are up in 2012 by a substantial amount, as much as 30 percent," he said. "It looks like next year will be a similar sort of increase." There are other positive signs. The number of unemployed Californians dropped to 1.8 million, also the lowest number in nearly four years. The state has added more than 564,000 nonfarm payroll jobs since the economic recovery began in 2010. "The job gains have been fairly widespread," said economist Jerry Nickelsburg, a professor at the University of California, Los Angeles. "We're finally seeing an increase in construction, particularly single-family housing." He added that such signs are "continued evidence that California's economy is growing and is recovering." Experts say growth in single-family housing and construction are good indicators of recovery because they signal increased wealth, relatively high-paying blue-collar jobs, and general optimism. The danger of a downturn still lurks, however, most immediately in the form of the impending "fiscal cliff." Business and government officials have warned that fallout from ongoing budget negotiations at the nation's capital could halt California's recovery. Without a deal, automatic spending cuts will slash local government budgets and raise tax rates for workers as the nation struggles to get over the effects of the Great Recession. Also, unemployment benefits for 400,000 Californians would expire next month without an agreement from Congress and the president. Also, despite the gains indicating one of the nation's fastest growing economies, California still lagged behind the national unemployment rate of 7.7 percent. About 14.4 million Californians were working last month, and the recovery varied significantly across the state. Imperial County had a whopping 26.6 percent unemployment rate, while rates in many inland counties remained in the double digits. Expansion in high-paying technology jobs helped the San Francisco Bay Area remain the state's growth leader, said Stephen Levy, a senior economist at the Center for Continuing Study of the California Economy. The unemployment rate was 5.8 percent in Marin County, while San Francisco and San Mateo counties hovered above 6 percent. The information sector, meanwhile, showed the biggest percentage gain in jobs over the last year, up nearly 6 percent. Growth in San Diego County also has been strong, Levy said. Los Angeles County and others nearby also have joined the recovery, while the Central Valley is slowly regrouping. The capitol region, where government is a large employer, still is lagging, Levy said in an email. Government employment showed the biggest losses in Friday's report, down 34,500 jobs in the last year, indicating an overall decline in spending. The contraction has meant less money for public projects like road construction, said Skip Brown, owner of road contractor Delta Construction Co. in Sacramento. Brown said he hasn't taken a paycheck from his own company in five years, and his salaried employees have eaten pay cuts up to 40 percent. Meanwhile, stricter air pollution standards mean most of his heavy diesel equipment will be illegal to use in California in coming years. Brown said if he can't sell the 69-year-old firm started by his father, he'll close the doors once he can no longer operate his paving and grading equipment.

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Wall Street Week Ahead: A lump of coal for "Fiscal Cliff-mas"

NEW YORK (Reuters) - Wall Street traders are going to have to pack their tablets and work computers in their holiday luggage after all. A traditionally quiet week could become hellish for traders as politicians in Washington are likely to fall short of an agreement to deal with $600 billion in tax hikes and spending cuts due to kick in early next year. Many economists forecast that this "fiscal cliff" will push the economy into recession. Thursday's debacle in the U.S. House of Representatives, where Speaker John Boehner failed to secure passage of his own bill that was meant to pressure President Obama and Senate Democrats, only added to worry that the protracted budget talks will stretch into 2013. Still, the market remains resilient. Friday's decline on Wall Street, triggered by Boehner's fiasco, was not enough to prevent the S&P 500 from posting its best week in four. "The markets have been sort of taking this in stride," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago, which has about $38 billion in assets under management. "The markets still basically believe that something will be done," he said. If something happens next week, it will come in a short time frame. Markets will be open for a half-day on Christmas Eve, when Congress will not be in session, and will close on Tuesday for Christmas. Wall Street will resume regular stock trading on Wednesday, but volume is expected to be light throughout the rest of the week with scores of market participants away on a holiday break. For the week, the three major U.S. stock indexes posted gains, with the Dow Jones industrial average <.dji> up 0.4 percent, the S&P 500 <.spx> up 1.2 percent and the Nasdaq Composite Index <.ixic> up 1.7 percent. Stocks also have booked solid gains for the year so far, with just five trading sessions left in 2012: The Dow has advanced 8 percent, while the S&P 500 has climbed 13.7 percent and the Nasdaq has jumped 16 percent. IT COULD GET A LITTLE CRAZY Equity volumes are expected to fall sharply next week. Last year, daily volume on each of the last five trading days dropped on average by about 49 percent, compared with the rest of 2011 - to just over 4 billion shares a day exchanging hands on the New York Stock Exchange, the Nasdaq and NYSE MKT in the final five sessions of the year from a 2011 daily average of 7.9 billion. If the trend repeats, low volumes could generate a spike in volatility as traders keep track of any advance in the cliff talks in Washington. "I'm guessing it's going to be a low volume week. There's not a whole lot other than the fiscal cliff that is going to continue to take the headlines," said Joe Bell, senior equity analyst at Schaeffer's Investment Research, in Cincinnati. "A lot of people already have a foot out the door, and with the possibility of some market-moving news, you get the possibility of increased volatility." Economic data would have to be way off the mark to move markets next week. But if the recent trend of better-than-expected economic data holds, stocks will have strong fundamental support that could prevent selling from getting overextended even as the fiscal cliff negotiations grind along. Small and mid-cap stocks have outperformed their larger peers in the last couple of months, indicating a shift in investor sentiment toward the U.S. economy. The S&P MidCap 400 Index <.mid> overcame a technical level by confirming its close above 1,000 for a second week. "We view the outperformance of the mid-caps and the break of that level as a strong sign for the overall market," Schaeffer's Bell said. "Whenever you have flight to risk, it shows investors are beginning to have more of a risk appetite." Evidence of that shift could be a spike in shares in the defense sector, expected to take a hit as defense spending is a key component of the budget talks. The PHLX defense sector index <.dfx> hit a historic high on Thursday, and far outperformed the market on Friday with a dip of just 0.26 percent, while the three major U.S. stock indexes finished the day down about 1 percent. Following a half-day on Wall Street on Monday ahead of the Christmas holiday, Wednesday will bring the S&P/Case-Shiller Home Price Index. It is expected to show a ninth-straight month of gains. U.S. jobless claims on Thursday are seen roughly in line with the previous week's level, with the forecast at 360,000 new filings for unemployment insurance, compared with the previous week's 361,000.

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U.S. judge approves settlement in BP class action suit

(Reuters) - A U.S. judge on Friday gave final approval to BP Plc's settlement with individuals and businesses who lost money and property in the 2010 Gulf of Mexico oil spill. The order only addressed the settlement of economic and property damage claims, not a separate medical benefits settlement for cleanup workers and others who say the spill made them sick. BP has estimated that it will pay $7.8 billion to settle more than 100,000 claims in the class action litigation. U.S. District Judge Carl Barbier initially approved the deal in May, but held a "fairness hearing" in November to weigh objections from about 13,000 claimants challenging the settlement to resolve some of BP's liability for the worst offshore oil spill in U.S. history. London-based BP's Macondo well spewed 4.9 million barrels of oil into the Gulf of Mexico over a period of 87 days. The torrent fouled shorelines from Texas to Alabama and eclipsed the 1989 Exxon Valdez spill in Alaska in severity. Lawyers for some affected parties had objected to the deal, reached in March between BP and lawyers representing plaintiffs ranging from restaurateurs, hoteliers, and oyster men who lost money from the spill. They argued that some claimants would be underpaid or unfairly excluded. But in a 125-page order approving the settlement, Barbier called the deal "fair, reasonable and adequate," citing the low number of class members who objected or opted out. BP welcomed the approval order in a statement, adding that the settlement resolves the majority of economic and property damage claims stemming from the accident. "Today's decision by the Court is another important step forward for BP in meeting its commitment to economic and environmental restoration efforts in the Gulf and in eliminating legal risk facing the company," BP said. Separate from the class action claims, BP has been locked in a year-long legal battle with the U.S. government and Gulf Coast states to settle billions of dollars in civil and criminal liability from the explosion. In a settlement with the U.S. government announced last month, BP agreed to pay $4.5 billion in penalties and plead guilty to felony misconduct. The government also indicted the two highest-ranking BP supervisors aboard the Deepwater Horizon rig during the disaster, charging them with 23 criminal counts including manslaughter. The class action case is In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico on April 20, 2010, U.S. District Court for the Eastern District of Louisiana, No. 10-2179.

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