New Constitution divides Egypt as economy falters

New constitutions are usually greeted with great fanfare. They're assumed to carry both the promise of a fresh start and signal that a chaotic transition has come to an end.
But Egypt's new constitution is something else again. Signed into law on Dec. 26 by President Mohamed Morsi, the new charter has become a symbol of a sharply divided nation. Mr. Morsi's opponents charge the passage of the constitution is not the result of a national consensus, but evidence that the Muslim Brotherhood that propelled Morsi to power intends to push its agenda over the heads of secular-leaning and liberal political opponents.
While Morsi extended an olive branch to opponents in a nationally televised speech on Dec. 26, the country is at its most sharply polarized point since longtime dictator Hosni Mubarak was ousted in February 2011. Egypt is scheduled to hold parliamentary elections in about two months, and the runup to that election is more likely to exacerbate Egypt's open political wounds rather than heal them.
What will that mean? More street protests, more chaotic governance, and no short-term fixes for an economy that was weak at the time Mr. Mubarak fell and has gone from bad to worse. The Egyptian pound fell to its lowest point against the dollar in eight years this week, and the currency may say more about what happens to Egypt in the coming years than the contents of the new Constitution. Roughly 30 million of Egypt's 80 million people get by on $2 or less a day, and are heavily reliant on government subsidies. The Egyptian government spent $3 billion on its subsidized bread program alone last year.
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And with tourism in the dumps and a collapse in local and foreign investment, the government's ability to meet the most fundamental needs and demands of its citizens has been badly strained. Foreign reserves stood at about $36 billion at the start of 2011. Today, foreign reserves are at about $15 billion.
Finding a solution to Egypt's economic woes won't be easy. But for now, that issue is being pushed to the side, with a loose coalition of secular-leaning groups vowing to fight against the Muslim Brotherhood's agenda. The opposition argues that individual liberties are now threatened by the enshrining of aspects of Islamic law into the Constitution and giving Egypt's powerful military the right to detain and try civilians under some circumstances.
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Morsi promised a national dialogue this week and said "mistakes" were made in the drafting of the Constitution, but those remarks fell completely flat as a conciliatory gesture. In the past few weeks he's gotten everything he wanted and critics of the Constitution received zero concessions. Now that he has the document in hand, offers of "dialogue" are being seen as an attempt to put a magnanimous gloss on what was a bare-knuckle, winner-take-all contest that Morsi and the Muslim Brotherhood just won.
Leftists, so-called liberals, and Egyptians who want a secular approach to the state and Egyptian identity are furious and pondering their next moves. The Brotherhood, meanwhile, is sticking to the game plan that's made it the winner in all four elections held (two referendums, the last parliamentary election, and the presidential) since Mubarak was driven from power in February 2011: superior organization and on-the-ground mobilization.
While opponents of the Constitution pointed to low turnout in the referendum as a sign of general public dissatisfaction with the document, the Brothers have won both elections with overwhelming turnout and ones with small turnout. With the constitution set, next up are fresh parliamentary elections that the movement is going to pull out all the stops to dominate, just like it did last time.
That annulled parliamentary election has much to do with why Morsi's political opponents trust neither him nor his movement. In 2011, the Brothers loudly proclaimed that they had no intention of dominating Egyptian politics and vowed to contest only about 30 percent of the seats in the next parliament. The movement and its newly minted Freedom and Justice Party (FJP) also promised not to run a candidate for president.
But as the contours of the new Egypt started to emerge, and the prospect of a counter-revolution by military officers looked less likely, the Brothers abandoned both promises. Obviously, Morsi won the presidency. And as for Parliament, the Brother's contested 100 percent of the seats, winning almost half of them.
Now on Morsi's agenda is victory in the parliamentary election. If the Brothers can steamroll the opposition again, they'll hold the presidency, the legislature, and a Constitution written with little input from the country's secular-leaning forces.
But the real challenge is Egypt's weak economy and the increased suffering of its poor. Absent economic improvement, and soon, the turmoil of Egypt's past two years could well end up being overshadowed.

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Progress watch 2012: Smart phones, jobs returning to America, and war crimes trials

Good news is hard to find. That's partly because, no matter what the topic, there's so much distracting bad news: ongoing violence in Syria, America's allegedly imminent fiscal demise, the National Hockey League lockout. From the front page to the sports page, so little looks good.
It isn't just the cacophony of naysaying and fear that crowds out good news. It's also the nature of progress itself: Good news happens slowly. The American storytelling ethos loves narratives of overnight success, but real change isn't usually so sudden. Earlier this year, the World Bank announced that the number of people living on less than $1.25 a day – what policy wonks call "extreme poverty" – had dropped by half since 1990. That study might have been the biggest bit of good news to go overlooked this year, but consider this: Global extreme poverty was actually halved in 2010 – it took two years even to see that progress had happened.
Other highlights, too, have been subject to the long arc of incremental change. Nearly 90 percent of people globally have access to clean water, according to the World Health Organization. In Mexico, homicide rates – driven to outrageous levels in the drug wars – are down for the first time in six years.
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In The Hague, two international war criminals were found guilty in landmark rulings: the International Criminal Court convicted Thomas Lubanga, a Congolese rebel, of recruiting child soldiers. The conviction, after a two-year trial, was a first for the ICC, established a decade ago. The verdict "was the culmination of decades of hope that accountability for the most serious crimes would be achieved," says James Goldston, founding director of the Open Society Justice Initiative. "It took 10 years, but this conviction [is] an enormous accomplishment and a major step forward for international justice."
In a long-awaited verdict from a different court, the Special Court for Sierra Leone, former Liberian President Charles Taylor was convicted of war crimes. He is effectively the first former head of state to be convicted of war crimes. (The formal distinction goes to Karl Dönitz, who served as president of Germany for the 23 days between Hitler's suicide and the dissolution of the government after Germany's surrender in World War II.)
Not all of this year's good news comes on the heels of tragedy. In Nigeria, Egypt, and India, mobile technology is expanding entrepreneurship so quickly that small, mobile-tech-heavy businesses make up 38 percent of the gross domestic product, according to a study released earlier this year by global consultancy Booz Allen.
Americans are seeing their own mobile revolution – more than half of all Americans today use their cellphones to access the Internet, up from a third three years ago, according to the Pew Research Center. That puts the United States on the brink of a breakthrough: "Within a few years, [smart phone use] is going to be ubiquitous, and when you get that many people using smart phones, it transforms the economy, society, and politics," says Darrell West, director of the Center for Technology Innovation at the Brookings Institution in Washington.
Indeed, technology drives much of the change seen in America, even just this year. Sales of nonpolluting electric cars are surpassing expectations. And self-driving cars are now legal in California. Google conducted the first test of its self-driving car with a passenger who was chauffeured to the dry cleaner and Taco Bell. Even this flashy moment has been slower to brew than it may seem. "This has always been one of the more popular predictions about the future people were talking about in the '60s and '70s, back when they were discussing all the other sort of wide-eyed, post-cold-war futures," says Patrick Tucker, the director of communications at the World Future Society. Beyond being wide-eyed, self-driven automobiles might make passengers safer – computers are likely eventually to be better drivers than humans, Mr. Tucker says – and transform cities. Summoning one's car from even a mile away "removes the need for designing cities on the basis of the availability of on-site parking," he says. Ordering up an automobile also makes car sharing easier, which can reduce carbon emissions, he adds.
Even traditional travel by land, sea, and air has gotten safer this year. The accidental death rate for children in the US plunged 30 percent in the past decade, led by auto safety improvements such as increased use of seat belts and booster seats and safer vehicle design, according to the Centers for Disease Control and Prevention. Piracy and armed robbery at sea dropped to the lowest levels since 2009, when Somali piracy spiked, reports the International Chamber of Commerce International Maritime Bureau, which attributes the decline to improved policing by international navies and onboard security measures. And in the air, there were no major commercial airline crashes in the US in 2012, the 11th year in a row, says Todd Curtis, director of the AirSafe.com Foundation.
Election season debates overshadowed some exciting news about the economy, which may get a transforming boost from a new kind of robot: Baxter, the (comparatively) affordable factory robot from Rodney Brooks, the man who brought the world the Roomba vacuum cleaner. Tucker calls Baxter "the most unique factory robot that's ever been made" because of its dexterity. "It's about the size of an NFL linebacker, and it's got two arms [that] can pick up a whole bunch of types of objects and do a wide variety of very simple tasks," Tucker says.
"That doesn't sound ... as earthshaking as it is," he concedes. But it might be a major game changer. Most factory robots can perform a few specific tasks, and they can't easily be programmed to do something else. That's why they're seen on assembly lines for cars and appliances but not on those for toys or personal electronics, Tucker says. Baxter can handle the little items that need an update every season. And that might bring some of the manufacturing that's migrated to China back to the US.
Then again, some of that labor is already returning: This year, "reshoring" entered the lexicon as a way of talking about manufacturing jobs returning to the US, usually from China. There isn't tracking of official numbers for this, but the Reshoring Initiative estimates that 12 percent of the manufacturing jobs the economy has seen return since 2010 were from abroad.
Observers caution that the reshoring trend may be a fad; more time is needed to know for sure. That brings us back to the slow pace of progress. However maddening it may be, it is also undeniable: Things are getting better.
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"We're winning more than we're losing," says Jerome Glenn, director of the Millennium Project, a global futures research center and think tank. The project releases an annual "State of the Future" index, and this year's says that "the world is getting richer, healthier, better educated, more peaceful, and better connected, [and] people are living longer."
Mr. Glenn cautions that things aren't all rosy, and thumbing through any newspaper would suggest there are still plenty of world problems to make progress on. He compares it to making ice: Cooling water isn't too difficult, but turning it into ice requires serious energy. "We're at that point of going from water into ice in a sense of difficulty" of shared global challenges. It's time, he says, "to roll up our sleeves.

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Secret cremation for gang-rape victim sparks anger against Indian government

Protests became violent today in Delhi as the youth wing of the opposition Bhartiya Janata Party (BJP) pelted stones at police and tried to climb over barricades following news of the secret cremation of the body of the Delhi gang rape victim.
The young woman was cremated on the outskirts of Delhi Sunday morning, in an effort to prevent the public from swarming the funeral site. However, this only increased public resentment, reaffirming the growing perception that the government was being hostile to the protests.
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Protests began nearly two weeks ago, after the gang-rape and brutal assault of the 23-year-old on Dec. 16, with an outpouring of anger by Indians demanding greater protection for women from sexual violence. Demonstrators marched to Raisina Hill, which houses the presidential palace. There, on the first day of demonstrations a young girl breached security and entered the palace.
As protests became more organized on Facebook and by political organizations, more people took to the streets and the relationship between protestors and police grew more strained.
One protester was filmmaker Anusha Rizvi, who witnessed left-wing groups form a circle and peacefully protest within it. “By afternoon we heard policemen announce loudly in their walkie talkies that they would start charging on the crowd. The regular police went behind and the police criss-crossed through the group of people in the circle.”
The police then charged the crowds with batons, fired tear gas and water canons. The government later said the police had little choice because the protests had become violent. However, many witnesses say the police charged on nonviolent crowds who were sitting on the road.
“I couldn’t see anything. I just heard the two cracks of a split bamboo stick on my back, butt, and thighs. Then I heard the police screaming ... and then I saw a boot kicking my knees and shin,” wrote graphic designer Sangeeta Das in a widely circulated Facebook note.
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Lokesh, an activist with the feminist organization Streemukti Sangathan, said that a few people were seen pelting stones out of frustration but the rest tried to stop them. “I don’t know who they were,” she said, “but ... the government was ignoring us and not responding to the protests.”
That the police wanted to disperse the protests and not simply respond to stray stone-pelting became clear when it also attacked media personnel and their vehicles, say observers.
“News channels had declined [a] government request to leave the site and [so] they showered our broadcast vans [with a water hose] to make us leave,” said one journalist on condition of anonymity. Another journalist was injured when a tear gas shell exploded near her. The Information and Broadcasting Ministry later issued an “advisory” asking news channels to show restraint with their reporting, threatening action if they didn’t.
Metro stations in central Delhi were closed for nearly a week. India Gate and Raisina Hill were cordoned off from most traffic.
“This is how the government handles public protest across India, even firing directly at protestors and killing them,” says political scientist Nivedita Menon. “Be it agitations against nuclear plants or land grabs, this is the language of the government,” she says echoing the views of many Indians as the protest movement has become as much about police repression as it has been about the safety of women.
TO QUELL POPULAR ANGER
The government has appointed a special commission designed to give recommendations on how to keep women safe and has made various statements to assuage public anger to little avail.
“The government didn’t have to take the burden of guilt in this case, it could have shared people’s grief,” says political commentator Ajoy Bose, adding that since the anticorruption protests of 2011 the government has showed it has become scared of demonstrations. “There is a huge disconnect between the government and the people, the government no longer knows how to interact,” he said adding that that, too, has angered Indians.
Barkha Dutt, editor of the NDTV news channel, tweeted, ”From day one the government needed to (and didn't) show Compassion, Communication and Commonsense. Now their attempts seem forced, puny, insincere.”
Still, say some, directing anger at the government is misplaced. “The protestors are taking the easy way out by blaming government apathy. The state only reflects a deeply misogynistic society – the protestors need to look within, not without,” said columnist Mihir Sharma.

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UN envoy: Without deal in Syria, think Somalia not Yugoslavia

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After a week of attempting to craft a peace plan that both President Bashar al-Assad and the Syrian opposition would agree to, the United Nations' envoy to Syria said the situation will not stabilize on its own and that a political deal is no closer.
“People are talking about a divided Syria being split into a number of small states like Yugoslavia,” Lakhdar Brahimi said, according to The New York Times. “This is not what is going to happen. What will happen is Somalization – warlords."
“The situation is bad and it’s getting worse,” Brahimi also said, according to Bloomberg Businessweek. “I can’t see anything other than these two paths: Either there will be a political solution that will meet the ambitions and legitimate rights of the Syrian people, or Syria will turn into hell.”
He warned that the violence could claim as many as 100,000 lives in 2013.
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According to the New York Times, Mr. Assad did not respond to Mr. Brahimi's proposals and a Syrian opposition leader declined an invitation to Moscow to meet with Russian officials. Sergei Lavrov, Russia's foreign minister, said Assad could not be convinced to leave the country, which the opposition has insisted is a precondition for talks.
Speaking about the yawning gap that has to be bridged for the two sides to sit down for talks, CNN reports that Brahimi said, "The Syrians disagree violently. On one side, the government says we are doing our duty to protect our people from ... terrorists. On the other side, they say the government is illegitimate," Brahimi said. "They are not talking about the same problem. They are talking about two different problems."
Brahimi's comments came the day after what CNN said might be the bloodiest day in the uprising – on Dec. 29, at least 399 people were killed.
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According to Reuters, Mr. Lavrov pinned the blame for continuing violence on the opposition, even though the US, European countries, and most Arab states back the opposition's demand that Assad's removal from power come first.
"When the opposition says only Assad's exit will allow it to begin a dialogue about the future of its own country, we think this is wrong, we think this is rather counterproductive," he said. "The costs of this precondition are more and more lives of Syrian citizens."
But the Syrian opposition's calculus has changed over the last couple months. A string of victories has made it optimistic abut winning the war in the end, and therefore less flexible in negotiations, according to Reuters.
REGIME STILL HAS STRENGTH
But despite their recent success, "the government still has the bigger arsenal and a potent air force. It controls most of the densely populated southwest of Syria, the Mediterranean coast, most of the main north-south highway and military bases countrywide," Reuters notes.
Russia appears to be making an effort to secure a meeting, agreeing to meet the opposition representative outside of Russia if he insists. Bloomberg reports that, according to RIA Novosti, the foreign ministry said talks could be held in Geneva or Cairo instead.
Meanwhile, Brahimi is rapidly losing ground support in Syria, Reuters reports.
The envoy's credibility with the rebels appears to have withered. In the rebel-held town of Kafranbel, demonstrators held up banners ridiculing Brahimi with English obscenities.
"We do not agree at all with Brahimi's initiative. We do not agree with anything Brahimi says," the rebel chief in Aleppo province, Colonel Abdel-Jabbar Oqaidi, said on Friday.

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Obama's pivot to Asia? Middle East will still demand attention in 2013.

Nearly four years ago, President Barack Obama addressed a packed, enthusiastic crowd at Cairo University and promised a "new beginning" between the United States and the Muslim world.
In that speech, Mr. Obama outlined a vision for a new era of economic cooperation in the Middle East, one of steadfast US support for democracy, and of reset priorities.
"I've come here to Cairo to seek a new beginning between the United States and Muslims around the world, one based on mutual interest and mutual respect," he said then.
While Obama ended the war in Iraq on a schedule provided to him by his predecessor, George W. Bush, many of the promises in that speech went unfulfilled. The Guantánamo Bay military prison was never closed. Progress on peace between Palestinians and Israelis was not made. The promised economic development of Afghanistan, beset by a war that Obama now looks set to end in 2014, never took root.
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Nevertheless, four years later, he's got his new beginning – not by his own hand, and not the one he would have either imagined or wanted when he made his series of stirring promises in Cairo.
The self-immolation and death of Mohamed Bouazizi in Tunisia in December 2010 led to the sharpest change in the politics of the Middle East since the 1960s. The events of the past year in Egypt, Syria, Tunisia, and Libya have cemented a radical new reality that Obama will have to contend with in his second term.
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For all the talk of a US strategic "pivot" to Asia, a dramatically changed Middle East looks set to suck up a huge portion of American diplomatic energy and attention in the coming years. Old, comfortable patterns of dealing with regional dictators like Egypt's Hosni Mubarak and Tunisia's Zine El Abidine Ben Ali have been severely disrupted. Islamists, long feared by the US, have since won power in free elections in Egypt and Tunisia, and are among those fighting the secular regime in Syria.
SYRIA'S DENOUEMENT
In Syria, the civil war has claimed more than 40,000 lives, and there are threats to US interests in both the demise of Bashar al-Assad's regime there, if it comes, and in his survival. As this year draws to a close, the US has edged closer to full-fledged support for elements of the uprising against Mr. Assad even as it labeled one of the opposition's most effective fighting groups, the jihadi Jabhat al-Nusra, a foreign terrorist organization.
The denouement there, when it comes, could well have destabilizing ripples for neighboring Lebanon and Iraq. Syria's chemical weapons stockpiles are a reality that can't be ignored, and the prospect of those weapons falling into the hands of jihadi groups has the Obama administration drawing up contingency plans for possible intervention.
Israel, while it's had a long cold war with Assad's Syria and continues to occupy the Golan Heights, nevertheless is frightened by the prospect of yet another Sunni Islamist regime, rather than a secular nationalist one, on its doorstep.
TROUBLES AT HOME FOR ISRAEL
The Israeli-Palestinian conflict is also moving into new, dangerous waters. The so-called peace process that began with the Oslo Accords in 1993 has petered out completely. In 2009, Obama called for an end to Israeli settlement construction in the West Bank and early in his presidency leaned hard on Israeli Prime Minister Benjamin Netanyahu for at least a temporary freeze. But expansion has continued unabated, and the Obama administration appears to have lost interest in pressing the issue.
In the West Bank, Palestinian Authority President Mahmoud Abbas has been weakened by his failure to negotiate an end to the encroaching Israeli settlements, and in Gaza the Islamist movement Hamas remains as entrenched as ever.
In November, Israel was a hairbreadth away from an invasion of Gaza that was only avoided at the last minute by a negotiated cease-fire. A key figure in heading off that crisis was Egypt's president, Mohamed Morsi, the Muslim Brotherhood stalwart whom the US turned to as intermediary with Hamas.
BROTHERLY RELATIONS
The rise to power of the Islamist Muslim Brotherhood in Egypt captures the peril for the US of this new beginning. Mr. Morsi was elected in a free election, but the country's new constitution, which is set to pass a referendum this month, is filled with alarming elements in terms of personal freedoms and minorities' rights.
The state of that country's economy has deteriorated sharply thanks to the political turmoil of the past two years, with clashes in Cairo between supporters of Morsi and his opponents in November being the latest reminder that the authoritarian stability of the Mubarak years has been replaced by something fluid and hard to predict.
Many of the Egyptian liberals and secularists who listened to Obama's Cairo speech so appreciatively now grumble that he's backing the Brothers as they seek to cement their power and influence over the country. In the year ahead, and beyond, Obama will have to weigh criticism of Egyptian suppression of civil liberties on the one hand against a desire for Egyptian cooperation in keeping Hamas, an offshoot of the Muslim Brotherhood, contained in Gaza.
There are still other shoes to drop in the region. Libya is struggling to create a new order after decades of one-man rule by Muammar Qaddafi, with weapons smuggling rife along its desert borders and sharp clashes there still to be worked out over the role of Islam in the country's political life. In Bahrain, a close US ally and home to the US Navy's Fifth Fleet, a Sunni monarchy is contending with the simmering political discontent of the country's Shiite majority, which is challenging Obama's earlier assertion of a personal commitment to advocating "governments that reflect the will of the people."
EAST OF THE MIDDLE EAST
The one constant from four years ago is hardly reassuring: the slow, steady progress of Iran's nuclear program. Obama has spearheaded an effort among Western governments to financially isolate Iran, with restrictions on its oil sales and the financial transactions of its central bank, which have taken a heavy toll on Iran's economy but have done little to lessen the commitment of Ayatollah Khamenei, the country's supreme leader, to what he insists is a peaceful nuclear program.
For now, Iran continues to insist on its right to nuclear enrichment, which the US argues is producing material that could be eventually used in a nuclear bomb.
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The situation in Afghanistan and Pakistan is as fraught as ever. Yes, Osama bin Laden was killed in a daring raid in Pakistan by US troops in 2011. But, notwithstanding billions of dollars in annual US aid, that country continues to provide a home to militants, and Shakil Afridi, a Pakistani doctor who helped the US track Mr. bin Laden to his compound in Abbottabad, remains in a Pakistani jail.
In Afghanistan, the Army is completely reliant on US financing and technical support to operate, and the Taliban appear no weaker than they did when Obama took office.
As the Obama administration looks ahead to 2013 and its new challenges, it is looking over a Middle East landscape transformed from four years ago. The old ways of doing business in the region aren't going to work anymore. How Obama must miss them.

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Will retailers rebound after weak holiday season?

As signs emerge that holiday sales this year grew at the weakest pace since 2008, investors are dumping retail stocks. Analysts are crowing about the missing "consumer engine" without which the economy may stagnate.
Many fear that the season's weakness will reverberate throughout the economy: Stores will be saddled with excess merchandise, forcing them to slash prices and accept razor-thin profit margins. Demand will soften for goods up and down the supply chain, leading eventually to a decline in orders for factory goods and weaker manufacturing. Growth will slow.
Yet there are plenty of reasons to believe that these fears are overblown, some market-watchers argue. Auto sales are strong, as are some measures of consumer sentiment. Home values are rising, leaving fewer Americans on the brink of foreclosure and helping many feel more financially secure.
Above all, they point out, there is nothing permanent about the "fiscal cliff," a set of tax hikes and spending cuts that will automatically take effect at the beginning of 2013 if lawmakers are unable to reach a deal to avert it.
When the fiscal issue is addressed and demand bounces back, these contrarians argue, beaten-down retail stocks may turn out to be this year's best after-Christmas bargain.
"There may be some caution ahead of the fiscal cliff" because of uncertainty about tax rates, "but it's more of a road bump than any fundamental weakness," says David Kelly, chief global strategist for JP Morgan Funds.
He notes that a daily tracker of consumer sentiment, the Rasmussen Consumer Index, rose Friday to 98.9, the highest level measured since January 2008. Other measures of consumer sentiment appear weaker, but Kelly believes the Rasmussen data is more reliable because it is updated daily. Most other indices rely on monthly surveys.
The fiscal cliff isn't the only reason consumers slowed down in November and December. Americans were buffeted by a series of events that made them more likely to stay home.
Superstorm Sandy caused steep holiday sales declines in the Northeast and mid-Atlantic that made the national picture appear far weaker. The presidential election distracted people in November, the Newtown massacre in December. And the rising din about Washington's current budget impasse left many people unsure what their 2013 household budgets will look like.
The outcome: Holiday sales of electronics, clothing, jewelry and home goods in the two months before Christmas increased just 0.7 percent compared with last year, according to preliminary data released Tuesday by MasterCard Advisors SpendingPulse, which tracks holiday spending across all payment methods. That's the weakest holiday performance since 2008, when sales dropped several percent as the cresting financial crisis pushed the economy into a deep recession.
For many, the early results were a worrisome sign of things to come. Jeff Sica, president and chief investment officer of SICA Wealth Management in Morristown, N.J., called the retail sales result "onerous" and "a negative overhang on the market."
Still, the nation's largest retail trade group, the National Retail Federation, is sticking to its forecast that total sales for November and December will be up 4.1 percent from last year. A clearer picture will emerge next week as retailers like Macy's and Target report monthly sales.
That didn't keep investors from reacting hastily to the grim early data. Retail stocks in the Standard & Poor's 500 index fell 5.4 percent this month, while the broader index declined only 1 percent. Computer and electronics retailers fared the worst, sinking 10.3 percent.
Not so fast, says Karyn Cavanaugh, market strategist with ING Investment Management in New York. She favors the consumer discretionary sector, represented in the S&P 500 by Home Depot, Amazon.com Inc., Target Corp. and Ford Motor Co., among others.
"The consumer has shown surprising resilience throughout this tepid recovery and we believe will continue to do so," Cavanaugh says. The housing turnaround "will further aid consumer and consumer confidence," she says.
Sales of new homes rose in November to the fastest pace in two and a half years, the government said Thursday. The National Association of Realtors' pending home sales index also rose last month to its highest level in two and a half years, the group said Friday.
Consumer spending, to be sure, is a critical indicator of economic activity. It accounts for about 70 percent of the economy, so a true slowdown could have a painful ripple effect. That's especially true in the final two months of the year, which contribute as much as 40 percent of annual sales for many retailers.
Some analysts are warning that the pain for retailers has only just begun. Brian Sozzi, chief equities analyst at NBG Productions, says revenue results and fourth-quarter earnings forecasts, due out early next month, pose another threat to retail stocks. Sozzi recommends betting against some weaker brands, including teen apparel chain Aeropostale.
Assuming stocks continue to sink because of weak guidance and "general market angst," Sozzi said in a note to clients Friday, "the moment to potentially entertain this sector from a long perspective will be sometime before earnings season begins in mid-February."
According to Kelly and other market bulls, consumers haven't meaningfully slowed their spending. They're merely holding off as they wait for lawmakers to craft a deal that would prevent some of the scheduled tax increases.
"There's a difference between confidence and spending attitudes," Kelly says. "People are generally feeling more confident because home prices are going up."
Kelly and others believe that a deal on the fiscal cliff is all but inevitable — eventually. He acknowledges that the waiting could be painful for consumers, retailers and most other businesses, but says, "If we don't get a fiscal cliff deal, then we'll wait and get a fiscal cliff deal."
Analysts who doubt that spending will bounce back quite so quickly argue that consumers are still paying down debt and have less interest in shopping sprees, in part because median incomes are falling.
Despite the stronger housing market and other positive signs, "they're going to take the opportunity to retrench, rather than buy stuff," says Derrick Irwin, portfolio manager for Wells Fargo Advantage Funds.
Peter Tchir, manager of the hedge fund TF Market Advisors, says consumers may be shopping less because economic turbulence has helped people reassess the value of what they consume.
"We've overconsumed for so long ... how much do you really need to add?" he says. "To some extent, it's healthy for Americans to live within their means. But clearly, this week, it's not great for retail stocks."

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Immigration, economic revival head Obama's second-term checklist

- President Barack Obama is pledging to focus in his second term on immigration reform, boosting economic growth through infrastructure repair and energy policies that nod to environmental protection.
The president is mired in a difficult fight with congressional Republicans to avoid sharp spending cuts and steep tax increases collectively referred to as the "fiscal cliff." However, he still has a longer-term to-do list for his remaining four years in office, he said in an interview on NBC's "Meet the Press" that was broadcast on Sunday.
Obama, who won re-election in November after a campaign in which he succeeded in painting himself as a strong advocate for the middle class and those aspiring to join it, also promised in the interview to make a run at passing gun control legislation in the first year of his second term.
"Fixing our broken immigration system is a top priority," he said. He renewed a pledge to introduce legislation in the first year of his second term to get it done.
Immigration reform is a sensitive subject for the president, who failed to fulfill his promise to revamp the system during his first term. Latino voters were a critical part of the coalition that helped get him re-elected, a fact that may soften political opposition from Republicans, who are eager to bolster their support with that demographic group.
Immigration reform supporters on the left believe that the 11 million undocumented foreigners in the United States should be allowed a path to work toward citizenship. But opponents believe that this approach would reward people who broke the law by coming to the United States illegally.
Republicans have sought stronger measures to keep illegal immigrants from entering the United States from Mexico. Advocates on both sides of the debate want to more effectively verify legal workers in an economy in which businesses want to hire non-U.S. workers ranging from low-paid farm hands to technology-savvy professionals.
While negotiations to avoid the fiscal cliff have hogged the spotlight in the first weeks after the election, Obama said he wants to take steps to ensure the sluggish recovery gains steam.
Many observers had believed a persistently high level of unemployment would thwart Obama's chances of winning a second term. The U.S. jobless rate peaked at 10 percent in 2009 after the harshest recession since the Great Depression but has been falling and dipped to 7.7 percent in November.
The president said rebuilding crumbling roads, bridges and schools could put people back to work and put the economy on a sounder footing. He said he would pair those steps - which would likely involve government spending - with deficit reduction measures to tame the nation's budget deficit.
The president also said energy policy would be a leading emphasis. He said he would focus on how the country can produce more energy and export energy, while also dealing with environmental challenges. He did not specify how he would do that. The president's effort to fight climate change with a broad emissions trading system failed during his first term.
When pressed, Obama added gun control to his list of priorities, reiterating his support for a ban on assault rifles and high capacity clips, as well as background checks.

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Fiscal deal stalls as clock ticks to deadline

Efforts to prevent the economy from tumbling over a "fiscal cliff" stalled on Sunday as Democrats and Republicans remained at loggerheads over a deal that would prevent taxes for all Americans from rising on New Year's Day.
One hour before they had hoped to present a plan, Democratic and Republican Senate leaders said they were still unable to reach a compromise that would stop the automatic tax hikes and spending cuts that could push the U.S. economy back into recession.
"There are still serious differences between the two sides," said Senate Democratic leader Harry Reid.
Progress still appeared possible after the two sides narrowed their differences on tax increases and Republicans indicated they would withdraw a contentious proposal to slow the growth of Social Security retirement benefits.
Failure to secure a deal would deliver a heavy blow to the U.S. economy just as it is showing signs of a quicker recovery. Planned tax increases and spending cuts would suck $600 billion out of the economy and again force up unemployment, which had shown signs of improving.
Senate Republican leader Mitch McConnell talked several times to Vice President Joe Biden by phone in the hope of breaking the standstill. "I'm willing to get this done, but I need a dance partner," McConnell said.
Any agreement needs to be rushed through both chambers of Congress before midnight on Monday. But, even if the two sides reach a deal, procedural barriers in the Senate and the House of Representatives make quick action difficult.
Buoyed by his re-election in November, President Barack Obama has insisted that any deal must include a tax increase on the wealthiest Americans, who have seen their earnings rise steadily over the past decade at a time when income has stalled for the less affluent.
Many conservative Republicans in the House of Representatives oppose a tax hike on anyone, no matter how wealthy.
The two sides were close to agreeing to raise taxes on households earning around $400,000 or $500,000 a year - higher than Obama's preferred threshold of $250,000 - several senators told reporters.
Republicans aim to pair any tax increase with government spending cuts to benefit programs that are projected to grow ever more expensive as the population ages in coming decades.
But their proposal to slow the growth of Social Security benefits by changing the way they are measured against inflation met fierce resistance from Democrats. Obama included the proposal, known as "chained CPI," in an earlier proposal, but many of his fellow Democrats remain opposed.
'POISON PILL'
"We consider it a poison pill - they know we can't accept it. It is a big step back from where we were on Friday," a Senate Democratic aide said.
Several Senate Republicans said they would support taking that idea out of the discussion. "Most of us agree the chained CPI is off the table in these negotiations," Senator John McCain said on Twitter.
In a rare appearance on NBC's "Meet the Press," Obama pressured lawmakers to reach a deal.
"If people start seeing that on January 1st this problem still hasn't been solved... then obviously that's going to have an adverse reaction in the markets," he said, adding that he had offered Republicans significant compromises that had been rejected repeatedly.
Obama said he would try to reverse the tax hikes for most Americans if Congress fails to act.
John Boehner, the House speaker, rejected Obama's accusations that Republicans were not being amenable to compromise.
"The president's comments today are ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party," he said in a statement. (Additional reporting by Tabassum Zakaria, Jeff Mason, David Lawder, Fred Barbash and Richard Cowan.

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Equity futures rise, but "cliff" stalemate suggests more losses

Equity futures were slightly higher at the beginning of electronic trading on Sunday night as talks continued in Washington over resolving the "fiscal cliff."
However, stocks still could end up falling on Monday when the cash markets open if lawmakers are unable to come to an agreement to avoid a series of $600 billion in tax hikes and spending cuts that are expected to hurt economic growth.
"Hard to predict how or when there will be a deal, but I believe investors will show their displeasure tomorrow by selling stocks if there is no deal," said Mohannad Aama, managing director at Beam Capital Management, an investment advisory firm in New York.
S&P 500 futures were up 5.5 points, or 0.4 percent, to 1,389.50 in electronic trading. Stocks fell sharply on Friday, with significant losses in the last minutes of trading, as prospects for a deal worsened at the beginning of the weekend.
The rise in the futures market does not necessarily augur for a rally on Monday, however. The cash market and futures markets closed with a wide gulf on Friday, by virtue of the extra 15 minutes of trading in futures, when investors sold aggressively.
The S&P 500 closed at 1,402.43 at 4 p.m. EST on Friday, down 1.1 percent, but futures continued to fall before closing 15 minutes later with a loss of 1.9 percent. S&P futures and the S&P cash index don't match point by point, but that kind of disparity is uncommon, and it points to a weak opening in stocks on Monday.
One hour before they had hoped to present a plan, Democratic and Republican Senate leaders said they were still unable to reach a compromise that would stop the automatic tax hikes and spending cuts that could push the U.S. economy back into recession.
Earlier in the day, President Barack Obama, appearing on NBC's "Meet the Press," said investors could begin to show greater concerns in the new year.
"If people start seeing that on January 1st, this problem still hasn't been solved ... then obviously that's going to have an adverse reaction in the markets," he said,
Investors have remained relatively sanguine about the process, believing that it will eventually be solved. In the past two months, markets have not shown the kind of volatility that was present during the fight to raise the debt ceiling in 2011.
Both the Dow industrials and the S&P 500 lost 1.9 percent last week, after falling for five straight sessions, the S&P 500's longest losing streak in three months. Equities have largely performed well in the last two months despite constant chatter about the fiscal cliff, but the last few days shows a bit of increased worry.

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Monti's reform path faces test beyond Italy elections

 Mario Monti declared "mission accomplished" when he resigned as Italy's prime minister, having seen off the debt crisis that loomed as he took office just over a year ago but 2013 will test whether he has laid the foundations for lasting economic change.
Elections on February 24-25 will give Italian voters their first chance to decide whether they want to stick to the broad course he has set or turn to a growing chorus of politicians who have attacked his austerity medicine.
Monti's decision to enter the race himself has put his reform agenda at the heart of the campaign and will have effects far outside Italy, the euro zone's third-largest economy, which took the single currency to the brink of collapse last year.
Former European Commissioner Monti, favored by the markets, the business establishment and even the Catholic church, has insisted that the election must be about creating agreement on policy rather than on any individual.
In that sense, the true test of his success may be not whether he wins a second term but whether he has succeeded in convincing the other parties and the country as a whole to stay with the liberalizing agenda he has laid out.
That remains uncertain, despite the plaudits he earned abroad for his handling of the crisis, as ordinary Italians have seen their living standards fall and unemployment rise relentlessly.
The centre-left Democratic Party (PD), the favorites to win the election, have supported Monti in parliament and say they will maintain the broad course he has set, while putting more emphasis on growth and helping workers and the poor.
But some on the left of the party and among its trade union allies say inequality has risen under Monti.
On the right, Silvio Berlusconi accuses Monti of taking orders from German Chancellor Angela Merkel and penalizing middle class Italians for the benefit of German banks. He has called for sweeping tax cuts to stimulate growth.
The runaway success of the anti-establishment comic Beppe Grillo and his 5-Star Movement, which wants to hold a referendum to decide whether to leave the euro, has also underlined the widespread mood of disillusion now deeply anchored in Italy.
"I don't have any confidence in my country, absolutely not," said Rosaria Resciniti, one of thousands of young people lining up to enter a competition for a job as primary school teacher in Rome.
"It is a country for old people. We should all leave and leave the country to the pensioners," she said.
UNEMPLOYMENT EMERGENCY
Monti himself acknowledged the disaffection on Friday when he confirmed that he would be joining the election campaign as head of a centrist alliance committed to continuing his reforms.
"Fortunately, it seems that the financial emergency is over, but there is another emergency which is just as serious or even more so, which is the unemployment emergency, especially as regards youth unemployment and the lack of growth," he said.
Helped by the promise of European Central Bank support, the main gauge of investor confidence, the spread between yields on Italian 10 year government bonds and safer German Bunds has narrowed from the crisis levels of more than 550 basis points hit when Monti took office to about 320 points.
But the broader indicators of economic health have got worse, a fact constantly pointed out by critics such as Berlusconi and Grillo, who say the tax hikes and spending cuts imposed to calm the markets have dragged Italy into a recessionary spiral.
The economy has contracted for five consecutive quarters and is estimated to have shrunk by 2.4 percent in 2012. Public debt has topped the symbolic 2 trillion euro level, corruption and waste are still rampant, and youth unemployment is over 36 percent.
Italy has had the euro zone's most sluggish economy for more than a decade, and whether any of the leaders fighting the election can turn that around quickly is doubtful, as one of the possible ministers in a centre-left government acknowledged.
"This crisis will last throughout the whole of the next parliament at least," deputy PD leader Enrico Letta told Reuters last month.
The task will be greatly complicated if market sentiment turns against Italy as it did in 2011, when tensions in the Berlusconi government raised doubts about its commitment to budget discipline.
Monti, seen outside Italy at least as a guarantor of stability, has said he was "not a man sent by Providence", but whether he himself will be involved in the next government has been one of the main questions hanging over the race.
His sober, professorial style came as a welcome relief to international investors and European partners unnerved by the turmoil and scandal surrounding Berlusconi as bond markets crashed in the summer of 2011.
But if opinion polls are confirmed on election day, it is difficult to see how he could become prime minister without resorting to the kind of backroom deals that characterized the shaky coalitions of the postwar period, when governments often survived no more than months or even weeks.
The most recent opinion poll gave centre-left PD leader Pier Luigi Bersani support of 36 percent, with Monti on 23.3 percent, ahead of both Berlusconi's People of Freedom (PDL) and Grillo's 5-Star Movement.
Monti's involvement in the election has ruled him out as a candidate for president of the Republic, a post that would have given him significant behind-the-scenes influence.
That leaves the possibility of becoming finance minister in a Bersani government, though there has been little sign of enthusiasm either from his side or from the PD, which has maintained a respectful tone towards Monti but now clearly sees him as a political adversary.
GROWTH AGENDA
Beyond the issue of personalities, the deep-rooted problems afflicting the Italian economy will be a formidable challenge to any new government.
"The situation in Italy is not easy, there are too many centres of power where everybody blocks everything. Our infrastructure isn't working and we've got corruption all over," said Renzo Rosso, head of the group behind Diesel jeans, one of the Italian companies that has managed to find a way past the obstacles in its home market to create a global success.
All the main parties in the race have called for more emphasis on creating growth, which along with its towering public debt has long been Italy's Achilles heel.
Monti's own 25-page agenda lays out a range of answers, such as taxing consumption and large fortunes more than companies and workers, and opening up markets to more competition and breaking down the suffocating power of special interest groups.
Turning such ideas into practice and convincing the public to go along with them is another matter.
Reflecting on her time in office, Elsa Fornero, an academic expert recruited into Monti's technocrat government whose labor reform plans were largely stymied by resistance from both unions and employers, said she had learned the difference the hard way.
"In this period of almost a year now, I have been able to measure the distance between being a professor and being a minister," she told foreign reporters last month.
"It's something completely different. I have been more used to formulating rational solutions, but the rationality of a solution is not enough because society is more differentiated and doesn't just live on rationality.

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