Wall Street Week Ahead: "Cliff" worries may drive tax selling

NEW YORK (Reuters) - Investors typically sell stocks to cut their losses at year end. But worries about the "fiscal cliff" - and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31.

The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.

Tax-related selling may be behind the weaker trend in the shares of market leader Apple , analysts said. The stock is down 20 percent for the quarter, but it's still up nearly 32 percent for the year.

Apple dropped 8.9 percent in this past week alone. For a stock that gained more than 25 percent a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one's tax bill is going to jump sharply just because the calendar changes.

"Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"You have a lot of high-net-worth individuals in taxable accounts, and that could be what's affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual."

Of this year's top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.

The rush to avoid higher taxes on portfolio gains could cause additional weakness.

The S&P 500 ended the week up just 0.1 percent after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions.

A PAIN PILL FROM THE FED?

Next week's Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster U.S. economy. The Federal Open Market Committee will meet on Tuesday and Wednesday. The policy statement is expected at about 12:30 p.m. on Wednesday after the conclusion of the meeting - the Fed's last one for the year.

Friday's jobs report showing non-farm payrolls added 146,000 jobs in November eased worries that Superstorm Sandy had hit the labor market hard.

"After the FOMC meeting, I think it's going to be downhill from there as worries about the fiscal cliff really take center stage and prospects of a deal become less and less likely," said Mohannad Aama, managing director of Beam Capital Management LLC in New York.

"I think we are likely to see an escalation in profit-taking ahead of tax rates going up next year," he said.

MORE VOLUME AND VOLATILITY

Volume could increase as investors try to shift positions before year end, some analysts said.

While most of that would be in stocks, some of the extra trading volume could spill over into options, said J.J. Kinahan, TD Ameritrade's chief derivatives strategist.

Volatility could pick up as well, and some of that is already being seen in Apple's stock.

"The actual volatility in Apple has been very high while the market itself has been calm. I expect Apple's volatility to carry over into the market volatility," said Enis Taner, global macro editor at RiskReversal.com, an options trading firm in New York.

Shares of Apple, the largest U.S. company by market value, registered their worst week since May 2010. In another bearish sign, the stock's 50-day moving average fell to $599.52 - below its 200-day moving average at $601.38.

"There's a lot of tax-related selling happening now, and it will continue to happen. Apple is an example, even (though) there are other factors involved with Apple," Aama said.

While investors may be selling stocks to avoid higher taxes in 2013, companies may continue to announce special and accelerated dividend payments before year end. Among the latest, Expedia announced a special dividend of 52 cents a share to be paid on December 28.

To be sure, the big sell-off in stocks following the November 6 election was likely related to tax selling, making it hard to judge how much more is to come.

Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said there's a decent chance that the market could rally before year end.

"Even with little or spotty news that one would put in the positive bucket regarding the (cliff) negotiations, the market has basically hung in there, and I think it's hung in there in anticipation of something coming," he said.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal; Multimedia versions of Reuters Top News are now available for:; 3000 Xtra: visit Reuters Top News; BridgeStation: view story .134; For London stock market outlook please click on .L/O; Pan-European stock market outlook .EU/O; Tokyo stock market outlook .T/O; Wall St Week Ahead runs every Friday.)

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Cairo Protesters Take to Streets as Political Crisis Deepens

CAIRO — Supporters and opponents of the government of President Mohamed Morsi staged competing demonstrations on Friday after noon prayers, throwing Egypt deeper into political crisis.

Thousands of pro-government Islamists attended the funeral of two men killed in clashes on Wednesday outside the presidential palace, the site of continuing demonstrations by the opposition. “With blood and soul, we redeem Islam,” they chanted, while calling opposition leaders “murderers,” The Associated Press reported.

Simultaneously, thousands of opposition protesters streamed in separate marches toward the presidential palace, gathering there to shout “Leave!, Leave,” even though Mr. Morsi does not make his residence in the building. Speakers accused the Muslim Brotherhood, which Mr. Morsi once helped lead, of sparking the violence by sending “hired thugs” to destroy a tent camp set up by the president’s opponents, the news agency reported.

Rival protests were reported throughout the country, including in Alexandria in the Nile delta, the tourist center of Luxor and Assiut, in the south, where marchers chanted “No Brotherhood, no Salafis, Egypt is a civic state,” the A.P. said.

News reports quoted several leaders of the opposition coalition as saying they would not join the dialogue proposed by Mr. Morsi in a speech on Thursday in which he blamed the outbreak of violence on a “fifth column.” He also vowed to proceed with a referendum on an Islamist-backed constitution that has prompted deadly street battles between his supporters and their opponents.

Mr. Morsi spoke a day after the growing antagonism between his supporters and the secular opposition triggered the worst outbreak of violence between political factions here since Gamal Abdel Nasser’s coup six decades ago. By the time the fighting ended, six people were dead and hundreds were wounded.

The violence also led to resignations that rocked the government, as advisers, party members and the head of the commission overseeing the planned vote on a new constitution stepped down, citing the bloodshed.

“The National Salvation Front is not taking part in the dialogue, that is the official stance,” Ahmed Said, a member of the coalition and head of the liberal Free Egyptians Party, told Reuters.

Several other prominent opposition figures, including Mohamed ElBaradei, the former head of the International Atomic Energy Agency, said they would not participate.

In a message on Twitter, Mr. ElBaradei said the president’s offer “lacks the basics of real dialogue.”

“We are for dialogue that is not based on arm-twisting and imposing a fait accompli,” he said.

The sight of protesters on Cairo’s streets has been common since the beginnings of Egypt’s transition toward democracy that began with the ouster of former President Hosni Mubarak last year.

In the latest protests, the target of the demonstrations has been the presidential palace in the wealthy suburb of Heliopolis, where protesters converged on Friday.

Since clashes there earlier this week, the elite presidential guard has ringed the palace with barbed wire, tanks and armored vehicles. After Mr. Morsi’s speech on Thursday, his opponents mocked his words and called for new demonstrations on Friday.

Some observers said the president speech echoed his predecessor, Mr. Mubarak, who always saw “hidden hands” behind public unrest. Mr. Morsi said that corrupt beneficiaries of Mr. Mubarak’s autocracy had been “hiring thugs and giving out firearms, and the time has come for them to be punished and penalized by the law.” He added, “It is my duty to defend the homeland.”

Mr. Morsi received a phone call on Thursday from President Obama, who expressed his “deep concern” about the deaths and injuries, the White House said in a statement.

“The president emphasized that all political leaders in Egypt should make clear to their supporters that violence is unacceptable,” the statement said, chastising Mr. Morsi and the opposition leaders as failing to urge their supporters to pull back during the fight.

Prospects for a political solution also seemed a casualty, as both sides effectively refused to back down on core demands.

David D. Kirkpatrick reported from Cairo, and Alan Cowell from London. Two employees of The New York Times contributed reporting from Cairo.

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iPad mini fails to draw crowds for China launch

Either Apple’s (AAPL) reservation-only system works better than anyone could have expected, or consumers in China have little interest in the company’s new iPad mini. Apple’s tiny tablet launched on schedule on Friday but according to IDG News Service, the turnout for Apple’s new slate was minimal. At Apple’s new flagship store in the well-trafficked Wangfujing district in Beijing, for example, turnout was “nearly nonexistent” according to the report, with no lines forming at all on Friday.

We’ve seen Apple rack up big numbers despite small launch-day turnouts in the past, but Apple’s reservation system does not appear to be responsible for the seemingly slow launch — according to IDG, many consumers who did turn up at Apple stores looking to purchase an iPad mini were unable to do so because they weren’t even aware that the reservation-only system existed.

Apple’s iPhone 5, which will presumably draw more of a crowd, launches in China next Friday.

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Check Out Sophia Bush's New Bangs!

Stylewatch
Style News Now

12/07/2012 at 12:30 PM ET

Splash News Online; Inset: FilmMagic

Sophia Bush wants to end the year with a bang — literally!

The actress showed off brand new fringe at the opening of a Joe’s Jeans store in Hollywood on Thursday night.

Instead of playing it safe with a wispy, feathery look, Bush went for a dramatic blunt style that falls just above her eyes —  similar to what Beyoncé has. (Maybe Bush was inspired by the pop superstar?)

Since Bush is yet another celeb to cut bangs in recent weeks, we have to wonder who will be next to try the trend. Tell us: Do you like Bush better with or without bangs? And what celeb do you think should get bangs next?

–Jennifer Cress

PHOTOS: SHOP EDITOR-APPROVED HAIR PRODUCTS!

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Smokers celebrate as Wash. legalizes marijuana

SEATTLE (AP) — The crowds of happy people lighting joints under Seattle's Space Needle early Thursday morning with nary a police officer in sight bespoke the new reality: Marijuana is legal under Washington state law.

Hundreds gathered at Seattle Center for a New Year's Eve-style countdown to 12 a.m., when the legalization measure passed by voters last month took effect. When the clock struck, they cheered and sparked up in unison.

A few dozen people gathered on a sidewalk outside the north Seattle headquarters of the annual Hempfest celebration and did the same, offering joints to reporters and blowing smoke into television news cameras.

"I feel like a kid in a candy store!" shouted Hempfest volunteer Darby Hageman. "It's all becoming real now!"

Washington and Colorado became the first states to vote to decriminalize and regulate the possession of an ounce or less of marijuana by adults over 21. Both measures call for setting up state licensing schemes for pot growers, processors and retail stores. Colorado's law is set to take effect by Jan. 5.

Technically, Washington's new marijuana law still forbids smoking pot in public, which remains punishable by a fine, like drinking in public. But pot fans wanted a party, and Seattle police weren't about to write them any tickets.

In another sweeping change for Washington, Gov. Chris Gregoire on Wednesday signed into law a measure that legalizes same-sex marriage. The state joins several others that allow gay and lesbian couples to wed.

The mood was festive in Seattle as dozens of gay and lesbian couples got in line to pick up marriage licenses at the King County auditor's office early Thursday.

King County and Thurston County announced they would open their auditors' offices shortly after midnight Wednesday to accommodate those who wanted to be among the first to get their licenses.

Kelly Middleton and her partner Amanda Dollente got in line at 4 p.m. Wednesday.

Hours later, as the line grew, volunteers distributed roses and a group of men and women serenaded the waiting line to the tune of "Chapel of Love."

Because the state has a three-day waiting period, the earliest that weddings can take place is Sunday.

In dealing with marijuana, the Seattle Police Department told its 1,300 officers on Wednesday, just before legalization took hold, that until further notice they shall not issue citations for public marijuana use.

Officers will be advising people not to smoke in public, police spokesman Jonah Spangenthal-Lee wrote on the SPD Blotter. "The police department believes that, under state law, you may responsibly get baked, order some pizzas and enjoy a 'Lord of the Rings' marathon in the privacy of your own home, if you want to."

He offered a catchy new directive referring to the film "The Big Lebowski," popular with many marijuana fans: "The Dude abides, and says 'take it inside!'"

"This is a big day because all our lives we've been living under the iron curtain of prohibition," said Hempfest director Vivian McPeak. "The whole world sees that prohibition just took a body blow."

Washington's new law decriminalizes possession of up to an ounce for those over 21, but for now selling marijuana remains illegal. I-502 gives the state a year to come up with a system of state-licensed growers, processors and retail stores, with the marijuana taxed 25 percent at each stage. Analysts have estimated that a legal pot market could bring Washington hundreds of millions of dollars a year in new tax revenue for schools, health care and basic government functions.

But marijuana remains illegal under federal law. That means federal agents can still arrest people for it, and it's banned from federal properties, including military bases and national parks.

The Justice Department has not said whether it will sue to try to block the regulatory schemes in Washington and Colorado from taking effect.

"The department's responsibility to enforce the Controlled Substances Act remains unchanged," said a statement issued Wednesday by the Seattle U.S. attorney's office. "Neither states nor the executive branch can nullify a statute passed by Congress."

The legal question is whether the establishment of a regulated marijuana market would "frustrate the purpose" of the federal pot prohibition, and many constitutional law scholars say it very likely would.

That leaves the political question of whether the administration wants to try to block the regulatory system, even though it would remain legal to possess up to an ounce of marijuana.

Alison Holcomb is the drug policy director of the American Civil Liberties Union of Washington and served as the campaign manager for New Approach Washington, which led the legalization drive. She said the voters clearly showed they're done with marijuana prohibition.

"New Approach Washington sponsors and the ACLU look forward to working with state and federal officials and to ensure the law is fully and fairly implemented," she said.

___

Johnson can be reached at https://twitter.com/GeneAPseattle

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Dow, S&P rise on jobs, but Apple bites Nasdaq again

NEW YORK (Reuters) - The Dow and the S&P 500 advanced modestly on Friday, though another sell-off in Apple depressed technology shares and kept the Nasdaq negative, overshadowing a sharply better-than-expected jobs report.

Trading was light, continuing the week's trend of slight moves and anemic volume. The S&P 500 ended up a mere 0.1 percent for the week, following several volatile sessions that repeatedly pushed it in and out of positive territory. The benchmark index is just 3.8 percent below the 2012 intraday high of 1,474.51 reached in mid-September.

Equities opened higher after the non-farm payrolls report, which showed 146,000 jobs added in November, far more than had been expected, while the U.S. unemployment rate dropped to 7.7 percent. A sour reading on consumer sentiment caused an erosion of those gains, though markets rebounded going into the close.

The Thomson Reuters/University of Michigan's consumer sentiment index for early December fell to its lowest level since August. Sentiment fell on growing concerns over the "fiscal cliff" debates in Washington, which have been a major factor preventing broader moves as well.

"We're not as concerned as we were a few months ago because of improvement like you can see in the employment number, but there's such a wild card over the cliff," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio. "There are such concerns about what could happen that markets will be overhung until a resolution is more certain."

One of the biggest drags on the Nasdaq was Apple which fell 2.6 percent to $533.25, extending its losses for the week to 8.9 percent. This was the worst week for the stock since May 2010, and with the losses, the stock of the largest U.S. company by market value is now down 24.4 percent from an all-time intraday high reached in late September.

In Friday's session, Apple's 50-day moving average fell to $599.52 - below its 200-day moving average at $601.38. The weakness drove the S&P information technology sector <.gspt> lower. The index fell 0.6 percent and was the weakest of the S&P 500's 10 major industry sectors on Friday.

The Dow Jones industrial average <.dji> gained 81.09 points, or 0.62 percent, to 13,155.13 at the close. The Standard & Poor's 500 Index <.spx> rose 4.13 points, or 0.29 percent, to 1,418.07. The Nasdaq Composite Index <.ixic> slipped 11.23 points, or 0.38 percent, to close at 2,978.04.

For the week, the Nasdaq is down 1.1 percent, hurt largely by the decline in Apple.

The Dow, which does not count Apple as a component, rose 1 percent for its third straight week of gains. The S&P 500 is also up for three straight weeks, rising 4.3 percent over that period.

The equity market has regained most of the ground it lost following President Barack Obama's re-election as markets turned their focus to the coming "fiscal cliff." Market response to the macroeconomic data remained muted as negotiations continued to command investor attention.

U.S. House Speaker John Boehner said that talks this week with President Barack Obama produced no progress, and he renewed his demand that the president provide a new offer to avert the series of tax increases and spending cuts that are likely to hurt economic demand in 2013.

Material shares <.gspm> were the strongest performers of the day, with that index up 0.8 percent. Freeport-McMoRan Copper & Gold Co gained 2.9 percent to $31.70 while Dow Chemical added 2.2 percent to $30.30.

Amarin Corp fell 18.9 percent to $9.69 after the biopharmaceutical company raised $100 million in financing to help it launch its heart drug, Vascepa, but disappointed investors, who had hoped for a sale or partnership.

CombiMatrix Corp shares more than quadrupled, soaring 336.6 percent to $8.60 after the company said two studies published in a medical journal favored technology it uses for prenatal diagnosis of genetic abnormalities over traditional technologies.

About 52 percent of shares listed on the New York Stock Exchange closed higher while slightly more than 50 percent of Nasdaq-listed stocks closed lower.

Volume was light, with about 5.47 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.48 billion shares.

(Editing by Jan Paschal)

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3 Walmart Suppliers Made Goods in Bangladesh Factory

Khurshed Rinku/Associated Press

Burials on Nov. 27 for some of the 112 victims of the garment factory fire in Bangladesh.

Documents found at the Tazreen apparel factory in Bangladesh, where 112 workers died in a fire nearly two weeks ago, indicate that three American garment companies were using the factory during the past year to supply goods to Walmart and its Sam’s Club subsidiary.

The documents — photographed by a Bangladeshi labor organizer after the fire and made available to The New York Times — include an internal production report from mid-September showing that 5 of the factory’s 14 production lines were devoted to making apparel for Walmart.

In a related matter, two officials who attended a meeting held in Bangladesh in 2011 to discuss factory safety in the garment industry said on Wednesday that the Walmart official there played the lead role in blocking an effort to have global retailers pay more for apparel to help Bangladesh factories improve their electrical and fire safety.

Ineke Zeldenrust, international coordinator for the Clean Clothes Campaign, an anti-sweatshop group based in Amsterdam, said Walmart was the company that “most strongly advocated this position.”

The meeting was held in April 2011 in Dhaka, the country’s capital, and brought together global retailers, Bangladeshi factory owners, government officials and nongovernment organizations after several apparel factory fires in Bangladesh had killed dozens of workers the previous winter.

According to the minutes of the meeting, which were made available to The Times, Sridevi Kalavakolanu, a Walmart director of ethical sourcing, along with an official from another major apparel retailer, noted that the proposed improvements in electrical and fire safety would involve as many as 4,500 factories and would be “in most cases” a “very extensive and costly modification.”

“It is not financially feasible for the brands to make such investments,” the minutes said.

Kevin Gardner, a Walmart spokesman, said the company official’s remarks in Bangladesh were “out of context.”

“Walmart has been advocating for improved fire safety with the Bangladeshi government, with industry groups and with suppliers,” he said, adding that the company has helped develop and establish programs to increase fire prevention.

Ms. Zeldenrust said, “Everyone recognized that fire safety was a serious problem and it was a high time to act on it, and Walmart’s position had a very negative impact.” She added, “It gives manufacturers the excuse they’re looking for to say, ‘We’re not to blame.’ ”

Scott Nova, the executive director of the Worker Rights Consortium, a factory monitoring group based in Washington, was also at the meeting. He said that upgrading the factories’ safety would cost a small fraction of what Walmart and other retailers pay for the clothing they import from Bangladesh each year.

Bloomberg News first reported details of the Dhaka meeting on Wednesday.

Walmart has indirectly acknowledged that the factory, Tazreen Fashions, outside Dhaka, was producing some of its apparel, saying in a statement that a supplier had “subcontracted work to this factory without authorization and in direct violation of our policies.” In that statement, issued two days after the Nov. 24 fire, Walmart said, “We have terminated the relationship with that supplier.” Walmart has declined to name the supplier.

After Walmart was shown some of the documents from the factory on Wednesday, Mr. Gardner replied in an e-mail. “As we’ve said, the Tazreen factory was de-authorized months ago,” he wrote. “We don’t comment on specific supplier relationships.”

The photographed documents from the factory indicate that three suppliers — the International Direct Group, Success Apparel and Topson Downs — used the factory to make shirts, shorts and pajamas for Walmart. One document, written in July, provides product descriptions from Success Apparel for Walmart’s Faded Glory house-brand shorts. A photo taken inside the factory after the fire showed a pair of Faded Glory shorts.

The documents indicate that Success Apparel often worked through Simco, a Bangladeshi garment maker.

Mr. Nova of the Worker Rights Consortium said the documents raised questions about Walmart’s statements after the fire.

“It was not a single rogue supplier as Walmart has claimed — there were several different U.S. suppliers working for Walmart in that factory,” Mr. Nova said. “It stretches credulity to think that Walmart, famous for its tight control over its global supply chain, didn’t know about this.”

Mr. Nova works closely with the Bangladesh Center for Worker Solidarity and made the factory documents available.

Investigators also found apparel made for Sears and Disney inside the factory after the fire. Both companies said suppliers had given orders to the factory without their knowledge and authorization.

Mr. Gardner said accredited outside auditors had periodically inspected the factory on Walmart’s behalf. A May 2011 audit gave the factory an “orange” rating, meaning that there were “higher-risk violations” and that it would be re-audited within six months. If a factory gets three orange ratings over two years, it loses Walmart’s approval.

A follow-up audit in August 2011 for Walmart gave Tazreen an improved “yellow” rating, meaning “medium-risk violations.”

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Facebook might buy Microsoft’s Atlas Ad platform to compete with Google

Is Facebook (FB) preparing to compete with Google (GOOG) in online advertising? According to AllThingsD and BusinessInsider’s sources Facebook might be taking steps to build its own advertising network for online websites. AllThingsD says that rather than build a new advertising network from scratch, Facebook could just buy Microsoft’s (MSFT) Atlas Solutions platform “that already delivers billions of ad impressions a day.”

BusinessInsider reports that Facebook will reportedly pay a lower price than the $ 6 billion that Microsoft paid for aQuantive in 2007 that included Atlas Solutions. It’s estimated that Atlas is worth more than $ 30 million — a small price to pay to compete with Google’s DoubleClick ad network.

So why is Facebook interested in advertising now? Well, it’s got over 1 billion active users with emails, phone numbers, and unprecedented amounts of “likes.” As BusinessInsider puts it, Facebook has so much data it could “tell marketers whether or not a Facebook user saw, on Facebook.com, an ad for a product before going to the store and buying it.”

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Randy Travis Has 'Given Up Alcohol,' Will Hit Awards Show Stage

12/06/2012 at 04:30 PM EST

Randy Travis is easing back into the spotlight four months after he was arrested while nude and allegedly drunk and belligerent on a Texas highway.

The country star, 53, is performing Friday night at the American Giving Awards in Pasadena for a show airing Saturday night on NBC. This follows his November appearance on CMT Crossroads with the Avett Brothers.

"Randy is doing great. Life is good," says his lawyer Larry Friedman. "He's given up drinking alcohol. He's drinking eight glasses of water a day or more. He's on a strict exercise regimen. … He's in the best shape he's ever been in in his life."

The AGAs, hosted by Joel McHale, is a celebrity tribute to local heroes, with five charities sharing $2 million in grants. Glenn Close will receive the AGA Leadership Award.

"It's an honor being chosen as a performer for this year's American Giving Awards," Travis says in a statement. "The act of giving back to the community is priceless and something that I truly believe in."

While Travis's case is pending, he remains busy in the studio, according to his lawyer.

"He's got 31 new songs," says Friedman. "He did it at a recording studio in Texas. He used his own band. These are all old-time favorites by Hank Williams, Willie Nelson, Merle Haggard, these are the songs that he grew up with that he loved."

• Reporting by KEVEN O'DONNELL

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Celebrations planned as Wash. legalizes marijuana

SEATTLE (AP) — Legal marijuana possession becomes a reality under Washington state law on Thursday, and some people planned to celebrate the new law by breaking it.

Voters in Washington and Colorado last month made those the first states to decriminalize and regulate the recreational use of marijuana. Washington's law takes effect Thursday and allows adults to have up to an ounce of pot — but it bans public use of marijuana, which is punishable by a fine, just like drinking in public.

Nevertheless, some people planned to gather at 12:01 a.m. PST Thursday to smoke in public beneath Seattle's Space Needle. Others planned a midnight party outside the Seattle headquarters of Hempfest, the 21-year-old festival that attracts tens of thousands of pot fans every summer.

"This is a big day because all our lives we've been living under the iron curtain of prohibition," said Hempfest director Vivian McPeak. "The whole world sees that prohibition just took a body blow."

In another sweeping change for Washington, Gov. Chris Gregoire on Wednesday signed into law a measure that legalizes same-sex marriage. The state joins several others that allow gay and lesbian couples to wed.

That law also takes effect Thursday, when gay and lesbian couples can start picking up their wedding certificates and licenses at county auditors' offices. Those offices in King County, the state's largest and home to Seattle, and Thurston County, home to the state capital of Olympia, planned to open the earliest, at 12:01 a.m. Thursday, to start issuing marriage licenses. Because the state has a three-day waiting period, the earliest that weddings can take place is Sunday.

The Seattle Police Department provided this public marijuana use enforcement guidance to its officers via email Wednesday night: "Until further notice, officers shall not take any enforcement action — other than to issue a verbal warning — for a violation of Initiative 502."

Thanks to a 2003 law, marijuana enforcement remains the department's lowest priority. Even before I-502 passed on Nov. 6, police rarely busted people at Hempfest, despite widespread pot use, and the city attorney here doesn't prosecute people for having small amounts of marijuana.

Officers will be advising people to take their weed inside, police spokesman Jonah Spangenthal-Lee wrote on the SPD Blotter. "The police department believes that, under state law, you may responsibly get baked, order some pizzas and enjoy a 'Lord of the Rings' marathon in the privacy of your own home, if you want to."

Washington's new law decriminalizes possession of up to an ounce for those over 21, but for now selling marijuana remains illegal. I-502 gives the state a year to come up with a system of state-licensed growers, processors and retail stores, with the marijuana taxed 25 percent at each stage. Analysts have estimated that a legal pot market could bring Washington hundreds of millions of dollars a year in new tax revenue for schools, health care and basic government functions.

But marijuana remains illegal under federal law. That means federal agents can still arrest people for it, and it's banned from federal properties, including military bases and national parks.

The Justice Department has not said whether it will sue to try to block the regulatory schemes in Washington and Colorado from taking effect.

"The department's responsibility to enforce the Controlled Substances Act remains unchanged," said a statement issued Wednesday by the Seattle U.S. attorney's office. "Neither states nor the executive branch can nullify a statute passed by Congress" — a non-issue, since the measures passed in Washington and Colorado don't "nullify" federal law, which federal agents remain free to enforce.

The legal question is whether the establishment of a regulated marijuana market would "frustrate the purpose" of the federal pot prohibition, and many constitutional law scholars say it very likely would.

That leaves the political question of whether the administration wants to try to block the regulatory system, even though it would remain legal to possess up to an ounce of marijuana.

Colorado's measure, as far as decriminalizing possession goes, is set to take effect by Jan. 5. That state's regulatory scheme is due to be up and running by October 2013.

___(equals)

Johnson can be reached at https://twitter.com/GeneAPseattle

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