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The 2013 Tax Law Changes that Could Be Headed Your Way
- By Deborah Baratz, Contributing Writer, Money Morning
- November 20, 2012
There are a slew of 2013 tax law changes ready to go into effect if Congress fails to reach an agreement on the fiscal cliff.
According to the Tax Policy Center, almost 90% of taxpayers, both rich and poor, will see their household tax bill increase by about $2,000 next year with the top 1% seeing a tax increase on average at $121,000.
In other words, take-home pay will decrease, which has been referred to as "Taxmageddon,"with the middle class especially hard hit from the changes.
But that's just a small piece of the large puzzle of 2013 tax law changes. Here's a more detailed look at what could hit your income, investments and savings.
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Emerging Markets Stocks 2013: Don't Miss These Next Waves of Growth
- Money Morning Staff reports
Amid a turbulent market environment in 2012, emerging markets stocks have been, well, turbulent.
Some markets (Colombia, Mexico and Thailand to name a few) have performed well. Others have disappointed (Brazil and Russia stand as two laggards.)
But as Money Morning Global Investing Strategist Martin Hutchinson explained last week, economic growth has shifted to these developing economies.
"The IMF's World Economic Outlook projects anemerging marketsforecast with growth at 5.6% in 2013. That's down slightly from 2011 but far ahead of the measly 1.5% growth projected in the "advanced economies,'" wrote Hutchinson in his 2013 emerging markets forecast. "That means investors need to focus heavily their investments inemerging markets, as we have done successfully over the past few years."
Plus, there is no getting around the fact that emerging markets stocks are cheap. The broader emerging markets universe currently trades at a 20% discount to the developed world. And with that valuation discount comes the potential for growth.
But just because valuations are attractive that does not mean all emerging markets stocks are. It pays to be hyper-selective with this asset class.
That's why we've weeded out the weak and come up with some of the most promising emerging markets stocks for 2013.
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Stocks to Buy Now: Two Intoxicating Recession-Proof Plays
As you look for stocks to buy now, it's as simple as watching the behavior around you…
For example, you might feel like the fiscal cliff, devastation from Superstorm Sandy and more gridlock in Washington is enough to drive you to drink.
And millions of people are doing just that.
Even in the worst of times, alcoholic beverage companies continue to generate rock-steady revenues and surging profits — no matter what the rest of the market is doing.
Truth is, not many people will give up their nightly rituals, even if times are tough. During the Great Recession, booze purveyors have been particularly resilient, making them good stocks to buy ahead of slow growth in 2013.
Over the last five years, the S&P 500 has returned less than 1.2% annually. By contrast, a Wine, Beer, and Spirits Folio focused on the sector returned 9.1% per year.
Better yet, beer, wine and liquor makers are one of the few industries that have been able to raise prices, according to an industry report by Value Line.
To cash in on this trend, consider the stocks of these two stalwart beverage companies.
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The New Obama Regulations Headed for U.S. Business in 2013
Agencies under U.S. President Barack Obama will add thousands of new regulations to U.S. business in 2013, with many of them extremely costly.
According to Small Businesses for Sensible Regulations, an arm of the nonprofit, nonpartisan National Federation of Independent Business (NFIB), more than 4,100 new Obama regulations are in the pipeline.
The group estimates that the 13 most expensive regulations will cost the U.S. economy $515 billion.
Held back during the heat of the presidential campaign, a backlog of these Obama regulations is about to hit the economy full force.
"The Obama administration has been quietly postponing several multibillion-dollar regulations until after the November election," wrote Sen. Rob Portman, R-OH, in an August Wall Street Journal guest column. "Those delayed rules, together with more than 130 unfinished mandates under the 2010 Dodd-Frank financial law, could significantly increase the regulatory drag on our economy in 2013."
Portman dubbed the situation "the regulatory cliff," a reference to the widely discussed fiscal cliff.
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2013 U.S. Economic Forecast: Even Without the Fiscal Cliff, A Recession Still Looms
Everyone is worried about the damage the "fiscal cliff" might do to the U.S. economy in 2013, but the reality is that's only one of the potential problems in our 2013 U.S. Economic Forecast.
At present there appears to be four problems– aside from the fiscal cliff– that could throw the U.S. economy into recession in 2013.
These are international problems that include:
- Brewing trouble in Japan: Japan faces an election next month. More importantly, its government debt is currently 230% of GDP, with that ratio rising by about 10% a year. The current government has increased sales tax in 2014, which may cause a recession and will likely push its debt to GDP ratio even higher.
The problem is no country has ever survived a debt/GDP ratio above about 250% without defaulting. Britain did succeed with this in 1815 and 1945, but on the second occasion it relied on exchange controls, inflation, and dozy domestic investors, while on the first occasion it had a government under Lord Liverpool far more capable than anything we have seen in the last 185 years.
The point is, if Japan gets a weak coalition after its election, the market may panic and cause a Japanese government default.
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Why China Is a Key Reason to Be Investing in Gold
- Tony Daltorio, Contributing Writer
Recently, a major event was held that sent a signal to anyone interested in investing in gold.
For the first time ever, the London Bullion Metal Association (LBMA) held its annual meeting in Hong Kong. It is a trade group that represents the wholesale market for gold and silver and it's telling that it decided to have its meeting in Hong Kong.
However, the site choice should not come as a surprise to anyone following the gold market. China has become more and more important to the gold market. The Asian giant's imports of the shiny yellow metal have become a key factor in gold's positive price performance over the last few years.
Investing in Gold: China's Role
Bullion demand from China has soared in the past several years.
In 2007, China accounted for just 10% of global gold demand. By 2011, China was responsible for 21% of global gold demand. This trend can easily be seen in figures from the World Gold Council (WGC). It said gold demand in China has risen from about 250 tons in 2006 to almost 800 tons presently.
What the WGC numbers don't tell you about though is how China's central bank, the People's Bank of China, is buying gold. Gold imports into China via Hong Kong (the route the central bank uses) has continued to rise rapidly despite a dip recently in gold buying by Chinese consumers.
Hong Kong has seen on average about 65 tons in gross imports of gold per month. Year-to-date China has imported an astounding 582 tons of gold, more than the official holdings of another country well known for loving gold, India.
It is not shocking that the Chinese central bank is trying to get its hands on large amounts of the precious metal.
As David Gornall, chairman of the LBMA, told the conference "The country [China] has only 2 percent of its reserves in the form of gold." He added "that allocation can only go in one direction."
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Keystone Oil Pipeline Decision Key to Obama's Energy Policy
- By Tony Daltorio, Contributing Writer, Money Morning
- November 16, 2012
One of the major policy decisions facing U.S. President Barack Obama is whether or not to approve the Keystone oil pipeline across the Canadian border into the United States.
If approved, the pipeline – to be built by TransCanada (NYSE: TRP) – would transport about 1.3 million barrels of oil a day from Canada's oil sands to refineries along the Gulf coast.
The Keystone oil pipeline, if approved, would benefit U.S. energy security. Not to mention TransCanada and players in the Canadian oil sands industry such as Suncor Energy (NYSE: SU).
This decision is one investors in the energy sector need to pay attention to as it will set the tone for energy policy in President Obama's second term.
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Stock Market Today: As Fiscal Cliff Talks Begin, Stocks Reel in Fear
The stock market today opened lower on the first day of official fiscal cliff negotiations. The markets have been pressured down all week by worries that no deal will be reached, with both the Dow Jones and the S&P 500 losing over 2.5%.
Not even a new report claiming that White House officials are in advanced talks to replace the sequester cuts could lift the market today.
- Fiscal cliff deal could be close- As the president meets with Congressional leaders today, there is a new report out hinting that a deal involving partially going off the fiscal cliff is in the works. The Wall Street Journal reported today (Friday) that White House officials have discussed a plan where smaller spending cuts and fewer tax increases would be made. The idea is to postpone the majority of the cliff and have "targeted" cuts and tax increases. Basically this would delay making tough decisions on the deficit, including actually making major spending cuts, overhauling the tax code, and restructuring Medicare, Medicaid, and Social Security. Instead of kicking the can down the road again, going off the fiscal cliff is something that Money Morning Global Investing Strategist Martin Hutchinson thinks is a good idea. On going off the cliff he says, "Contrary to all of the media caterwauling, that's not a dreadful fate. In fact, it is exactly what we ought to be doing, since it solves 77% of the deficit problem in one fell swoop." To see his full column, click here.
- Strike pushes Hostess Brands into bankruptcy- In what may be the saddest economic news of the day, Hostess, maker of Twinkies, Devil Dogs, Ho Ho's and Wonder Bread, announced it's going bankrupt. The Irving, TX-based company said that the closing was a result of a nationwide strike and that nearly all of the 18,500 workers will lose their jobs as the company shuts down 33 bakeries, 565 distribution centers, and 570 outlet stores nationwide. "Many people have worked incredibly long and hard to keep this from happening, but now Hostess Brands has no other alternative than to begin the process of winding down and preparing for the sale of our iconic brands," CEO Gregory F. Rayburn said in a letter to employees posted on the company website." The company said it will try to sell its snack cake and bread business with the hope of reviving such brands as Twinkie, Wonder Bread, and a few others.
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Fiscal Cliff 2013: Pay Now or Pay Later
For all the talk about how Congress needs to avoid the fiscal cliff, few have pointed out that the U.S. economy will suffer regardless.
The only question is the timing.
If Congress fails to act and America goes over the fiscal cliff on Jan. 1, 2013, the U.S. economy will, as many have noted, quickly slip into a recession.
But if Congress does somehow agree to avert all or most of the impact of the fiscal cliff, it simply postpones the pain for a few months or years.
And if Congress elects to postpone the fiscal cliff indefinitely, choosing to continue the federal government's massive deficit spending in perpetuity, the federal debt will weigh more and more heavily on U.S. economic growth as the years go on.
"That highlights lawmakers' dilemma," wrote The Wall Street Journal in a recent editorial. "Going off the cliff will produce great pain in 2013 but lead to a more stable fiscal situation a decade on. Averting it will forestall recession now but hamstring growth later."
How Fiscal Cliff 2013 Affects U.S. Economy
The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.
The consequences of going over the fiscal cliff or delaying it can be found in the latest report on the matter from the Congressional Budget Office (CBO), "Economic Effects of Policies Contributing to Fiscal Tightening in 2013."
And this latest report, which is different than the previous CBO projections, actually includes a clue as to how Congress could decide to deal with the fiscal cliff before the end of the year…
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Berkshire Hathaway Holdings Show Buffett Hunting a Big Elephant
- By Ben Gersten, Associate Editor, Money Morning
- November 15, 2012
Warren Buffett's Berkshire Hathaway holdings have undergone some major changes in the third quarter, according to the company's latest 13F filing.
Not only did Buffett and Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) sell more than $750 million in two American giants, they initiated four new holdings and eliminated three positions entirely. Overall, Berkshire's reported portfolio, which only includes long positions, increased to $75.3 billion for the quarter ended Sept. 30, up from $74.3 billion the previous quarter.
While some think Buffett is taking profits where he can, others think he is building up a stockpile of cash for a major move.
"Buffett may be selling the consumer stocks to provide more funds to his deputies while reserving money for a large acquisition," David Kass, a professor at the University of Maryland's Robert H. Smith School of Business, told Bloomberg News.
"He may be really wanting to keep that aside for his big elephant," said Kass, who is referring to Buffett's quote in a letter to shareholders last year where the 82-year-old investing legend stated, "Our elephant gun has been reloaded, and my trigger finger is itchy."
Only Buffett and Berkshire's new portfolio managers, Todd Combs and Ted Weschler, truly know why they made their latest moves, and so without further speculation, here they are.
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