When it comes to the U.S. economy, myths and misleading statistics abound.
Are taxes the highest they've ever been? Is the country's spending at record levels? Are the majority of products U.S. consumers buy produced by low-wage workers overseas?
The answer often depends on the spin.
But this Bureau of Economic Analysis presentation on myths and misperceptions about the U.S. economy gives investors a sense of what's real and what's the twisted truth.
Sequestration Is a Gift – Not an Apocalypse
Everybody sing along...
It's a happy day... Oh happy days. It's a happy day...Oh happy days. When sequestration rules it drives the tears away... Oh happy days!
Those are the words President Obama used to describe what would result from sequestration.
Please, don't make me laugh. The sequester will not only not ruin America, it will in fact start the process of fixing what Congress can't - no, make that won't - fix.
What's the upside?
Our magnificent Founding Fathers were all together in the creation of the United States, but it didn't mean they all loved each other or that they all had the same views about government. They sure didn't. But, those differences were acknowledged and incorporated into the Constitution and sanctified - for the people - in the Bill of Rights.
That's divided government folks. This ain't socialism, though sometimes it feels like it.
And it's that nagging feeling that a slimy, slithering strain of socialism is snaking its way into mainstream politics that keeps me up at night, in case we, the people, are overrun by "them" - the usurpers of republican democracy.
Thank goodness that divided government gave us sequestration.
So, Congress can't get along. That's nothing new. The question is who gets to pander to their constituents. That's nothing new. We have sequestration. So, what? That's nothing new.
We need to cut crap out of the budget - A lot of crap. I'm sorry if that word bothers you... but I'm not allowed to use stronger language. Don't hate me because I'm fed up. You should be, too. Maybe you don't use strong language. Maybe you don't use colloquialisms (you're better then me, I grant you that, for sure) but I'm willing to bet that you're just as mad as I am.
The Republicans want to protect the rich and their tax loopholes - including carried interest. I get that, and I vehemently disagree (and believe me, folks, I enjoy carried interest). The Democrats want us all to share the cost of running a social welfare state to pander to their voting constituents. I get that, and I vehemently disagree.
So, they can't agree on tax increases (oh, wait, wait don't tell me... they did agree on $600 billion in tax increases in January, remember?) and they definitely can't agree on spending cuts. Why are spending cuts so hard? Because, silly, spending is the bread and butter that Congress feeds to their voting constituents - and campaign-backing cronies. Duh!
Sorry, I got carried away. Forget all that stuff. I just had to get it off my chest.
This is really about sequestration and how good it will be for the country.
We need to cut wasteful spending, period. What better way to do it that to take spending cuts out of the hands of Congress and put the task squarely in the hands of the departments and programs that are wasting the money in the first place? They should be tasked with making cuts and laying off unproductive people who do unproductive things. This is great!
The Budget Control Act, passed in August 2011, basically said, "Hey, if this Super Committee we put together can't cut $1.2 trillion from the federal budget over the next ten years (they were shooting for $1.5 trillion, go figure) then, by this law, sequestration will go into place to the tune of $1.2 trillion between January 2013 and October 2121."
Pretty simple, but no one figured we'd get here. Me, personally? I was praying we would.
Here's a brilliant, simple play-by-play I found from Brustein & Manasevit, PLLC, Attorneys at Law:
Recession 2013: Can We Avoid It?
The U.S. economy is currently two-for-two in its attempts to skirt recession 2013.
The first came after we narrowly avoided a tumble over the fiscal cliff with a down-to-the-wire deal on New Year's Day. The second came Wednesday with the passage of a three-month extension on raising the debt ceiling.
The Greatest Investing Mistake You'll Ever Make
I wrote an article for Money Morning on Tuesday entitled: "The Great Rotation Makes Stocks a Generational Buy."
The story drew several comments from readers - some in agreement, others... not so much.
For instance, reader Mike W. wrote in quoting the article:
"Last week $22 billion flowed into mutual funds and ETFs. That's the second-largest weekly flow on record. Of that... $8.9 billion flowed into equity mutual funds... the most since March 2000 and the fourth-largest weekly inflow on record."
"What happened after the [largest] inflow of $23 billion in late 2007? The stock market fell off a cliff. What happened after March of 2000? The stock market fell off a cliff."
As you might have guessed, there's much more to this story...
The Fiscal Cliff Deal Just Made Bonds Even More Risky in 2013
Going over the fiscal cliff would have been bullish for long term U.S. Treasuries. But that didn’t happen. Instead we got a deal with modest tax increases, tiny spending cuts and $64 billion worth of tax-exemption pork.
Now bonds have become toxic enough to make you wonder whether or not the bond bubble has sprung a leak.
But there’s quite a bit more to this story than just U.S. Treasuries.
Fiscal Cliff Deal Tax Changes for 2013
On Dec. 31, 2012 Washington hammered out a last-minute agreement for tax deals to avert the looming fiscal cliff.
A collective sigh of relief could be heard by taxpayers even though Congress did not fix spending cuts.
Now as we begin gathering documents for the April 15 tax filing date, there are new tax laws from the fiscal cliff deal that will affect everyone.
One immediate thing that will be noticed is the Internal Revenue Service (IRS), thanks to the last-minute changes, is processing tax returns at a slower rate.
But it doesn't mean you have to delay things.
U.S. President Barack Obama has said that 98% of Americans will not see their income taxes go up - but take a look to be sure, because there is something for everyone in here.
Your Fiscal Cliff Deal Tax Changes for 2013
First, here's some good news from the tax changes:
- Being married isn't a bad thing! Couplesstill have the standard deduction that's twice that of individuals. For the 2012 tax year, this standard deduction increased to $6,100($12,200 for married couples filing jointly), a rise from $5,950 ($11,900 for married couples filing jointly).
- Many middle-class taxpayers will be protected from the alternative minimum tax (AMT)as the income exemption level will now be permanently adjusted for inflation. This means taxes will be less for the 60 million Americans that would have impacted.
- For homeowners who were either granted principal forgiveness or underwent a short sale or foreclosure, they will not have to pay tax on the forgiven debt amount with the deal's one-year extension.
But, here's where you got hit:
- Say goodbye to the two-year payroll tax holiday. It has expired and now employees' net pay is down two percentage points as 6.2% of Social Security will be taken out of paychecks versus 4.2%. There is $113,700 wage ceiling so any wages over that will be exempt.
- A worker with a $41,000 salary - the national average--will have $32 less in a biweekly paycheck, reported CNN.
$1 Trillion Coin Isn’t the Right Answer to Our Debt Ceiling Crisis
There's increasing support for the idea of minting a $1 trillion coin to help the United States avoid hitting the debt ceiling.
Even those supporting the idea - including The New York Times' Paul Krugman - admit it sounds "silly," but say it deserves consideration in that it could help solve one of our country's biggest economic issues.
"By minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all," Krugman wrote.
While the government can't make infinite sums of money however and whenever it likes, there's a legal loophole that gives the Treasury Department the authority to create platinum coins of any denomination.
The law that gives Treasury that authority is meant to allow the issue of commemorative coins, but its intentions have been misinterpreted and distorted by politicians and economists alike.
Here's the real deal with a $1 trillion coin and what it would do to the U.S. economy.
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Here's Why The Fiscal Cliff Deal is Great News For Dividend Stocks
I wish I had a nickel for every scary story I read about dividend stocks and the fiscal cliff over the last four months.
I heard so many, I could probably take the rest of the year off.
Of course, a funny thing happened on the way to this great apocalypse: dividend stocks are not only alive and well, but stronger than ever.
As I wrote a few weeks ago, the Fiscal Cliff fears surrounding income stocks were completely overblown.
And now that a budget agreement has been reached and the tax treatment of dividends is locked in, all of this doom-and-gloom can now be finally put to rest.
With a deal in place, dividends will be taxed as favorably for investors as capital gains. For lower income folks, qualified dividends continue to be taxed at 15%.
It only changes for investors who have met the government's latest definition of "rich."
For those with incomes above $400,000 ($450,000 for a married couple) there is quite a substantial increase in the tax rate on qualified dividends. It rises from 15% to 23.8%, including the 3.8% investment income surcharge in the Obamacare legislation.
However, the capital gains tax in this bracket will rise by the same amount, while interest income will be taxed at 43.4% (39.6% income tax plus the 3.8% Obamacare surcharge.)
That means the relative advantage of qualified dividends over interest income will be preserved, along with the parity between dividend and capital gains tax rates.
So for most dividend investors, very little about their investments has changed.
The difference is that these new rates are permanent - there's no 10-year horizon, as there was with the previous 15% dividend tax rate. So investment planning just got a bit easier.
The bottom line is that with the fiscal cliff deal, there are now three good reasons why dividend stocks are irresistible.
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Why The Fiscal Cliff "Deal" is Spelled P-O-R-K
After narrowly missing the fiscal cliff, the President went out of his way to thank the Senate and Congress for getting things done.
Granted, it wasn't an Academy Award speech, but it could have been given the performance he delivered as he congratulated everybody from his "extraordinary" Vice President Joe Biden to Harry Reid, Nancy Pelosi and even Speaker Boehner.
It was quite a spectacle really, but puuuulleeeassssse...now for the back- room details.
Behind the scenes, there was plenty of f-bombing, poison pilling and grandstanding leading up to the deal - and that was before the members of Congress and the Senate actually got serious with their usual ultimatums followed by earnest- looking sound bites and posturing.
And for what?...
According to Washington, they not only prevented the nation from going off the fiscal cliff, but also did lots of good things for America. Whether that's true or not depends on your perspective.
Given the fact taxes have increased for 77% of Americans thanks to payroll tax changes, and another $4 trillion stands to be added to the deficit, that's debatable.
But what gets me really riled up is the amount of pork contained in the bill.
For a bunch of lawmakers who were supposedly so busy and so involved in "negotiations," they were remarkably productive when it came to special interests.
Take a look at what else was packed into this sausage:
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Fiscal Cliff Deal Gives Energy Investors the Chance to Make a Bundle
Marina and I are still here in the Bahamas where our Internet and TV reception has been very sporadic over the past two weeks. It started improving on New Year's Day, just in time for us to watch our favorite situation comedy.
You know the one. It's called Congress.
And after much political jockeying and self-serving speeches from a largely empty floor, the House finally voted to pass the Senate's stopgap fiscal cliff Band-Aid.
Of course, the nation had technically fallen over the cliff after midnight January 1, but the holiday spared anybody inside the Beltway the problem of determining what that actually meant.
Welcome to the ongoing way of governing in Washington. It's called brinksmanship. Along the way, America has dodged another political bullet.
According to the deal, income taxes are going up for individuals making $400,000 or couples earning $450,000 or more; unemployment compensation has been saved; the sequestration of automatic expenditure cuts has been delayed.
But let's face it, two months from now, when the debt ceiling comes up for another debate, we will head right back into crisis mode. In the long-term view, nothing has changed.
In the interim, though, we are going to make some serious money in the energy sector.
How long that advance goes on is an open question. But there is one overriding factor in all of this.
And the sooner you know what it is, the sooner you'll be ready to profit. Here's what I mean...
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