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Why the Debt Crisis is Here to Stay
On Thursday, the Senate passed a 90-day suspension of the debt ceiling, postponing the looming debt crisis for three months until a deal can be worked out.
That's the theory, at least.
In fact, most experts, if they are being honest, agree that, unless major changes are made to both taxation and spending, budget crises will be a permanent feature of American life and politics.
It now looks as if the federal government is going to muddle its way into a situation where sequestration, once a dreaded threat to be avoided at all costs, now looks like the only way to implement across-the-board budget cuts.
Sequestration takes an axe to the entire budget thereby avoiding responsibility for any unpleasant outcomes resulting from the spending cuts. It's not the smartest way to cut spending but is one of ways to do it without making difficult choices.
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The 5 Worst CEOs of 2012 and Why They Should Be Fired
Among others, Mark Zuckerberg of Facebook Inc. (Nasdaq: FB), Brian Dunn of Best Buy Co. Inc. (NYSE: BBY) and Andrew Mason of Groupon Inc. (Nasdaq: GRPN) all had a rough year.
Money Morning's experts picked through the list of disappointing names and came up with the five worst CEOs of 2012.
Here are the finalists, along with our experts' reasons why these weak performers should be given the axe in 2013:
- Ben Bernanke, Chairman of the U.S. Federal Reserve – Picked by Chief Investment Strategist Keith Fitz-Gerald:
Bernanke is the CEO of the biggest private institution on the planet, the Fed.
Despite overwhelming evidence that the theories and methods he is using have not worked, are not working and have never worked since the dawn of recorded history, he continues to plow ahead with more of the same failed monetary and fiscal policy that got us into this mess.
In the process, he risks unspeakable damage to the United States and to the global financial system while only kicking the proverbial can down the road.
- Ben Bernanke, Chairman of the U.S. Federal Reserve – Picked by Chief Investment Strategist Keith Fitz-Gerald:
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Why Forcing U.S. Companies to Bring Cash Home is a Bad Idea
The federal government would love nothing more than to apply the 35% corporate tax to the estimated $1.7 trillion in cash U.S. multinational companies have designated as foreign investments – and outside the grasp of the Internal Revenue Service.
U.S. companies don't have to pay tax on profits made overseas unless they bring the cash home.
While eliminating this break looks tempting – the Congressional Budget Office (CBO) estimated in a report this month that it would generate $114 billion in revenue over 10 years – such a move could have a variety of negative consequences that would hurt U.S companies as well as the U.S. economy.
One problem is that eliminating the break would put a major burden on many U.S. companies, which use the loophole specifically to avoid the 35% corporate tax rate – among the highest in the world.
The result is that billions in profits never get repatriated to the U.S. Most of the cash holdings of many major U.S. companies, in fact, technically reside overseas. Microsoft, for example, holds 87% of its cash in foreign-controlled accounts.
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U.S. Debt Ceiling Deadline Prompts This Stern Warning from Obama
The U.S. debt ceiling deadline lies just a few weeks away, raising the prospect of the nation defaulting on loans, seeing its credit rating downgraded and being plunged into a recession.
And there's no sign U.S. President Barack Obama or congressional Republicans are ready to budge on their positions on what to do about the debt ceiling.
President Obama once again made his case for raising the debt ceiling during a White House press conference today (Monday) and faulted Republicans for what he portrayed as a misguided position.
"They will not collect a ransom in exchange for not crashing the American economy," President Obama said. "The full faith and credit of the United States of America is not a bargaining chip."
If the GOP lawmakers refuse to increase the U.S. debt ceiling – they're holding out for dollar-for-dollar spending cuts – the president said markets could "go haywire," government payments including Social Security and military personnel checks would be delayed and the economy would slide into recession.
"It would be a self-inflicted wound on the economy," President Obama said. "It would slow down our growth and tip us into recession. To even entertain the idea of this happening is irresponsible. It's absurd."
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Can the Japanese Economy End Deflation With These Steps?
Japan's newly elected Prime Minister Shinzo Abe is taking aggressive measures in an attempt to end the deflationary spiral that has plagued the Japanese economy for more than twenty years.
The return of Abe's Liberal Democratic Party (LDP) to power in a landslide election victory last month is seen as a mandate to do whatever it takes to revive the flagging Japanese economy.
One of the first policies likely to be put into place is the passage of a massive supplementary budget for fiscal 2012 (the year ending March 31, 2013). Depending upon how you count it, the budget ranges from 10 trillion yen ($112 billion) to 20 trillion yen ($224 billion).
Observers have expressed concern over the size of the stimulus and what impact it might have on Japan's sovereign credit rating and on the Japanese government bond (JGB) market, plus what it could do to the U.S. economy.
Let's take a look.
Arm Twisting the Bank of Japan
The supplementary budget is nothing but good, old-fashioned pork barrel spending; the kind of money politics the LDP was known for when they governed Japan for more than 50 years.
What is new and different about Prime Minister Abe's approach to reviving the Japanese economy is his strong arm tactics against the Bank of Japan (BoJ), Japan's central bank.
BoJ independence was enshrined in law only in 1999. Abe has run roughshod over the intent of the law by demanding that retiring BoJ Governor Masaaki Shirakawa sign a written document agreeing to do whatever is necessary-generally considered to be "unlimited easing"-to achieve an inflation target of 2% over the medium-term.
At its last Monetary Policy Committee (the equivalent of the Federal Reserve's Open Market Committee) meeting, which took place just after Abe's landslide election victory, the BoJ agreed to review its policy goals and come back in January with updated policy recommendations. The next Monetary Policy Committee meeting takes place over two days on Jan. 21 and 22.
Press reports indicate that the BoJ will roll over and do pretty much whatever Abe wants – and here's why.
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Mystery Facebook Event: Five Things that Could Happen
With little to go on, speculation has run rampant as to what will be announced at tomorrow's (Tuesday's) mystery Facebook event, with new gadgets and M&A activity topping the list.
The social networking giant sent reporters an invitation last week that simply said to "come and see what we're building" on Jan. 15.
The initial buzz ignited quite a rally in Facebook stock, sending shares up more than 9% last week after the invitations went out. Since the start of 2013, FB shares have been on a tear, up some 20% year-to-date.
Cantor Fitzgerald just made Facebook Inc. (Nasdaq: FB) one of its "highest conviction calls" for 2013. Plus, JPMorgan Chase & Co. (NYSE: JPM) elevated FB shares as a "top large-cap pick" for the Internet sector. Both firms are upbeat on the traction Facebook is making in the mobile arena.
While some are excited about Tuesday's secretive event, others are not expecting much. In that camp is Wedbush analyst Michael Pachter, who has closely been following the company since before its initial public offering.
"I have low expectations," Pachter told MarketWatch, citing the proximity to Q4 earnings, which the company will announce Jan. 30 after the close.
On the other hand, Topeka Capital's Victor Anthony is more expectant and believes the announcement could be "meaningful."
Here are five things that could happen at Tuesday's Facebook event.
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Stocks to Buy: The Biggest Winner in the Apple-Samsung Divorce
There will be winners for investors as a result of the slow-motion split between Apple Inc. (Nasdaq: AAPL) and Samsung Electronics (SSNLF), but the stocks to buy are neither of the warring parties.
Instead, as the tech giants unwind a relationship in which Samsung supplied Apple with billions of dollars' worth of components for its popular iPhones and iPads, the real winners are the suppliers rushing to fill the void.
The once-cozy relationship began to sour a couple of years ago when Samsung began to introduce smartphones and tablets that Apple felt too strongly resembled its own.
Shortly afterward, Apple began filing patent lawsuits. Samsung countersued. The fight grew into a global war, with 50 separate patent suits in 10 countries spread over four continents.
The relationship grew frostier in 2011 as Samsung became the dominant vendor of smartphones based on Google Inc.'s (Nasdaq: GOOG) Android operating system and started taking market share from the iPhone.
In 2012, Apple started shifting more and more component purchases to other suppliers, a process that has accelerated in recent months.
Samsung's invoices to Apple have included memory chips, batteries and display screens in addition to the manufacture of Apple-designed processor chips found in the iPhone and iPad.
Samsung, in fact, provided 26% of the component costs of the iPhone 4, so there's plenty of new money suddenly available at the Apple trough.
Let's take a look at some stocks to buy as a result of the Apple-Samsung divorce.
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U.S. Debt Ceiling: Here's What Washington Could Do
The United States hit the $16.4 trillion debt ceiling on Dec. 31, 2012. Thanks to some creative financial maneuvers, dubbed "extraordinary measures," the government is running on $200 billion in emergency funding, provided by the Treasury Department.
Congress, which sets the debt limit and can approve more borrowing as needed, is in the midst of debating whether or not to raise the limit. Failing to do so means the government will default on its obligations. The result would be nothing short of disastrous.
With only weeks left before the "emergency funding" runs out, the whole country is weighing in on what could and should be done. Following are three options Washington could choose.
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Investing in Silver: The Most Popular Plays for 2013
Investing in silver has so far been one of the most popular moves of 2013.
Jan. 7, the first day of sales for the new 2013 American Silver Eagle bullion coins, saw a record number of coins sold, totaling 3,937,000. That fresh tally of 99.9% pure silver Eagles puts January 2013 as the fifth strongest month for the popular American Silver Eagles since its launch in 1986.
Early release and newly-dated bullion coins have always been hot items. But this year's impressive sales numbers were particularly robust due to the fact that the U.S. Mint's inventory of 2012-dated Silver Eagles sold out on Dec.19, leaving its network of Authorized Purchasers' vaults empty for three weeks until the new Eagles debuted this year.
Demand for Silver Eagles has soared in recent years. The 2012 Eagles were set to log the second best annual total until the unforeseen sell out. Annual sales for last year reached 33,742,500 coins, good for the third-highest total.
Holding the top spot is 2011, with sales of 39,868,500. Second is 2010, with 34,662,500 coins sold.
Adding to the buying frenzy in the past couple months is silver's spot price, which many deem a bargain.
From 2001 to 2010, silver prices gained a tepid $4.37 to $20.19. In late April 2011, silver surged, peaking at $49.76. Currently, the white metal is trading around $30.80 an ounce, but could climb to $50 an ounce in 2013.
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Five Stock Market Charts Bears Have Been Waiting For
As the bull market tries to enter its fifth year, many are wondering if it still has legs – but a handful of stock market charts warn there's high risk of a coming sell off.
In fact, a recent report from Credit Suisse Group AG (NYSE ADR: CS) outlined 10 technical factors that show the market is at its most risk-on level since just before the stock market crash that began in 2007's third quarter.
"Many of our tactical indicators point to a consolidation phase in the equity markets, in the near-term," Credit Suisse Global Equity Strategist Andrew Garthwaite said in a note to clients.
For a closer look at this bearish forecast, check out these five stock market charts pointing to a pullback.
