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Possible Tax Changes for 2013 Trigger Stock Selling

Anxiety about tax changes for 2013 among investors holding high-yielding dividend-paying stocks has led to a selloff, driving down stock prices.

It's almost certain tax rates on dividend payments will rise, possibly by as much 43.4% for those in upper income brackets.

Some investors could be spared from the dividend tax, depending on the outcome of fiscal cliff negotiations. U.S. President Barack Obama has said he wants to increase the tax on those earning $400,000 or more, while Republicans have suggested raising the tax on those earning $1 million or more.

But even if you're not hit by higher dividend taxes, you could see the prices of stocks you own plunge because of a selloff by investors worried about the higher tax rates.

Two sectors – telecoms and utilities – have been especially hard hit.

Utilities could be the worst-performing sector in 2012, up only 2% through November compared with the Standard & Poor's 500 gain of 15%. Telecoms have slipped 5% to 6% just in the past few months.

Some larger investors in the telecoms sector may have been simply riding momentum and quickly sold out.

Sam Stovall, chief equity strategist at S&P Capital IQ, told CNBC "some of these groups will be and have been beaten up because a lot of these investors were riding the momentum wave for high yielders."

But the selling has been pretty consistent in recent months. From August-November, the top 20% of dividend-paying companies in the S&P 500 underperformed the index by about 3%.

Vadim Zlotnikov, chief market strategist at AllianceBernstein, told the Financial Times, "You can't argue that the threat of higher taxes is not important to investors."

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Investing Tips

Investing in 2013: Best Bets in an Uncertain Economy

If you're planning on investing in 2013, economic uncertainty probably will be a factor in deciding where to put your money – but some sectors stand out as solid prospects regardless of the economic climate.

Here's a breakdown of the best sectors for your money in the New Year.

Hot Sectors for Investing in 2013

Silver: With economic uncertainty expected for the near term, gold is typically considered the best hedging choice.

But, as Money Morning Global Resources Specialist Peter Krauth pointed out in his 2013 silver price forecast, silver actually provides more potential for appreciation – and at a far better starting price.

Krauth says the white metal, currently selling for around $30 an ounce, could move to a new high of $54 an ounce in 2013 – and not just because of its hedging value.

Investment demand for silver should continue to increase, driven by the creation and expansion of several silver-backed exchange-traded funds (ETFs) and increased minting of silver coins.
Industrial use of silver is expected to grow even faster. That's largely due to the use of silver in solar panel manufacturing, which consumed 60 million ounces in 2012.

Solar panel usage is expected to grow as a result of U.S. President Barack Obama's emphasis on alternative energy and increased demand from Japan, which has made a major shift away from nuclear power in the wake of the Fukushima nuclear power plant disaster.

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The Fiscal Cliff

What if There's No Fiscal Cliff Deal?

Just hours remain for Democrats and Republicans to come up with some kind of fiscal cliff deal to avert the $600 billion in tax increases and spending cuts that are set to kick in tomorrow, Jan. 1.

With both parties still at odds, a tumble over the cliff looks likely.

The only thing that's likely to happen is a very rushed deal that fails to deliver significant changes to the pre-programmed tax hikes and spending cuts.

There were small signs of optimism out of Washington.

"The discussions are going very well," Republican Sen. Bob Corker told CNBC's "Squawk Box" early Monday morning, adding though that the agreement probably won't include significant moves on deficit reductions.

But Senate Majority Leader Harry Reid, D-NV, maintains that a deal is not likely.

"There is significant distance between both sides," Reid said Sunday night.

Lawmakers reconvened today (Monday) and will remain holed up on Capitol Hill perhaps late into the night.

Here's what to expect if we fall off the fiscal cliff.

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Hot Stocks

Facebook Stock: Time for a Dividend in 2013?

Down about 42% from the $45 high after its initial public offering, Facebook stock (Nasdaq: FB)needs a way to keep investor interest into 2013.

How about paying a dividend?

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U.S. Economy

How a Port Strike Would Slam the U.S. Economy in 2013

In the final hours to reach a deal, progress was made today (Friday) in averting a port strike that could cripple most major ports along the U.S. East Coast and Gulf Coast.

A federal mediator Friday announced a temporary solution: The strike, scheduled to take effect Dec. 30, will be delayed until Jan. 28 unless dock workers and management agree on payment issues.

"While some significant issues remain in contention, I am cautiously optimistic that they can be resolved in the upcoming 30-day extension period," George Cohen, director of the Federal Mediation and Conciliation Service, said in a statement.

But, if negotiators representing longshoremen on one side and shipping companies and port terminal operators on the other can't come to an agreement by Jan. 28, 2013, a port strike could cripple the U.S. economy, which may already be hobbled by falling off of the fiscal cliff.

In today's just-in-time, minimal inventory world, a dock strike would mean that stores would quickly run out of certain non-perishable imported products including clothing, shoes and electronics.

For example, Wal-Mart Stores Inc. (NYSE: WMT), which relies heavily on goods imported from China, could fail to receive merchandise on time, particularly on the East Coast. And auto manufacturers, especially those such as BMW that assemble cars in the U.S. from imported kits, could quickly find themselves running out of parts.

Given the uncertainty surrounding the fiscal cliff and how it has weighed on economic activity, "The last thing the nation needs right now is a strike that would shut down the East Coast and Gulf Coast ports," Jonathan Gold, vice president for supply chain policy at the National Retail Federation, told The New York Times. "This will have a huge ripple effect throughout the economy."

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Precious Metals

Gold Prices in 2013 to Go Higher Thanks to These "Wars"

Gold prices in 2013 are already expected to top $2,200, and adding fuel to that price surge is an accelerating trend in the global economy.

We're talking about currency wars.

The term currency wars describes a race between many of the world's central banks to make their currencies worth less relative to other currencies, with the goal of increasing exports by making them cheaper.

Such a strategy becomes less effective as more countries join in the battle, but a growing currency war has another effect that investors can exploit: As central banks devalue their currencies, they create inflation and cause hard assets like gold to rise against them.

Fortunately for gold investors, most of the world's central banks, from the U.S. Federal Reserve to the Bank of Japan, are expected to further step up their currency devaluation in 2013.

"Implementation of the European Central Bank's Outright Monetary Transactions, andfurther Bank of Japan easing — both of which we expect – [will] support gold, aswould a weaker outlook for the yen, which competes with gold as a flight-to-qualityasset," wrote UBS analyst Edel Tully in a recent research note.

Why Currency Wars Will Get Worse in 2013

While the central banks' easy money policies have been aimed at stimulating their own sluggish economies, the effect has been to strengthen other world currencies, particularly those in emerging markets.

That has made their exports more expensive, hurting their economies. And they've had enough.

"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging market economies," Brazilian Finance Minister Guido Mantega said at an International Monetary Fund Meeting last week. "Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers."

Mantega singled out the Fed in particular, calling its bond-buying QE3 (quantitative easing) program "selfish."

Emerging economies are also uneasy about the recent election of Shinzo Abe as Prime Minister of Japan. Abe and his Liberal Democratic Party are expected to push for as much as $120 billion of stimulus spending plus call on the Bank of Japan to print piles of yen.

"It's almost obscene what they're talking about doing," John Mauldin, chairman of Mauldin Economics, told The Daily Ticker.

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The Fiscal Cliff

Fiscal Cliff Deal Gets Lost in "Blame Game"

U.S. lawmakers headed back to Capitol Hill Thursday to try and avoid falling off the fiscal cliff, but the chances of doing so before the New Year have practically disappeared.

Sounding alarm bells Thursday were stern words from Senate Majority Leader Harry Reid, D-NV, who cautioned that there is hardly any time left for a deal.

"I have to be very honest. I don't know time-wise how it can happen now," a pessimistic Reid said in a press conference from the Senate floor.

Acknowledging the urgency for some kind of deal by New Year's Eve, U.S. President Barack Obama cut short his Hawaiian Christmas vacation to return to Washington.

According to CNN, a Republican senator said President Obama told Sen. Mitch McConnell, R-KY, that the president would send a proposal to the GOP on Thursday.

Retiring Rep. Steve LaTourette, R-OH, told CNN that lawmakers are putting finger-pointing ahead of deal making.

"Nobody is willing to pull the trigger" on an agreement because "everybody wants to play the blame game," he said. "This blame game is about to put us over the edge."

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Top News

Toshiba Talks Highlight Nuclear Power Slow Down

Toshiba CEO Norio Sasaki told Dow Jones in an interview today (Thursday) the company is negotiating with three potential buyers, including Chicago Bridge & Iron Company NV (NYSE: CBI), to purchase a 16% stake in the Westinghouse Electric nuclear power unit.

Toshiba said earlier this year it would consider offers as long as it retained majority control over Westinghouse.

Toshiba paid $4.16 billion in 2006 for a 77% stake in Westinghouse. In 2007, Toshiba sold a 10% stake in Westinghouse to Kazatomprom of Kazakhstan, leaving the company with 67% of Westinghouse.

But Toshiba's stake will jump to 87% in January when a sale from The Shaw Group Inc. (NYSE: SHAW) becomes final. Shaw in September 2011 exercised an option to sell its stock after it agreed to be taken over by rival Chicago Bridge & Iron.

An 87% stake would give Toshiba too much exposure to a nuclear industry rattled by the March 2011 accident at Japan's Fukushima nuclear power plant.

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Top News

What the NYSE Deal Means for the Major Players – And You

The NYSE deal in which IntercontinentalExchange Inc. (NYSE: ICE) will acquire NYSE Euronext (NYSE: NYX), the operator of the New York Stock Exchange, is putting pressure on CME Group Inc. (Nasdaq: CME) to find a dance partner before closing time.

That's because the NYSE deal has highlighted the importance of futures and options exchanges like CME (Chicago Mercantile Exchange) in the future of trading.

A new regulatory environment, set up to address the issues thought to have caused the financial crisis of 2008, will require most over-the-counter derivatives – customized options and futures contracts between two companies – to be settled through clearing houses instead of as a private agreement between two investors.

Settling OTC derivatives through clearing houses will require market participants to put up collateral and adhere to specified margin requirements, which are not necessarily required in an OTC transaction.

Big derivatives exchanges, such as ICE and CME, see this as another money-making opportunity. And ICE just made a huge profit move with its NYSE deal.

"CME should be wary of this combination because it looks to be pretty formidable," Michael Holland, who oversees more than $4 billion in assets as chairman of New York-based Holland & Co., said in a phone interview with Bloomberg News. "The ICE people have done a very smart thing. CME should be concerned."

NYSE Deal Signals End of Era

ICE acknowledges the NYSE deal is all about NYSE LIFFE, Europe's second-largest futures exchange specializing in financial futures, which is operated by NYSE Euronext. ICE specializes in energy and agricultural commodity derivatives, so acquiring LIFFE gives ICE a broader, complementary product lineup as well as enhanced access to the European market.

By leveraging its existing clearing operations through the acquisition of NYSE LIFFE, ICE hopes to increase its clearing and settlement revenue as new regulation begins to take effect next year.

This seems to be the final nail in the coffin for the brick-and-mortar stock exchange and the ultimate triumph of electronic trading.

The NYSE and other stock exchanges around the world have lost market share to electronic exchanges, market makers and dark pools where the bulk of trading now takes place.

The idea of trading on the floor of a stock exchange now seems to be an anachronism –
a buggy whip in the Space Age.

Which brings us to the importance of CME.

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Stock Market Today

Stock Market Today: Holding on to Fiscal Cliff Deal Hopes

The stock market today (Thursday) was quiet on the open as investors waited on the sidelines for a fiscal cliff deal update.

About a half hour into trading, the Dow Jones Industrial Average was off 12 points, the Standard & Poor's 500 Index was lower by 2 points and the Nasdaq gave back 3.

Sen. Harry Reid, D-NV, gave a mid-morning press conference to warn we are likely to head over the fiscal cliff. All eyes remain on developments, or lack thereof, on Capitol Hill. If Democrats and Republicans don't come to some kind of agreement by New Year's Eve, the slowly recovering U.S. economy will be struck with some $600 billion in tax increases and across the board spending cuts at the federal level that threaten to deliver a 2013 recession.

U.S. President Barack Obama was due back in the White House today to continue negotiations.

Economists say the resilience of equity markets is due to the fact that most market participants are still betting that a deal will get done, if not by year's end, then soon after the New Year.

That is part of the reason that a stronger bearish sentiment hasn't plagued stocks.

"People are expecting some sort of compromise to save the day, so they're hesitant to short the market because news on that front will push the market higher," Mark Helweg, founder of financial tech company MicroQuant, told CNN Money.

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