Archives for January 2013

January 2013 - Page 17 of 20 - Money Morning - Only the News You Can Profit From

Here's Why The Fiscal Cliff Deal is Great News For Dividend Stocks

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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.

How this U.S. Debt Ceiling Tactic Could Backfire on GOP

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Republicans begrudgingly agreed to higher tax rates for the wealthy in the fiscal cliff deal, so now they plan to fight harder to get their way with spending cuts by using a major economic concern as leverage: the U.S. debt ceiling.

The federal government officially surpassed the $16.4 trillion debt ceiling on Dec. 31 but accounting tricks will keep the government functioning for about two months, to the end of February. That's when Washington will have to raise the limit or it will see a repeat of the debt ceiling crisis the country endured in the summer of 2011.

This is where the GOP sees a major opportunity.

In order to force Democrats to approve more drastic spending cuts, Republicans will threaten to deny raising the U.S. debt ceiling, no matter how high the immediate cost to the U.S. economy.

"Our opportunity here is on the debt ceiling," Sen. Pat Toomey, R-PA, said on MSNBC after thefiscal cliff deal was reached. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."

But that strategy might not work out as planned.

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Bank of America (NYSE: BAC) Takes Huge Step in Fixing Its Mortgage Mess

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About five years after the housing market crumbled, Bank of America Corp. (NYSE: BAC) has taken a major step toward resolving federal allegations it had improperly handled mortgages.

The Charlotte, N.C.-based bank announced today (Monday) it had reached a $10.4 billion settlement with federal mortgage issuer Fannie Mae, resolving all of Bank of America's disputes with Fannie.

BofA, which had been one of 14 banks negotiating with federal prosecutors over foreclosure abuses, settled its battle with housing finance giant Freddie Mac in 2011.

Under the latest settlement, Bank of America will pay $3.65 billion to settle claims related to the sale and delivery of certain residential mortgage loans. Plus, the bank will repurchase at a discounted price $6.75 billion worth of residential mortgage loans it sold to Fannie Mae.

BofA also said it has agreed to sell the servicing rights on some 2 million expensive residential loans, worth about $306 billion, that are chipping away at the value of the banking giant's stressed portfolio.

In a statement, Bank of America CEO Brian Moynihan said, "Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time."

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Why a U.S. Credit Rating Downgrade is On the Way

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It's been 18 months since Standard & Poor's lowered the U.S. credit rating, and now Moody's Corp. (NYSE: MCO) and Fitch Ratings look ready to do the same.

That's because even after the fiscal cliff deal, the country's biggest financial problems still remain: the debt ceiling debate, the uncertainty over the delayed sequester cuts and the failure to address the escalating long-term national debt.

And there's little confidence in Congress to reach an effective long-term deficit-reduction agreement by the February deadline.

"It's a fait accompli, actually," Money Morning Chief Investment Strategist Keith Fitz-Gerald said of a credit rating downgrade. "We are the most indebted nation on the face of the planet, spending has ground to a halt, lending is not happening."

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Tenet Healthcare - Momentum

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Shares of Tenet Healthcare Corp. (THC) have surged about 73% since January 2012 and hit a 52-week high on January 3, 2013. This Zacks #1 Rank (Strong Buy) healthcare services provider should have further opportunities for price momentum given its long-term expected earnings growth rate of 10.3%, along with its strategic plans for acquisitions, share […]

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Bear of the Day: Iron Mountain - Bear of the Day

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Iron Mountain (IRM) reported a dismal third quarter negatively impacted by lower-than-expected organic growth in the core services coupled with contraction in activity-based service revenue and decline in recycled paper prices. The company provided a tepid outlook. Although the company's decision to convert into an REIT would definitely increase shareholders value and reduce the tax […]

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Four Timely Moves For The Next Three Crises

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As I wrote last Thursday, the aftermath of the fiscal cliff deal requires some restructuring of energy sector holdings.

We are currently in a brief period between crises. Nothing was resolved in the eleventh (and a half) hour compromise.

The truth is there are still three huge fights on the horizon – revisiting the sequestration (automatic spending cuts) portion of the fiscal cliff, spending versus taxation in the budget, and raising the debt ceiling.

All will hit by early March.

So the reprieve gained on New Year's Eve will be brief.

The spike after the accord was huge. Unfortunately, as we witnessed late last week, the market rally has no legs. VIX (volatility) has been abnormally low, but that will be drifting up, to accelerate as we get closer to the next round of legislative paralysis.

We cannot predict how protracted this next round will be, but early indications are hardly encouraging.

That's why investors need to be more defensive and identify energy components that are more likely to withstand the gridlock and even profit from it.

Overall, you should divide the energy sector into four segments:

  • Producers;
  • Midstreams;
  • Processors/Distributors; and,
  • Alternatives.

Most members in each of these groups are likely to be vulnerable as we move closer to the end of February. But not all of them.

Here's what you need to know…

Why The Fiscal Cliff "Deal" is Spelled P-O-R-K

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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:

What the December U.S. Jobs Report Tells Us About 2013

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The December U.S. jobs report released Friday showed the country's unemployment rate failed to improve in the last month of 2012, with the economy adding only 155,000 jobs.

The unemployment rate, originally reported as 7.7% for November, was revised upward for that month to 7.8%, and stayed the same for December.

The figure was roughly in line with expectations. Estimates for the number of jobs created in December ranged between 140,000 and 160,000.

Non-farm payroll hiring in December was most robust in health care, which created 45,000 jobs. Manufacturing, construction and hospitality also logged strong gains.

Oddly, employment dipped in retail during the holiday-sales month, which is usually the most active time for the sector.

The government also shed jobs, dropping 13,000.

After eliminating some 653,000 jobs from 2008 to 2011, state and local governments kept headcount mostly even in 2012. The decline in December could be attributed to the economic uncertainty hanging over Capitol Hill.

The Pentagon has warned that workers may have to be furloughed if the debate over raising the U.S. debt ceiling, set to be taken up in a few weeks, is dragged out past next month.

Also weighing on government hiring is the pack of problems that will challenge growth, like rising worker pension costs, steep spending cuts and reduced federal funding that will likely kick in during 2013.

As Moody's chief economists told USA Today, "The fiscal headwinds will be blowing hard in 2013."

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