Archives for July 2013

July 2013 - Page 12 of 18 - Money Morning - Only the News You Can Profit From

Will the Home Mortgage Interest Deduction Vanish in 2013?

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In 2013, Congress is expected to explore a number of tax reforms in order to address staggering deficits and a crippling $17 trillion in debt owed by the Federal government.

No proposed tax reform will be more controversial this year than attempts to alter the Home Mortgage Interest Deduction (HMID).

Considered the holy grail of tax deductions, the annual tax break to homeowners, which provides more than $100 billion a year in tax relief, could see significant changes, thus affecting the finances of millions of Americans.

But in order to understand how these changes could affect you, one needs to understand how this tax break became so monstrous in the first place, and what the impact of such proposals could have on the housing markets.

In fact, this very issue proves why even grander tax reform is necessary right now in the United States.

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What Are the Best Investments in Tech Now

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Our readers know that the technology sector holds some of the most exciting and lucrative profit opportunities, which is why we're constantly asked, "What are the best investments in tech right now?"

Tech is the largest single segment of the market. But more importantly, it's the driver of innovation and invention that leads to a steady stream of progress and fascinating new products.

Just look at this year's latest developments in mobile devices, 3D printing, and graphene.

Despite its promise, not all tech stocks have performed as well as the broader market in 2013.

The Standard & Poor's 500 Technology sector is up just 7.4% year-to-date, compared to the S&P 500 Index's 13.9% gain. Blame Apple Inc's. (Nasdaq: AAPL) struggles and fall from grace (shares are off some 40% from its September high) for S&P tech stocks' muted showing.

However, when looking at a wider picture, tech's performance since the start of the year is robust.

Indeed, average gains for tech stocks in the Russell 3,000 are 21.9%. The broad based Russell 3,000 is made of up all Russell 1,000 (large and midcaps) stocks and Russell 2,000 (small caps).

Following are few examples of the explosive growth enjoyed by tech industry winners so far in 2013:

How IPOs Are Priced: An Overview with Shah Gilani

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Facebook IPO

An initial public offering, or IPO, is the first time a stock is sold by a private company to the public.

Typically you will see IPOs being issued by younger, smaller companies seeking capital to expand. Sometimes, however, larger companies that wish to become publicly traded will also issue IPOs.

Just like any other stock, stocks issued in an IPO are subject to supply and demand – they will sell for whatever price a person is willing to pay.

But because IPOs haven't been tried and tested in the market, there is a lot of analysis – even guesswork – behind setting a price.

Thus, there is a certain "art" to pricing an IPO.

The company planning an IPO will appoint a bookrunner to help it value the share price.

Bookrunners, also known as lead managers, are typically investment banking firms with experience in capital markets. Goldman Sachs Group Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), and Morgan Stanley (NYSE:MS) are good examples.

The bookrunner operates as an underwriter, and will maintain and manage the books of security offerings that are part of the new investment issue.

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Larry Summers Should Not Be the Next Federal Reserve Chairman

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Just this week, the Wall Street Journal reported that former Treasury Secretary and Harvard
President Larry Summers is "hell-bent" on becoming the next U.S. Federal Reserve Chairman.

The more important issue, however, is whether Americans should want Summers involved in such a prominent role in the global economy.

Arguments that favor Summers center on the fact that when the building clears out in 2014, Summers will be one of the few individuals left with significant experience in the international financial system. With Timothy Geithner gone, Ben Bernanke leaving in 2014, and departures of David Lipton at the IMF Michael Froman at USTR, Summers is considered one of the last "battle tested" individuals left. He has significant experience following the 1994 Russian crisis, the 1997 Asian Crisis and the 2008 Great Recession.

But while experience in necessary, so is the importance of accomplishments.

Critics have argued that handing the keys of the U.S. economy to Larry Summers would be equivalent to allowing a blind sheepdog to protect Americans from wolves. Summers' past 25 years of experience is riddled with questions about his ability to understand crisis, his commitment to corporate influence, and his irrational pledge to illogical academic arguments.

Given that few in Washington seem to vet political appointees of this administration, we decided to explore several important questions about Summers' potential candidacy and past understanding of the Federal Reserve's role in the global economy.

Your Best Strategy for Playing This QE Rally

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Don't worry. The bubble "Quantitative Easing" has built is still intact. For now.

However, even though there's breathing room, don't think it's time to breathe easy. There will be Hell to pay, just not now.

And I have found three opportunities to take advantage of the next phase in this unsettling market.

But let's gather some perspective first.

The news that the Fed might taper QE bond purchases gave the bond (and stock) markets a fit of the vapors and caused gold to careen toward $1,200 an ounce.

Why’s There So Much Dissension Inside the Fed?

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There's considerable dissension within the ranks at the Federal Reserve, with many of Chairman Ben Bernanke's colleagues saying the Fed's monthly purchase of $85 billion in bonds should end by late this year.

"About half" of 19 Fed members "indicated that it likely would be appropriate to end asset purchases later this year," according to minutes of the June Fed policy-making committee meeting, released Wednesday.

Ending QE3 could have enormous implications for the stock market – whose four-plus-year bull market has been buoyed by the central bank's stimulus – and for the economy as a whole.

But while there's growing sentiment inside the Fed to end QE, a majority of the 12 voting members of the policy-making Federal Open Market Committee hope to extend the bond-buying into next year.

Still, the Fed's June 18-19 meeting could prove to be a turning point, given the amount of discord at the meeting.

The minutes add some context to Bernanke's comments at a press conference immediately after the meeting in which he said the Fed could begin scaling back QE3 this year and end it altogether by mid-2014.

The markets dipped immediately after Bernanke's comments but then recovered some.

"They're Making It Up As They Go Along"

"To me, the real news is that you've got dissension inside the Fed now," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "My initial read is there's a lot more dissension than usual.

"And," Fitz-Gerald said, showing his longtime disdain for the Fed, "the level of dissension reinforces the notion that they don't know what they're doing and they're making it up as they go along."

Money Morning Capital Wave Strategist Shah Gilani, meanwhile, said the June FOMC showed legitimate concerns among members.

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Now is the Time to Buy Gold

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Gold climbed for the third session in a row, and is on track for its best weekly gains since April.  Gold futures for delivery in August rose 0.6% to $1,256 per ounce.

So is now the time to buy gold?

Many analysts say YES.  Here's why:

Buyers should look to the long-term, and see declines as an opportunity to purchase.

The best time to buy gold is when it hits a low, but is poised to bounce back up.

Well, gold has lost more than 30% of its value over the last 9 months.

And recently, other the performance of other markets are  bolstering precious metals – namely, the U.S. dollar index and price gains in crude oil futures.

As the dollar weakens, gold grows stronger.  David Meger, director of metal trading at Vision Financial Markets, tells Bloomberg, "The weakness in the dollar is putting some bid under gold."

Additionally, today (Wednesday) the U.S. central bank will release the minutes of its June meeting, and Chairman Ben Bernanke will speak on economic policy.

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Can the Fed Cause a Stock Market Crash?

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A recent article by Paul B. Farrell of MarketWatch said that there is a 98% risk of a stock market crash before the end of 2014.

He said in the article "bubbles are everywhere. . .ready to blow."

That's quite a statement. One key reason Farrell expects a crash? Federal Reserve policies.

He believes that the three major bubbles that have blown up in the past two decades were caused in large part by the Fed's loose monetary policies.

The three bubbles are: the Asian financial bubble that resulted in the Asian Financial Crisis of 1997, the Dot-Com bubble of the late '90s and early '00s, and the credit/housing bubble that resulted in the 2008 financial crisis.

For readers unfamiliar with the term bubble, it simply means a financial asset whose price has been driven far beyond any rational analysis of its true worth. And although they look like they will rise forever, since there is little substantial basis for the valuation, these asset prices will eventually pop just like a soap bubble.

The pop results in a substantial drop in price – in other words, a crash.

Farrell quotes SocGen's global strategist Kit Juckes as saying all these bubbles were "fueled by the Fed keeping policy rates below the nominal growth rate of the economy far too long." Juckes went on to call current conditions the "bubble with no name."

He may be on to something. Even members of the Federal Reserve are worried.

In the mid-May meeting of the Fed's Advisory Council, some members expressed "strong concerns" over the Fed's low interest rate policies and its bond purchase program, which some members said could result in an "unsustainable bubble" in the stock and bond markets.

Thus, we've had the talk in recent weeks about 'tapering' the Fed's purchases of bonds.

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Why the Microsoft Reorganization Plan Won't Fix What's Wrong

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With a Microsoft reorganization plan expected to be announced on Thursday, investors at this point must be wondering: will it matter?

Shareholders of Microsoft Corp. (Nasdaq: MSFT) have only recently gotten a glimmer of hope. Microsoft stock had languished in the $25-$30 range for more than a decade until this year, which has seen MSFT pop about 30%.

Although extremely profitable, Microsoft under the leadership of CEO Steve Ballmer has struggled to move beyond its core products of Windows and Office, which still deliver nearly all of those profits.

What this new Microsoft reorganization plan needs to do is reorient the Redmond, WA-based company toward future engines of growth, such as the mobile wave of smartphones and tablets, cloud computing and big data.

Insiders say Ballmer intends the new structure to provide "functional coherence" and will align the company into divisions based on services and devices.

But given Ballmer's spotty track record and Microsoft's unwieldy size (98,000 employees), it's not a given that any major structural overhaul will do much good in addressing the company's real problems.

As one worried Microsoft insider told The Wall Street Journal's All Things D: "If this is all about an org chart and not how to build great products, it does not matter what org chart Ballmer presents. Consumers buy products, not management structure."

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