Investor Reports

If you listen to the press, Taxmageddon is going to be a "nightmare" for dividend stocks.

There's only one problem with this scary story: It isn't true.

Of course, if we fall off the "fiscal cliff" taxes on dividends will revert to the full income tax rate of each individual taxpayer.

For the top taxpayers that means the top rate on dividends will rise from 15% to 43.4% if dividends become fully taxable again.

However, that's not as bad as it sounds, which is why dividend stocks will still remain the place to be in 2013.

Here's why.

First institutional holders of dividend stocks are taxed at their own rate so they did not benefit from the 2003 cut in dividend taxes. That means they won't suffer from a new increase.

And even among individual investors, many have their investments in IRAs or 401(k )s or other tax- deferred accounts. These holders will continue to receive dividends that won't be immediately taxed.

As for those on more modest incomes, perhaps being retired and living mostly on their dividend income, they will pay taxes only at 15%, 25% or 28%.

These are the thresholds which have been indexed for inflation since 2001, meaning the vast majority of tax payers will never get close to the 43.4% figure that makes for great scary headlines.

But it's not just all about tax rates. There are other reasons why savvy investors should continue to invest in dividend stocks in 2013.

While Americans stash extra cash to prepare for the economic effects of the looming fiscal cliff in 2013, another more immediate concern has developed: How many people will get laid off as companies brace for spending cuts and tax hikes?

The fiscal cliff will pack a double whammy to some businesses. Companies in certain tax brackets will be paying more to Uncle Sam, while some will see their government funding disappear.

The substantial fiscal cliff effect has prompted firms to rein in spending, delay projects, defer bids – and cut staff.

In fact, a recent study from Ernst & Young, the National Federation of Independent Business, the U.S. Chamber of Commerce and other business advocates revealed the fiscal cliff could slash 710,000 jobs from the already beleaguered job market.

It's already starting…

According to a Bloomberg News, companies in North America cut more than 62,000 jobs from Sept 1 through the end of October… the biggest two-month slashing of jobs since the beginning of 2010.

Further in the same time period, the computer industry cut more than 40,000 jobs… the transportation industry more than 33,000 jobs… and the insurance more than 7,000 jobs – all tremendous job loss increases over the same period in those industries last year, according to the USA Today.

When the global economic crisis hit in 2008, investors everywhere abandoned the stock market and piled into bonds.

Treasury sales boomed, thanks to their perceived relative safety and stability. Since early 2009, investors have poured more than $500 billion into U.S. bonds.

There was just one problem…

All that demand pushed bond prices way up, to what analysts feel are unsustainable levels, and sunk yields to multi-decade lows. (Short-term bonds pay virtually nothing right now. The Vanguard Prime Money Market Fund (VMMXX) today yields just 0.04%!)

Indeed, the combination of large supply, enormous demand, and unsustainably inflated bond prices has formed nothing less than a bubble in the U.S. bond market. Now there's only one way bond prices can go – down.

It doesn't take a financial whiz to figure this out.

In fact, this simple chart below tells you everything you need to know about the Treasury Bond market.

That slow moving train wreck known as "The Fiscal Cliff" is suddenly upon us.

If Congress doesn't act soon, numerous tax breaks will expire – automatic spending cut will kick in – and this one, two punch will hit every American squarely in the wallet.

It's a fiscal tsunami that will strike as early as December. The damage will be so widespread it could derail the entire U.S. economy.

Nobody in Washington, however, is doing anything about it.

If you're not worried yet, you should be.

Here's why…

"Taxmageddon" Means Higher Taxes for All

The Bush-era tax cuts will end on Jan. 1, 2013, unless Congress intervenes.

Also set to expire that day will be a temporary payroll-tax holiday on social security.

The tax changes won't just slam a few income brackets; they'll reach all taxpayers.

Every one of the existing income tax brackets will be ratcheted up, starting with the lowest 10% bracket, which will be hiked to 15%. The 25% bracket will jump to 28%; the 28% bracket will go to 31%; the 33% bracket will be replaced by a 36% bracket and the 35% bracket will soar to 39.6%.

Stock market investors will also be punished.

Right now, the maximum tax rate on long-term capital gains and dividends is only 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20%.

But get this — the maximum rate on dividends will skyrocket to a whopping 39.6%.

That's not all…

Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America's $16 trillion federal debt has escalated into a "death spiral, "as he told CNBC.

And it could result in a depression so severe that he doesn't "think our civilization could survive it."

And Duncan is not alone in warning that the U.S. economy may go into a "death spiral."

Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan's Council of Economic Advisers, have come to similar conclusions.

Kotlikoff estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.

However, while the debt crisis numbers are well known to most Americans, the economy hasn't suffered a major correction for almost 4 years.

So the questions remain: Is the threat of collapse for real? And if so, when?

A team of scientists, economists, and geopolitical analysts believes they have proof that the threat is indeed real – and the danger imminent.

One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings:

"We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.

To continue reading, please click here…

In this special report, each of Money Morning's top investing experts tell you exactly how they see the next four years playing out… what danger's lie ahead… and how you should best position your portfolio to protect and profit.

Time to Go "Glocal"

By Keith Fitz-Gerald Chief Investment Strategist

The $600 billion fiscal cliff we've warned you about has never gone away. It's been marginalized by the campaign, but it has never disappeared. It is, bar none, the single- biggest issue facing our country at the moment.

But President Obama's re-election means a lame duck president and a lame duck Congress. Rather than a grand solution, expect more grandstanding and another game of kick the can down the road.

Generally speaking, the markets are going to be very choppy in the near term. Fully half the traders on Wall Street woke up on the wrong side of the proverbial bed the day after the election and they're going to have to adjust their bets accordingly.

The most stable, defensive and, ironically, opportunistic choices will remain large, super cap stocks. I call them "glocals." These are companies like MCD, Procter and Gamble, General Electric, ABB, Raytheon and Vodaphone. All of them are global brands and have the experience needed to manage real growth despite challenging economic conditions around the world. Most typically pay high income that offsets the risk of ownership and are therefore far more stable than non-dividend paying alternatives.

Small cap stocks are just the opposite. Unless there is something especially compelling about them, like a truly unique patent or a new long- term government contract, the volatility will be more than most investors are prepared to accept. Most pay no income whatsoever so they're a crap shoot in today's environment.