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Recession 2013: Can We Avoid It?

The U.S. economy is currently two-for-two in its attempts to skirt recession 2013.

The first came after we narrowly avoided a tumble over the fiscal cliff with a down-to-the-wire deal on New Year's Day. The second came Wednesday with the passage of a three-month extension on raising the debt ceiling.

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The Greatest Investing Mistake You'll Ever Make

I wrote an article on Tuesday - "The Great Rotation Makes Stocks a Generational Buy" - that drew several comments from readers - some in agreement, others... not so much.
For instance, reader Mike W. wrote in quoting the article: "Last week $22 billion flowed into mutual funds and ETFs. That's the second-largest weekly flow on record. Of that... $8.9 billion flowed into equity mutual funds... the most since March 2000 and the fourth-largest weekly inflow on record."
He continued: "What happened after the [largest] inflow of $23 billion in late 2007? The stock market fell off a cliff. What happened after March of 2000? The stock market fell off a cliff."
True. But <a href=""there's much more to this story...

The Fiscal Cliff Deal Just Made Bonds Even More Risky in 2013

Going over the fiscal cliff would have been very bullish for long-term U.S. Treasuries. But that didn't happen.
Instead we got a deal with modest tax increases, tiny spending cuts, and some $64 billion worth of tax-exemption pork.
Since then, 10-year notes yields have been on the rise, jumping by as much as 23 basis points since New Year’s Eve. Bonds have become toxic enough to make you wonder whether or not the bond bubble has sprung a leak.
But there’s quite a bit more to this story than just Treasuries. Suddenly prime corporates, mortgage bonds, junk bonds, and even emerging market bonds are at greater risk, too.
Here's what you need to know...

Fiscal Cliff Deal Tax Changes for 2013

April 15 is now just three months away. As you start gathering documents to file, you need to know about a few brand-new tax laws from the fiscal cliff deal. Check it out.

$1 Trillion Coin Isn’t the Right Answer to Our Debt Ceiling Crisis

It sounds silly, but the idea is gaining traction: Simply mint one coin worth $1 trillion, deposit it at the Fed, and avoid hitting the debt ceiling. But what would that do to the U.S. economy? Here's the real deal.

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

I wish I had a nickel for every scary story I read about dividend stocks and the fiscal cliff over the last four months.

But a funny thing happened on the way to this great apocalypse...

Dividend stocks are not only alive and well, but stronger than ever.

For most dividend investors, the only real difference is that these tax 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: There are now three good reasons why dividend stocks are irresistible...

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

Behind the scenes of the Fiscal Cliff debate, 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. But what gets me really riled up is the amount of "pork" contained in the bill...

Fiscal Cliff Deal Gives Energy Investors the Chance to Make a Bundle

Marina and I are still here in the Bahamas where our Internet and TV reception has been very sporadic over the past two weeks. It started improving on New Year's Day, just in time for us to watch our favorite situation comedy.

You know the one. It's called Congress.

And after much political jockeying and self-serving speeches from a largely empty floor, the House finally voted to pass the Senate's stopgap fiscal cliff Band-Aid.

Of course, the nation had technically fallen over the cliff after midnight January 1, but the holiday spared anybody inside the Beltway the problem of determining what that actually meant.

Welcome to the ongoing way of governing in Washington.  It's called brinksmanship. Along the way, America has dodged another political bullet.

According to the deal, income taxes are going up for individuals making $400,000 or couples earning $450,000 or more; unemployment compensation has been saved; the sequestration of automatic expenditure cuts has been delayed.

But let's face it, two months from now, when the debt ceiling comes up for another debate, we will head right back into crisis mode. In the long-term view, nothing has changed.

In the interim, though, we are going to make some serious money in the energy sector.

How long that advance goes on is an open question. But there is one overriding factor in all of this.

And the sooner you know what it is, the sooner you'll be ready to profit. Here's what I mean...


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The Cold Hard Truth About the Fiscal Cliff Deal

In the end, a last-minute deal emerged. Just like that, the fiscal cliff crisis was averted.

In the waning hours of New Year's Day, Congress voted to avoid a large package of tax increases, along with some modest spending cuts.

Not surprisingly, the markets just loved it. The Dow soared over 200 points on the open and never looked back.   

But first, let's call this deal what it is: a late-day compromise that failed to address serious fiscal issues.

In the end, the agreement reached on Tuesday night will only reduce the deficit by about $60 billion annually over the next 10 years. 

That's less than 10% of the total projected deficits, which means well before 2020 we will likely have a real crisis on our hands.

But the real story in this mess is this: the cold hard truth is that going over the cliff would have actually been beneficial.  And despite the promises of Keynesian economists, the deal that emerged was not an improvement.

In reality, the predictions of doom that surrounded the fiscal cliff were made to achieve a political goal, and we should have ignored them.

Here's why...

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Stock Market Today: Fiscal Cliff Deal Leads to Rally

Passage of a congressional measure to avert the fiscal cliff gave a big boost to the U.S. stock market today (Wednesday), the first trading day of 2013.

Right out of the gate, all three major indexes jumped. Just before 2 p.m., the Dow Jones Industrial Average had climbed 232 points. The Standard & Poor's 500 Index jumped 25 points, and the Nasdaq rose 70 as markets cheered the news.

"We are happy that we are halfway home to fixing the fiscal cliff; we figured out the revenue side and delayed the spending side," Art Hogan, market strategist at Lazard Capital Markets LLC, told MarketWatch.

The rally followed a late surge Monday, New Year's Eve, when word emerged from Capitol Hill that progress had been made in the fiscal cliff talks, sending the Dow up 166 points by the session's close.

For 2012, the Dow added 7.3%, ending at 13,104.14. The S&P gained 13.4% to finish the year at 1,426.19, and the tech heavy Nasdaq added 15.9% to end 2012 at 3,019.51.

The rally in the stock market today came as investors breathed a sigh of relief that at least a partial deal had been reached.

"What's been hanging over the markets for the last couple of months has finally been released. The rally today (Wednesday) is 100% about the end of the fiscal cliff, and people are buying with both hands," Sean Kelly, a managing director at Knight Capital Group, told CNN Money.

But many analysts cautioned that gains in the stock market today were nothing more than a rally based on relief over the fiscal cliff deal and said the gains may be short-lived.

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What the Fiscal Cliff Deal Could Cost You

A fiscal cliff deal sailed through the Democrat-controlled Senate late in the night on New Year's Eve in an 89-8 vote.

The proposed deal then headed to the Republican-controlled House on New Year's Day, expected to meet at least some opposition from a party that has lobbied during most of the fiscal cliff negations for no tax increases at all. It went through with a 257 - 167 House vote.

At the deal's forefront was maintaining tax cuts for singles earning less than $400,000 and couples earning less than $450,000. The tax increase marks the first time in two decades that rates will rise for the wealthiest Americans.

While it does save millions of middle-class taxpayers from increases, workers will still feel the pinch because the payroll tax holiday has expired.

Also saved were benefits for some two million unemployed workers who were on the brink of losing their federal checks.

The measure postpones the biggest and thorniest part of the fiscal cliff deal until March, when Congress will again have to wrangle over steep spending cuts that were set to kick in on Wednesday to defense and other industries.

Plus, nothing was resolved regarding the $16.4 trillion debt ceiling that we reached Monday.

Here are a few major changes that will hit your paycheck and savings.

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Fiscal Cliff Deal Averts the Crisis… But Now What?

[Singapore] - It's late Tuesday evening and I'm about to go on air with CNBC Asia in Singapore regarding the impact of the Fiscal Cliff bill which passed minutes ago after Republican leaders decided not to try and tack on amendments nor engage in further bickering.

Passed by a 257 to 167 vote, the bill is now headed to the White House and a draft may even be on the President's desk by the time you read this.

So I'll have to write quickly.

Here's the scoop on the fiscal cliff deal:

  1. The Bush-era income tax cuts become permanent for the majority of workers while they expire for so-called "top" earners. The break is at $400,000 for individuals and $450,000 for couples. That's approximately double Obama's campaign level and 80% more than his preferred "married couples rate" according to various sources. Dividend tax rates and capital gains rates for top earners will rise to 23.8% while personal exemptions and itemized deductions that are presently in force expire for individuals earning more than $250,000 and married couples earning more than $300,000. The alternative minimum tax is now fixed to avoid snagging still more middle class households.
  2. Expanded unemployment benefits will continue.
  3. Automatic spending cuts are deferred for two months.
  4. A two percent payroll tax cut expires.
  5. Estate taxes will get an inflation indexed exemption of $5 million or more and taxes will top out at 40%.

Key takeaways on the agreement:

  1. Once again Washington is kicking the can down the road. While it's already being played up by both parties as an example of bipartisanship, it's really a load of hooey. The bill merely puts off decisions for yet another round of fiscal follies a few months from now.

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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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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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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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