- Greece Close to Massive Bailout- Late Monday the International Monetary Fund, Eurozone finance ministers, and Greece came to an agreement that drastically eases the terms regarding Greece's repayment of debt and sets the stage for a third bailout. The deal lowers interest rates for bailout loans, suspends interest payments for a decade, pushes the deadline back for final repayments until the 2040s, and initiates a bond buyback program. Greece is also now on the brink of receiving a $44.7 billion loan beginning Dec. 13. "The big challenge now is to implement the decisions," Greek Finance Minister Yannis Stournaras said. "Greece has huge potential." The agreed upon measures aim to bring Greece's debt-to-GDP ratio down to 124% by 2020 from the projected level of 190% in 2014. The deal was accomplished by installing unprecedented measures such as carefully monitoring how Greece spends the debt, keeping an account strictly for debt servicing, and insisting that Greece completes the bond buyback before receiving more aid. "Euro-zone countries have put their money where their mouth is," Carsten Brzeski, an economist at ING Group NV in Brussels told Bloomberg News. "However, it is clearly not a carte blanche for Greece but rather a very tight leash."
- Fiscal Cliff Talks Resume- Congress returned from its Thanksgiving recess and the fiscal cliff will be at the forefront of discussions this week. After last week's short burst of optimism there has not been any further progress on a deficit reduction deal. But for now consumers seem unfazed by the whole debacle, as today the consumer confidence index reached levels not seen since February 2008. The onset of higher taxes coupled with deep spending cuts was thought to lower consumer confidence, but instead consumers spent a record amount of money through Black Friday and Cyber Monday. The consumer confidence gauge interestingly showed expectations for six months from now, when we could be off the fiscal cliff, unexpectedly rose. The percentage of respondents expecting more jobs to be available in six months rose to its highest level since February 2011, and the percentage expecting to buy a home in the next six months hit a new all-time high. "The consumer is in a better place than several years ago," Michael Gapen, a New York-based senior U.S. economist at Barclays PLC (NYSE ADR: BCS), told Bloomberg. "A lot of the numbers are improving, whether it is household balance sheets or the state of the housing market or employment."
- 9 Ways To Save Your Portfolio From The Fiscal Cliff
- How to Prepare for a Stock Market Pullback
- Fiscal Cliff 2013: For Energy Investors It's Going to Be Like Fishing in a Barrel
- Fiscal Cliff 2013: Bernanke Outlines Dangers of No Deal
- Five Ways to Turn the Fiscal Cliff Into an Outstanding Investment Opportunity
- These Special Dividends in 2012 Help Investors Beat the Fiscal Cliff
- Washington Claims it Can Reach Fiscal Cliff Deal By Dec. 31
- Two Ways You Can Profit from the Fiscal Cliff
- 2013 U.S. Economic Forecast: Even Without the Fiscal Cliff, A Recession Still Looms
- Why China Is a Key Reason to Be Investing in Gold
- Stock Market Today: As Fiscal Cliff Talks Begin, Stocks Reel in Fear
- Fiscal Cliff 2013: Pay Now or Pay Later
- Five with Fitz: What to Expect If We Go Over the Fiscal Cliff
- How the Fiscal Cliff Will Affect Gold Prices Now
- Facing the Fiscal Cliff Solves 77% of the Deficit Problem in One Move
- Forget January – the Fiscal Cliff Effects are Here
U.S. President Barack Obama recently met with congressional leaders in attempts to carve out a way to avoid falling off the quickly approaching fiscal cliff.
If no deal is reached, President Obama and scores of economists warn, the U.S. is destined to plummet into a recession in 2013.
The report from the White House's National Economic Council and Council of Economic Advisers cautioned that consumers will rein in spending next year to the tune of some $200 billion should Congress let taxes increase for middle class American families come 2013.
"American consumers are the bedrock of our economy, driving more than two-thirds of the overall rise in real GDP over 13 consecutive quarters of economic recovery since the middle of 2009. And as we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can't afford the threat of tax increases on middle-class families," the report stressed.
The report is the latest ammo that U.S. President Barack Obama is using to sway lawmakers to go along with his plan to extend tax cuts for American families making less than $250,000 a year, while raising tax rates on the wealthiest 1%, which Republicans vehemently oppose.
"The president has called on Congress to act now on extending income tax cuts for 98% of American families and not hold the middle-class and our economy hostage over a disagreement on tax cuts for households over $250,000 per year. The Senate has passed this bill and the president is ready to sign it," the report read.
With the Dec. 31 fiscal cliff deadline quickly approaching, Democrats and Republicans continue to butt heads over tax issues, as well as government spending and entitlement expenditures. If the two sides don't come to some kind of deal and we fall over the fiscal cliff, a 2013 recession is likely.
It's hard to disagree.
Our politicians have refused to do anything but kick the can down the road to date.
The blame game started mere days after the election and it's highly unlikely that we'll see anything other than more foolishness out of Washington.
So what do you do about it?
Simple: First, you need to protect your savings from getting destroyed by the fiscal insanity. Second, you should look to reposition your portfolio with the goal of making a hefty profit. We call this one-two punch... Survive & Conquer the Fiscal Cliff.
In a minute we're going to show you exactly how to do both...
But first, here's why you need to pay very close attention, even if a miracle happens and Washington comes to an agreement.
Either way, legendary investors, hedge fund managers, and some of the largest investment firms are calling for a decline through the end of the year and possibly into 2013, depending on the resolution of the fiscal cliff.
On Monday, Goldman Sachs Group Inc. (NYSE: GS) Chief U.S. Strategist David Kostin restated his 1,250 year-end target for the Standard & Poor's 500, which is roughly 10% below yesterday's close.
"Uncertainty swirling around the 'fiscal cliff' that must be resolved by year-end, the pending jump in capital gains taxes at the start of 2013, and the debt ceiling that will be reached in late February represent clear and present downside risks to the market in the near-term," Kostin wrote to clients, effectively summarizing the bears' case for a continuation of the recent downturn.
Besides Goldman, Marc Faber has predicted a 20% market plunge will occur during President Barack Obama's second term. Peter Schiff recently called QE3,"Operation Screw" because "everybody's pretty much screwed if they own dollars," and even technical indicators are hinting at an upcoming slide.
This doesn't mean panic or run - in fact, those are the worst things you could do. Instead, follow these steps to prepare for a stock market pullback.
That's how many trading sessions remain before massive (and automatic) tax increases and expenditure cuts take effect.
And in the roll up to this non event(more in a moment), oil prices and energy shares have been hit hard. But as you'll see, it won't be for much longer.
To put some sanity into this overwrought conversation here are three key points up front.
First, the cliff will never take place. Pundits are treating this like some definitive confirmation of a Mayan prophecy.
CNN has what amounts to a daily "cliff dive," giving us the next eagerly awaited pearl of wisdom on yet another calamity to befall if the mess hits. And CNBC is handing out "Rise Above" buttons with great fanfare to oblige politicos to move away from partisan rancor.
Great! The three-piece suits inside the Beltway would never have figured out what needed to be done without a button. They all know they will kick something (a can, an accounting device, a legislative reprieve) further along before the deadline hits.
This is a grand nonevent; it will never take place, especially after the election we just experienced.
With an impending budgetary crisis looming, the Senate Republican leadership put defeating Obama as their number one goal (a "let's show everybody that the real issues are less important than politics" approach if there ever was one).
On the other side of the aisle, the Democratic leadership cast the situation as a "saving of the American dream," after failing to curb an unemployment trend or reassure small business about prospects.
So here we are back where we started before the costliest campaign season Americans have ever witnessed.
Except, this time, something big has changed. And it's all because of the electorate.
He pressed lawmakers to strike a deal to avert the fiscal cliff, and to permanently stop playing politics with the federal debt limit.
Doing so, the central bank chief said, would mean the next year would be "a very good one for the American economy."
Speaking to the New York Economic Club, Bernanke said, "Uncertainty about how the fiscal cliff, the raising of the debt limit and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions, and may be contributing to an increased sense of caution in financial markets."
Even with the prospect of a deal lifting the markets yesterday, I can't say I disagree.
The blame game has already started and it's highly unlikely that we'll see anything other than more foolishness out of Washington. And so far all they have done is kick the can down the road to date.
So what can you do about it? Believe it or not, crises like these can be an ideal time to buy stocks. And gold. And oil. And certain kinds of bonds. And more.
The death of financial markets is almost always highly overrated.
Adding insult to injury, fiscal cliff or not, trying to time the markets is an exceptionally bad idea - 85% of all buy/sell decisions are incorrect, according to Barron's. Further, Dalbar data shows that the return of an average investor trying to time the market is a pathetic 1.9% per year versus the S&P 500 return of 8.4% over the same time period.
Over 20 years, that's the financial equivalent of taking a 342% hit in lost performance.
With that in mind, here's a five-point plan for turning the fiscal cliff into an outstanding opportunity.
1) Get ready to go bargain huntingWith Europe entering another recession and some parts of the world flirting with a protracted slowdown that's going to be more like a managed depression, things couldn't be more uncertain.
While I don't personally like this reality any more than you do, from an investment perspective I'm very happy to pick through the oversold stocks and go bargain hunting.
Because history's rearview mirrors show that fear, panic, crisis and stress are all classic signs associated with opportunity -- and profits.
This is particularly true for choices related to energy, resources and certain kinds of technology - all of which the world needs, as opposed to wants, and all of which are backed by billions of dollars flowing their way whether we go over the fiscal cliff or not.
2) Stress test yourselfNever mind the big banks or Wall Street's hooligans, take a good hard look in the mirror.
Many investors are completely unprepared for the psychological impact of our nation going over the edge. And you don't want to be one of them.
Since the end of September to mid-November, 59 companies in the Russell 3000 stock index announced a one-time special dividend, up from about 15 in the same period last year.
And it's not just special dividends that are helping investors - regular dividends are being altered as well.
Wal-Mart Stores Inc. (NYSE: WMT) just announced its fourth-quarter dividend payout, originally scheduled for Jan. 2, will now be paid on Dec. 27.
"It's a foregone conclusion the rates are going up -- it's just a matter of how high they go," Todd Lowenstein, a Los Angeles-based money manager with HighMark Capital Management Inc. told Bloomberg News. "When you know that 15% tax rate is going away and you have excess cash buildup, it makes sense to return some of it back to shareholders now."
As things currently stand, the top tax rate on dividends will go from 15% to 43.4% at the end of the year, causing companies to seriously consider offering a special dividend.
Special dividends offer investors a "twofer": Besides collecting a large dividend payout before it's taxed at a higher rate, investors will enjoy higher share prices as special dividend-paying stocks get a boost from the news.
So where can investors find these special dividends?
"We have the cornerstones of being able to work something out. This is not something we're going to wait until the last day of December to get done. We have a plan. We're going to move forward on it," Senate Majority Leader Harry Reid of Nevada told reporters as both parties emerged from the White House.
House Speaker Rep. John Boehner, R-OH, delivered an equally positive tone.
"To show our seriousness, we've put revenue on the table, as long as it's accompanied by significant spending cuts," said Boehner. "It's going to be incumbent on my colleagues to show the American people we're serious."
If the U.S. economy "falls off" the fiscal cliff, the stock market will be volatile. The Dow Jones Industrial Average is down about 500 points since the Nov. 6 election, the lowest level in over four months.
Fitch Ratings has already threatened to downgrade the United States if substantial progress is not made on addressing its economic woes, starting with the fiscal cliff. That is not an idle threat as Standard & Poor's did reduce thecreditrating of the United States in August 2011.
"It's not hard to make the case we are headed for a recession," warned Hugh Johnson, head of Hugh Johnson Advisors, a financial and economic advising firm.
But that doesn't mean you should shun all stocks, you just have to know which investments are prepared to weather the fiscal cliff storm.
Here are two of the best ways to profit from falling off the fiscal cliff.
At present there appears to be four problems-- aside from the fiscal cliff-- that could throw the U.S. economy into recession in 2013.
These are international problems that include:
- Brewing trouble in Japan: Japan faces an election next month. More importantly, its government debt is currently 230% of GDP, with that ratio rising by about 10% a year. The current government has increased sales tax in 2014, which may cause a recession and will likely push its debt to GDP ratio even higher.
The problem is no country has ever survived a debt/GDP ratio above about 250% without defaulting. Britain did succeed with this in 1815 and 1945, but on the second occasion it relied on exchange controls, inflation, and dozy domestic investors, while on the first occasion it had a government under Lord Liverpool far more capable than anything we have seen in the last 185 years.
The point is, if Japan gets a weak coalition after its election, the market may panic and cause a Japanese government default.
To continue reading, please click here...
For the first time ever, the London Bullion Metal Association (LBMA) held its annual meeting in Hong Kong. It is a trade group that represents the wholesale market for gold and silver and it's telling that it decided to have its meeting in Hong Kong.
However, the site choice should not come as a surprise to anyone following the gold market. China has become more and more important to the gold market. The Asian giant's imports of the shiny yellow metal have become a key factor in gold's positive price performance over the last few years.
Investing in Gold: China's RoleBullion demand from China has soared in the past several years.
In 2007, China accounted for just 10% of global gold demand. By 2011, China was responsible for 21% of global gold demand. This trend can easily be seen in figures from the World Gold Council (WGC). It said gold demand in China has risen from about 250 tons in 2006 to almost 800 tons presently.
What the WGC numbers don't tell you about though is how China's central bank, the People's Bank of China, is buying gold. Gold imports into China via Hong Kong (the route the central bank uses) has continued to rise rapidly despite a dip recently in gold buying by Chinese consumers.
Hong Kong has seen on average about 65 tons in gross imports of gold per month. Year-to-date China has imported an astounding 582 tons of gold, more than the official holdings of another country well known for loving gold, India.
It is not shocking that the Chinese central bank is trying to get its hands on large amounts of the precious metal.
As David Gornall, chairman of the LBMA, told the conference "The country [China] has only 2 percent of its reserves in the form of gold." He added "that allocation can only go in one direction."
Not even a new report claiming that White House officials are in advanced talks to replace the sequester cuts could lift the market today.
- Fiscal cliff deal could be close- As the president meets with Congressional leaders today, there is a new report out hinting that a deal involving partially going off the fiscal cliff is in the works. The Wall Street Journal reported today (Friday) that White House officials have discussed a plan where smaller spending cuts and fewer tax increases would be made. The idea is to postpone the majority of the cliff and have "targeted" cuts and tax increases. Basically this would delay making tough decisions on the deficit, including actually making major spending cuts, overhauling the tax code, and restructuring Medicare, Medicaid, and Social Security. Instead of kicking the can down the road again, going off the fiscal cliff is something that Money Morning Global Investing Strategist Martin Hutchinson thinks is a good idea. On going off the cliff he says, "Contrary to all of the media caterwauling, that's not a dreadful fate. In fact, it is exactly what we ought to be doing, since it solves 77% of the deficit problem in one fell swoop." To see his full column, click here.
- Strike pushes Hostess Brands into bankruptcy- In what may be the saddest economic news of the day, Hostess, maker of Twinkies, Devil Dogs, Ho Ho's and Wonder Bread, announced it's going bankrupt. The Irving, TX-based company said that the closing was a result of a nationwide strike and that nearly all of the 18,500 workers will lose their jobs as the company shuts down 33 bakeries, 565 distribution centers, and 570 outlet stores nationwide. "Many people have worked incredibly long and hard to keep this from happening, but now Hostess Brands has no other alternative than to begin the process of winding down and preparing for the sale of our iconic brands," CEO Gregory F. Rayburn said in a letter to employees posted on the company website." The company said it will try to sell its snack cake and bread business with the hope of reviving such brands as Twinkie, Wonder Bread, and a few others.
The only question is the timing.
If Congress fails to act and America goes over the fiscal cliff on Jan. 1, 2013, the U.S. economy will, as many have noted, quickly slip into a recession.
But if Congress does somehow agree to avert all or most of the impact of the fiscal cliff, it simply postpones the pain for a few months or years.
And if Congress elects to postpone the fiscal cliff indefinitely, choosing to continue the federal government's massive deficit spending in perpetuity, the federal debt will weigh more and more heavily on U.S. economic growth as the years go on.
"That highlights lawmakers' dilemma," wrote The Wall Street Journal in a recent editorial. "Going off the cliff will produce great pain in 2013 but lead to a more stable fiscal situation a decade on. Averting it will forestall recession now but hamstring growth later."
How Fiscal Cliff 2013 Affects U.S. EconomyThe fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.
The consequences of going over the fiscal cliff or delaying it can be found in the latest report on the matter from the Congressional Budget Office (CBO), "Economic Effects of Policies Contributing to Fiscal Tightening in 2013."
And this latest report, which is different than the previous CBO projections, actually includes a clue as to how Congress could decide to deal with the fiscal cliff before the end of the year...