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Fiscal Cliff 2013: For Energy Investors It's Going to Be Like Fishing in a Barrel

There are 26 trading days and counting until the U.S. reaches the fiscal cliff.

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).

They lost.

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.

They lost.

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.

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Fiscal Cliff 2013: Bernanke Outlines Dangers of No Deal

Expressing optimism, concern and urgency, U.S. Federal Reserve Chairman Ben Bernanke delivered a firm message on the fiscal cliff Tuesday to Capitol Hill.

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."

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Five Ways to Turn the Fiscal Cliff Into an Outstanding Investment Opportunity

Many investors believe that a fiscal cliff "dive" is inevitable.

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 hunting

With 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 yourself

Never 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.

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These Special Dividends in 2012 Help Investors Beat the Fiscal Cliff

If the fiscal cliff goes into effect and the president's healthcare bill is upheld, the dividend tax rate could triple next year - which is why companies are looking to help out investors in the way of special dividends in 2012.

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?

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Washington Claims it Can Reach Fiscal Cliff Deal By Dec. 31

Washington's tax talks began in earnest on Friday, as U.S. President Barack Obama and his team met with the GOP in a closed-door session in efforts to hammer out a fiscal cliff deal.

"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."

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Two Ways You Can Profit from the Fiscal Cliff

We can't control the arguments in Washington, but we can control our money. That means it's time to learn how to profit from the fiscal cliff.

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.

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Why China Is a Key Reason to Be Investing in Gold

Recently, a major event was held that sent a signal to anyone interested in investing in gold.

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 Role

Bullion 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."

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Stock Market Today: As Fiscal Cliff Talks Begin, Stocks Reel in Fear

The stock market today opened lower on the first day of official fiscal cliff negotiations. The markets have been pressured down all week by worries that no deal will be reached, with both the Dow Jones and the S&P 500 losing over 2.5%.

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.

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Fiscal Cliff 2013: Pay Now or Pay Later

For all the talk about how Congress needs to avoid the fiscal cliff, few have pointed out that the U.S. economy will suffer regardless.

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. Economy

The 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...

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Five with Fitz: What to Expect If We Go Over the Fiscal Cliff

I'm on the road this week in Las Vegas and Los Angeles and receiving lots of great questions as usual from your fellow Money Morning subscribers.

Here's a few that really caught my attention. Not surprisingly, one of the biggies deals with the fiscal cliff.

Q - What happens if we go over the "fiscal cliff"...really? - Jerry S.

A - Nobody truly knows Jerry. However, here are five things I expect to happen as a result.

First, the U.S. goes back into recession. The CBO (Congressional Budget Office) suggests there will a 0.5% contraction if the government can't stop both the debt and the spending cuts. That's a huge drop from the 2% growth it presently expects.

I think both numbers are complete fantasy, incidentally. The government missed this crisis in formation and they are flying blind now. How on earth they can predict 2% growth right now defies any sort of logic whatsoever. Then again, we are talking about the federal government. Sigh.

If we go over the fiscal cliff, I'm expecting as much as a full 1% contraction. And growth under the circumstances will hardly be normal, let alone 2% for years to come. The fiscal cliff and our politicians' unwillingness to do anything about it other than kick the can down the road so far makes it clear to me that America is going to struggle with the legacy of decades of bad fiscal policy for years to come -- just like Japan has for more than two decades.

Second, I think companies are simply going to vote with their wallets under the circumstances. Many are already hoarding dollars and announcing changes to operations following the election, but now they're going to cut back further on capital spending.

At the same time, the fiscal cliff will reduce foreign direct investment into the U.S. because many companies will shift their attention to other markets where there is more certainty.

Third, the unemployment rate will rise, housing markets will reverse course, and the Fed will engage in yet more meddling and more money printing. It will no doubt be well intentioned, but simply digs America further into a hole.

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How the Fiscal Cliff Will Affect Gold Prices Now

On news of a second term for U.S. President Barack Obama, investors didn't show any excitement as the market fell 2.3% the day after Election 2012.

The fiscal cliff countdown has come to the forefront of concerns this week, helping push the Dow Jones Industrial Average down more than 2% since last Friday.

But for gold prices, this could be a good thing.

Here's how the fiscal cliff will affect gold prices as Washington battles over how to solve the looming threat to the U.S. economy.

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Facing the Fiscal Cliff Solves 77% of the Deficit Problem in One Move

With the election over, Wall Street is now obsessing over the possibility that the "fiscal cliff" negotiations may end in stalemate.

Well I have news for them: a stalemate would be good for the U.S. economy, and any deal that does not preserve most of the fiscal cliff is not worth having.

Here's why.

By ending Social Security tax relief, the Bush tax cuts and cutting spending on both defense and domestic programs, the "fiscal cliff" cuts a deficit projected by the Congressional Budget Office (CBO) at $10 trillion over the next 10 years down to $2.3 trillion.

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.

Of course, lovers of low taxes (which includes me) will claim that we should not support the "fiscal cliff" because it will raise taxes on everybody. But honestly, what's the alternative?

The reality is that President Barack Obama won the election and that he passionately wants to raise taxes on the rich. It's more important to him than any other outcome from this negotiation.

In setting out his objectives he twice reiterated that he was non-negotiable on tax hikes for the rich, and wanted to close the budget gap primarily by tax increases.

And guess what: Tax increases in budget negotiations are much more real than spending cuts, because once the legislation is written, they always happen, whereas politicians often find a way to weasel out of a spending cut deal once the klieg lights are off.

Thus, given the Republicans' weak negotiating position, it's likely we'll end up with the tax increases on the rich anyway.

However, tax increases alone will do little to reduce the deficit.

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Forget January - the Fiscal Cliff Effects are Here

U.S. President Barack Obama will hold his first press conference today (Wednesday) since winning re-election and will state his case for a whopping $1.6 trillion in tax hikes to fight the fiscal cliff.

Democratic and Republican policy makers returned to Washington, D.C. on Tuesday with just seven weeks left to come up with some sort of compromise. If the two opposing sides fail to reach an agreement and the nation falls off the cliff, a recession in 2013 is guaranteed, the Congressional Budget Office has warned on a number of occasions.

Negotiations with congressional leaders will convene Friday.

But while Washington takes its time to argue over the fiscal cliff, businesses can't wait any longer.

Their impatience was highlighted in recent advertisements by the Business Roundtable, where they tell Congress it's time to act.

In one ad, Honeywell International Inc. (NYSE: HON) Chair and CEO David Cote jumps to the point: "If the last debt ceiling was playing with fire," he asserts, "this time they're playing with nitroglycerin."

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Will the Fiscal Cliff Clash Damage the U.S. Credit Rating?

There are less than fifty days left for lawmakers to come to agreement on the fiscal cliff, but uncertainty surrounding the dilemma is already affecting the economy. The political bickering over solving the fiscal cliff issue now has put the U.S. AAA credit rating at risk again.

In early September ratings agency Moody's Corp. (NYSE: MCO) announced it would likely downgrade the U.S. credit rating if no deal is reached before the end of the year, and on Monday the company reiterated its stance.

"A scenario whereby action on the budget is delayed until sometime in 2013 appears increasingly likely; for example, via a temporary extension of most measures except the increase in payroll tax," Moody's officials said.

"Such deferment, if not accompanied by an apparent commitment to achieving agreement and a credible timetable for implementing the necessary reforms to preserve sovereign creditworthiness, would be inconsistent with maintaining a AAA rating," they warned.

Fiscal Cliff Bickering Must End

Due to the higher taxes and automatic cuts that come with the fiscal cliff, corporations already are starting to lay off workers. The independent Tax Policy Center estimates that taxes will increase almost $3,500 per household as a result of the fiscal cliff.

It remains to be seen whether the fiscal cliff will be resolved before the year is up, but even if that happens the U.S. could still have its rating lowered by Moody's due to the political stalemate and partisanship that has gone on the past two years.

Immediately after the election all focus has shifted towards the fiscal cliff and whether or not Congress and the president can work together.

House Speaker John Boehner, R-OH, has been very vocal after the election, calling for compromise and insisting that Republicans can accept more revenue.

However, many are wondering if that is just a post-election piecemeal offering and if his true feelings were voiced before the election.

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Fiscal Cliff: Both Sides Optimistic, But Still No Real Answers

Over the weekend, both Republicans and Democrats voiced confidence that the two opposing sides could strike a deal and avert falling off the fiscal cliff.

However, details on how policymakers will do so remain unclear.

Key sticking points that have kept the two parties at odds is that Democrats widely favor increasing taxes on wealthy Americans, while Republicans maintain that the answer to the bulging fiscal deficit is to slash federal spending.

With just weeks until the cutoff date, it appears each side is ready to make some concessions.

Tennessee's GOP Sen. Bob Corker acknowledged Sunday on Fox News that the nation's wealthiest should shell out more in taxes. But, he added, the increases should come from closing loopholes instead of boosting tax rates. Corker added that cuts to entitlement spending would also need to be considered for Republicans to approve any pact.

"I'm optimistic on a deal," the Senator said. He went on to say he thought a "basis for the deal" was in place.

Corker continued, "I think finally, Democrats are willing to accept-and I don't mean this pejoratively, but I think they know that Republicans really are willing to put revenues on the table if we can do it in a pro-growth way, and there is a way of doing that."

In addition, David Axelrod, a senior adviser to U.S. President Barack Obama's re-election campaign said Sunday on CBS's "Face the Nation" he believed the Republican comments regarding the fiscal cliff are "encouraging."

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