Top News

Top News

What the NYSE Deal Means for the Major Players – And You

The NYSE deal in which IntercontinentalExchange Inc. (NYSE: ICE) will acquire NYSE Euronext (NYSE: NYX), the operator of the New York Stock Exchange, is putting pressure on CME Group Inc. (Nasdaq: CME) to find a dance partner before closing time.

That's because the NYSE deal has highlighted the importance of futures and options exchanges like CME (Chicago Mercantile Exchange) in the future of trading.

A new regulatory environment, set up to address the issues thought to have caused the financial crisis of 2008, will require most over-the-counter derivatives – customized options and futures contracts between two companies – to be settled through clearing houses instead of as a private agreement between two investors.

Settling OTC derivatives through clearing houses will require market participants to put up collateral and adhere to specified margin requirements, which are not necessarily required in an OTC transaction.

Big derivatives exchanges, such as ICE and CME, see this as another money-making opportunity. And ICE just made a huge profit move with its NYSE deal.

"CME should be wary of this combination because it looks to be pretty formidable," Michael Holland, who oversees more than $4 billion in assets as chairman of New York-based Holland & Co., said in a phone interview with Bloomberg News. "The ICE people have done a very smart thing. CME should be concerned."

NYSE Deal Signals End of Era

ICE acknowledges the NYSE deal is all about NYSE LIFFE, Europe's second-largest futures exchange specializing in financial futures, which is operated by NYSE Euronext. ICE specializes in energy and agricultural commodity derivatives, so acquiring LIFFE gives ICE a broader, complementary product lineup as well as enhanced access to the European market.

By leveraging its existing clearing operations through the acquisition of NYSE LIFFE, ICE hopes to increase its clearing and settlement revenue as new regulation begins to take effect next year.

This seems to be the final nail in the coffin for the brick-and-mortar stock exchange and the ultimate triumph of electronic trading.

The NYSE and other stock exchanges around the world have lost market share to electronic exchanges, market makers and dark pools where the bulk of trading now takes place.

The idea of trading on the floor of a stock exchange now seems to be an anachronism -
a buggy whip in the Space Age.

Which brings us to the importance of CME.

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Stock Market Today

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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Your Money

2013 Tax Law Changes: Watch Out for These Hits

Some of the 2013 tax law changes slated to take effect Jan. 1 could hit your portfolio if you aren't prepared – and some will go into effect regardless of the fiscal cliff resolution.

In fact, the Internal Revenue Service (IRS) has released 159 pages of rules that will apply to trusts, annuities and individual equity traders.

One tax that could affect you is a new 3.8% surtax on investment income – or as it's fondly called, the investment income Medicare tax. The new tax is part of the 2010 healthcare reform law passed by Congress, and represents the first surtax on capital gains and dividend income.

There's also a new 0.9% healthcare tax on wages for high-income individuals; it is called the earned income Medicare tax increase.

Combined, these two taxes could raise an estimated $317.7 billion over the next decade, reported Reuters, based on a June Joint Committee on Taxation analysis.

To find out if you qualify for these taxes – and how to avoid them – check out this look at the proposed changes.

2013 Tax Law Changes: Medicare Surtax

The 3.8% Medicare surtax is a big deal because it's the first time a Medicare tax will be assessed on investment income.

For the purposes of the rule, investment income includes the following:

  • Interest, Dividends, Royalties, and Annuities
  • Capital gains, including any profit you make on the sale of your residence if it exceeds the amount you are allowed to exclude
  • Passive-activity income. This can defined as earnings that stem from rental property, limited partnerships or other business that an individual is not actively involved.

You'll be affected by the Medicare surtax if your modified adjusted gross income (MAGI) is more than $200,000 as an individual, or $250,000 for married couples filing jointly.

Your MAGI is the total of adjusted gross income plus any foreign income. So if you work in the United States, MAGI will equal AGI, which includes your net investment income (gains minus losses).

It's a bit tricky, though.

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Asia Investments

Japanese Stocks Are Up, But Don't Fall for the Trap

Japanese stocks hit a new 2012 high today (Wednesday) and the yen weakened to a 20-month low against the U.S. dollar as Shinzo Abe was installed as Japan's 96th prime minister.

Abe, who served as prime minister in 2006-2007 but stepped down due to health issues, has vowed to pursue aggressive monetary easing to end deflation and get the Japanese economy growing again.

But the long-term implications of Abe's policies aren't as rosy as the short-term stocks boost.

"The hope is that Abe's promises of fresh stimulus, unlimited spending and placing a priority on domestic infrastructure will be the elixir that restores Japan's global muscle," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "As a veteran global trader who actually lives in Japan part time each year, and who has for the last 20+ years, let me make a counterpoint with particular force -don't fall for it."

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The Fiscal Cliff

Fiscal Cliff Deal Talks on Hold

U.S. President Barack Obama will cut his Hawaiian Christmas vacation short and return to the White House tomorrow (Thursday) to continue fiscal cliff deal negotiations.

Just five days remain for Democrats and Republicans to hammer out some kind of deal before the U.S. economy gets walloped with some $600 billion in tax increases and spending cuts at the federal level.

It's unclear if the parties can reach a fiscal cliff deal before the New Year, although they've shown little hope they can agree.

Republican House Speaker John Boehner on Friday put the burden on the president and the Democrat-controlled Senate to make the next move after they rejected his big concession on tax rates. Boehner agreed to extend tax rates on incomes under $400,000 (reduced from his previous threshold of $1,000,000) in exchange for steep spending cuts to reduce the swollen federal deficit.

"I don't want taxes to go up; Republicans don't want taxes to go up. But we only run the House. Democrats continue to run Washington," a frustrated Boehner said in a press conference Friday after he failed to rally support for his "Plan B," which never even made it to a vote among his own party.

While both sides have reduced expectations for an all-or-nothing deal, the two parties are still miles apart. Lawmakers are already prepping for the blame game should the New Year come without resolution.

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Stock Market Today Fades Along with Chances of Fiscal Cliff Deal

The stock market today tumbled after chances of a fiscal cliff deal looked unlikely.

The stage was set Thursday night when a vote on Republican House Speaker John Boehner's Plan B, a fiscal cliff compromise to be presented to U.S. President Barack Obama, never even made it to vote among fellow Republicans. When word came of the setback, all major overnight future indexes sharply dropped.

When markets opened Friday, the slide continued. Shortly after noon, the Dow Jones Industrial Average slumped 176 points, the Standard & Poor's 500 Index dropped 20 points and the Nasdaq was lower by 43.

Investors appear to be bracing for the worst with just 10 days left before America falls over the cliff, with a deal is nowhere in sight.

Stocks on the Move Today

Shares of Research in Motion (Nasdaq: RIMM) rang lower Friday, sinking almost 20% in mid-afternoon trading.

RIM reported third-quarter earnings after the close Thursday that showed the BlackBerry maker swung to profitability, but lost about one million subscribers in the quarter. It marked the first time membership has fallen. The real test, analysts say, comes next quarter following the much anticipated release of the company's new Smartphone, the BlackBerry 10.

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The Fiscal Cliff

Four Fiscal Cliff Investing Strategies

With fiscal cliff talks stalled in Washington, investors are in limbo wondering how the outcome – deal or no deal – will affect their money.

That's why we've put together the following fiscal cliff investing strategies, thanks to Money Morning Global Investing Strategist Martin Hutchinson, so you can be prepared for whatever happens.

While Hutchinson thinks a deal is likely, it might not come until the early New Year. In the meantime, here's his fiscal cliff investing strategy overview, straight from a recent report for his Permanent Wealth Investor subscribers.

  • Fiscal Cliff Investing Strategy No. 1: Put Dividend Stocks in IRAs and 401(K)s

Since capital gains will continue to be taxed at a favorable rate, growth stocks are at less risk from possible tax rises. Hence your true dividend stocks should go in tax-free accounts.

  • Fiscal Cliff Investing Strategy No. 2: Maximize Your "Roth Conversions" in 2012

There are two types of individual retirement accounts: regular IRAs (in which contributions are tax deductible but withdrawals are taxed), and Roth IRAs (in which contributions are not tax-deductible, income and capital gains are tax free, and withdrawals are not taxed).

Since taxes are going up in 2013 and are likely to trend higher thereafter, you want most of your money in Roth IRAs unless you are very sure your income after retirement will be low enough to be in a low tax bracket. You can't make Roth IRA contributions directly unless your income is less than $100,000, roughly.

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The Fiscal Cliff

What's Next for Fiscal Cliff Deal Talks?

After a lot of talk from Washington this week, we could actually be farther away from a fiscal cliff deal than we were before.

Republican House Speaker John Boehner's "Plan B," created to avert a tumble over the fiscal cliff, failed to garner enough support Thursday night from his own party.

Boehner said before the voting that he was confident his Plan B, which proposed extending the Bush era tax cuts, would sail through.

But around 8 p.m., House Majority Leader Eric Cantor, R-VA, emerged and announced the measure wouldn't go up for a vote.

This left the country asking, "What's next for the fiscal cliff?"

Boehner later said in a statement, "The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Senator (Harry) Reid to avert the fiscal cliff."

Equity markets reacted by tumbling on the open Friday. A majority of market participants had been optimistic until now, hopeful that a fiscal cliff deal would be reached and a recession in 2013 avoided.

But just 10 days remain before America faces the largest tax increase in history, coupled with steep automatic spending cuts, the outlook for next year has dimmed.

With Congress on recess for the Christmas holiday and no fiscal cliff deal in sight, investors are worried and rightly so.

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Precious Metals

Why Are Gold Prices Down?

Gold prices plunged Thursday, hitting lows not seen since August, after the U.S. Commerce Department reported an unexpectedly robust reading on third quarter U.S. gross domestic product (GDP).

After the surprising strong report, February gold tumbled $14.50 an ounce to $1,653.50 and spot gold sank $22.80 to $1,643.10.

Silver prices fell as well, losing $1.13 to $29.95 shortly before noon. Prior to the report, the yellow and white metals were little changed.

The fresh report revealed GDP in the third quarter expanded at an annual rate of 3.1%, the fastest growth since late 2011. That was up from the 2.7% pace logged last month, and better than economists' expected 2.8% rate.

Phil Streible, a senior commodity broker at R.J. O'Brien & Associates in Chicago told Bloomberg News, "The GDP number was better than forecast, so the thinking is that improving conditions in the economy might mean a light at the end of the tunnel on when the Fed will end QE3."

Gold and silver have been big beneficiaries of the FOMC's generous QE3 programs.

But there's more than the end of QE measures as to why gold prices are down.

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Stock Market Today

ICE-NYSE Deal Signals Major Change in Future of Trading

Intercontinental Exchange (NYSE: ICE) and NYSE Euronext (NYSE: NYX) announced a deal before market open today (Thursday) by which ICE will acquire NYSE Euronext for $8.2 billion in cash and shares.

News of an ICE-NYSE deal pushed NYX shares up 33% by afternoon trading, near the $33.12 bid price. The acquisition is subject to approval by regulators in the United States and Europe.

This is ICE's second bite at the apple. A deal in which ICE and NASDAQ planned to take over NYX was scuttled last year by U.S. regulators who said that a combination between NYSE and NASDAQ OMX Group (NASDAQ: NDAQ) would create an equity trading monopoly in the United States.

Most analysts agree that the major rationale behind ICE's interest in NYSE Euronext is the latter's ownership of LIFFE, the leading European derivatives exchange. European regulators would have to approve the acquisition of LIFFE by ICE, which is a major electronic commodities and derivatives exchange in the U.S.

"ICE is after Liffe, that is the crown jewel of NYSE Euronext," said Peter Lenardos, analyst at RBC Capital Markets in an interview with Reuters. "Strategically it makes sense for ICE to enter the European derivatives space in a meaningful way."

Lenardos said that a combined entirety would be able to compete more effectively with the CME Group in both trading and clearing of OTC products.

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