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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.

U.S. Economy

Why Recession 2013 Could Hit Regardless of Fiscal Cliff Deal

Stalled fiscal cliff negotiations have fueled concerns the U.S. could face a recession in 2013 if the country fails to avert the cliff.

But recession 2013 may be on the way regardless of what happens with the fiscal cliff talks.

The latest sign of an economic downturn came Tuesday in a U.S. Commerce Department report showing imports to the United States have fallen two consecutive months after dropping 8.4% in the third quarter and 2% the previous quarter.

Robert Brusca, chief economist at FAO Economics, told MarketWatch when the economy weakens, imports decline quickly.

Brusca called the latest figures a "red flag" and said a 2013 recession is a "real risk."

The last time imports declined for two quarters was in 2009, at the end of a four-quarter decrease in imports during the Great Recession.

The Fiscal Cliff

Fiscal Cliff Deal Talks Hit Major Roadblock

The apparent breakdown of talks between U.S. President Barack Obama and Republican House Speaker John Boehner on a fiscal cliff deal took the optimism out of the markets on Wednesday, with the Dow Jones Industrial Average falling nearly 100 points.

As the markets prepared to open for trading Thursday, U.S. stock futures were lower.

Boehner has decided to go ahead with a vote on his "Plan B," which would extend the Bush-era tax rates for all taxpayers with income of less than $1 million but would not deal with any of the automatic spending cuts that would take effect after Jan. 1.

In an effort to win support from wavering House Republicans, it has been reported that a companion bill could be brought to the floor with Plan B. The bill would prevent across-the-board cuts required by the fiscal cliff from being applied to the military and other specific programs.

Assuming Boehner can round up enough votes to pass Plan B, then "the president will have a decision to make," Boehner said. "He can call on the Senate Democrats to pass that bill or he can be responsible for the largest tax increase in American history."

Senate majority leader Harry Reid, D-NV, has indicated Plan B will not pass in the Democrat-controlled Senate, and President Obama has vowed to veto the bill if it reaches his desk.

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U.S. Economy

Is a U.S. Credit Rating Downgrade a Sure Thing?

Fitch Ratings Inc. cautioned today (Wednesday) that it may downgrade the U.S. credit rating – currently AAA, the highest ranking – if Congress doesn't reach a fiscal cliff deal.

The ratings agency said if negotiations on both the fiscal cliff and the debt ceiling extend into 2013, Fitch will review the credit rating which may lead "to a negative rating action."

"Failure to avoid the fiscal cliff…would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the U.S. into an avoidable and unnecessary recession," Fitch wrote in its 2013 global outlook. "That could erode medium-term growth potential and financial stability. In such a scenario, there would be an increased likelihood that the U.S. would lose its AAA status."

Fitch's warning is not merely a threat, and it isn't the only rating downgrade facing the United States.

Moody's Corp. (NYSE: MCO), which also currently has a AAA rating in place and maintains a negative outlook, advised in September that it was prepared to strip the country of its stellar rating if lawmakers don't come up with a long-term debt reduction plan.

Standard & Poor's has been even less lenient.

It trimmed its U.S. credit rating one notch in 2011 to AA+, alluding to the political stalemates that thwarted an agreement on raising the debt ceiling. The downgrade, a first in U.S. history, was harshly criticized, and stunned Washington.

S&P lectured earlier this year that an additional downgrade was likely sans a debt deal.

Joining S&P in stripping the U.S. of its desirable credit rating was Egan Jones, a much smaller but still well-known rival among the big three credit rating agencies. This September, it slashed its rating to AA- from AA.

A U.S. credit rating downgrade is just one important consideration in the debt ceiling debate.

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What the Fiscal Cliff Deal Could Do to You

Depending on the deal Congress makes for the fiscal cliff, middle-class Americans could face a total average tax burden of nearly 50%.

Middle-class Americans already pay an average of 43.12% in taxes, according to the non-partisan Tax Foundation.

Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed the possible increase in the tax tab, citing data from FOX Business Network's expert on consumer and personal finance, Gerri Willis.

Absent a fiscal cliff deal, the mean middle class federal tax rate would climb from 25% to 28%, as Bush-era tax cuts expire in 2013. Payroll taxes would rise from 13.3% to 15.3%.

"Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live, thanks to decades of poor fiscal management," Fitz-Gerald said.

Add in state taxes, which average 4.82%, and the middle-class tax burden would average a whopping 48%.

As Fitz-Gerald put it, the possible tax increases amount to "an assault on the middle class."

The Most Painful Fiscal Cliff Hit to the Middle Class

The biggest tax increase threatening individuals for the 2012 tax year is a hike in the alternative minimum tax.

Read More…