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GFMS: Silver Prices to Climb 38% in 2013

The world's most respected precious metals consultancy, Thompson Reuters GFMS, came out last month with its 2013 forecast for silver prices.

After being bearish on silver prices over the past few years, GFMS has come around and predicted a good year for silver investors in 2013, with gains as high as 38%.

Philip Klapwijk, global head of metals analytics for Thomson Reuters GFMS, said "a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013."

Klapwijk said buyer interest may not match that of 2011, but it will rise compared to 2012.

"We wouldn't be surprised also if silver's gains outpaced gold's, not only as the usual result of lower liquidity but also as memories of early 2011's painful losses (in silver) continue to fade," said Klapwijk.

Here's why silver could be the precious metals star of 2013.

Today's FOMC Meeting Ends with Major Change

After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.

And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.

About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally – but then lost that gain and ended down nearly 3 points at 13,245.45.

Here's a breakdown of the FOMC meeting outcome.

Today's FOMC Meeting: QE4

As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.

The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.

Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.

The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.

The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.

While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.

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Investing Tips

Berkshire Hathaway Share Buyback: Investor Takeaway

Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) said today (Wednesday) it authorized the repurchase of $1.2 billion worth of Class A shares from "the estate of a longtime stockholder."

Berkshire Hathaway said it paid $131,000 a share for 9,200 shares.

At the same time, Berkshire Hathaway announced the board of directors had approved an increase in the price it is willing to pay for Berkshire shares from 110% of book value to 120%. Based on Berkshire Hathaway's book value per Class A share of $111,718 at the end of September, the company is now willing to pay up to $134,061 to repurchase shares.

Both Class A and Class B shares rallied this morning following a delayed open at the request of the company, pending news. In late-morning trading, both Class A shares and Class B shares were up by 2.4%.

The move surprised investors – but says a lot about what Buffett thinks of Berkshire's value.

Here's why.

The Fiscal Cliff

Fiscal Cliff 2013: GOP Plans Retaliation

Republicans appear to be losing the fiscal cliff 2103 fight over raising taxes on affluent Americans.

Now they're threatening to retaliate by intensifying Washington's next battle: the U.S. debt ceiling.

Sen. Lindsey Graham, R-SC, pledged Republicans, who control the U.S. House of Representatives, would put up "one hell of a fight over raising the debt ceiling" next year if U.S. President Barack Obama succeeds in getting the tax increase for wealthy Americans without a plan to reduce the national debt. The country is approaching the $16.4 trillion debt ceiling.

On CNN's "Piers Morgan Tonight" Tuesday, Graham threatened, "There will come a time in February and March where we have to raise the debt ceiling. I will not raise the debt ceiling ever again until we get significant reforms, because if we don't reform entitlement we're going to become Greece."

If the country's debt ceiling is not raised, the fallout would send shockwaves across the globe, as the United States, with the world's largest economy, would face the prospect of default. That in turn could threaten global confidence in U.S. Treasury bills should there be non-payment.

In addition, exceeding the debt ceiling could mean the U.S. government would be unable to pay its bills, including salaries of federal workers, who could go unpaid or be laid off. That could have far-reaching effects, disrupting business and reducing consumer spending at a time when the economy can ill afford either prospect.

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AIG Stock Sale Makes it a "Buy" (NYSE: AIG)

The U.S. Treasury Department has sold off its remaining shares of American International Group (NYSE: AIG), acquired in a financial crisis bailout move.

The Treasury had 234.17 million shares left, or roughly 16% of the insurance giant's outstanding stock.

After unburdening itself from its mountainous holding, the Treasury will only own warrants to purchase additional shares of AIG.

Monday's stock sale announcement follows the department's September sale of about 554 million shares to the public at $32.50 per share. That liquidation marked the end of the Treasury's majority ownership in the firm.

This final stock sale is good news for AIG and its shareholders – and U.S. taxpayers.

"The closing of this transaction will mark the full resolution of America's financial support of AIG-with a profit to taxpayers of $22.7 billion to date. It marks on of the most extraordinary-and what many believed to be the most unlikely turnaround in American business history. And you did it," AIG CEO Robert Benmosche penned in a company email to employees on Tuesday.

After the news, Sterne, Agee & Leach, who give AIG a "Buy" rating, said the sale was good for investors.

"With the U.S. Treasury now out of the stock and AIG once again a 100% privately held company, we expect management will be able to turn its full attention to managing the company to drive improved financial performance and higher return on equity," wrote analysts.

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U.S. Economy

QE4 is Coming; Will Inflation Follow?

Many observers expect the U.S. Federal Reserve to announce another round of quantitative easing, or QE4, this afternoon following the Federal Open Market Committee (FOMC) meeting.

The consensus is that the Fed will purchase an additional $45 billion of bonds from the secondary market each month.

That means the Fed would replace the monthly $45 billion used to swap short-term Treasuries for long-term Treasuries under Operation Twist, which expires at the end of this month, with outright bond purchases.

In addition to the $45 billion a month used in Operation Twist, the Federal Reserve Bank has been purchasing $40 billion of mortgage-debt securities monthly in its continued effort to boost growth.

In total, the market expects the Fed to continue to purchase $85 billion worth of bonds on the secondary market each month for the foreseeable future.

Now some investors fear the Fed with QE4 will seal the deal on skyrocketing inflation – but it takes more than increased money supply to raise prices.

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HSBC Fine for Money Laundering is Largest Bank Penalty in U.S. History

The HSBC fine for money laundering charges reached a record $1.92 billion as Europe's biggest bank settled charges in an agreement with the U.S. Justice Department.

The fine is the largest penalty ever imposed on a bank from the Justice Department.

The Justice Department had accused HSBC Holdings PLC of illegally laundering money for Mexican drug cartels and with violating sanctions by doing business with countries including Iran, Cuba, Libya, Sudan and Myanmar, according to Reuters.

In a statement, HSBC Chief Executive Stuart Gulliver said: "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes."

Under new senior leadership over the past two years, Gulliver said, "we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

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U.S. Economy

This Week's FOMC Meeting: Why to Expect More Stimulus

Investors should expect welcome news from the U.S. Federal Reserve Wednesday at the end of this week's two-day FOMC meeting.

As central bankers gathered Tuesday for the last policy meeting of the year, expectations were high that Fed Chief Ben Bernanke and his cohorts will announce a large scale asset purchase plan to replace the soon-to-end Operation Twist, introduced in September 2011.

The Fed hopes additional stimulus will finally boost growth and the employment level. With the current unemployment level at an elevated 7.7% — a number that economists say will be revised higher in the coming weeks – the weak labor market remains a grave concern.

At recent meetings, the Fed indicated that it will continue QE3, the policy of buying $45 billion in mortgage-backed securities each month until it sees a significant and sustained improvement in the employment scene – which is unlikely to come anytime soon.

Together with Operation Twist, the two programs added some $85 billion in long-term bonds to the Fed's balance sheet each month.

The aim, the Fed said in a statement, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

The central bank has also stressed it would employ its other policy tools "if the labor market does not improve substantially."

While the Fed did not elaborate on what those tools are, it maintains it still has plenty of ammo left and stands ready to pull the trigger when and if necessary.

It looks like now is the time.

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The Fiscal Cliff

Tax Fight Remains Biggest Roadblock in Fiscal Cliff Deal

The fiscal cliff countdown clock tells us there is just 21 days left for Democrats and Republicans to come to some sort of deal.

With little resolved after months of back-and-forth discussions, which have recently turned into more heated exchanges, U.S. President Barack Obama has taken over the role of leading negations for his party, while Republican House of Representatives Speaker John Boehner is chief negotiator for the GOP.

The two men met for an unplanned White House meeting Sunday. Little details were made public regarding the powwow, but from duplicate statements from both sides, it doesn't appear much was accomplished.

The following messaged was delivered by White House spokesman John Earnest as well as an aide to Boehner. "This afternoon, the president and Speaker Boehner met at the White House to discuss efforts to resolve the fiscal cliff. We're not reading our details of the conversation, but the lines of communication remain open."

Statements from each side Monday made it clear core tax and spending issues remained unresolved, but both sides maintain they are waiting for details from the other side.

Democrats and Republicans are basically saying to each other, "it's your move."

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Stock Market Today

Stock Market Today: U.S. Markets Flat; Focus Shifts to Europe

The stock market today opened quietly in the United States as investors prepared for a very busy week ahead.

Just after the opening bell on Wall Street, all three major indexes were flat.

As Barron's noted, the average daily volume on the NYSE last week fell to 3.3 billion shares, compared with 5.5 billion that changed hands during the same period in 2009, when we were slowly emerging from the Great Recession.

The "fiscal cliff," which could drain $607 billion from the U.S. economy through tax increases and spending cuts, dominated U.S. news and moved markets.

But the fiscal cliff, along with the $16.4 trillion national debt and the growing federal deficit, took a back seat Monday as the focus shifted to Europe.

Anxious market participants kept a wary eye on Italy after Prime Minister Mario Monti announced he is resigning, citing a loss of support in Parliament. Italian bonds plummeted with the yield on the 10-year rising the most since August.

French, Belgian and Austrian 10-years dropped to euro-era lows, and Spain's debt also declined.

Bucking the trend was Greece, where bonds gained after the ailing country pushed further out the deadline for buying back some of its mountainous debt.

Elwin de Groot, a senior economist at Rabobank Nederland in Utrecht, Netherlands, told Bloomberg News: "We are seeing a selloff but I wouldn't call it a panic yet. The auction this week could be an interesting litmus test for investors. This has also created uncertainty for
Europe-wide policymaking."

Italy's deep-rooted economic troubles and political drift have been taken too lightly, a bevy of analysts warned.

As Nomura Securities' Silvio Peruzzo wrote in a note to clients, "Markets have grown too complacent about Italy, in our view."

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