US 'fiscal cliff' fear may push investors to sell
Investors typically sell stocks to
cut their losses at year end. But worries about the 'fiscal cliff' and the
possibility of higher taxes in 2013 - may act as the greatest incentive to sell
both winners and losers by December 31.The $US600 billion of automatic tax
increases and spending cuts scheduled for the beginning of next year includes
higher rates for capital gains, making tax-loss selling even more appealing
than usual.Tax-related selling may be behind the weaker trend in the shares of
market leader Apple, analysts said. The stock is down 20% for the quarter, but
it's still up nearly 32% for the year.Apple dropped 8.9% in this past week
alone. For a stock that gained more than 25% a year for four consecutive years,
the embedded capital gains suddenly look like a selling opportunity if one's
tax bill is going to jump sharply just because the calendar
changes."Tax-loss selling is always a factor but tax-gains selling has
been a factor this year," said Paul Mendelsohn, chief investment
strategist at Windham Financial Services in Charlotte, Vermont."You have a lot
of high-net-worth individuals in taxable accounts, and that could be what's
affecting stocks like Apple. If you look at the stocks that people have their
largest gains in, they seem to be under a little bit more pressure here than
usual."Of this year's top 20 performers in the S&P 1500 index, which
includes large, small and mid-cap stocks, all but four have lost ground in the
last five trading sessions.The rush to avoid higher taxes on portfolio gains
could cause additional weakness.The S&P 500 ended the week up just 0.1%
after another week of trading largely tied to fiscal cliff negotiation news,
which has pushed the market in both directions.Next week's Federal Reserve
meeting could offer some relief if policymakers announce further plans to help
the lackluster US economy. The Federal Open Market Committee will meet on
Wednesday and Thursday.The policy statement is expected on Thursday after the conclusion
of the meeting - the Fed's last one for the year.The jobs report showing
non-farm payrolls added 146,000 jobs in November eased worries that Superstorm
Sandy had hit the labor market hard."After the FOMC meeting, I think it's
going to be downhill from there as worries about the fiscal cliff really take
center stage and prospects of a deal become less and less likely," said
Mohannad Aama, managing director of Beam Capital Management LLC in New
York."I think we are likely to see an escalation in profit-taking ahead of
tax rates going up next year," he said.Volume could increase as investors
try to shift positions before year end, some analysts said.While most of that
would be in stocks, some of the extra trading volume could spill over into options,
said J.J. Kinahan, TD Ameritrade's chief derivatives strategist.Volatility
could pick up as well, and some of that is already being seen in Apple's
stock."The actual volatility in Apple has been very high while the market
itself has been calm. I expect Apple's volatility to carry over into the market
volatility," said Enis Taner, global macro editor at RiskReversal.com, an
options trading firm in New York.Shares of Apple, the largest US company by
market value, registered their worst week since May 2010. In another bearish sign, the stock's 50-day moving average fell to
$US599.52 - below its 200-day moving average at $US601.38."There's a lot
of tax-related selling happening now, and it will continue to happen. Apple is
an example, even (though) there are other factors involved with Apple,"
Aama said.While investors may be selling stocks to avoid higher taxes in 2013,
companies may continue to announce special and accelerated dividend payments
before year end.To be sure, the big sell-off in stocks following the November 6
election was likely related to tax selling, making it hard to judge how much
more is to come.Bruce Zaro, chief technical strategist at Delta Global Asset
Management in Boston, said there's a decent chance that the market could rally
before year end."Even with little or spotty news that one would put in the
positive bucket regarding the cliff negotiations, the market has basically
hung in there, and I think it's hung in there in anticipation of something
coming," he said.
Jobless Benefits Should Be Included In Fiscal Cliff Deal, Democrats Say
Hovering in the background of the
"fiscal cliff" debate is the prospect of 2 million people losing
their unemployment benefits four days after Christmas."This is the real
cliff," said Sen. Jack Reed, D-R.I. He's been leading the effort to
include another extension of benefits for the long-term unemployed in any deal
to avert looming tax increases and massive spending cuts in January."Many
of these people are struggling to pay mortgages, to provide education for their
children," Reed said this past week as President Barack Obama and House
Speaker John Boehner, R-Ohio, rejected each other's opening offers for a
deficit deal.Emergency jobless benefits for about 2.1 million people out of
work more than six months will cease Dec. 29, and 1 million more will lose them
over the next three months if Congress doesn't extend the assistance again.Since
the collapse of the economy in 2008, the government has poured $520 billion an
amount equal to about half its annual deficit in recent years into unemployment
benefit extensions.White House officials have assured Democrats that Obama is
committed to extending them another year, at a cost of about $30 billion, as
part of an agreement for sidestepping the fiscal cliff and reducing the size of
annual increases in the federal debt."The White House has made it clear
that it wants an extension," said Michigan Rep. Sander Levin, the top
Democrat on the House Ways and Means Committee.Republicans have been relatively
quiet on the issue lately. They demanded and won savings elsewhere to offset
the cost of this year's extension, requiring the government to sell some of its
broadcasting airwaves and making newly hired federal workers contribute more
toward their pensions.Boehner did not include jobless benefits in his
counteroffer response this past week to Obama's call for $1.6 trillion in new
taxes over the next decade, including raising the top marginal rates for the
highest-paid 2 percent.Long-term unemployment remains a persistent problem.
About 5 million people have been out of work for six months or more, according
to the Bureau of labor Statistics. That's about 40 percent of all unemployed
workers.The Labor Department said Friday that the unemployment rate fell to 7.7
percent from 7.9 percent, the lowest in nearly four years. But much of the
decline was due to people so discouraged about finding a job that they quit
looking for one.Democrats have tried to keep a flame burning under the issue.
Ending the extended benefits would "deal a devastating blow to our
economy," 42 Democratic senators wrote Senate Majority Leader Harry Reid,
D-Nev., this past week.The Congressional Budget Office said in a study last
month that extending the current level of long-term unemployment benefits
another year would add 300,000 jobs to the economy. The average benefit of
about $300 a week tends to get spent quickly for food, rent and other basic
necessities, the report said, stimulating the economy.The liberal-leaning
Economic Policy Institute found that extended unemployment benefits lifted 2.3
million Americans out of poverty last year, including 600,000 children.States
provide the first 20 weeks to 26 weeks of unemployment benefits for eligible
workers who are seeking jobs. When those are exhausted, federal benefits kick
in for up to 47 more weeks, depending on the state's unemployment rate.The
higher a state's unemployment rate, the longer state residents can qualify for
additional weeks of federal unemployment benefits. Only seven states with
jobless rates of 9 percent or more now qualify for all 47 weeks.Congress
already cut back federal jobless benefits this year. Taken together with what
states offer, the benefits could last up to 99 weeks. Cutting the maximum to 73
weeks has already cut off benefits to about 500,000 people.Opponents of benefit
extensions argue that they can be a disincentive for taking a
job."Prolonged benefits lead some unemployed workers to spend too much
time looking for jobs that they would prefer to find, rather than focusing on
jobs that they are more likely to find," said James Sherk, a labor policy
analyst at the conservative Heritage Foundation.But Sen. Tom Harkin, D-Iowa,
noted that unemployment checks add up to about $15,000 a year. "That's
poverty level," he said. "This is not something people just want to
continue on, they want to get jobs."
Berlusconi in comeback bid
Billionaire media baron Silvio Berlusconi,
who resigned in disgrace with Italy tottering through the
European debt crisis, announced on Saturday he was making a comeback and
running for a fourth term as premier.Berlusconi, 76, reluctantly stepped down
last year after pressure from international financial markets. He was later
convicted of tax fraud and is on trial in Milan for alleged sexual misconduct
and abuse of power when he was premier.An unelected government of technocrats,
led by widely respected economist Mario Monti, was appointed to replace him.
Opinion polls have seen the popularity of Berlusconi's Freedom People Party
plunge to far below that of Italy's other large
political force, the center-left Democratic Party.But Berlusconi professed
confidence he can achieve victory."I'm running to win," Berlusconi
told reporters outside the training facilities of his soccer team AC Milan.One
of Monti's biggest backers in Parliament, centrist leader Pier Ferdinando
Casini, bemoaned Berlusconi's bid to return to office."It has been a year
that Italians are seriously sacrificing to try to avoid Greece's abyss, and,
today, there's the re-emergence of Berlusconi, who wants to bring us back five
years," Casini said on state TV.Since Monti took office, the retirement
age for Italy's generous pensions has been raised, sales taxes have been hiked
and a property tax on primary residences abolished by Berlusconi to fulfill one
of his own campaign promises - has been reinstated.But while opinion polls of
prospective voters find slumping support for Berlusconi's party, to lower than
15%, the media mogul might be betting on public impatience with those
sacrifices.No date has been set for elections, linked to the end of
Parliament's term in late April. But Berlusconi's decision earlier in the week
to withdraw the support of his party Parliament's largest for Monti's
anti-crisis government increased the likelihood that Italy's president would
dissolve the legislature weeks early and elections ahead of schedule."It
seems to me that 10 March has been indicated" as a possible date for early
elections, "and that seems a date that's fine with me," Berlusconi
said.Monti headed back from a conference in France for a meeting on
Saturday evening at the presidential palace to take the pulse of political
tensions. President Giorgio Napolitano has made clear he wants Parliament to at
least pass a vital budget law later this month and avoid a
"precipitous" demise amid mounting political uncertainty.When
pressure from international financial markets forced Berlusconi to reluctantly
step down in November 2011 at the height of sovereign debt worries, many
pundits dismissed any prospects for a comeback bid for the combative
businessman-turned-politician, who has led Italy's conservatives for nearly 20
years.Since Berlusconi resigned 18 months short of the end of his third stint
in the premiership, he has been convicted of tax fraud. He is appealing, and in
Italy, convictions don't become definitive until after two levels of appeals
are exhausted.He is also on trial in Milan for allegedly having sex with an
underage prostitute and using his office when premier to try to cover it up,
charges he has denied. The young woman has also denied having sex with the
then-premier. Berlusconi, whose convictions in previous trials on charges linked
to his media empire's dealings have either been overturned or thrown out when
statute of limitations expired, claims he is the victim of prosecutors he
contends sympathize with the left.With financial markets rattled over the
prospect that Monti might see his tenure in the premiership end before May if
early elections are called, the premier insisted that the political crisis was
"manageable." Monti contended his government, with its austerity
agenda of spending cuts, higher taxes and pension reform, spared Italy and with
it, other nations in the eurozone from succumbing to financial
disaster.Standard & Poor's rating agency on Friday indicated it could lower
Italy's rating if the recession endures well into 2013, and it cited
"uncertainty" the next Italian government can stay the tough course
of austerity Monti's nonpartisan government managed to move through Parliament,
thanks to the wide support.Berlusconi declared "the campaign is already
on" and insisted he's running "out of a sense of responsibility"
toward recession-plagued Italy. For months, he had been coy about whether he
would run again. But on Saturday he claimed that a search for a new leader,
like the one he was when he burst into politics in the early 1990s, failed, and
so "out of desperation" for lack of alternative, he was jumping into
the race.Italian media have reported that Berlusconi was particularly irked by
Monti's Cabinet approval, earlier in the week, of a measure that would ban from
running for office anyone sentenced to more than two years in prison after
convictions are definitely upheld in cases of terrorism, organized crime and
offenses in public office, including corruption.Berlusconi's tax fraud
conviction in October carries a four-year sentence, but the case could be dismissed
if the statute of limitations runs out before all appeals are exhausted.Critics
have contended that Berlusconi expended much of his efforts as premier to push
through legislation tailor-made to help him in his legal woes, and any new term
in the premier's office could offer a similar opportunity.Since his last
election bid, in 2008, Berlusconi has lost the key support of its biggest
coalition partner, the Northern League, which refused to support Monti's
government. But the League, whose founder, Umberto Bossi, has been tarnished by
scandal, hasn't ruled out forging a new election alliance with Berlusconi.
