NEWS,08.12.2012

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.

NEWS,22.08.2012

Russia finally joins WTO

After 18 years of negotiation, Russia on Wednesday entered the World Trade Organization, which restricts import duties and subsidies in an attempt to create a level playing field for international trade.Analysts and politicians hope that Russia, which has long proven a formidable market to foreign investors because of its byzantine bureaucracy and protectionist tariffs, would be transformed by its entry into the WTO. Russia is one of the last major global economies to enter the group, which has long included other developing nations like China.While consumers here will benefit from the lower cost of imported goods, some worry that struggling industries long coddled by state subsidies, such as agriculture or the automobile industry, will suffer from foreign competition.Russians often complain about the burdensome cost of Western-imported consumer products, which range from refrigerators to jeans. With its entry into the WTO, the country will cut its average import tariff by 5.9%, making those imports cheaper.M. Video, one of Russia's largest electronics retailers whose shelves are packed with foreign-made CD players and American movies, said Russia's entry into the WTO would bring more customers into their stores."We believe that (entry into the WTO) is going to be a very good decision for our customers in the future, because they will be able to purchase goods with prices harmonized with other economies," said Enrique Fernandez, chief commercial officer of the company.But uncompetitive domestic goods, which have long been propped up by Soviet-style subsidies, could be threatened by the invasion of higher-quality imports. Nearly 100 major business leaders and industry groups including dairy and meat producers signed a petition earlier this summer addressed to the ruling United Russia party, asking that its deputies vote against ratification of the WTO treaty.Agriculture, the automobile industry, and Soviet-style "Monogorods," or towns which revolve around a single factory or industry, are bound to suffer next to foreign competition unless they can reform quickly. These industries are based in regions that have often displayed the most support for President Vladimir Putin, but could easily turn into a hotbed for protest if already fragile industries were to collapse.At a car dealership in Moscow, 63-year-old engineer Alexei Tarakanov said he doubted that low-quality Russian cars could win on an open market."I already have a negative attitude towards our (Russian) cars," said Tarakanov, who was buying a Renault. "I doubt that they can win the preference of the modern buyer."Because state-subsidized industries proved such a pivotal issue in Russia's WTO negotiations, financial aid to struggling sectors will be gradually phased out, rather than abruptly cut off,over the course of seven years."The industry will not collapse immediately, (major Russian car-maker) AvtoVaz is going to continue steadily producing its 700 000 cars per year," said Ovanes Oganisyan, an analyst at the Moscow-based investment bank Troika Dialog. "But eventually there's going to be more competition, and if AvtoVaz doesn't change in seven years it will have to go out of business."In addition to the challenges faced by unreformed industries, the Russian government expects to take a short-term financial hit from the loss of income from import duties and taxes. But the government emphasizes long-term gains, and the World Bank has estimated that WTO membership could increase Russia's GDP by an extra 3.3% a year in the next three years.While the WTO will significantly open up the Russian market to foreign producers, the U.S. faces the threat of paying higher tariff rates than other WTO members to sell goods in Russia, leaving American producers at a competitive disadvantage compared to European or Asian industries.The reason for the disparity is the Jackson-Vanik Amendment, a law passed by Congress during Soviet times that denies Russia normal trade relations with the U.S.The U.S. president has been granting Russia annual waivers since 1992, but Moscow insists it will not lower its tariffs for the U.S. as much as for other countries until the law is scrapped."The last thing that America needs right now is for foreign companies to have lower tariff rates than American companies," said Andrew Somers, President and CEO of the American Chamber of Commerce.Vice President Joe Biden lobbied for the repeal of Jackson-Vanik in 2011, as have previous presidential administrations, but Congress has so far proven intransigent to executive pleas.Congress has increasingly taken fire at the Russian administration for its human rights record. In June, the U.S. House of Representatives passed the Justice for Sergei Magnitsky Act, a bill named for a Russian lawyer who died in a Russian prison last year after allegedly being abused at the hands of Russian authorities.This week, President Barack Obama expressed his disappointment after the three participants of Pussy Riot, a punk band who sang an anti-Putin prayer in Moscow's Cathedral of Christ the Savior, were convicted to two years in prison."Business hates uncertainty," said Somers, "If the Jackson-Vanik Amendment remains on the books and the U.S. continues not to have normal trade relations with Russia, who knows what will happen."

Israeli minister wants Palestinian leader's ouster

Israel's foreign minister urged the international community to help oust Palestinian President Mahmoud Abbas whose policies he called "an obstacle to peace" in a letter released Wednesday.Foreign Minister Avigdor Lieberman wrote to the Quartet of Mideast mediators  the U.S., the U.N., the EU and Russia this week calling for new elections in the Palestinian Authority in order to replace Abbas, accusing the Palestinian Authority of being "a despotic government riddled with corruption.""Despite Mr. Abbas' delays, general elections in the Palestinian Authority should be held and a new, legitimate, hopefully realistic leadership should be elected" he wrote. "Only such a leadership can bring progress with Israel. We must maximize the holding of new elections in the PA alongside the tremendous changes in the Arab world, in order to bring a serious change between Israel and the Palestinians."Abbas' spokesman, Nabil Abu Rdeneh, rejected Lieberman's statement, calling it an "incitement to violence" that "doesn't contribute in any way to an atmosphere of peace." He urged Israel and the international community to condemn the letter.Elections for new Palestinian leadership were scheduled for 2010, but have repeatedly been delayed because of the bitter dispute between Abbas' Fatah and the militant Hamas, bitter rivals who had a violent falling out in 2007 and now separately govern the West Bank and Gaza Strip respectively.Israeli Prime Minister Benjamin Netanyahu also sought to quickly disassociate himself from the letter. An official in the prime minister's office, who spoke on condition of anonymity because of the sensitivity of the issue, said the letter does not represent the government's position."While Abbas has created difficulties for restarting negotiations, the government of Israel remains committed to continuing efforts to restart a dialogue with the Palestinians,"he said.Lieberman, who leads a hardline party in Israel, is known for inflammatory rhetoric that has at times agitated his partners in government.He embarrassed Netanyahu in the past by expressing skepticism over the chances of reaching peace with the Palestinians. In a high-profile speech at the United Nations General Assembly in 2010, he contradicted a goal set by President Barack Obama of reaching a final peace deal in the coming year.Lieberman wrote that Abbas should be replaced so that peace talks that collapsed in 2008 could be revived.Abbas has refused to resume talks as long as Israel refuses to stop settlement construction in the West Bank and east Jerusalem, areas Palestinians want as part of their future state. Israel rejects the calls for a halt to settlement building, and instead has called for peace talks to resume, saying that the settlement issue should be resolved along with other core disputes through negotiations.Lieberman listed in his letter a number of gestures Israel recently has made to the Palestinians  including agreeing for an additional 5,000 Palestinians to work in Israel and reducing the number of roadblocks and accused Abbas in return of "encouraging a culture of hatred, praising terrorists, encouraging sanctions and boycotts and calling into question the legitimacy of the state.” Due to Abbas' weak standing, and his policy of not renewing the negotiations, which is an obstacle to peace, the time has come to consider a creative solution in order to strengthen the Palestinian leadership," Lieberman said In Washington, U.S. State Department spokeswoman Victoria Nuland said the U.S. has "a good working relationship with President Abbas. And so we expect to be able to continue to work well with him."She also noted that Netanyahu had "clarified that the foreign minister's letter doesn't reflect his position and that he (Netanyahu) has responsibility for these issues." 
 

Ailing Egypt seeks $4.8 billion IMF loan

Egypt formally asked the International Monetary Fund for a $4.8 billion loan on Wednesday, seeking a desperately needed rescue package for its faltering economy but raising the possibility of painful restructuring in a country still reeling since its revolution more than 18 months ago.The loan deal, which Egypt says it will reach by the end of the year, presents a major test to the Muslim Brotherhood-rooted president, Mohammed Morsi, the country's first ever freely elected leader, brought to power after the fall of Hosni Mubarak.The IMF has avoided making specific conditions for a loan but it seeks a cohesive government plan for restarting economic growth and reducing a deficit that has grown to $23.6 billion, some 8.7 percent of gross domestic product.A key part of that will likely be reducing subsidies that suck up a third of the government budget every year. Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, some 40 percent of whom live near or below the poverty line."The government will have to take urgent measures, at the top of them cutting energy subsidies," said Mohammed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE. The biggest subsidies are those on fuel including gasoline and cooking gas costing the government some $16 billion a year.Egypt's upheaval since the 18-day uprising that led to Mubarak's ouster on Feb. 11, 2011, has pushed its economy toward the brink. Amid near constant instability since, foreign investment has dried up. Revenues from tourism one of the country's biggest money makers and employers fell 30 percent to $9 billion in 2011 and the industry is only making a meager recovery.Meanwhile, the government has been burning through its foreign currency reserves, which have plummeted by more than half, to prop up the Egyptian pound and prevent a devaluation that could spur inflation.The government also faces mounting demands to increase salaries for the millions of civil servants and public sector workers and boost social spending. Infrastructure has crumbled, with electricity and water outages pervasive this summer, bringing angry complaints, some directed at Morsi.Egypt's hope is that the IMF package its first loan from the organization in nearly 20 years would provide not only a cash boost but, more importantly, a seal of approval that will bring back international investment.Morsi, his Prime Minister Hesham Kandil and other Egyptian officials met Wednesday with IMF chief Christine Lagarde in Cairo. State TV said Egypt requested a $4.8 billion loan, up from the $3.2 billion proposal discussed earlier this year. Finance Minister Momtaz el-Said told the state-run Al-Ahram newspaper that the increase was needed because the deficit had grown with the drop in income from investment and tourism.Lagarde's visit "gives a positive message to Egypt and the whole world that Egypt is stabilizing and that the economy is heading to a recovery," Kandil said. He said he expects a final agreement by December.Kandil said his government has drawn up a comprehensive economic recovery plan for the IMF that includes strategies to counter the deficit, encourage investment and ensure that subsidies reach those most in need. He did not provide details.Lagarde said "Egypt faces considerable challenges." An IMF team would start talks in September with the government over its recovery plan and the loan, she said."Getting the country's economy back on track and raising the living standards for all will not be an easy task," she said. "The Egyptian people have legitimate expectations for a better life aAbdel-Hafiz el-Sawy, a chief economist with the Muslim Brotherhood who met with earlier delegations from IMF, acknowledged that "the government is facing a mountain of problems, and whenever it gets out of one trap to fall in the next.""The IMF loan is small but its impact is in the fact that it gives Egypt a certificate that improves the country's economic prospects," he said.Initial talks over a $3.2 billion loan stalled earlier this year amid wrangling between the military generals who ruled the country since Mubarak's ouster and Islamists who won the majority in the now-dissolved parliament. The Brotherhood had opposed letting the interim, military-appointed government sign a deal putting financial burdens on the next government. The IMF insisted on political consensus before approving the loan.Since then, Morsi was inaugurated in late June and a month later formed the Kandil-led Cabinet, and the military handed over authority.The plan presented to the IMF appears to be more or less similar to the previous government's plan, which the Islamist-led parliament had opposed, according to el-Said, the finance minister who also served in the former government, in an interview with el-Shorouk daily.Now Morsi faces the tough task of economic reform. Already, the government has reduced fuel subsidies to energy-intensive factories which were seen as giving a bonus to the wealthy and increased taxes on Egyptians whose income exceeds 10 million a year.But still remaining is the question of how to deal with subsidies that keep prices dirt cheap for gasoline and for butane fuel that many rely on for cooking. The gasoline subsidies are widely seen as inefficient because wealthier drivers benefit from them as much as or more than the poor.The government is studying alternatives, such as distributing to the poor coupons for gas and fuel, while restructuring the tax system.El-Said, the finance minister, also ruled out a devaluation of the pound suggesting that the government hopes that an IMF will bring enough local liquidity to keep the currency strong without infusions from the state's reserves.The IMF loan will not be enough to cover all Egypt's financing needs. IMF officials said earlier that the country needs a total of $10 billion to $12 billion in outside funding over the next 12 to 15 months.Qatar has delivered around $500 million of $2 billion it has promised Egypt. Saudi Arabia promised to deposit $1.5 billion in Egypt's Central Bank. But other aid packages from the European Union, the oil-rich Arab Gulf states and other sources will heavily depend on Cairo's ability to secure the IMF loan.