Posts
Smart
Money Is Buying Puts On The Market
2
September, 2012
At
least two good reasons for Smart Money to both hedge their gains(up
17% in equity accounts this year) and to prepare for the Fiscal
Cliff– the very great likelihood that come January 1, 2013 defense
and non-defense programs will be cut severely, and taxes will rise,
most notably for investors as their maximum tax on cash dividends
rises to 39.6% from 15%. Take that Baby Boomer.
It’s
also true that the stock averages are backing and filling from day to
day after a very solid and surprising run. Smart Money has made out
well this year. Protection against a major slide isn’t expensive
either. You can buy puts, ie sell short the Standard & Poors 500
index by means of puts that are only 3% out of the money. That means
that if the index declines by 4%, which I reckon is going to happen
sooner or later before January, 2013– you’ll have a profit that
will protect against the decline in your portfolio.
As
the Presidential campaign heats up in what is practically a dead heat
I have a feeling few investors have really focused on what could
happen in the way of tax increases and spending cuts– measures that
would imperil the shaky fragile economy. Listen up!
According
to the Financial Services Roundtable, a Wall Street pressure group,
the 15% capital gains tax will become 20% for high income investors–
while the 15% maximum tax on dividends would rise to your ordinary
income tax rate– say 25% to 35%. It means considerably less cash in
your pocket from your favorite income creating securities.
Then,
there’s the personal income tax rate which pushes 25% to 28%, and
28% to 31%, and 33% to 36% and 35% to 39.6%. Less money for you, more
for Uncle Sam.
And
Uncle Sam is going to need because if there no deal between November
6th and December 31st, the budget will be cut by a gigantic $1.2
trillion(I’ll believe it when I see it) and the unemployment rate
will rise back up to 9%.
So
better mull this possibility over. Better think about whether a
softer China, a struggling Europe, a stagnant Brazil, and a very
skimpy increase in the average take home pay doesn’t portent a
recession anyway.
If
you don’t want to sell outright, because you like your stocks for
the long pull– this hedging strategy is especially important to
protect your portfolio from losing too much value before year-end–
when bonuses for investment managers are set.
Fuel
price hike may lead to job losses: UASA
1
September 2012
Trade
union UASA says the fuel price increase may lead to job losses as
employers may be forced to cut costs. Petrol will go up by 93 cents
per litre next Wednesday.
UASA
says the petrol price hike will cut further into the already
unmanageable household expenses of many South African families, and
that the public transport users may also be affected.
UASA's
Jacques Hugo says: "We are concerned that the latest fuel hike
will influence companies to start looking at their bottom line
because of the increased costs to transport and to manufacture goods.
And we seriously concerned that that could possibly lead to job
losses".
It
will cost about R50 more to fill up an average car from Wednesday.
The Department of Energy has announced that all grades of petrol will
go up by 93 cents a litre, while diesel will see a 69 cents a litre
increase.
The
department attributes a weaker rand and firmer international oil
price as the main drivers of the increase. Wage increases to petrol
pump attendants also influenced the shock hike.
Absa
asset management analyst, Chris Gilmour says the increase will not
have an immediate impact on inflation.
Greek
Purchasing Power in Freefall, Unions Say
1
September, 2012
Severe
wage cuts have halved the purchasing power of Greeks over the last
three years, according to the results of a union study published
Friday in the Athens daily Ta Nea.
In
2012, the monthly minimum wage was cut from 751 euros (940 dollars)
to 586 euros – giving those earners the purchasing power of a Greek
citizen in 1978.
The
results come from a study by the General Confederation of Greek
Workers (GSEE), the country‘s largest labour union.
The
union predicts that the average yearly income of Greeks – 25,740
euros in 2011 – will fall further to between 15,000 and 17,000
euros.
According
to the study, the situation of pensioners is particularly worrying.
Between 2010 and June 2012, pension were slashed by 4.2 billion
euros.
Talks
are underway between Prime Minister Antonis Samaras and his coalition
partners on Greece‘s new austerity programme, which could include
further cuts to wages and pensions.
(source:
Ta Nea, DPA)
Iron
ore plunge hurts small miners
The
smaller and newer players may need to cut their budgets to stay
afloat. The greatest pain is in China and Australia.
The
drop in the price of iron ore -- down to a new three-year low
Thursday of $90.75 a metric ton delivered in China -- has sent the
share prices of iron-ore miners tumbling. Brazil's Vale (VALE
+2.06%), for example, is down 39% this year.
But
the real damage -- the company-threatening damage -- isn't being
administered to the big dogs in the sector. Those big mining
companies may see earnings devastated and revenues slashed, but they
have the balance sheets and the access to credit that will let them
ride out this plunge in prices.
It’s
the highly leveraged, frequently smaller and newer players that are
at risk. For them, the damage isn’t just in a lower share price but
in a need to sell assets and/or slash development plans in order to
keep the company afloat until better times arrive.
You'll
find the greatest pain in China and Australia. The break-even level
for Chinese iron ore miners, mining equipment maker Joy Global (JOY
+2.71%) calculates, is about $120 a ton. At the current price near
$90, these companies are bleeding losses. The 40% drop in the price
of iron ore in the last four months has been especially brutal
because it has been so quick. Those miners with good connections in
Beijing will be able to borrow from China’s big state-owned banks
to ride out the bottom of the cycle. Less well-connected companies
will be forced to sell off inventory at any price and,
counter-intuitively perhaps, to increase production because even
running at a loss produces cash flow that can be used to keep
creditors from the door. Look for signs that, despite the drop in
iron ore prices, iron ore production in China might actually increase
-- forcing down prices even more -- over the next few months.
In
Italy, world’s oldest bank faces uncertain future
2
September, 2012
Tucked
away in this Tuscan city, the oldest bank in the world has survived
the Borgias, pestilence and too many wars to count. Now, a mundane
foe has proved far more dangerous: Italian government debt.
The
540-year-old Monte dei Paschi Bank, Italy’s third-largest, is on
the ropes as it struggles to deal with holdings of Italian bonds,
once considered a prudent place to tuck cash.
The
euro crisis upset that calculation. Across Europe, banks are
confronting the same problem as seemingly safe bets that governments
would repay their debts turned out to have been major gambles.
Danish
Economy Shrinks More Than Estimated as Spending Drops
29
August, 2012
Denmark’s
economy shrank more than most economists estimated last quarter as
household spending declined and investments sank.
Gross
domestic product contracted 0.5 percent from the first quarter and
0.9 percent from a year earlier, the Copenhagen-based statistics
office said in a statement on its website today. Output was seen
shrinking 0.2 percent, both on the quarter and on the year, according
to a Bloomberg survey of five economists. Private spending shrank a
quarterly 0.9 percent while fixed investments dropped 4.2 percent, it
said.
Denmark
is struggling to emerge from twin housing and banking crises that
have killed jobs and quelled consumer demand. The government
estimates the economy will grow 0.9 percent this year, lagging behind
growth rates in Sweden and Norway as Denmark proves more vulnerable
to Europe’s deepening debt crisis than its Scandinavian neighbors.
Bahrain
economy shrinks in second quarter
2
September, 2012
Bahrain's
economic output fell in the second quarter of this year after
moderate growth in the previous three months, data showed on Sunday,
as political unrest continued to weigh on the small oil producer.
Gross
domestic product, adjusted for inflation, dropped 1.3 percent
quarter-on-quarter in April-June compared with 0.9 percent growth in
the previous quarter, the figures from the Central Informatics
Organisation showed.
The
quarterly decline is the first since a 6.6 percent slump in the first
three months of 2011, when the government crushed a pro-democracy
protest movement led by majority Shi'ite Muslim citizens.
On
an annual basis, real GDP expanded 4.3 percent in the second quarter
after a 5.9 percent jump in January-March.
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