“Investors are jumping out of mutual funds managed by professional stock pickers and shifting massive amounts of money into lower-cost funds that echo the broader market.

Through November, investors pulled $119.3 billion from so-called actively managed U.S. stock funds in 2012, the biggest yearly outflow since 2008, according to the latest data from research firm Morningstar Inc. MORN -0.80%

At the same time, they poured $30.4 billion into U.S. stock exchange-traded funds. When combined with bond ETFs, total inflows to such funds were $154 billion, the largest since 2008.

The move shows growing investor distaste for volatility, as the dot-com crash in the early 2000s, the financial crisis in 2008 and recent botched episodes such as last May’s Facebook Inc. initial public offering have shaken investor confidence.

It also reflects the fact that many money managers of stock funds, which charge fees but also dangle the prospect of higher returns, have underperformed the benchmark stock indexes. As a result, more investors are choosing simply to invest in funds tracking the indexes, which carry lower fees and are perceived as having less risk….”

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“Germany’s bonds fell, with 10-year yields rising to the highest level in two months, on speculation a U.S. job report today will add to signs global growth is gaining momentum and undermine demand for safer securities.

Benchmark bund yields headed for the biggest weekly increase since July after German retail sales increased more than economists forecast in November. Spanish and Italian notes rose, extending their largest weekly gains since September, as reports showed services in the two nations contracted at a slower pace last month. Investors should buy Europe’s so-called peripheral bonds should they decline, Bank of America Corp.’s Merrill Lynch Wealth Management said.

“Flight to safe havens is fading and we think we will see slightly better data out of Europe this quarter,” said Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt. “Fading support for bunds is pushing yields up. The main focus today is on the U.S. payrolls data, which we think may surprise on the upside.”

Germany’s 10-year yield rose seven basis points, or 0.07 percentage point, to 1.55 percent at 12:16 p.m. London time, the highest level since Oct. 26. The 1.5 percent bond maturing in September 2022 fell 0.635, or 6.35 euros per 1,000-euro ($1,301) face amount, to 99.55.

The 10-year yield may increase to 1.70 percent by the end of March, Umlauf said. A Bloomberg survey of analysts predicts the rate will end the first quarter at 1.59 percent….”

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“(Reuters) – Consumers continued to pay down debt in the third quarter of 2012, but slow job growth and the expiration of a tax cut could mean it will become more difficult to repay loans, the American Bankers Association said on Thursday.

Delinquencies on bank card payments fell to an 18-year low during the quarter, and a composite ratio covering late payments in eight loan categories also fell, the group said.

But delinquencies rose in five of those eight categories, the ABA said.

And consumers could see lower income because Congress did not extend a temporary reduction in the Social Security payroll tax, which could hurt consumers’ ability to repay loans in the future,James Chessen, ABA’s chief economist, said in a statement.

“The conservative approach consumers have taken to credit over the last several years has allowed them to better manage their debt and better position themselves for the future,” Chessen said.

“Changes in payroll withholding will decrease disposable income, reducing retail sales and making it more difficult for some people to meet their financial obligations,” he said.

He said low consumer confidence in the economy also could indicate more delinquencies are on the way. A recent measure of U.S. consumer attitudes showed confidence at a four-month low.

The ABA tracks late payments for bank-provided credit cards, auto loans and other consumer loans. It does not track delinquency rates for traditional mortgage payments.

The bank association defines a delinquency as a late payment that is 30 days or more overdue.

The composite ratio’s delinquency rate fell to 2.16 percent of all accounts in the third quarter from 2.24 percent in the second quarter, the ABA said.

Bank card delinquencies, which are not part of the composite, fell to 2.75 percent during the quarter, the lowest level since 1994, the group said….”

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“Chinese property companies are marketing U.S. dollar-denominated bonds, ending a three-week pause in issuance from the region. Debt risk in Asia fell to the least in almost 20 months.

Country Garden Holdings Co. (2007), based in China’s southern Guangdong province, is offering 10-year notes to yield about 7.75 percent, according to a person familiar with the matter.Kaisa Group Holdings Ltd. (1638), headquartered in Shenzhen, plans to sell seven-year bonds at 10.25 percent, a person with knowledge of that deal said, also asking not to be identified because the terms aren’t set. Hopson Development Holdings Ltd. (754) meanwhile hired banks to help arrange fixed-income investor update meetings from Jan. 7, a person familiar with the matter said.

The real-estate companies would be the first issuers in Asia to sell debt in the U.S. currency since Zoomlion Heavy Industry Science and Technology Co. issued $600 million of 10- year securities Dec. 13, according to data compiled by Bloomberg. The cost of insuring corporate and sovereign bonds from non-payment in Asia outside of Japan has fallen to the lowest level since April 2011, prices from credit-default swap traders show.

“Sentiment is good so they want to take the chance when the window is still open to raise funds,” said Louisa Lam, a Hong Kong-based credit analyst at HSBC Holdings Plc. “We’ve already seen a long pipeline building late last year, so this month will be quite positive.”

Companies in Asia pay an average 3.86 percent to sell dollar bonds, the least in data going back to 1996, according to Bank of America Merrill Lynch indexes as of Dec. 31. That compares with 2.57 percent for companies globally, also the least in 16 years….”

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“LISBON—A political rift was opened in Portugal on Wednesday after the country’s president sent the 2013 budget to its highest court for review, an unusual move that highlights deepening opposition to a two-year austerity drive.

President Anibal Cavaco Silva, who is the head of state and belongs to the same right-of-center political party as Prime Minister Pedro Passos Coelho, signed the budget bill into law on Monday, but expressed reservations the next day. In a late televised address to the nation, he expressed doubts about the budget’s “distribution of sacrifices,” while calling for an end to the “recession spiral” the country is undergoing.

Analysts say Mr. Cavaco’s decision marks a compromise following pressure from critics who question the budget’s fairness, such as the country’s National Association of Judges, and also allows the country to have a budget in place while the issue is being resolved….”

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“Bankers fear good times for bad debt might come to an end in 2013…”

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“The richest people on the planet got even richer in 2012, adding $241 billion to their collective net worth, according to the Bloomberg Billionaires Index, a daily ranking of the world’s 100 wealthiest individuals.

The aggregate net worth of the world’s top moguls stood at $1.9 trillion at the market close on Dec. 31, according to the index. Retail and telecommunications fortunes surged about 20 percent on average during the year. Of the 100 people who appeared on the final ranking of 2012, only 16 registered a net loss for the 12-month period….”

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“Macau casino revenue rose 20 percent to a record last month, beating analyst estimates, as Christmas promotions drew more holiday-makers to the world’s biggest gambling hub.

Casino revenue in the Chinese city jumped to 28.2 billion patacas ($3.5 billion) in December, trumping the previous record of 27.7 billion patacas in October, according to data from Macau’s Gaming Inspection and Coordination Bureau today. The growth compares with the 17.5 percent median estimate of four analysts surveyed by Bloomberg News, helping drive Sands China Ltd. (1928) shares to a record high in Hong Kong.

“This is definitely better than our expectation, and much higher than the street estimates,” Jeremy Tan, a Hong Kong- based analyst at Kim Eng Securities HK Ltd. said by phone, “It’s a combination of higher holiday footfall, higher win- rate, and a return to VIP market,” he said.

Sands China, the Hong Kong-listed unit of billionaire Sheldon Adelson’s Las Vegas company, rose 5.3 percent to HK$35.75, the highest close since its November 2009 debut.

Galaxy Entertainment Group Ltd. (27) also jumped 3.1 percent to HK$31.30, the highest since at least October 1991, according to data compiled by Bloomberg. The benchmark Hang Seng Index climbed 2.9 percent.

Full-year casino revenue in Macau increased 14 percent from 2011 to 304 billion patacas, also a record, according to the Gaming Bureau….”

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“For small and medium sized business owners there is good news and bad news in the deal to avoid the fiscal cliff.  In addition, the deal strongly underscores the need for business owners to sharpen their own pencils to cut their taxes.  NOTE – this article is written after the Senate vote on the Fiscal Cliff deal but before the House has taken any action – will update if there are any substantive tax changes.

First, let’s start with the good news.  Greater certainty in taxes (although as you will read below, you may not like what is certain).  More than any other issue I hear about from business owners and their accountants is the need for certainty in taxes.  A recent study by the Mercatus Center highlights the economic drag of uncertainty in taxes.

The tax deal makes permanent a number of tax provisions (after making changes from current 2012 policy), including the tax rates on ordinary income; estate tax; dividends and capital gains – and best of all, the alternative minimum tax (AMT).  NOTE:  The payroll tax holiday was ended.

On AMT the current exemption of $33,750 individual and $45,000 married is increased to $50,600 single and $78,750 married and indexes the exemption and phaseout amounts.  KEY – this new AMT fix is for tax years beginning after December 31, 2011 – i.e. the 2012 tax year.  Happy day.

BUSINESS PROVISIONS EXTENDED (not permanent) – The most important tax credit for small and medium business owners – the Research and Development (R&D) tax credit was extended through 2013 and made retroactive for 2012 (see more below); Work Opportunity Tax Credit extended one year; Section 179 – keeps in place the 2010/2011 levels of a maximum amount of $500k and $2 million phase-out for 2012 and 2013; Accelerated Depreciation — the Senate deal provides for 50 percent expensing for qualifying property purchased and placed in service before January 1, 2014 (and January 1, 2015 for certain long-term assets and transportation).

Now, the bad news – the tax increases – and the hidden tax increases.

ORDINARY INCOME:  While the tax deal increases the rates at a higher level than first proposed by the President ($200k single/250k married) – it does increase the rates from 35% to 39.6% at $400k single and $450k married (talk about a marriage penalty).   From 2012 tax policy this is a tax increase of $396 billion over 10 years.   Don’t forget, there is also the 0.9 percent tax increase on ordinary income over 200k/250k already set to begin in 2013 thanks to the health bill.  Given that small and medium businesses are overwhelmingly organized as pass-thrus (LLC’s; S Corps; partnerships) – it is the ordinary income rate that hits these business owners – not the corporate rate (which was untouched in this deal)….”

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“Even if President Barack Obama and Congressional leaders somehow manage to patch together a last minute deal to avoid going over the “fiscal cliff” on New Year’s Day, Washington’s budget drama is likely to drag on for much of 2013, meaning continued high economic, tax and investment uncertainty.  “Fiscal policy will be (weighing) on investors’ minds the way housing was four years ago,’’ predicts Joseph Davis, chief economist for the Vanguard Group.

If Congress does nothing at all,  more than $500 billion in tax hikes and $100 billion in defense and domestic budget cuts automatically kick in for 2013, sucking enough cash out of the economy to send the U.S. back into a recession, most economists believe. What’s more likely, says budget expert Stan Collender, is that a falling stock market will pressure the pols to reach a “fig leaf” deal in January that postpones most of the pain, but makes little progress on resolving fundamental disagreements or cutting the long term budget deficit.  In February, Congress will face another deadline, when the debt ceiling needs to be raised.  And at the end of March, a six-month budget resolution funding fiscal 2013 federal operations will run out, raising the possibility of a  government shutdown. After that, any deadlines set in the January fig-leaf will kick in. And come October, there will be a new fiscal year budget for the pols to fight over.

Here are eight steps ordinary investors can take to protect their sanity and their finances while this all plays out…”

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“Hedge funds cut bullish commodity bets to a six-month low as mounting concern that slowing economic growth will erode demand drove prices toward the first fourth-quarter retreat since the global recession.

Speculators reduced net-long positions across 18 U.S. futures and options by 11 percent to 675,625 million contracts in the week ended Dec. 24, the lowest since June 19, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a four-month low, while those for copper dropped for the first time in five weeks. Investors are the most bearish onnatural gas since May.”

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“South African credit demand strengthened in November as the central bank kept interest ratesat the lowest in more than 30 years to spur spending.

Borrowing by households and companies rose 9.6 percent compared with 8.4 percent in October, the Pretoria-based Reserve Bank said on its website today. The median estimate of eight economists surveyed by Bloomberg was for growth of 8.4 percent.

The Reserve Bank last month left its benchmark lending rate at 5 percent to help support growth in Africa’s largest economy. Consumer spending, which makes up about 60 percent of demand, has come under strain this year as the jobless rate rose to 25.5 percent and the economy expanded at its slowest pace since a 2009 recession in the third quarter.

Growth may still be “very low” in the final three months of the year, central bank Governor Gill Marcus said on Nov. 28. The bank is forecasting 2.5 percent expansion this year, down from 3.5 percent in 2011…”

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“Italy sold 5.9 billion euros ($7.8 billion) of bonds today with rates holding near the lowest in two years amid optimism caretaker Prime Minister Mario Monti will play a role in the next government.

The Treasury in Rome today sold 3 billion euros of 10-year debt at 4.48 percent, up from 4.45 percent at the previous auction on Nov. 29, which was the lowest since November 2010. The Treasury also sold 2.9 billion euros of bonds due in 2017 to yield 3.26 percent compared with 3.23 percent Nov. 29….”

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“Goldman Sachs Group Inc. (GS) is buying shares of Japanese exporters and banks as Prime Minister Shinzo Abe’s new government promises to do more to end deflation and weaken the yen.

The investment bank’s asset management unit in Japan is buying shares of the nation’s machinery and electronics exporters, financial firms and electricity producers, according to Hiroyuki Ito, Tokyo-based head of equity investment at Goldman Sachs Asset Management Co., which oversees about $716 billion globally. Goldman Sachs started increasing its holdings in October in anticipation that elections would be called, he said. The Liberal Democratic Partytook power in a Dec. 16 poll…”

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“(CNSNews.com) – Treasury Secretary Timothy Geithner said the U.S. debt limit of $16.394 trillion will be met on New Year’s Eve, in a letter to Congress on Wednesday.

“I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations,”Geithner said in the letter addressed to Senate Majority Leader Harry Reid (D-Nev.)

Geithner said “extraordinary measures” taken by the Treasury Department could create approximately $200 billion in headroom under the debt limit.

“Under normal circumstances, that amount of headroom would last approximately two months,” he said.  “However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.”

“At this time,” Geithner continued, “the extent to which the upcoming tax-filing season will be delayed as a result of these unresolved policy questions is also uncertain.  If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures.”

“Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer,” Geithner said.

The news of the federal government closing in on its debt ceiling adds another dimension to the so-called fiscal cliff that will be met at the end of the year, unless Congress and the president reach an agreement in the coming days….”

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“Over an early-morning coffee with the chief executive of an FTSE 100 business last week, talk turned to the outlook for 2013. Where I had expected some guarded optimism, instead I heard a chilling analysis.

The CEO said he had been reading a new paper from Boston Consulting Group headed “ Ending the era of Ponzi finance ”. The lessons he had taken from it were miserable.

The West was not going to find its way to the right economic path with a little tweaking at the edges, the CEO said. What is needed is a wholesale overhaul of the economic system to tackle record levels of public and private debt. Was anyone brave enough to do it, he wondered aloud.

I asked him to send me the report. He did.

The BCG study by Daniel Stelter which is doing the rounds of corporate C-suites does not pull its punches. In fact, its punches are really just a softening-up exercise for a barrage of kicks and painful blows aimed at anyone who thinks that kicking the can down the road is a suitable substitute for radical action.

At the heart of the analysis is the issue of debt. A report by the Bank of International Settlements, the study notes, found that the combined debts of the public and private sector in the 18 core members of the OECD rose from 160pc of GDP in 1980 to 321pc in 2010.

That debt was not used to fund growth – perfectly reasonable – but was used for consumption, speculation and, increasingly, to pay interest on the previous debt as liabilities were rolled over.

As soon as asset price rises – fuelled by high levels of leverage – levelled off, the model imploded.

The issue is brought into sharp focus by one salient fact. In the 1960s, for every additional dollar of debt taken on in America there was 59c of new GDP produced. By 2000-10, this figure had fallen to 18c. Even in America, that’s about a fifth of what you’ll need to buy a McDonald’s burger.

Coupled with the huge debt burden are oversized public sectors and shrinking workforces. The larger the part the Government plays in the economy, the lower the levels of growth….”

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“Brazil boosted gold reserves for a third month in November to double the country’s holdings since August as central banks from Russia to Belarus and South Korea add the metal to diversify their assets.

Brazilian holdings expanded 14.7 metric tons in November to 67.2 tons, the most since November 2000, according to data on the International Monetary Fund’s website. The country bought 17.2 tons in October after adding 1.7 tons in September, the first increase since 2008. Russia’s holdings increased 2.9 tons last month and Belarus’s reserves expanded 1.4 tons, the data show. Turkey pared holdings 5.9 tons and Mexico sold 0.1 ton.

Central banks have been expanding reserves as the metal heads for a 12th annual gain and investors hold a record amount in bullion-backed exchange-traded products. Nations bought 373.9 tons in the first nine months of the year and full-year additions will probably be at the bottom end of a range from 450 to 500 tons, the London-based World Gold Council estimates.

“Central banks, particularly in the emerging economies, are looking to increase the proportion of gold in their reserve assets,” Alexandra Knight, an analyst at National Australia Bank Ltd., said from Melbourne. “That will drive prices of gold because they can be quite significant purchases.”

Gold for immediate delivery traded at $1,647.41 an ounce at 4:09 p.m. in Singapore, up 5.4 percent this year. Still, the metal slumped to $1,635.70 yesterday, the cheapest since Aug. 22, as data showed the U.S. economy is improving…”

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“The proposal by a Bank of Japan (8301) board member to scrap interest paid on lenders’ deposits raises the prospect of a flood of cash into a bond market where yields are near a nine-year low.

While Koji Ishida’s plan to abolish the 0.1 percent payment was rejected by a majority vote when a two-day meeting ended yesterday, incoming prime minister Shinzo Abe has called for unlimited easing until 2 percent inflation is achieved. The 10- year note yield slid for a second day to 0.765 percent today, third only to Switzerland and Hong Kong among the world’s lowest rates, as the BOJ expanded its asset-purchase program and held its separate overnight interbank lending rate at between zero and 0.1 percent….”

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“Germany’s 10-year bunds rose for a second day as concern that U.S. policy makers will fail to avert a series of tax increases and spending cuts that may trigger a recession fueled demand for the safest fixed-income assets.

Benchmark 10-year bonds pared a weekly decline as U.S. House Republican leaders canceled a scheduled vote on Speaker John Boehner’s plan to allow higher tax rates for annual incomes above $1 million, throwing budget negotiations deeper into turmoil. Treasuries rose, while Italian 10-year securities dropped for second day.

“People are concerned again about the fiscal cliff,” said Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt. “We see no signs of a solution and that is providing some support for bunds.”

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“Earlier this week European Commissioner Neelie Kroes spoke in platitudes about how the EU would be putting more effort into kick-starting the region’s hardware industry — to create the ‘Airbus of chips.’ Her words seem particularly ironic (and possibly more empty) today, as the world’s largest telecoms company, Ericsson,admitted it would have to take a writedown of $1.2 billion (8 billion Swedish crowns) related to the decline of its European chip JV ST-Ericsson, as it tries to figure out what to do next with the loss-making business.

In a statement, Ericsson also said that it would not acquire the 50% of ST-Ericsson that it does not already own. “To acquire the full majority of ST-Ericsson is…not an option,” it said. That will, however, mean some $458 million more to keep propping up the company anyway in the next year. “Ericsson’s current best estimate is that the implementation of the strategic options at hand will require approximately SEK 3 b. of Ericsson funding, of which the majority in 2013,” it said.

Ericsson and STMicroelectronics first entered into their JV in 2009 with the aim of using their combined size to lead the market in wireless equipment chips. The aim was to be “fabless” — that is, designing the chips but outsourcing the making to other foundry companies — to beat down some capex and opex. But earlier this month, STMicro said that it would divest itself of its stake after ST-Ericsson failed to achieve break-even….”

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