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Debt Ceiling to Be Hit by February – March of 2013

“The independent Congressional Budget Office issued its new estimate of when the federal government will reach its debt ceiling — late February or early March. In its “Federal Debt and the Statutory Limit, November 2012,” the agency reported that the Treasury Department could use “extraordinary measures” to extend the date for when the current limit of $16.394 trillion is hit. Congress and the administration may use the revision to claim that a compromise on budget matters and tax cuts can be extended beyond the end of the year. That will not allay the anxiety that both businesses and individuals have about year’s end and the automatic budget and tax changes to be triggered according to current law.”

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German Parliament Approves Revised Bill on Greece Aid

“German lawmakers approved Greece’s latest rescue package as Finance Minister Wolfgang Schaeuble warned that a default in the country where the debt crisis began could trigger the collapse of the single currency.

The passage caps a year in which Chancellor Angela Merkel has had to tamp down criticism within her ranks over transfers to Greece and quell calls to expel the country from the euro. Legislators in Germany’s lower house of parliament, or Bundestag, voted 473 in favor; 100 voted no and 11 abstained.

“The potential effects of a Greek default on other euro states would be grave — in truth the consequences would be unpredictable,” Schaeuble said in a speech to the Bundestag in Berlin. “It could trigger a process at the end of which the entire euro area could break apart.”

Comparing Greece with eastern Europe after the collapse of the Soviet Union, Schaeuble said crisis-fighting efforts are working as European leaders shepherded through a new package designed to ease terms for bailout aid for Greece and help resolve the three-year-old debt crisis.

Lawmakers in Merkel’s coalition and opposition leaders this week lauded the agreement in Brussels to give Greece more time to meet budget targets. The accord met Germany’s condition on ruling out a debt write-off for Greece that would be felt by creditor countries’ taxpayers.”

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Cyprus and the Troika Agree on Bailout Terms


“Cyprus and international lenders have agreed on the terms of a bailout the eastern Mediterranean country needs to refinance its banks and pay bills, European Central Bankgoverning council member Panicos Demetriades said.

“The memorandum has been agreed and the only thing missing is the exact amount which will be discussed at a eurogroup meeting,” Demetriades told reporters in Nicosia today. “The main thing is that there is an agreement.”

Cyprus in June became the fourth euro-area nation to request a financial rescue since Greece’s 2010 bailout after Cypriot lenders including Bank of Cyprus Plc and Cyprus Popular Bank pcl were weakened by their exposure to the Greek economy. Cypriot banks lost more than 4 billion euros ($5.2 billion) in Greece’s debt restructuring.”

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New Bank Reserves Coming Up Shortly, Get That Commodity Inflation Trade On

“Under Fed Chairman Ben Bernanke, the Fed has been the great enabler of Washington’s fiscal excesses of the past few years. The Fed’s quantitative easing blurs the line between fiscal and monetary policies. The Fed may still be politically independent, but fiscal policy has become very dependent on the willingness of the Fed to purchase lots of government securities. A consolidated statement of the US Treasury and the Fed would show that $1.7 trillion of US government debt, which is held at the Fed, is costing the government only 0.25%.

In yesterday’s WSJ, Jon Hilsenrath reported that the FOMC is likely to vote for QE4 when the committee meets on December 11-12. In September, the FOMC implemented QE3, i.e., an open-ended commitment to purchase mortgage-backed securities at the rate of $40 billion per month. The Fed’s Operation Twist is scheduled to terminate at the end of the year. Under this program, the Fed purchased $45 billion a month in long-term Treasuries, paying for them with the proceeds from its holdings of short-term debt.

Now some members of the FOMC are pushing for more purchases of Treasury bonds. However, the Fed is running out of short-term securities to sell. Hence, QE4! As Hilsenrath observes…”

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Brazil Continues to Keep Rates at Record Lows

“Brazil signaled it plans to keep its benchmark rate at a record low for a period that economists predict will be the longest in history to prop up an economy heading toward its worst two-year performance in a decade.
Policy makers last night kept the Selic rate at 7.25 percent, ending the second-longest streak of reductions in an effort to prevent inflation from accelerating. The unanimous decision, which was forecast by all 75 economists surveyed by Bloomberg, took into account the “the balance of risks for inflation,” the board said in its statement, which was almost identical to last month’s announcement.
Central bankers led by President Alexandre Tombini reiterated their intent to keep rates steady for a “prolonged period” as they try to keep inflation within their 2.5-to-6.5 percent target range without derailing the economy’s recovery. Economists surveyed by the central bank forecast that the Selic will remain unchanged through 2013.”

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Companies That May Gift a Christmas Dividend to Shareholders

Earlier this morning, Costco surprised its shareholders by announcing a special cash dividend of $7.00 per share. And the share price is surging.


Costco follows a slew of other companies announcing special dividends including Wynn Resorts, Las Vegas Sands, Sturm Ruger, and Brown-Forman, the maker of Jack Daniels.

So, why are companies suddenly dumping cash on their shareholders?

Well, the big catalyst seems to be the prospect of higher dividend tax rates as a consequence of the fiscal cliff.  If nothing is done by the end of the year, Bush-era tax cuts will expire causing the dividend income tax to surge from 15 percent to 43.4 percent.

“The 2001/2003 tax cuts were originally set to expire at the end of 2010, though, after months of political negotiations, the rates were extended in the final weeks of that year,”  wrote Robert Boroujerdi of Goldman Sachs. “Indeed, 2010 saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period.”

Boroujerdi provided a list of companies he thought would surprise investors before the year ended. Indeed, some have already announced a dividend. NOTE: The ratios in the table below are based on September 21, 2012 stock prices:

Full article and predictions for dividends 

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$COST Announces a Special $7 Dividend

“Costco says it will pay shareholders a special dividend of $7 per share next month in addition to the wholesale club operator’s regular quarterly dividend.

The Issaquah, Wash., company says the dividend will be payable Dec. 18 to shareholders of record Dec. 10. Costco Wholesale Corp.’s regular quarterly dividend of 27.5 cents per share will be paid Nov. 30 to shareholders of record as of Nov. 16.”

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IMF Research Warns on China Investments

“BEIJING (Reuters) – China’s economy relies on an excessively high level of investment and risks a potentially destabilizing increase if the government aims to keep growth around current levels for years to come, new International Monetary Fund research suggests.

Already running high as measured by a theory used by economists to assess capital-to-output ratios, investment accelerated between 2007 and 2011 to counter the effects of the global financial crisis, IMF staff wrote in a research paper on China’s soaring investment levels.

“Depending on precise assumptions, over this period, China may have been over-investing by between 12 and 20 percent of gross domestic product relative to its steady-state desirable value,” the report said.

“Even allowing for elevated investment levels associated with most economic take-offs, the econometric evidence suggests that China is over-investing,” it said. “China’s predicted investment norm over the last 30 years has ranged between 33-43 percent of GDP. In reality, it has fluctuated in a much broader band of 35-49 percent of GDP.”

The IMF says its working papers do not necessarily represent the organization’s policy, and that the reports describe research in progress that is published to spur debate.”

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European Broker Commissions Tank 29%

“The value of commissions paid to European brokers fell 29 percent in 2012 as equity volumes declined amid the European debt crisis, according to a study by Tabb Group LLC.

Payments dropped to 865 million euros ($1.1 billion) this year from 1.2 billion euros in 2011, according to a survey of money managers, who together oversee 13.6 trillion euros. About 45 percent of respondents said they have cut the percentage of orders they route to traditional sales-trading desks, with 66 percent switching into computer algorithms, the study found.”

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Muddy Waters Reduces Short Selling on Chinese Companies

Carson Block says it’s become too difficult to short Chinese equities in the U.S. as bets on stock declines drop by 50 percent from a year ago.

Block, known for his allegations that Chinese companies traded in North America engaged in accounting fraud, said in an interview yesterday that he’s lost interest in betting against the stocks because the government helps protect them. Short interest in the 83 biggest Chinese firms listed in New York has dropped to an average 2.61 percent of the total outstanding, from 5.22 percent a year ago, data compiled by Bloomberg and the U.K. researcher Markit show.”

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The Central Bank of Thailand Keep Rates on Hold, Recovery on the Horizon

Thailand kept its policy interest rate unchanged today after an unexpected cut last month, and signaled it may be done with easing as data show the economy is improving after last year’s floods.

The Bank of Thailand held its one-day bond repurchase rate at 2.75 percent, it said in Bangkok today. The outcome was predicted by 16 of 19 economists in a Bloomberg survey, while the rest called for a quarter-point reduction. The monetary policy committee’s decision was unanimous, the central bank said.

Thai manufacturing and exports increased in October, adding to signs from the U.S. and China of a recovery in the global economy. While the central bank last month lowered its growth forecast for 2013, it said today risks to expansion have subsided, and that it doesn’t see much need for more rate cuts.

“Although the recovery seems to be slowing, the economy continued to expand,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “There’s no pressing reason for them to cut, especially when the economy has started to expand again. I think they are probably already done with the easing cycle.” ”

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Don’t Invest in a Death Spiral State

“Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.

Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an Exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii.

If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.”

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Fiscal Cliff Talks Could Eliminate the Mortgage Interest Deduction

“A tax break that has long been untouchable could soon be in for some serious scrutiny.

Many home buyers deduct their mortgage interest when assessing their tax bill, a perk that has helped bolster the income of millions of families – and the broader housing market.

But as President Obama and Congress try to hash out a deal to reduce the budget deficit, the mortgage interest deduction will likely be part of the discussion.


Limits on a broad array of deductions could emerge in any budget deal. It is likely that any caps would be structured to aim at high-income households, and would diminish or end the mortgage tax break for many of those taxpayers.

“This is definitely a chance worth jumping for,” said Amir Sufi, a professor at the Booth School of Business at the University of Chicago. “For a fixed amount of revenue, it’s better to remove deductions than increase marginal tax rates.”

Such a move would be fiercely opposed by the real estate industry. The industry has played a crucial role in defending the tax break, even as other countries with high homeownership have phased it out.”

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Analyst Say Greek Debt Deal is the Bare Minimum To Keep Greece Solvent

“The latest Greek debt deal is at the behest of German Chancellor Angela Merkel and the needs of the domestic political landscape there rather than about ensuring Greece’s long term economic well- being, analysts told CNBC Tuesday.

“They’ve done the bare minimum just to keep the show on the road to prevent Greece from falling apart and having to leave the euro in the next few months. They’ve not done enough to get Greece back to a sustainable economic or fiscal path,” Michael Saunders, chief economist for Western Europe at Citi, told CNBC Europe’s “Squawk Box”.

“A few months ago Merkel herself made a decision that Greece would not leave the euro until the German election is passed because she feared she herself would be blamed for any adverse political and economic consequences. That’s why this deal has been done. Merkel wants to keep the show on the road for the time being,” he said.

The latest deal, secured late on Monday, will see Greece’s debt level lowered to a more sustainable level and lead to the release of the next tranche of aid of $44 billion needed to keep the country solvent.”

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Speculators Get Bullish on Commodities for the First time in Two Months

“Speculators raised bullish commodity wagers for the first time since early October as signs of improving economic growth in the U.S. and China pushed prices higher for three straight weeks.

Hedge funds and other money managers increased combined net-long positions across 18 U.S. futures and options by 9.6 percent to 846,321 contracts in the week ended Nov. 20, Commodity Futures Trading Commission data show. That was the biggest gain since mid-August. Corn holdings rose the most since July, and those on silver reached a five-week high.”

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