Stock Preacher

The revival of markets for bonds backed by auto and credit card debts is expected to be underscored today when the US Federal Reserve reveals details of its latest loans to investors in asset-backed securities. The Fed offers cheap funding every month to investors in such bonds under its term asset-backed securities loan facility (Talf), an emergency measure meant to support the markets through which hundreds of billions of dollars in consumer loans are financed. This month, Fed funding will be available for investors considering buying US$12B in eligible asset-backed securities sold by the likes of American Express, Bank of America, General Electric, Nissan and Ford. Read more

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Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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Credit Suisse Group AG switched its preference for government bonds in favor of stocks and raised its estimate for the Standard & Poor’s 500 Index by 14% to 1,050, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” reversing a decision made in June, according to London-based global strategist Andrew Garthwaite. The VIX and investment- grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today. Valuations on equities are “not expensive” and consensus estimates for earnings in the US are now being increased, something which precedes a rising stock market in the subsequent two to three months, he wrote. “Bonds no longer look attractive,” Garthwaite wrote. We expect “a positive macro surprise in the second half of the year. We believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early Q-4.” Goldman Sachs Group Inc.’s David Kostin yesterday increased his estimate for the S&P 500 index, saying the benchmark for US equities will advance 15% from its June 30 level to 1,060 on Dec. 31, an increase from his prior projection of 940.

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Fixed mortgage rates in the USA fell to a record low for the second consecutive week, signaling that Federal Reserve Chairman Ben Bernanke’s effort to spur the housing market is gaining traction. The 30-year rate dropped to 4.78% from 4.85% a week prior, the lowest since records began in 1971, Freddie Mac said today in a statement. Rates are falling to historic lows as the Federal Reserve ramps up purchases of mortgage-backed bonds to support home lending. Mortgage applications in the U.S. rose for a fourth consecutive week as a decline in borrowing costs prompted more refinancing. “Lower rates will help increase demand for homes,” said Celia Chen senior director at Moody’s Economy.com in West Chester, Pennsylvania. “We need to see stronger demand for homes to help end the housing correction.” The Fed’s efforts to expand lending “should make new consumer, business, and mortgage loans more available, at lower cost,” Bernanke said in a March 20 speech to a Phoenix banking conference.

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US investors are decamping foreign ventures and bringing their US$s home, entrusting them to the supposed bedrock safety of United States government bonds, and China continues to buy huge quantities of the USA’s debt. These actions are lifting the value of the US$, and providing the Obama administration with a crucial infusion of financing as it directs trillions of US$s toward rescuing banks and stimulating the economy, enabling the government to pay for these efforts without raising interest rates. The movement of this money back to the United States appears to be exacerbating the financial crisis world wide. A US$ invested by foreign central banks and investors in US government bonds is a US$ that is not available to Eastern European countries desperately seeking to refinance debt, also, it is a US$ that cannot reach Africa, where many countries are struggling with the loss of aid and foreign investment.

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You do not need to be caught with a load of cash in an offshore bank account to trigger an IRS audit. It is the little things that count and if not reported honestly can trigger an audit and have the IRS on your front steps ringing you door bell.

First you must always keep track of receipts, bank statements and stock trading account statements. US and CA taxpayers need to closely track their investment gains and losses for Y 2008 and report them accurately and honestly. This should be done each and every year, especially this year.

The recent published data is that in Y 2007 the US IRS audited about 1.4MM individual tax returns. This is a 7% increase from Y 2006 (the highest number on record since 1998), and this year, it is not likely that the audit number will be less than in Y 2007.
The Big Q’s: what will make IRS question your tax return? The Big A: A Red Flag.
The Red Flag for investors is this: Failing to Show All of Your Income

The worst mistake a taxpayer can make is not to report all of his/her income. In addition to your salary and any bonuses, make sure to include proceeds from sales of stocks and bonds, dividend earnings, brokerage and bank accounts and any other interest-earnings investments. Also, if you received unemployment income, that must to be included as well.

Investors who sold stock, bonds or mutual funds in 2008 must show how much they gained or lost between the date they bought and the date they sold their investments.
Many brokerage firms do not provide this information on the statements, instead their statements will just include the price Bought and the price Sold, so the calculations must be done by the taxpayer on the forms and schedules provided by the US IRS on their website (http://www.irs.gov/) instructions are also provided, they are there to be followed, so follow them carefully, if there is something that you do not understand seek professional advice.

In some cases even if your investment declined in value and you did not sell it, you may still have to taxable income.

I read this article today and share it with you. Fund Holders, Beware This Tax Surprise
Investors may be saying good riddance to Y 2008, one of the worst years on record for stocks, but the pain may not end there: Despite posting double-digit losses, many funds are saddling investors with a hefty tax bill, too.

Under IRS rules, mutual funds are required to distribute capital gains and dividends to shareholders, and investors may owe taxes on distributions even if they don’t sell their shares. With the markets down sharply last year, analysts say 2008 capital gains weren’t as high as the record US$399B paid out in 2007. But investors could still be in for a “double whammy” when they get their year-end statements, says Tom Roseen, senior analyst at fund tracker Lipper.

Among the worst offenders: foreign stock funds. Many of these funds soared in recent years, creating big gains that are just now being passed on to shareholders. Oppenheimer’s Developing Markets fund, for instance, paid $8.32 a share in 2008 capital gains, 36 percent of the fund’s net assets (as of early December). A spokesperson for Oppenheimer says the fund was restructured under a new manager and that the moves would have “significant benefit” for shareholders. Still, the tax bite stings for a fund that lost 48% last year.

Part of the problem is that managers generally don’t run their funds for tax efficiency, says Christine Benz, director of personal finance for Morningstar. Most focus on buying and selling the best stocks, regardless of the tax consequences. And their bonuses are usually tied to pretax performance, giving them scant incentive to cut the tax bill. “We don’t let the tax tail wag the dog,” says Lee Harper, vice president of Southeastern Asset Management, which runs the Longleaf funds.

Some funds are managed to keep the IRS away — and investors may want to switch if they’re getting walloped. Vanguard and Eaton Vance offer a variety of tax-managed funds, which use a buy-and-hold strategy to keep “realized” capital gains low. T. Rowe Price also offers such funds and has taken other steps to cut the tax hit, says Treasurer Greg Hinkle. The firm says it paid out around $3 billion in capital gains and dividends last year, down from US$12.7B in 2007.

The Silver Lining is this: Many funds are carrying big losses from the market meltdown and should be able to use them to offset future capital gains, says Roseen. That decreases the chances that Uncle Sam will come calling again after another rotten year.

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