Traders limber up for their race to the exits

According to the author of the article, the most immediate concern on Wall Street is the rise in capital-gain taxes next year. At the beginning of next year, tax on stock-market profits will rise from 15 to 20 percent while taxes on dividends could go from nothing to as high as 40 percent.

By JOHN CRUDELE
Last Updated: 11:32 PM, November 12, 2012
New York Post

In my column last Thursday I wrote you an upbeat, patriotic song to make you feel better. Today, I’m going to make you feel lousy again.

And I’m going to bore you as well. (Hey, no need to thank me.)

This column is about the stock market and why there’s a very good chance that it will have a horrible time over the next month and a half. The specific subject of today’s lecture is capital-gains taxes — but it’s going to take me a minute or two to get to my point. (I know — why is that different from any other column?)

The stock market has had a good run this year, mainly because Federal Reserve Chairman Ben Bernanke — with no other way to spur economic growth — has been printing insane amounts of money. Much of that extra dough has found its way into the stock market, and a new equities bubble has been blown.

President Obama won re-election, so Bernanke will stay on to do more damage to middle-class and poor families with his zero interest-rate policy, while enriching those better off who play the stock market. And that’s just the way it is gonna be.

But wait! Over the past three weeks, stock prices have hit the skids.

Why? Because the economy is in terrible shape (a concept that voters didn’t seem to fully appreciate last Tuesday), and corporations are having a lot of difficulty increasing their revenues. An astounding 62.4 percent of companies that recently reported quarterly revenues came up short of expectations.

Companies have been keeping profits healthy — at least, until the last quarter — by firing workers and making other spending cuts. But profits in the most recent quarter fell for the first time compared with a year ago, the first time this has happened since early 2009, according to Thomson Reuters.

Even McDonald’s — whose two-for-$1 apple pies, incidentally, are very good — is having difficulty getting customers to wander from the Value Menu.

The “fiscal cliff” is also on investors’ minds. That’s the automatic tax increases and government spending cuts that will go into effect next year because Congress (yes, Democrats as well as Republicans) and the president decided two years ago not to do anything about our country’s steady march toward bankruptcy.

Washington is like the people who wouldn’t take precautions as Sandy approached. How bad can the financial hurricane really be, our elected officials are thinking?

Along with what Bernanke’s been up to, the answer is simple: We could get knocked on our financial asses.

Since the economy is already slowing in this country and just about everywhere else in the world, it’s pretty clear that the US is headed back into a recession. Add this slowdown in business to the extra costs companies will soon incur for health-care costs, and it seems clear that corporations will have a difficult time keeping profits up.

There will be some fake-outs in the weeks ahead. For one thing, there will be the inevitable jolts of optimism that’ll come from Washington deal-makers as they pretend to hold bipartisan talks. And the third-quarter US gross domestic product will likely be revised upward a bit from its original 2 percent annual growth, thanks to some good but improbable news on trade.

Plus, this week is one of those option-expiration periods where traders inevitably try to get stock prices to go up.

But those are head fakes.

The most immediate concern on Wall Street is the rise in capital-gains taxes next year. (Phew, he finally got to it!)

Right now you have to pay a 15 percent tax on stock-market profits. But at the beginning of next year, that tax will rise to 20 percent; 18 percent if the gains meet certain long-term criteria.

The tax on dividends paid by companies will go up even more — from nothing to as high as 40 percent.

So anyone who has had stock-market gains this year, or buys stocks for the dividends, will be thinking of selling by the end of December. You are probably thinking that you don’t have to worry if there’s still a month to go.

Well, you have permission to start worrying right now. What I just told you is known to everyone on Wall Street. And the pros aren’t going to wait for the last minute to take their profits, especially if the stock market continues to be weak.

OK, I’ve bored you like I said I would. But I may have come up short on my promise to depress you. So here’s the last part: No matter what the Republicans and Democrats do about the fiscal cliff, they will merely be shuffling piles of money around.

In the end, someone will benefit from someone else’s loss. Some people will pay more in taxes so that others will get to keep, or receive, more benefits.

With annual deficits well over $1 trillion, the only thing that is going to fix our financial problems is a sudden boom in the economy to go with tax and spending reform. I’m still waiting for a call from Washington on my idea for boosting economic growth.

Maybe they’ll even play my song — called “Ameri-Can” — when my plan is adopted.

(Incidentally, I got such good response to my song that John Michael Schmitt and I are making it available on iTunes. So if I just ruined your mood, go buy the song and you’ll make me happy.)

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