"Fiscal cliff" negotiations deadlock over tax rates | Economists question warnings about "fiscal cliff" tax hikes | Delta reportedly bids for hefty stake in Virgin Atlantic
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03 December 2012
CFA Institute: Financial NewsBrief
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"Fiscal cliff" negotiations deadlock over tax rates
The White House and Republican leaders remained far apart on whether to raise taxes for the rich, bringing talks aimed at avoiding the U.S. "fiscal cliff" to a halt. Both sides used Sunday political television shows to accuse the other of refusing to compromise on taxes. "We're nowhere," said House Speaker John Boehner. The Washington Post (tiered subscription model) (02 Dec.), The Hill/HillTube blog (02 Dec.), USA Today/The Oval blog (02 Dec.)
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Economists question warnings about "fiscal cliff" tax hikes
Warnings about the grave consequences of tax increases triggered by the "fiscal cliff" are overdone because so few Americans are taxed on investment gains, economists say. Data from the Investment Company Institute show that 14.7% of households in the U.S. hold mutual funds in taxable accounts, much less than 23.9% in 2001. The New York Times (tiered subscription model) (02 Dec.)
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Delta reportedly bids for hefty stake in Virgin Atlantic
Singapore Airlines is discussing the possible sale of its 49% stake in Virgin Atlantic with several bidders including U.S. carrier Delta Air Lines, people familiar with the matter said. Delta is interested in Virgin's landing rights at London's Heathrow Airport, they said. Reuters (02 Dec.)
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Eurozone finance ministers huddle to discuss Greece
A key part of the latest rescue plan for Greece -- a buyback of some Greek bonds -- is on the agenda Monday as eurozone finance ministers meet for the fourth time in four weeks on the Hellenic portion of the eurozone crisis. Greece faces a Dec. 13 deadline to implement the buyback. The New York Times (tiered subscription model) (02 Dec.)
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Moody's downgrades eurozone rescue funds' ratings
The eurozone's two rescue funds, the European Stability Mechanism and the European Financial Stability Facility, lost a notch in their ratings standings as estimated by Moody's Investors Service, which also characterized the outlook for each as negative. France, the second-biggest backer of the EFSF, earlier lost its top ratings by Moody's and Standard & Poor's. Bloomberg (01 Dec.)
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Morningstar Direct White Paper in CFA Institute Selections Newsletter
We are very pleased to have been included on this "recommended reading" list. The paper discusses ways to quantify the results from portfolio-level decisions such as asset allocations, manager selections, timing decisions, and more.
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Market ActivityAdvertisement
Asian-Pacific markets mixed with China lagging
Major Asian-Pacific markets were mixed Monday, but China's Shanghai Composite fell 1% -- setting a new low for the year -- despite release of strong manufacturing data. Japan's Nikkei 225 gained 0.1%. Australia's S&P/ASX 200 moved up 0.6%. South Korea's Kospi added 0.4%. Hong Kong's Hang Seng Index closed down 1.2%. India's Sensex was down 0.2% at mid-afternoon. The Wall Street Journal (tiered subscription model) (03 Dec.), The Economic Times (India) (26 Feb.)
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Funds warn investors away from high-yield bonds
High-yield bonds are so popular among yield-hungry investors that some funds believe they are dangerous. Fund managers T. Rowe Price and Vanguard have started turning down people who want to invest in their high-yield bond funds. The funds said they are running out of bonds worth buying. CNBC/The Associated Press (02 Dec.)
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Kaplan Schweser—the global leader in CFA® exam prep—is proud to be a platinum sponsor of the CFA Institute Research Challenge. Each year, Schweser helps thousands of students pass the CFA exam and join the elite segment of the financial industry. Learn More
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Economics
Manufacturing surge means China could keep 7.5% growth target
The sudden recovery of industrial output in China suggests that its new leadership led by Xi Jinping is preparing to pursue a 7.5% growth target next year. The National Bureau of Statistics and China Federation of Logistics and Purchasing said manufacturing output in November reached its highest level in six months. The benchmark for new orders was the highest since April. Bloomberg (03 Dec.), Xinhuanet.com (China) (03 Dec.)
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EADS reportedly to give Germany bigger stake
The parent company of Airbus -- European Aeronautic Defense and Space -- is expected to announce a restructuring that will increase the equity stake held by the German government, giving it ownership equal to France. The deal does away with a long-standing agreement that gave both countries veto power over the firm's strategy. The New York Times (tiered subscription model) (02 Dec.), MarketWatch (03 Dec.)
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U.K. needs more time to reduce deficit, Osborne says
Britain Chancellor of the Exchequer George Osborne said his plan to eliminate most of the U.K. deficit by 2015 isn't working as well as he had hoped and the government needs more time to bring down its borrowing. Osborne said he plans a crackdown on tax avoidance by multinational corporations that do business in the U.K. to increase revenues. Bloomberg (02 Dec.)
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Analysis: Housing is starting to look like a good investment
The U.S. housing market is beginning to make its long-awaited recovery and a whole new generation of investors is looking for ways to make a profit from it, according to The Economist. "As a trade, buying houses is the polar opposite of what made hedge funds rich from 2007; it is a bullish bet which eschews complex financial products," the magazine notes. "It is also far less racy: a 7% yield is hardly the stuff of investment lore, even if greater profits may come." The Economist (free content) (01 Dec.)
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"Gen Y" investors flock to financial advisers
Many "Generation Y" investors, those born between 1979 and 1991, are turning to financial advisers for guidance on how to manage their money, more than any other generation, according to a survey by Merrill Edge. About 84% of Generation Y savers are getting financial advice, the survey found. Reuters (29 Nov.)
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CFA Institute report examines impact of internalization and dark pool trading on market quality.
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Geopolitical/Regulatory
New rules will rein in alternative sources of credit, study shows
Allen & Overy has released a study that shows new regulations in Europe, the U.S. and elsewhere will curtail the ability of asset managers, insurers and investment funds to provide alternative sources of credit. The research found that new rules governing the derivatives markets, hedge funds, banks and other areas of the financial industry will combine to increase the cost of credit. "Allen & Overy believes it will take years to clarify exactly what the growing number of regulations mean, creating confusion and uncertainty in the market and bringing with it a prolonged period of credit paralysis," according to the study. Financial Times (tiered subscription model) (02 Dec.), Banking Times (London) (03 Dec.), The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (02 Dec.)
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UBS reportedly close to settling rate-rigging claims
UBS soon is expected to settle claims by U.K. and U.S. authorities that some employees helped manipulate interest rates, sources say. The Swiss banking giant is expected to pay more than $450 million, according to officials. The case is expected to provide some insight into the systemic issues in the process for setting benchmark interest rates, such as the London Interbank Offered Rate. The New York Times (tiered subscription model)/DealBook blog (02 Dec.)
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U.S. banks help offshore clients avoid new derivatives rules
Wall Street banks are explaining to their foreign clients that they can sidestep upcoming new U.S. rules governing over-the-counter derivatives by routing their trades through the lenders' overseas divisions, sources say. However, as U.S. regulators finalize the rules and authorities around the world consider new regulations, questions still remain. Reuters (02 Dec.)
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New rules could boost life insurance firms' profits
The National Association of Insurance Commissioners adopted new guidelines for life insurance companies' reserves that could release billions of dollars for dividend payouts, stock buybacks and acquisitions. The action moves the regulation of insurers toward a "principles-based" system and away from formulas that many in the insurance industry criticized as being excessively conservative. The Wall Street Journal (tiered subscription model) (02 Dec.)
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Financial Products
Jefferson National introduces products addressing "fiscal cliff"
Jefferson National rolled out two alternative investment products aimed to help investors cope with the automatic tax increases that will take effect at the end of this year if Congress fails to head off the "fiscal cliff." The firm added Innealta Capital's Country Rotation Portfolio and Sector Rotation Portfolio to its fee-only variable annuity as sub-account options. AdvisorOne (29 Nov.), American City Business Journals/Louisville, Ky. (29 Nov.)
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Ethics
Durham sentenced to 50 years in prison over Ponzi scheme
A federal judge sentenced Indiana financier Timothy Durham to 50 years in prison for cheating investors out of $200 million in a Ponzi scheme. U.S. District Judge Jane Magnus-Stinson said Durham's "deceit, greed and arrogance" deprived many of his victims of their life savings and hopes for a stable retirement. The Washington Post (tiered subscription model)/The Associated Press (30 Nov.)
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