Stocks seem to be selling off on expectations that capital gains rate will go up in 2013 either from the "Fiscal Cliff" or a new tax agreement that focuses on increasing taxes on the wealthiest Americans. This is very reasonable tax planning by which you sell stocks that have unrealized gains to lock in the current 15% tax rate on long-term capital gains before it goes up to 20% (pre-Bush tax cuts) or potentially higher. Some believe these same investors who sold their stocks to lock in these gains will re-purchase the same stocks once the "wash sale" period of 30 days passes by however investors should understand that there is no required wash sale waiting period when harvesting a gain; only when you harvest a loss do you need to wait the prescribed 30 day period. So this has me skeptical that the sell-off will come back because people will repurchase those stocks in 30 days because they should know they don't have to. Furthermore, most investors harvesting a loss would not just sit in cash, rather they would purchase something similar such as selling GM stock and then purchasing Ford.
Not surprisingly, jobless claims rose sharply to 439,000. This was expected since the previous week's number was low due to Hurricane Sandy. This week we have the people who didn't get their claims in the prior week plus the many people who could not work due to the hurricane submitting new claims. This number will probably be skewed for a few weeks.
The FHA (Federal Housing Authority) is nearing bankruptcy and will likely need a federal bailout. After the sub-prime crisis, sub-prime borrowers with little to no down payment went to FHA to get a mortgage and now many of those loans are defaulting. This is something I have speculated on which would be the disappearance of FHA programs that allow for little to no down payment. If FHA does go under, it is possible so will these types of programs putting a further strain on housing since the younger borrowers who do want to buy a home are unable to do so until they accumulate enough for a standard down payment of 10-20%.
The PPI (Producer Price Index) posted a slight decline of -0.2%, but is up 2.3% annually. CPI (Consumer Price Index) is up slightly 0.1% and 2.2% for the year. First, let's note that we have not yet seen any "hyperinflation" as many suggested we would from all the money printing. Second, while we are experiencing slightly lower inflation compared to the long-term trend, consumers are still losing ground. Prices are moving up but income and savings rates remain low. Expect to start hearing the term "Stagflation" more and more.
Not much happening next week. The fiscal cliff will continue to dominate headlines and the focus will start to shift to Black Friday and the beginning of the holiday shopping season.