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News and Analysis for the Investor - October 25, 2011

Stocks in black for 2011

| BY Catherine McBreen

Stocks are back in the black for 2011 The Dow was up 104 points on Monday putting the markets back into the black for 2011. Why the positive outcome? According to Reuters, stocks were boosted by strong earnings reports, some merger activity, and mostly positive news regarding a deal for the Eurozone. Caterpillar announced a 44 percent jump in quarterly profit. Cigna announced that it was buying Healthspring. Oracle is to acquire RightNow. Thompson Reuters indicates that 68 percent of the companies that have announced earnings in Q3 have exceeded expectations. The Dow is up 11 percent for the month. European markets are flat on Tuesday anticipating the finalization of the debt deals on Wednesday.

Greek debt holders to accept 60 percent cut

The Financial Times is reporting that Greek bondholders will be forced to accept a 60 percent cut in the face value of their bonds as part of the solution to the European debt crisis. This amount exceeds what was agreed to with the bondholders three months ago. The fear has been that the cuts could trigger credit default swaps, a type of insurance policy for bondholders, and that is why the cuts were initially opposed by France, the IMF and the ECB. It has been determined, however, that if the bondholders agree, the credit default swaps are unlikely. Most of the bondholders are banks and measures have been put in place to support the banks.

Rick Perry to Announce Flat Tax Plan

First there was 9-9-9. Now Texas Gov. Rick Perry will propose giving Americans a choice between their current income tax rate or a 20 percent flat-tax rate when he announces part of economic plan today in South Carolina. Perry has already received one endorsement: Long-time flat tax proponent and former presidential candidate Steve Forbes. Perry introduced his "Cut, Balance, and Grow" plan in a Wall Street Journal op-ed that was published on Monday night. “The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents,” he wrote. One of the key features of Perry's flat tax proposal, he said, is that it will make it easier to file tax returns. Perry will reportedly propose lowering the corporate tax rate to 20 percent from the current rate of 35 percent as well as eliminate the estate tax.

An IPO Feast for Thanksgiving?

Social gaming company Zynga Inc is planning to serve up its initial public offering and have its shares begin trading the week before Thanksgiving, Reuters reports. The news sources told Reuters that the plan has not been finalized and is subject to change. Zynga's debut would follow Groupon's anticipated IPO, which, if it proceeds, would become the first major IPO since last summer's market slump. Zynga is the creator of the popular game Farmville.Re-financing options to assist homeowners close to foreclosure

A new proposal from President Obama will help homeowners who owe more than the property is worth to re-finance. The Federal Housing Authority has scrapped the law that says a mortgage cannot exceed 125 percent of the value to be backed by FNMA or FMAC. This will allow homeowners to re-finance at lower rates. It is estimated that it will assist 600,000 to 1 million borrowers.

Cotton tumbles

Cotton mills have seen prices tumble 54 percent since the beginning of the year. Because of this, many mills have been backing out of contracts. Because cotton is traded worldwide, the contractual obligations are not always honored, with little ability to enforce the outcomes. The International Cotton Association has received more than 168 requests for arbitration this year. The Wall Street Journal indicates that companies that fail to comply with contracts or the ICA are put on a black list.

Chicago Mercantile Exchange and Chicago Board of Options Threaten to Leave

The Chicago Mercantile Exchange (CME) and the Chicago Board of Options Exchange (CBOT) have been threatening to leave Illinois since the increase in tax laws from 4.8 percent to 7 percent earlier this year. Fox Business News reports that the Illinois Senate has proposed a bill that would tax the exchanges on only 27.5 percent of their trades instead of 100 percent. While this would not reduce the tax rate it would reduce the pool of assets subject to the tax. Interesting solution for a state that is almost bankrupt.

Netflix Keeps Wall Street in Suspense

Netflix shareholders and once-loyal customers are giving the home video rental company a big thumbs down following its unpopular price increase and other ill-conceived moves. While the company reported a better-than-expected 49 percent increase in third quarter revenue to $822 million, it also lost more than 800,000 U.S. subscribers, more than it anticipated, and cautioned there might be an even unhappier sequel in the fourth quarter.

The 15 year-old company's troubles began last July when CEO Reed Hastings announced a poorly-received price increase for subscribers who wanted both DVDs and streaming video. He introduced and then abandoned an idea to launch a separate DVD service website called Qwikster. In the letter to shareholders, Netflix said it was "moving forward as quickly as we can to repair our reputation and return to growth."

News Corp Shareholders Still Hung Up Over Scandal

About a third of New Corp investors voted against re-election of Murdoch siblings James and Lachlan Murdoch to the News Corp board, reflecting the damage done to the company following the UK phone hacking scandal.

Almost 35 percent of shareholders voted against James Murdoch, deputy chief operating officer, while 34 percent voted against Lachlan. Their father, News Corp chairman Rupert Murdoch received 14 percent of "no" votes.

The Murdoch family controls about 40 percent of the voting shares at News Corp. All 15 nominees to the board were ultimately re-elected, but in the case of James, 40 percent of his total approval vote of 65 percent came from shares held by his family, and another 7 percent came from News Corp's largest individual shareholder, Prince Al-Waleed bin Talal, Reuters reported.

About the Author

Catherine McBreen

Catherine S. McBreen is President of Millionaire Corner.  McBreen plans and develops content for Millionaire Corner.  Catherine balances editorial content to meet the informational needs of both new and seasoned investors.  She designs special monthly surveys on topical issues affecting the economic environment.

McBreen has a B.S. in speech communications from Northwestern University and a J.D. from DePail University College of Law.  She is a member of the American Bar Association, the Illinois Bar Association, and the Chicago Bar Association.

Well-known for her expertise in the affluent and retirement arenas, McBreen is a frequent speaker at industry conferences.  She has been quoted widely by the financial media, including The Financial Times, The Wall Street Journal, Research, Private Asset Management, On Wall Street, Reuters, Bloomberg News, The Dow Jones Newswires and Worth.  Cathy has appeared as a guest on CNBC Closing Bell, First Business Morning News, Neal Cavuto at Fox Business News, ABC and CBS radio.

McBreen is co-author with Spectrem President George H. Walper, Jr. of the book "Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families" (Portfolio, January 2008)

Catherine is the mother of four and is involved in many school and community events.