These gains don't cause pain. A capital gain is the amount of money you pocket by selling one of your investments for more than you paid for it. Technically, capital gains only count for what's called a capital asset, but that's really just anything you own for investment purposes. Stocks and bonds obviously qualify, but your house and household furnishings can also count.

For tax purposes, capital gains are classified as either long-term (held for more than one year) or short-term (held for less than one year) and there are different tax implications for how long you hold onto a capital asset. For most long-term capital gains, you're taxed no more than 15% of the value of the asset. Short-term gains get taxed as regular income, so you pay the rate for the tax bracket you're in.

Capital gains can also be realized or unrealized. When you physically sell an asset like a stock, you've realized the capital gain. When you're holding the stock, and it has a value over its purchase price, but you're not selling it, you've got an unrealized gain, and you won't realize it until you sell.

In a perfect world, we'd all have capital gains. But no one¿s that smart or lucky. When the value of an asset at sale is below what you've paid for it, it's called a capital loss. The good news is that the government lets you count that loss against any gains you've had, lowering the taxes you pay. In fact, many people who sell a stock that has risen far over their purchase price tend to sell some stinkers, too, at the same time for the tax benefit. This is known as a capital-loss offset.

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Tuesday, June 03, 2008

Analysis

$4 Gasoline Shifts Spotlight to CFTC

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Dunstan Prial

FOXBusiness

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Three months ago Treasury Secretary Henry Paulson sounded what many thought might be the death knell for the Commodities Futures Trading Commission.

Under Paulson’s wide-ranging reform proposal announced in March, the CFTC, long regarded as under staffed and ineffectual, would be folded into the Securities and Exchange Commission.

Any opposition to the projected demise of the regulatory agency charged with oversight of U.S. futures markets--if any existed--was brief and muted.

But that was before gas hit $4 a gallon, a dramatic spike prompted by record high crude oil prices.

Now the CFTC seems to have been given a new lease on life.

Members of Congress, no doubt getting an earful from constituents appalled at paying $100 to fill their gas tanks, have been ratcheting up pressure on the CFTC to take a closer look at volatile futures markets. At issue is whether natural market forces are causing the higher prices or whether more nefarious causes are to blame.

The agency last week, in a wide departure from standard policies, announced an ongoing investigation into possible manipulation of the energy markets. A similar investigation is looking into trading practices within the agricultural futures markets.

Essentially, the CFTC is trying to find out whether investors--hedge funds, pension funds and mutual funds -- colluded to keep prices artificially high in order to boost their own profits.

As a remedy for such manipulation, the CFTC is seeking more information from big investors as a way to improve transparency in these markets.

Supporters of the initiatives--consumer groups and small business owners, for instance, say reform of futures markets is long overdue. Critics--commodities traders, primarily -- argue additional oversight is unnecessary and will do more harm than good.

Eric DeGesero, executive vice president of the Fuel Merchants of New Jersey, which represents home fuel companies and gas stations, welcomed the increased attention.

“I’m glad they’re finally listening to us,” he said.

DeGesero said his members are buckling under the weight of higher energy costs. Crude oil, he noted, has risen from $70 a barrel late last summer to a record $135 a barrel last week.

Market forces -- simple supply and demand -- cannot explain such a runup, he said. “World demand simply cannot justify the price nearly doubling in nine months,” he said.

Financial speculators with no other interest than making money for themselves and their clients have pumped billions of dollars into commodities markets in recent years, causing the price of those commodities to rise artificially.

The problem was only exacerbated by the bursting of the housing bubble and subsequent meltdown of the subprime mortgage market. Scared investors poured money into commodities, and prices rose accordingly, DeGesero argues.

“Not only is it bankrupting small businesses and consumers, but it’s having an impact on large businesses and the economy as a whole,” he said. “The fundamentals of supply and demand need to be restored to the market.”

And when DeGesero speaks of supply and demand, he means for the commodity themselves, not for the complex hedging securities known as derivatives whose values are tied to the price of commodities.

Traders take a different view, suggesting the CFTC actions are politically motivated.

“It's a witch hunt basically -- blame the speculators and take the heat off Congress. It's nonsense,” said Kevin Kerr, head of Kerr International Trading. “The fact of the matter is that these markets are already over regulated and imposing more restrictions, higher taxes, and oversight on hedge funds and speculators will drive them offshore to many other locales happy to take their money.”

“If there is any culprit in driving prices higher for basic commodities, it's Congress. They have failed to introduce any significant legislation, idea, bills, anything as far as energy policy in this country, and the result is this disaster,” Kerr added.

John Elting Treat, a former head of the New York Mercantile Exchange, said calls for increased regulation always follow a runup in commodity prices.

“When prices go up that’s when the investigations begin. Not when the prices go down,” he said, then added sarcastically, “Of course, when prices go down it’s a wonderful thing to the public and the politicians -- it’s the invisible hand of the market at work.”

Futures markets are fueled by volatility and expectations, he said. And current expectations, according to Treat, are, reasonably enough, for higher prices due to unrest in the Mideast, constraints on global supplies and increased demand, particularly in rapidly developing countries such as China and India.

Treat dismissed any notion of speculators pushing commodities prices in one direction or another as “ludicrous.” True speculators, whom Treat described as an important component of any financial market, are “simply out to make money -- they’re agnostic to which way the market moves.”

Nevertheless, “Every time the price goes up the politicians and the press point to speculators and make them out to be the evil ones. Everyone’s looking for someone or something to blame because no one wants to believe that our own behaviors are to blame, and that includes both users and producers.”