12/8/10…compromised?

TB’s Quote of the Day: “Try to please everyone, you please no one.” - Aesop

…it wasn’t a compromised…we were compromised. Obama was out-trumped by the GOP into further increasing the debt to prevent tens of millions from losing their unemployment benefits on January 1…an event that would truly impact the economy and inflict enormous pain. So he compromised and broke one promise…no tax cuts for the rich…in favor of another…not let the taxes of the middle class and lower be raised. So now it is the Dems who are angry with him and talking of pursuing the same scorched-earth plan as the Republicans…and the polls show his decision was unpopular too!

But nobody ever seemed to even try to explain the difference between a marginal and effective tax rate…even when it was to raise taxes on only those making $250k a year (which TB felt was too low as it reduced upward mobility…and no, he is nowhere near that level, but favored a $500k bar), or even the Schumer plan of $1MM which seemed very fair. If one is making a million dollars should they be upset at a higher rate on money above that amount?...what if it preserves the status quo??? …what if it offsets the costs of the government heading into oblivion? But you see it wasn’t about those making $1MM anyway…no it was about those making tens of millions and billionaires…who the GOP seems intent on placating no matter what happens.

So we just went from stalemate to one party gaining the upperhand…as not only did they reverse the majority in Congress, they blew away the oppositions power to do anything. Worse, though for the American people, is that stalemate has now become outright war and getting anything done will be nearly impossible. Is this what we want even as the entire world continues to suffer from the credit crisis?...and worse, it is growing!

European banks are failing stress tests….countries are increasingly needing aid…it has gone from Greece to Ireland, now Spain and Portugal, and the latest is Italy’s name appearing…which nobody wanted to touch. Yet we are told this is good for stocks? Corporate debt is more attractive then sovereign debt…but then so is emerging markets and even high yield (does a government have a higher risk of default?...could be.)

Yesterday’s 3-year treasury note auction came at 0.86% with a bid to cover of 2.91x and 36.7% going to indirect bidders (mainly central banks). That was the weakest cover bid since October 2009, and indirect bids were similar to the last auction – also weak! In other bond news it appears that an extension of the Build America Bonds (BABS) was not in the compromise which will also hinder economic improvement.

As for stocks, the Dow after spiking to within inches of the Nov. 5 high of 145.53, turned turtle and closed down slightly (3) on the day. The joy of victory? The tax compromise. The agony of defeat? The Dems indicating they may not approve the compromise, and that was all she wrote. As TB had predicted, volume was well above average at 1.62B shares…concentrated on the opening surge and the afternoon swan dive. It was the highest since Sept. 17’s 1.86B share day, and only the 2nd above truly above average session since 11/16. There were 806 (huge) new 52 week highs and just 58 new lows. At the end of the day advance/declines and breadth were plus/minus equal. The question is: where should you be? Do earnings trump what could be an endangered economy?

Late in the afternoon we got Consumer Credit for November and while it was expected to rise by $1B it rose by $3B…but it isn’t that simple…or obvious…it was due to a massive surge in auto purchases of $9.0B while credit cards shrunk by 5.4B…which have shrunk for 21 straight months averaging $7.1B or 9.6%...according to Steve Wood of Insight Economics it appears that most of these declines have been write-offs by lenders rather than loan payoffs!

A friend returned from New York saying that you couldn’t tell there was a recession on by the way people were out and spending…including packed high-end restaurants…wonder if they were using their credit cards?

Enough!!!

. . . - - - . . . . . . - - - . . . (S.O.S.)

A friend wrote asking why TB made no mention of Pearl Harbor as he usually does. The problem is that he could find no way to fit in his feelings on that with the ‘compromise.’

Whereas Pearl Harbor invoked sacrifice by Americans…thinking of the common good and our nations survival, there is none of that today…why? Perhaps because so few who have benefitted and are crying about their taxes have ever done anything of service to anyone other than themselves. An old colleague in the late 1980’s spoke of the moral decay in Japan…and we have seen two decades of suffering for it…but isn’t what we have here worse? …much worse? Where do WE go from here? Beats TB.

Have a great day!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, December 8, 2010.

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