4/19/11…stirred from taking a break

Monday’s volume was 1.04 billion shares – exactly the same as Friday but the similarity ends there. Whereas Friday could be best described as ‘wishy-washy‘ with nearly average volume (100 million shy), Monday was a true sell off based on fears of a Fed tightening. What did they expect? Why all of a sudden do we wake up to reality when we have been fighting a stupid budget battle that is of such imminent importance that the cuts are couched in terms of 10 and 12 year plans…good god, this group can‘t plan for 24 hours let alone a decade in a globally dependent country! Then there are the new scandals of Goldamn and the other banks who were so mismanaged they got us in the worst financial crisis the world has ever seen and only survives because of massive injections of public moneys while bashing those who paid the taxes that allowed it to happen while protecting the rights of privileged taxpayers. Ah, but we have productivity gains…hello, did anyone hear take econ??? TB left out the most important statement Greenspan made on Meet the Press Sunday: when asked about the great productivity gains, the former Chairman said that of course productivity is gaining but that is more a function of making more with fewer workers…how can that be sustainable??? TB will comment on the problems today, stirred by market action yesterday and a compelling comment by a long time friend and reader.

It was a down day…plain and simple: Dow, Nasdaq Composite, AND S&P 500 -1.1%; Transports -1.4%; Utilities -0.9%. Meanwhile the Nasdaq 100 only fell 0.7% but the Russell 2000 plunged 1.6%. Banks were hit hard with the KBW Bank Index -1.3% and Nasdaq Banks -1.4%….oh, and that 1.04 billion shares? 790 million was CITI alone! …and worse it was UNCHANGED – with a total range of 18 cents, while BofA was about 260 million and plunged 3.1% – nearly 5% in two sessions. Don’t we get it? Apparently not. Advance/declines and Breadth were decidedly negative – more than 4x – and NYSE Breadth was a huge 9:1 negative. Meanwhile, for the first time…although it has been closing lately, new 52 week LOWS outpaced highs by 93 to 77…little acorns…

So we have now had 21 straight below average (and a weak average it is) trading days yet with volatility that is extremely low and yet high on a percentage basis each day. VIX closed at 16.96…if that isn’t complacent as we face a decision by the Fed, as is the case with the other major central bankers, yet the market pundits…those who make their living off sustained rallies…seeing no evil…no risk danger to a continuation of the rally. Wonder how many of you had concerns yesterday? TB  did.

Overnight markets are rallying again on European earnings…same old, same old, and what a foolish way to play…but then if no one is playing except day/flash traders  that happens…as do other things. Asia however is weak with the strongest being India which is holding the recent solid gains. FTSE +0.7%; CAC 40 +0.8%; DAX +0.5%; Nikkei -1.2%; Hang Seng -1.3%; Korean KOSPI -0.7%; Indian SENSEX +0.2%.Gold was pushing the record high yesterday and overnight hit $1498.90 and yes that is a new record. It is now $1493.90 +$1.10 while Crude has solid resistance again at $107 and is now $106.15 -$1.01. Bonds did little yesterday but hold their gains: 10 yr 3.39% -1/8

…what stirred TB was forgetting to give the Greenspan statement on productivity gains from Sunday that is mentioned in the market summary. In essence, productivity gains that are NOT based on solid demand that requires hiring are only good for creating corporate profits…record in this instance…while jobs languish. This is what happens when we pay CEO’s millions and hundreds of times the pay of the average worker to do mediocre things…even reward them for their foibles.  If you cannot figure out that corporations are being run for the quarter and year and not the long term…isn’t after all that the function of the CEO, while it is the COO that is responsible for running the day to day business? Boards defend the CEO’s fiercely because after all they are ’buds.’ If I don’t defend him…he won’t defend me…and this from the very guys whose sworn responsibility is to be the stewards to the shareholders…what shareholders?

OK, enough of the ranting…now for a letter from a long-term friend, which, in nice terms chastises TB as did the one from the reader who ’fired’ him a couple of weeks ago:

“I am getting pretty tired of all this talk about which segment of the population pays the most or least tax. I feel I must go on record to clear up a major problem in your and the media’s discussion. Otherwise, quite frankly, it is just so much meaningless blather. My issue is this: when talking about tax rates, marginal, absolute or whatever, the discussion is totally meaningless without the other part of the equation. Said another way, the tax rate, in and of itself, really doesn’t matter as long as you have exclusions on some income and likewise being able to deduct of certain expenditures. The only time the absolute tax rate is important is when you have a flat tax on the gross, unvarnished level of income. That is is why this country needlessly spends an untold amount of money on tax accountants and lawyers (and making them rich, by the way)–to find the tax loopholes and to take advantage of them. You can slap on a 100 percent marginal tax rate (which might make a lot of people happy) on everything over a certain amount, but if you are able to deduct a similar amount of expenses to bolster someone’s pet industry, where do you end up? Clearly, cutting out the deductability of home mortgages, business expenses, medical expenses, and charitable donations, just to name a few, is the easy answer, but has certain economic impact on segments of the society that might be counterproductive and has to be thoroughly thought through. Do you really think GE dislikes the US corporate tax rate–when they are able to pile on the deductions and effectively pay no tax? I’ll keep this short, but I think you catch my drift: focus on the deductions, not the rate.”

Well, TB would have said the same thing a few years ago…in fact he has railed in the past about the stupid Alternative Minimum Tax enacted by the Democrats to get the 100 or so wealthy people who paid no tax at all…and probably still have paid no taxes. The insidious thing here is once again Congress…and by this TB means the GOP controlled Congress which has held sway for most of the past three decades…not coincidentally during which we have seen the decline of the middle class…you don’t believe this? Then ask yourself this: if the level is approximately the same to be at the top 10% of incomes as it was thirty years ago…and a mere fraction of what it was when adjusted for inflation, how did it go unnoticed? Simple…but TB didn’t see it while it was happening because we were all happy as clams. It was the extension of credit…first credit cards to the creditworthy…then blind mailings to people who had no credit or unacceptable credit scores but who, by charging usurious rates (no such term, thank you Supreme Court), of 24-29%, could make it up on volume. This is because Americans try to pay their bills, but can’t.

Meanwhile the CEO salaries went from 10 times the average worker…fact!…to 200, 300, 400 times and more…how does that money get channeled back into the economy…contrast to billions being given to the employees who would spend the money! Also, the growth of income of the top 1% was so great over this period of time, that the IRS had to create a new classification: the top 0.1%…and the higher you go the better off you are…which leads us to the current wealth gap.

That the above letter and the one from the tax accountant who blasted TB defend the system is only more proof that class warfare is growing…and fast. Were it not for the financial crisis, TB would have been as strong a defender as these two readers. But when laws are broken, shareholders and employees are cheated and lose money and jobs, and they keep getting bigger and bigger bonuses, something is clearly wrong.

According to the IMF, 50% of the fiscal deficit created during the Bush years was due to the Bush tax cuts. Recall these were to be temporary, wink, wink, and yet immediately the GOP pressed to make them permanent…including the zero inheritance tax, when the Dems even countered with a reasonable (much better than that) $5 million exemption.

So let’s go back to those tax cuts…we were coming off a huge economic boom that turned into a bust when the dotcom bubble burst, taking the entire stock market with it.
Kudlow and Cramer on CNBC harped on cutting the dividend tax to 15% “because tens of millions of Americans own stocks.”  A true statement…but most of them in IRA’s and 401’k’s where when they are withdrawn will be taxed as ORDINARY INCOME. This is how insidious Mr. Kudlow is and has always been and it is the evil of supply side economics which does not work…the sharply widening wealth gap proves it.

Tried to give you the link to this but read Sunday’s E.J. Dionne piec in the Washington post…you can find it on http://www.sfgate.com Thanks to generation skipping and other tax features only available to the wealthy…and as the readers says by spending their money on highly paid accountants and tax lawyers (and you really believe Paul Ryan is going to simplify the personal tax code???) , when TB last reported the top 1% paid an effective tax rate of just 26%, but that is wrong it: it is less than 16.6%, down from 30% in 1993. What happened to your tax rate? Ah, but they pay 40% of the tax…hell,TB would do that gladly if he too owned 80% of the assets! Note that the percentages fit. Their effective tax rate is down 40% since 1993! Dionne also uses the term noblesse oblige as TB titled his column last week. But like TB he cannot understand how stupid and shortsighted the wealthy are (and how about their tea bagger friends who actually pay the taxes and nobody is even talking about raising theirs? Is this a great country or what?), that they cannot see they are going to kill the goose that laid THEIR golden egg.

But the irony is that after decades of running up the deficit by their own spending, the GOP has the audacity to have just noticed that we have a  budget deficit problem…never mind that it happened after two wars their president began, or that they continued to spend while cutting taxes, 98% of the benefits going to the wealthiest 2%, but instead choose to blame a party that only briefly had control and a president who inherited a crisis.

This is no defense of the Democrats or Obama…there is no good defense, but how can they forget who put the ball in motion? They can’t and they know it…they did it and now are trying to fix it with a bandaid that inflicts no pain on their constituency.

We need a new party … a party of the people…one who puts America first…but alas, TB feels we will continue to decline rather than see it. The last hope…and TB seriously believes this…is the next election…one where already Donald Trump has replaced Sarah Palin as frontrunner for the GOP…can you imagine a narcissist president like that? God help us…save us from ourselves.

Sorry for the rant but that is where we are,



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