8/20/12…lies, damned lies, and political lies

(new format: today marks a change. TB has always felt that his comments are secondary to the market summaries…you know the ones that give you more than one day so you can see what the market is really doing? Most of you never read them anyway but skip (if you are still there), down to the commentary. Sooo, to save you keystrokes or paper if you print it out, it is moving to the top – right after the top stories and quotes. Why now? Thanks to Mitt Romney it is time for us to all act like Americans and think about the future and what our tax code has done to make us pay little yet feel magnanimous. TB)

This week’s economic calendar is extremely light with an emphasis on housing. We will get July Existing Home Sales (Wednesday), July New Home Sales (Thursday), and July Durable Goods Orders (Friday). There is no economic data scheduled for release on Monday or Tuesday. In addition, the Federal Reserve will release the minutes to the July 31st – August 1st FOMC meeting (Wednesday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Quote of the Day: “Posterity is as likely to be wrong as anyone else.” – Heywood Brown

Bloomberg Top Stories:

*Bundesbank Steps Up Criticism of ECB Bond-Purchasing Plan as Rift Widens – ouch!

*Spanish Bond Yields Fall on Crisis Plan Bets as European Stocks Erase Gain

*ECB Revival of Bond Buying Warps Yield-Curve Default Alarms – a very bad idea!

*No Inflation in Sight Refutes Bernanke Beraters as Fed Sees Disinflation – food? Gas?

*CalPers Defends Government Workers Pensions While Risking Bankruptcy Losses

*Irish Bailout Masters Push to Change Law Blocking Home Seizures – getting uglier!

*Merkel’s Green Shift Forces German Power Plants to Burn More Coal – ah, brilliant!

*Banks With $1.77 Trillion Stockpiled From Deposits Double Treasury Buying – eke!!!

…TB is paraphrasing Mark Twain who said “…and statistics.” But then political lies relies on statistical data, no? Well, some of them, others are just ‘gotcha’s’ – where you tell an untruth to throw your opponent off guard so he spends all his time defending himself. How does one disprove an untruth? Hmmm…lemme see. You can’t! – usually.

Consider the ‘lies’ the Obama campaign has spread: mainly those earning less than $250,000 will not see their taxes increase. In fact the first $250k of everyone’s income will not increase…so why not just say that? Why make it sound like you are only helping the poor (sic)? There are others of course but the only sleazy one came from Sen. Harry Reid who said he had it from an unnamed source that Romney paid no taxes for years. This is right out of the Michelle Bachman playbook…make a bold statement and blame it on something you read or something someone said but not back it up. That is a cheap shot! Shame on the Dems for not denouncing him! He still sticks by that statement in an obvious attempt to make Romney release his taxes, WHICH had he done in the first place would have been way on the backburner by now…unless…and wife, Ann, says no way!

Meanwhile Romney, Ryan and the rest of the GOP continue to claim that Obamacare will rob Medicare of $750 billion thus scaring the bejeezus out of old folks…particularly in Florida (remember the electric third rail coined by William Safire decades ago?). They know that this is a reduction in Medicare costs that will be transferred to Obamacare yet despite CBO studies and others they cling to this bold assertion and bald-faced lie!

Worse, they are now claiming to be the defenders of Medicare…the GOP??? You have to be kidding!!! Yessir, the Ryan Plan, which differs from the Romney Plan but both say is essentially the same…huh…is to give vouchers to seniors…starting in 2014 but what about the interim? Also, the vouchers will NOT be indexed thus will degrade with inflation. More on that later.

How could Mitt Romney still smile while saying he paid 13-something percent in taxes in each of the past ten years then move on. Where were the factcheckers? Sure he probably paid that BUT…the median taxpayer ($50,020 in 2011) had an effective rate of 19%! Let’s see…13% on millions, 19% on $50k…sounds fair to TB. Also, how much did his income, and wealth grow over those years? How much of that wealth resulted from his having three (?) offshore accounts (he spread it around if memory serves: Swiss, Cayman, and Bahamas…not sure about that). How many of the rest of us have, or need offshore accounts…is it to protect against a collapse of the dollar and our government under the evil Obama? Bush? Clinton? Dunno…but if he earned the money offshore and it remains offshore does he pay taxes on it?

From IRS stats, here are the median incomes from past years and also inflation adjusted:

2010 $47,022 = $49,445; 2000 $39,926 = $53,164; 1980 $16,017 = $44,616 – that is a quarterly compounded rate of growth of 0.34% after inflation, ignore the nominal increase! Remember too that inflation excludes food and energy and both are rising rapidly…as for food, with the drought, you ain’t seen nothin’ yet! Nothin’! Also, please pay attention to how those numbers grew nominally at a 3.8% rate but were negated by inflationary effects. Plan ahead for your retirement, you will need it!

Then there is the perpetual lie of the GOP that U.S. corporate taxes are the highest in the world. OK, half-truth…or less. Yes, at 35% they are the highest. But the U.S. gets just 2.1% of its income from corporate taxes (in 2005, Iceland was 1.1%, Norway 11%). Also, since 2008, the other countries have been cutting their taxes so ours look high. BUT as with individuals it is not the tax rate that counts but the effective rate. The average corporation pays just 13.4% in taxes. Ah but it gets better: Citizens for Tax Justice and the Institute on Taxation and Economic Policy reports in a study of the top 280 companies in the Fortune 500, 30 paid no taxes from 2008-2010 and only 4 in the period 2008-2011 so don’t blame it on the economy (none of these by the way were banks except Wells Fargo which went from -1.4% to +3.8%) and the average rate for the 30 was -7.1% in the earlier period and -3.1% in the latter! While we hear about GE paying no taxes for decades their rate in the period was -45.3% and -18.9%! The worst? Pepco Holding at -57.6% and -39.5%. In other words it is pure bunk that they are uncompetitive due to taxes!

TB is now reading Lawrence Lessig’s book (discussed a NPR interview with him on Friday), Republic Lost: How Money Corrupts Congress – and a Plan to Stop It. It is an eye opener and not from some bleeding-heart liberal…he was a Reagan supporter, clerked under Antonin Scalia, but has lost faith, like TB, in the GOP. One of the early chapters is on subsidies and you would be shocked at the amount of profit for some corporations comes from the farm subsidy, sugar subsidy, and others. For some it is more than their entire bottom line…does that shock you? It did TB because WE are paying it while the GOP continues to press for it! It is time to wake up America…Warren Buffett has even decried these subsidies…although his brother collects over $100k a year from them for the ‘family farm.’

If Grover Norquist wasn’t so evil, he would be funny…laughable actually. This nobody is so powerful having blackmailed the GOP Congress to oppose any tax hikes (he claims that is not true but look how the GOP has voted since he took control of them). Yesterday, on Face the Nation, he claimed that Obama lied because he said he would not raise taxes in the lower income groups yet right after he was elected he increased the cigarette tax…the cigarette tax??? Get real, Norquist! You have a choice not to smoke and we should discourage people from doing that with their limited funds…just as we should discourage gambling but the states have chosen to augment their coffers with the money.

Rudy Guiliani was disgusting yesterday…the only thing he said that was not biased was his comments on Harry Reid. There is no love lost between him and Joe Biden. It was senseless.

TB was disappointed in someone he has come to respect, Niall Ferguson, who attacked Obama yesterday on one of the talk shows. He now wants him replaced with Romney. Does he seriously believe things will be different under him? Doesn’t he realize that in four years once again we will have no clear choice of candidates? We need a clean slate and unfortunately – to TB  – that will require four more years of Obama unless you think things will be better with the GOP in control of the total country…no balance that way. Austerity? You are about to see austerity but not for the wealthiest…and it will be ugly.

Hope you all have a great week…beware of stocks!

TB

. . .  – – –  . . . (SOS!)  . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!)

 A slightly positive day except for utilities which again suffered along with bonds. Volume was a bit weaker – and on an options expiry??? 2.91B vs  3.1B vs 2.6B vs 2.9B vs 2.48B vs 2.78B vs 3.07B vs 3.21B vs 3.64B. The range since 7/29’s QE surge of 4.56B (above average) remains 2.06B-4.28B shares with just 2 days above 4B! NYSE stocks executed without the aid of the ETN market rose but again but didn’t even make 700M and for the week averaged just 564M shares vs 596M vs 498M vs 567M vs 484M vs 566M vs 576M vs 637M vs 728M vs 647M vs 754M vs 826M vs 1.03B! Since 6/29 just 7 sessions have surpassed 800M shares. Look at this: two week average $597M, and the highest since 7/29 was 728M shares. There is STILL NO retail! The average for 2012 is just 798M shares and since 6/29 just 710M shares, levels not seen since week ended 12/30/11! 61 of the last 95 sessions have been less than 800M shares. Since 2/29 there have been just 19 ‘average’ days (mostly down!), including 3/16’s high for 2012 of 1.65B (4.85B including ETNs) and just 17 have been above 900M – 876M is now the 12 month average. Since 11/1 there have been just 16, 1B share days…12 in 2012! Since 2/6 there have now been 25 sessions less than 700M shares. 176 of the last 187 sessions have been less than the 12 mo ave (94%)!

Advance/Declines were slightly positive at +1.6x vs +2.6x vs +1.7x vs -1.1x vs -1.7x on NYSE and +1.9x vs +2.3x vs +2.3x vs -1.6x vs -1.3x on Nasdaq. Breadth was similar: +1.6x vs +3.2x vs +1.7x vs -1.1x vs -1.8x on NYSE and +1.1x vs +2.2x vs +1.8x vs -1.6x vs -1.2x on Nasdaq. New 52 week highs rose again to 290 vs 243 (7/3’s 504 is the high), while new lows climbed to 49 vs 38. The ratio slipped to 5.9x vs +6.4x vs +2.4x vs +2.9x vs +2.6x vs +3.3x. The S&P VIX dropped again to 14.45 -.84. That is a new low for 2012! BUT was it merely due to options expiry??? Time will tell…always does!

Here are the results of last 5 sessions: Dow +0.2% vs +0.7% vs -0.1% vs flat vs -0.3%; Transports +0.5% vs +0.5% vs +1.2%! vs +0.4% vs flat;Dow Utilities -0.2% vs -0.3% vs -0.5% vs +0.1% vs -0.4%; S&P 500 +0.2% vs +0.7% vs +0.1% vs flat vs -0.1%; Nasdaq Composite +0.5% vs +1% vs +0.1% vs -0.2% vs +0.1%; Nasdaq 100 +0.4% vs +1.2% vs +0.5% vs flat vs +0.1%; Russell 2000 +0.8% vs +1.1% vs +0.3% vs -0.3% vs -0.3%; NYSE Financials +0.5% vs +0.9% vs +0.2% vs flat vs -0.1% (KBW Banks +0.6% vs +0.5% vs +0.4% vs flat vs -0.1%; Nasdaq Banks +0.7% vs +0.5% vs +0.8% vs -0.3% vs +0.1%). NYSE Financial Leaders: BAC +0.9% vs +0.8% vs +0.9% vs +0.8% vs -0.3% vs +0.3%. Not leaders, but…C +0.75 vs +0.3% vs -0.1% vs flat vs -0.4%; JPM -0.3% vs +0.1% vs -0.1% vs +0.3% vs +0.6%; WFC -0.3% vs +0.5% vs flat for 2 days vs +0.4%; USB -0.3% vs +0.1% vs +0.5% vs -0.5% vs +0.1%; GS +0.1% vs +0.3% vs -0.1% vs -0.3% vs +0.6%; MS flat for two days vs +1.3% vs -0.9% vs -0.4%; UBS +1.5%! vs +1.6%! vs -0.3% vs -0.7% vs -0.7%.

Global stocks opened higher but faded, except Japan and India: FTSE -0.4% vs +0.1% vs -0.2% vs -0.4% vs +0.3%; CAC 40 -0.3% vs flat vs -0.2% vs -0.3% vs +0.2%; DAX flat vs +0.3% vs flat vs -0.5% vs +0.8%;Nikkei +0.1% vs +0.8% vs +1.8% vs -0.1% vs +0.6%; Hang Seng -0.1% vs +0.8% vs -0.5% vs -1.2% vs +1.1%; Korean KOSPI flat vs -0.6% vs +0.1% vs closed vs +1.3%;Indian Sensex +0.2% vs +0.2% vs -0.4% vs closed vs +0.5% vs flat. U.S. stock futures slightly weaker, except Nasdaq for a second session?: DOW -24; SPX -1.90; NDQ +2.

Bonds were were little changed following four down days, off slightly overnight: 10 yr 1.82% -3/32 – record low of 1.40%; 30 yr 2.94% -1/8. Long TIP 0.62% -3/32. 0.28% is record low!The 5 yr TIP yields -1.10% and continues to come in!; 10 yr -0.44%Bills 0.09% 1 month; 0.09% 3 months; 0.14% 6 months. Reverse Repo 0.20%. 3 mo. Libor 0.43%, and 6 mo. 0.72% – both trading below 0.45% and 0.73%. European problem sovereign 10 years, Germany-benchmark 1.52% +3; Italy 5.77% +1; Spain 6.24% -14!!!; Greece 23.43% -12!!!; Portugal 9.21% -17!!!; Ireland 5.83% -1. Iirrational!!!

Gold still holding above $1600, but closed barely higher at 1619.40 +.20. 7/12’s intraday low of $1547.60 was lowest since June 1. The hit is $153 since 2/28! 2/28’s $1792.70 intraday high not seen since 11/16! The record high is $1923.70, a buying climax on 9/6. SUP at $1603, the 40 day and $1600, RES at  $1661, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1616.00 -$3.40. Crude close higher at $96.01 +.41. High was $96.28, first time above  $96 since 5/11. SUP at the 40 day (88.32), and the 50 day (87.21), both still rising! RES at the 200 day (96.70). First SUP is $89.17, the 11/1/11 low, SUP $92.52-54, the lows of 12/16. Now $95.97 -.04, o/n high of $96.53! Watch!

Some options expiry…some week (weak?). Retail remains on vacation. Same comments from past week or so apply: Volume fell from 3.1B shares to 2.91B – on an expiry???, while REAL shares were just 676M vs 596M – we have not even seen 800M shares in the last eight sessions! Ave for the week: 564M! without even one 700M share day!

All indices better except utilities which were off for a second day. Besides being on weak volume, although higher, BOTH Dow and S&P rose 0.2% vs 0.7%. Both Nasdaq indices  rose 0.4-0.5% vs +1% to 1.2%! Only the Russell 200o had a real move, +0.8% but who cares on low volume?

Financials continue to lose their momentum and even the small percentage gains make the miniscule price changes of less than 10 cents a share, well…meaningless! BofA has been up 0.8-0.9% in EACH of the last four session yet still has not reached $8…also it continues to be the second or third most active…high freaks are having fun – are you?

Bonds continue to be weak thanks to the ECB who is lessening the demand for UST. All the problem countries have plunged as buyers ‘plunge’ back into them…or it is just the EU buying to support the weak sisters? Huge drops in yields…hmmm like when the Fed was buying up our bonds…oops, they still are! TIPS spreads continue to implode…so much for inflation protection. That dog has hunted…and it is a dog at these yields!

What happens when 10 year treasury broaches 2% – equity risk premium? Poof!

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