10/18/12…19 days…#13 taxes

TB’s Thought for the Day: we are focusing far too much time and energy on the presidency. With Congress having an approval rating of <10 (lower than the British Crown as the time of the American Revolution and Egypt’s government before the coup), why aren’t the incumbents in trouble. Simple: as a group we hate them but the voters like their representative either because they got things for them, or because they see them individually as good people. So change will remain elusive. These will be the interesting election results…and for both sides as well.


Bloomberg Quote of the Day: “Don’t fight forces; use them.” – TB is trying desperately.


Bloomberg Top Stories:


*U.S. Initial Jobless Claims Rose 46k Last Week to 388k – still a ’fix’, Jack Welch?

*Morgan Stanley Beats Estimates on Increased Fixed Income Trading Revenue – ???

*Merkel Proposes European Aid Fund ass Disagreements Mount Before EU Summit

*Spain’s Bonds Advance as Stocks Fluctuate Before EU Summit; Yen Weakens

*Chinese Economy Shows Signs Growth Picking Up After Seven-Quarter Slowdown

*uBS Said Ready More Job Cuts at European Investment Bank for 400 Total – growth?

*Citigroup’s Corbat Catching Housing Rebound That Evaded Pandit

*Obama Indicting Leakers Seen as Warning to Whistle-Blowing U.S. Employees – Under Obama, Holder has prosecuted more security leakers under the WWI Espionage Act than all his predecessors combined, including GOP’ers John Mitchell, Edwin Meese and John Ashcroft

*Romney on Verge of Record Home State Loss Making Brown Declare He’s Union! – TB likes Brown for the same reason his party doesn’t – he thinks for himself! More uniting than Warren

*Obama’s Up Is Romney’s Down as Rivals Spin Data on Energy – Mitt’s ‘facts’ not facts!  


Readers note: each day from now until the election TB will focus on one aspect of the race. No playing of favorites, no picking who to vote for, hopefully just more information for you to decide.


…nothing is for certain except death and taxes. Right? The differences between the two candidates are clearer here than in most other places. Obama: repeal the Bush tax cuts for incomes above $250,000. Romney: cut everyone’s taxes but insure that the wealthy don’t pay a larger share. These and other proclamations for both candidates are available: factchecking the debate


Did Romney use any tricks to get his tax rate down to 14%? Nope, just availed himself of the tax breaks that are there for anyone…but you have to have a sharp accountant and tax lawyer to know about them and how to use them. He did use charitable contributions They can be expensive to implement so the tax savings must justify them. That is what the IRS Code has done to America. We do things not for economic reasons but for taxes (TB recalls at times having accountants tell him to buy muni’s for clients when the tax advantage didn’t even equal a similar corporate bond.)


Romney mocked Obama in the debate saying he held foreign bonds and Chinese assets in his portfolio. He says he has a blind trust so he is not responsible for what is in it. A lie. In a blind trust you can say what can be purchased or what must be excluded (i.e. tobacco stocks, foreign stocks/bonds, etc.) Greenspan took it to an extreme and held only treasury bills in his portfolio and so gave up a lot of gains during his tenure…at least until 2000. An investment advisor or tax manager have a mandate to get the best return possible for the client…just as a lawyer must provide the best defense for her client.


So Romney can honestly say he doesn’t know what is in his trust. It isn’t his problem but is he trying to find a solution that will work. This country has shown disdain for earned income over the past thirty years in favor of capital gains and investment income. It was Larry Kudlow and Jim Cramer who screamed that millions of Americans owned stocks and so the dividend tax should be cut to 15%. True…BUT the vast majority hold them in IRA/401(k)’s which will be taxed as ordionary income when withdrawn! Kudlow certainly knew this yet they put it through as yet another perk for the wealthiest Americans. On Sunday, a panel of international members, including Christine LeGarde of the IMF was discussing the global economic crisis. One member noted that ‘earned income’ as a percentage of GDP has been declining for the last two decades.


Ever since Ronald Reagan, who wanted you to be able to file your tax return on a postcard attempts at meaningful tax reform have failed. It was easy to lower the marginal rates and cut the number of brackets, but try eliminating deductions. The tax lobby is not going to allow that to happen…nor is Grover Norquist! As for low tax rates helping the country, how much do billionaires invest? They are more occupied with generation skipping, and other forms of deferring taxes. No one more exemplifies this than the Koch brothers! They are out for themselves!


Why should we trust a new president to fix the tax code? The president has no power over that, only Congress and the special interests that control them. Therefore, even if he says which deductions he would cap or eliminate, his out of whack deficit promises are null and void.


So the jobs lost have been the good paying manufacturing ones, along with the financial sector as a result of the crisis…neither man has the power to change this.


Now on to the positions:


Obama first, because his is simple. “There is something wrong when the wealthy pay a lower tax rate than a secretary.” Originally stated by Warren Buffett which made him a pariah with the GOP. He wants to raise taxes on the wealthiest Americans. Were it not for Norquist this could be done by reducing deductions…and subsidies (Archer Daniels Midland has subsidies that exceed its bottom line!) Then there are the non-profits like Major League Baseball ($9 billion in revenue), and the NFL. Charities raise money through professionals and in some cases give them 50% of the take…and we are subsidizing that?


Romney’s plan has been discredited by everyone…it doesn’t make sense…it will not cost the $5 trillion that Obama pulled out of the air (over 10 years…they both love to use that time frame due to the size), but it has been shown to be at least $1 trillion. What is the offset? More cuts…on the backs of those who have lost ground.


As for those cuts…Romney wants to spend more on defense…unbelievably more than the military has even asked for. He wants most of it to go to the Navy. The Navy is trying to find the right mix of ships in a changing global environment. We have 14 aircraft carriers…all nuclear…more than the rest of the world combined. Not only that they are building two a year to replace the ones that have to be decommissioned…the cost of which is $2 billion due to reactors.


Anyone who couldn’t chop the military budget is an idiot. We pay outside contractors now more than the cost of all personnel. Think that couldn’t be reduced? But Romney just wants social programs cut…and what happens when the economy turns south from that?


What is the middle-class? $250,000 top to Obama…who knows to Romney. But TB submits that it is not only lower, perhaps $100,000-200,000 but those who are not in it believe they are!


Go back to the early 1980’s when the big banks flooded the country with credit cards…after that market was saturated it was home equity loans…then lower and lower quality mortgages until subprime loans saturated the market. People who believed they were in the middle class looked that way through debt: credit cards, leased autos, everything on credit. They traded up in houses and took out the equity, spending it on more toys and vacations…they didn’t even think of the tax liablilty when they sold their home! That is why the crisis is so bad. We have been bragging about Americans cleaning up their balance sheets…and they are, which has hurt GDP…but guess what? Debt levels are back to 2006 levels…do you know what that was? The peak of the housing boom! Get real…we have the incredible, shrinking middle class! …and they don’t see it!!! Pity.


Oh, about that onerous corporate tax rate that Romney complains about: very few corporations pay anywhere near that. Take GE that didn’t pay taxes for decades. TB has seen a study that showed nine companies who averaged 9% tax…some were even negative…and another group of the same size who hasn’t paid it for ten years or more.


Romney says he favors small business, in fact he started a small business. Really? What is a small business? There are two definitions (at least): one is on the number of employees and that is the one that creates jobs. The SBA says that is less than 500 employees…that ain’t small! Australia uses 15, the EU 50! Hmmm. In the U.S. there are 18,000 small businesses with less than 500 employees who account for half of all job creation. The other is the IRS definition based on revenue above $5 million (not more than $7.5 million average over three years). Is that small business to you? Not to TB, but that is the kind of small business that Romney says he started and that makes him qualified to know how to create jobs? But wait, the government doesn’t create jobs…so how is he going to do it? Did he walk into a trap?


But TB is in favor of a ZERO corporate tax rate as proposed by Franco Modigliani. How does that work? Tax dividends as ordinary income! Let the individuals pay…and guess what this time it would be the wealthiest who give up their advantage. But there are two more reasons: first, companies would no longer be able to argue against paying dividends due to double taxation; second, it would reduce stock buybacks which hide the true cost of stock options. It would also show the true cost of executive compensation. Think about it.

That’s enough…go back to thinking what a great debate that was. How about for number three they not only interrupt and violate each others space but go to fisticuffs…wow! How great is that?


Lastly, some thoughts on Libya: first, Hillary Clinton’s taking the fall after all this time is disingenuous, especially right before the debate; second, this has been politicized far too much, to the point where two parents have asked that their sons names no longer be mentioned by Romney; third, a possible explanation for going slowly is finding out facts, especially in a torrid election battle where Obama has been repeatedly charged with ‘leading from the rear’ and having damaged our standing in the world…this, despite the damage caused by the ‘go it alone’ Bush administration (not the first one, who was more like Obama) who took us into Afghanistan just to get Bin Laded, then through false information got us into Iraq which disrupted the balance with Iran which we are paying for today…it is this Bush that Romney is following the path of. Note too that Obama did as Romney recommends: listing to our commanders on the ground…and what did that get us? The surge which has been a waste of time, money, and harmed our soldiers. Remember it was Romney who said we weren’t doing enough in Libya (and now Syria) despite the fact that we don’t know who will win…think: Cuba! No clear answers here but this has been discussed, is being investigated, and should be dropped from the debates…but won’t!



Have another thoughtful day,




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


A mixed day with financials the best performer followed closely by Utilties? Then the Russell 2000 small cap, while the two Nasdaq indices were little changed and mixed…go figure!


Equity volume rose slightly to 3.64B shares vs 3.55B shares, weak again, but still up from 2.31B on the partial holiday. On 9/1 volume hit 4.56B shares, high of the year. NYSE stocks executed without the aid of the ETN market barely climbed to a still very weak 688M (highest since 9/28) vs 641M from 619M vs 608M and last week AVERAGED just 607M shares, thanks to last Monday’s 464M shares – the lowest since 11/25/11! There have been just seven 700M+ days since 8/3. The high ytd was 9/21’s 1.8B shares – due to options expiry and an S&P rebalancing. Since 6/29 just 11 sessions have surpassed 800M shares. The average since 8/1’s 1.03B is just 654M. The average for 2012 is just 774M shares and since 6/29 just 690M shares– WEAK!!! 99 of the last 137 sessions have been less than 800M shares (72%!). Since 2/29 there have been just 22 ‘average’ days (mostly down!), including 9/21’s high for 2012 of 1.8B (5B including ETNs) and just 19 have been above 900M – 803M is the 12 month average and slipping! Since 11/1 there have been just 17, 1B share days…13 in 2012! Since 2/6 there have been 58 sessions less than 700M shares. 218 of the last 232 sessions have been less than the 12 mo ave (94%)!


Advance/Declines were positive again: +2.2x vs +3x vs +2x vs -1.7x vs +1.9x on NYSE and +1.6x vs +1.8x vs +1.8x vs -2x vs +1.5x on Nasdaq. Breadth was mixed: +2.7x vs +3.9x vs +1.8x vs -3.7x vs +2.6x on NYSE and -1.1x vs +1.9x vs +2.8x vs -1.4x vs +1.3x on Nasdaq. New 52 week highs rose sharply again to 363 vs 294 vs 150 (768 is cycle high), while new lows were steady at 48 vs 46 vs 75. The ratio is now +7x vs +6x vs +2x +1.6x vs +3.9. The S&P VIX, which rose intraday to 16.79 on 10/10, declined again to 15.07 from 15.22 -.15. The 12-month low was 13.32 on 8/17 while the 1012 high is 27.73 on June 4.


Here are the results of last 5 sessions: Dow FLAT vs +1% vs +0.7% vs flat vs +0.1%; Dow Transports +0.6% vs +1.1% vs +0.4% vs +0.9% v -0.1%;Dow Utilities +1.1%! vs +0.4% vs +0.6% vs -0.7% vs +0.1%; S&P 500 +0.4% vs +1% vs +0.8% vs -0.3% vs flat; Nasdaq Composite +0.1% vs +1.2% vs +0.7% vs -0.2% vs -0.1%; Nasdaq 100 -0.1% vs +1.2% vs +0.7% vs flat vs -0.3%; Russell 2000 +0.9% vs .+1.4% vs +0.6% vs -0.8% vs +0.4%; NYSE Financials +1.2%? vs +1.1%??? vs +1.1% vs -0.9% vs +0.7% (KBW Banks +1.6% vs -0.5% vs +1.1% vs -2.5% vs +0.7%; Nasdaq Banks +1.1% vs -1% vs +0.4% vs -2.2% vs +0.5%; NYSE Brokers +2.5% vs +1.3% vs +1.1% vs -1.8% vs +1.3%). NYSE Financial Leaders: BAC -0.2% vs +0.2% vs +3.5%! vs -2.3% vs +1.4%; C +3.2%!?! vs +1.6%! vs +5.5%!!!  Hello? See end of commentary today…ugh!


European stocks weaker after three up days; Asia up: FTSE -0.2% vs +0.5% vs +0.9% vs +0.5% vs -0.4%; CAC 40 -0.3% vs +0.3% vs +1.3% vs +1.4% vs -0.4%; DAX +0.3% vs +0.1% vs +1.4% vs +0.8% vs -0.4%;Nikkei +2%! vs +1.2% vs +1.4% vs +0.5% vs -0.2%; Hang Seng +0.5% vs +1% vs +0.3% vs +0.1% vs +0.7% vs +0.4%; Korean KOSPI +0.2% vs +0.7% vs +0.8% vs +0.4% vs flat;Indian Sensex +1% vs +0.2% vs -0.7% vs +0.2% vs +0.9%. U.S. stock futures slightly lower: DOW -9; SPX -3.80; NDQ -9.50


U.S. treasury bonds continue to trade weak, but up slightly overnight: 10 yr 1.80% +1/8 – record low of 1.40%; 30 yr 2.97% +5/8. Long TIP 0.47% +5/8. 0.28% is record low!The 5 yr TIP yields -1.49% vs -1.53%! 10 yr -68% vs -.73%.Bills 0.11% 1 month; 0.10% 3 months; 0.15% 6 months. Reverse Repo 0.30%. 3 mo. Libor 0.32%; 6 mo. 0.57!!! Both still dropping! European problem sovereign 10 years, Germany-benchmark 1.63% -1; Italy 4.79% +4; Spain 5.37% –5; Greece 16.84% -29!!!…on 9/20: 19.75%!!!; Portugal 7.54% -1; Ireland 4.60% +3  Still insane!!!


Gold traded a little higher again yesterday and closed at $1753.00 +$6.70. Friday’s high was $1798.10, highest since 2/29 and it has lost $40 since. 7/12’s intraday low of $1547.60 was lowest since June 1. The record high is $1923.70, a buying climax on 9/6/11. SUP at $1743, the 40 day, $1718, 50 day. MAJOR SUP at $1668, the 200 day. All rising again! 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1744.50 -$8.50. O/N loq $1739!!! Crude closed little changed again at $92.12 +.03. The $87.70 low of 10/3, was lowest since 8/3! It has traded below the 40/50/200 day since 9/19! RES at the 40 day (93.66), 50 day (93.87), and the 200 day (95.76)….all are dropping sharply now which could produce a bounce if can get above 40 day!


A note on Citi: never has TB seen anything like this. On Monday, they beat earnings estimates and the stock rose 5.5%. Oddly, TB had CNBC on most of the session, in fact several said that the bank finally has its act together…nary a negative comment on Pandit! Then the ‘surprise’ resignation overnight and every one of these clowns says that the bank will be better off without him. The stock was a leader and rose another 1.6%! That’s a 7.7% gain in two days??? Without retail? Sounds like talking from position to TB…isn’t it always on CNBC though? Get real! According to management (sic), this has been in the planning for two years and this time the earnings could support it (read: cover up). They said Pandit’s decision to not remain on the board (his decision…uh huh), was his own so he wouldn’t hamstring the new CEO. UGH!!! How bright are those analysts at CNBC? Not very…they said it had been a $550 stock in 10/2007 and is now a $55 stock…WRONG!!! On 3/21/11 they did a 1:10 REVERSE split…it is a $5.50 stock (the actual high was $55; either way a loss of 90% of shareholder value). Why did they do that? Because under $10 institutions won’t buy it…or perhaps continue to hold it! Sick!!!


Most companies try to take their hits in the third quarter when it is least obvious. There is obviously something more going on at Citi. With a new CEO and baggage from Pandit, expect big writedowns in Q4, regardless of the conventional wisdom. Look at this: Citi announces earnings, stock rises 5.5% amid praise and a turnaround; Pandit’s surprise resignation and expressions of good riddance…where we these guys the prior day? Still stock rises another 1.6%, Yesterday, despite a miss by BofA, C rose another 3.2% – that’s 10.3% in just three sessions! As for BOA, the stock traded higher much of the sessions before closing down 0.2%. Why? These were not real buyers and sellers but longs selling and shorts covering…got a better explanation?


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