8/19/14…what is ‘tax inversion’ and what you need to know about it?

Quote of the Day from the Friars Club Encyclopedia of Jokes: “If you make people think they’re thinking, they’ll love you.          If you really make them think, they’ll hate you.” – Don Marquis – touche

Bloomberg Quote of the Day: “Men are equal; it is not birth but virtue that makes the difference.” – Voltaire…ah, but birth and status sure do give you an edge, right? TB

Bloomberg Top Stories:

*Housing Starts in U.S. Rise at Fastest Rate in Eight Months Amid Optimism…but sales???

*Cost of Living in U.S. Increased in July at Slowest Pace in Five Months – some recovery!

*U.S. Stock-Index Futures Rise on Economic Reports while Home Depot Climbs

*Home Depot Raises Forecast After Second-Quarter Profit Exceeds Estimates – ONE QTR!

*Default Swaps Buffed in Biggest Overhaul of $19 Trillion Market for Decade – still a scam!

*BofA’s Montag Becomes sole Operating Chief as Darnell Seeks Florida Move – let him go!

*Pimco Sees Buying Opportunity in Junk Bonds Cast Off in High-Yield Exodus – short ‘em!

*Greek Equity Recovery Fading Away as ASE Tumbles 21% on Russia, Valuations – short it!

*Yellen Rate Increase Prospects Just Noise to Strategist Seeing Stock Gains – probably right

*Ferguson Police Fire Tear Gas, Stun Grenades in Clashes With Protestors – see below

*Israel Agrees With Palestinians to Extend Gaza Truce for Another 24 Hours

*Obama Sends Holder to Ferguson (Purgatory?) as U.S. Legal Options Described as Limited

*Virginia First Lady’s Erratic Behavior Worried Staff, Ex-Aide Tells Jurors


Monday’s Market Summary:

Okay, okay, so TB was wrong about the market…or was he? True, it was a nice rally, led by Dow Transports +1.7%! Followed closely by NYSE Financials (sucker bet to TB) +1.5%), the rest were up from 0.8% (NDQ 100) to 1.1% (Dow – finally)! Only loser was Dow Utilities and that was nothing: -0.1%, thanks to rounding up! Advance/Declines and Breadth were strong, especially the latter. Volatility too, took a drop to 12.32 -.83…as an old boss who was a fool used to say ad nauseum: “I never met a rally I didn’t like.” – yeah, well people working for him didn’t like him, he cost us performance and money when we were mandated by a client closing their account to do nothing…instead he put money into stocks…sued and lost!

Hmmm, what did TB miss??? Oh of course, volume…once again a nice rally ruined by a lack of players…not high freaks which had to be aplenty but REAL buyers. Total NYSE Volume fell to 2.61B shares, very weak from 2.96B shares – also very weak for an options expiry! Now look at shares traded on the NYSE Floor (aka: retail!): a very weak 605M shares down from 758M, this with the typical (since 4/30) 160M shares at the closing bell and if you can’t spell speculators on that, you don’t deserve to be in this business. Furthermore, excluding the ‘bell trades’, this was the 2nd lowest volume of 2014!!! Yep, the volume just before the closing bell was 445M shares, that’s less than 8/14’s ‘low for the year’ of 448M shares…this doesn’t even qualify as a casino! Merde!


Total NYSE Volume declined from a below average (3.5B), 2.96B shares to a WEAK 2.61B – and on this we rallied 1%??? For the prior week: 2.7B vs 2.59B vs 2.76B vs 2.87B. Real NYSE Volume was just 605M shares, coming off its 2014 low of 8/14 and a weak options expiry 758M shares – just 455M at the closing bell! vs 517M vs 559M vs 543M vs 596M. Last week’s average was just 594M shares! There have been just four sessions above 800M since 4/28! The 12-month average is a historically weak 702M shares. Since 4/30 the average volume has been just 667M shares ranging from 517M to 927B….12 month high is 2.06B shares on 9/20/13!

A/D’s were STRONG, especially Nasdaq: +3.6x vs -1.3x vs +2.1x vs +2.9x vs -1.4x vs +2.8x; Nasdaq +3x vs +1.2x vs +1.3x vs +2x vs -2.1x. Breadth was even better: NYSE +4.3x! vs -1.3x vs+1.8x vs +2.1x vs -1.8x; Nasdaq +4.8x!!! vs +1.2x vs +1.6x vs +3x vs -2.1x.. New 52 Week Highs close to a double at 266 vs 193 vs 141 vs 140 vs 96 – recent range is 46-580!!! New Lows down by 1/3 to 60 vs 99 vs 72 vs 79 vs 84 – recent range is 24-260! S&P VIX reversed yet again (not a good sign when it is this low to 12.32 -.83. The range ‘narrowed’ to 12.26-12.85 – no ‘13’s or ‘14’s…a first in a while: since 7/25!

Bonds closed weaker again hampered this time by stocks rallying globally…make sense to you? Not to TB…still they remain near their new 12 month low yields: 10 yr closed at 2.39% vs 2.34 -7/16; 30 yr 3.20% vs 3.13% -1-1/4!!!; the long TIP 0.90% vs 083% 1-3/4 (for all Friday’s gains were completely erased but still better than Thursday’s close! Overnight they are coming back some: 10’s 2.37% +1/4; 30’s 3.17% +9/16; and long TIP 0.87% +3/4….rally still intact! Cycle highs yields: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP was 1.64%. The (record?) low of 0.36% was set on 4/5/13.Libor Update: 0.232% 3 mos.; 0.329% 6 mos., both remain near their record lows, set recently: 0.222% and 0.320% respectively! NOTE the Fed Funds rate has averaged 0.09% since 5/22/13 and is at 0.08-0.10% where they have been for weeks! Foreign bond yields slightly lower higher across the board and still holding most of the gains from that two day rally which ended with new 12-month low yields: Germany 1.00% –2; UK 2.38% -5; France 1.40% -1; Italy 2.62% -2; Spain 2.44% -1; Portugal 3.44% -1; Greece 5.77% -1-; The recent high on selloff was 6.75%. Recently 5.42% to 12.57%. Japan: 0.49% –.

Gold closed weaker for a 2nd day, on an inside session leaving intact Friday’s low of $1293.00, but producing the first sub-$1300 close since 8/6: $1297.70! It is back below the 40 day AND 50 day while the 200 day is in striking range, with psychological resistance at $1300! 7/17’s session high was $1346.60, highest since March 19th!!! 6/9’s $1240.20 was lowest since 1/31/14!!! First RES is again at the 50 day $1303, then the 50 day at $1310, leaving the 200 day as sole support at $1286 – still VERY tight supports! ALL remain critical! Note the recent high of $1392.60 on 3/17, highest high since 9/4/13…that too ended the session with a negative key reversal sparking the downturn! Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight it is slightly higher at $1302.20 +$2.90 in a very tight inside session. Range: $5!

Crude closed meaninglessly lower in another tight inside session two days after trading down to $95.26 – lowest since 1/27/14. It closed at $96.41 -.94. It has had ELEVEN handles since 6/30! 7/22’s high was $105.20, still highest since 7/2. 7/15’s session low was $90.01 – lowest since 3/21. 6/20’s run to $107.73 was highest since 9/19/13 (a huge down session which put it in freefall. 3/2’s session low was $97.37, lowest since 2/4! 1/14’s low was worst since 5/2/13: $91.24! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. RES at the 200 day ($99.78), then the 40 day ($101.40), then the 50 day ($102.31)…the latter two remain in freefall! The range is $85.61-$112.24 since March 1, 2012. Overnight it is slightly higher at $96.75 +.34 in its THIRD straight inside session…caution flags!

European equity markets strong for a 3rd day (acting kind of tired though), ex-Germany which remains en fuego…Asia following suit this time: UK +0.5% vs +0.7% vs +0.8% vs +0.5% vs +0.1%; France +0.4% vs +0.5% vs +1.2% vs +1% vs +0.3%; Germany +0.9% vs +1.5%! vs +0.9% vs +0.3% vs +0.9%: Japan +0.8% vs flat for 2 days vs +0.7% vs +0.4%; Hang Seng +0.7% vs – vs +0.6% vs -0.4% vs +0.8%; Korea +0.9% vs -0.5% vs closed vs – vs +1%; India +0.1% vs +1.1% vs closed vs +0.7% vs +0.2%. U.S. equity futures higher – all gapped up on open again! Dow +41 (range 39 + gap of 21?!?); SPX +3.20 (5 +1); NDQ +9 (6 + 4)


Some random thoughts:

(More on Ferguson…Brown, Jr. was shot SIX times…including one apparently from above him which was the coup d’grace. To TB’s way of thinking, regardless of what the teenager might be, besides dead, this is murder – intentionally and unequivocally. At this point, the officer needs to be in custody…for his own protection and to show that when the evidence suggests, the police will be treated just like any other citizen…although not in the general jail population.)

…lots of talk about ‘tax invesrion’ and increasingly about stakeholder vs shareholder rights. See Robert Reich’s excellent column on this from the SF Chron Reich. In the article, he accurately describes is as shareholder capitalism vs stakeholder greed. He correctly attributes it to the raiders of the late ‘70’s and ‘80’s to the hedge funds thereafter. How so?

  • Looking after their own interests they urged companies to do stock buybacks rather than pay dividends (now they are back to paying dividends but from bond issuance…a waste of capital). Management caved
  • In almost all cases the recaptured stock was not retired, but kept in treasury? Why?…why to offset exercising stock options by management, that’s why! This was all well and good for the overpaid directors ($200-300k – for six meetings???),
  • To TB and most others, managements and crony boards rubber stamp the CEO, who in many if not most big company cases is also the Chairman! What happened to the board being mandated to be: stewards for the shareholders? What’s that?
  • This brings us to the new buzzword ‘tax inversions’ (read: tax evasion). Who began the practice? Why none other than Tyco’s Dennis Kozlowski – do you want to be in his company? You can now as he has been released from prison! Several other companies have tried it yet these ‘maximize shareholder value’ leaders are not serving the long-term interest of their shareholders and are inciting the wrath of the IRS and Congress (if that’s possible), at the same time. In Medtronics, case this is a total sham to reduce their tax rate from NINE PERCENT to 4%! Oh, boy…how special! Furthermore while the company’s headquarters for tax purposes is Ireland, they did not move their Minnesota offices one inch! But here is the best part: the move will put a tax burden on their long-supporting shareholders since the merger/move is a taxable event! The company’s IPO was on 12/1/74 at $22 a share…if you held it all that time you would be taxed on about $40 a share of capital gain! Isn’t that special! Also, dividends will no longer be ‘qualified’ and thus taxed at the full rate. Should they have done it? Makes sense to TB – NOT!!!

…and you ask, why is the wealth gap widening??? Because it can!

Have a great day!



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