Daily Investment Interpretations

November 2, 2010


2010-11-2 (Tuesday Night):    Just like Friday, s  The NASDAQ Composite fell 2.57 points (-0.1%) to 2,504.84  The Dow adjusted up again 6.13 points (0.06%) to close at 11,124.62, and the S&P 500 tiptoed up a measly  1.12 points (0.09%) to end at 1,184.38. Oil rose to $83.23 a barrel, and Gold dropped to $1,353. The VIX jumped 0.63 to 21.83.
    Betting on the stock market’s momentum  Mark Hulbert concludes that statistically, a favorable September-October favors a favorable November-December.
    Wall Street’s tax-free ride. Marketwatch's David Weidner warns: "In Washington, a bipartisan panel of lawmakers is readying a deficit-reduction plan that promises to raise your taxes and cut your services. Cuts to the military, including base closures, are targets, as is the deduction many of us take for mortgage interest. Child tax credits and elimination of the pretax dollars we spend for health insurance are on the chopping block, too. But what’s not on the table, apparently, is the tax-free status of one of Wall Street’s sacred cows: the private-equity industry. And what a lucrative loophole it is."
    Wall Street is like a heist movie. Marketwatch's Brett Arends writes:  "The best way to understand Wall Street is to view it as a heist movie, like “The Sting,” “The Italian Job” or “Ocean’s Eleven.” There’s just one difference: In your traditional caper, a bunch of little guys get together to steal money from the big guys — a tycoon, big bank or major corporation. On Wall Street, it works the other way around. Take the Great Bond Caper taking place right under your nose, right now. Most people don’t even know it’s going on. Major corporations are jumping on the bond mania to borrow billions of dollars from ordinary investors at pitifully low interest rates. We already know that anyone buying these IOUs is taking a terrible risk. If inflation takes off, these bonds will tank. The prices will slump and the coupons will lose their purchasing power. But here is what they’re not telling you: The Great Bond Caper is also an incredible tax dodge. Corporate America is using these bonds to shift millions of dollars of tax liabilities from their boardrooms into your living room. You are going to be paying more of their taxes for them, so they’ll pay less.
    But the caper doesn’t even end there. These companies can take this money they’ve borrowed from U.S. investors and send it overseas. That will create no jobs here — and if it goes to open a cheap, low-wage factory, may undercut some of the jobs that remain. If they do that, the corporation may escape U.S. taxation on the profits from that money altogether. That’s because corporations get generous tax breaks on overseas profits.
    "It’s a bank heist in reverse. Tell me I’m wrong.
     Japan gears up for more free trade 
    It’s Christmas for markets.  Marketwatch's Nick Godt argues that all the good news is already priced into the stock markets. Mr. Godt has also written: Gridlock is bad news. Mr. Godt observes that political gridlock has historically been bad for stocks.
    Sell bonds now, Fed’s QE2 is doomed to fail, by Marketwatch's Paul Farrell. "Warning, Fed Chairman Ben Bernanke’s foolish gamble to stimulate the economy will backfire, triggering a new double-dip recession. Bernanke is “medding” too much in the economy, say Marc Faber, Bill Gross, Jeremy Grantham, Joseph Stiglitz and others." This article seems to me to be well worth reading, but it seems to me that there's too much in it to try to excerpt quotations from it.
    Economy caught in real-estate Catch-22, by Marketwatch's Irwin kellner. "Housing prices won’t stabilize until buyers emerge, but buyers won’t emerge until housing prices stabilize. If it sounds like a Catch-22, it is. If it also appears that this economy will continue to limp along for some time to come, it is likely as well.
    Fast Track to Inequality, by the New York Times' Bob Herbert. “The clearest explanation yet of the forces that converged over the past three decades or so to undermine the economic well-being of ordinary Americans is contained in the new book, 'Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class.' 
    "The authors, political scientists Jacob Hacker of Yale and Paul Pierson of the University of California, Berkeley, argue persuasively that the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich.
    "Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits.
    “'Over the last generation,' the authors write, 'more and more of the rewards of growth have gone to the rich and superrich. The rest of America, from the poor through the upper middle class, has fallen further and further behind.'
    "As if to underscore this theme, it was revealed last week (by David Cay Johnston, a Pulitzer Prize-winning former reporter for The New York Times), that the incomes of the very highest earners in the United States, a small group of individuals hauling in more than $50 million annually (sometimes much more), increased fivefold from 2008 to 2009, even as the nation was being rocked by the worst economic downturn since the Great Depression.
    "Something has gone seriously haywire in the distribution of the fruits of the American economy.
    "Nothing better illustrates the enormous power that has accrued to this tiny sliver of the population than its continued ability to thrive and prosper despite the Great Recession that was largely the result of their winner-take-all policies, and that has had such a disastrous effect on so many other Americans.

    For me, this is a game-changing article and a game-changing book. It makes perfect sense that the very rich and global mega-corporations would team up to feed themselves at the expense of the rest of us. Dog-eat-dog competitive pressures and keeping up with other billionaires might be expected to drive an orgy of greed. You've got a 200-foot yacht? I won't rest until I have a 250-foot yacht. All's fair in love, war, and business. 
    Whatever the cause, one fact is clear: in the mid-1970's, an abrupt change took place in which the growing wealth of America reached the average American, but was instead harvested by the very rich. We might debate the causes, but we can't deny the numbers.
    Cede Political Turf? Never! Well, Maybe.  This article discusses the mechanisms which tend to allow diametrically opposed negotiators to arrive at a consensus.
    Testing resistance again  This is Michael Ashbaugh's weekly analysis
    Market futures are neutral tonight as we await the Fed's announcement tomorrow. (Evidently, tonight's Republican landslide is already priced into the markets. 
    Here's a chuckle from the New York Times' Maureen Dowd: Dowd: G.O.P. Party Time..