WASHINGTON, November 15, 2012 – Short column today, as we need to head to points west shortly to winterize a currently vacant rental property. But we can’t get in the car this morning without getting our accounts set up for what’s likely to be another confusing trading day today. And the big news item appears in our headline: weekly jobless claims were up—UNEXPECTEDLY—by 78,000 last week, totaling a “seasonally adjusted” 439,000. Hope and change back in action again.
The number is being blamed on “Super Storm Sandy.” But, of course, that storm is already ancient history except for the residents of Staten Island, the Land that Time (and Nanny Bloomberg) Forgot. Nothing to see here, folks, these losers tend to vote Republican.
In any event, it’s funny how these numbers only started showing up after the election. Oh, well…
Speaking of “oh, well…,” how about those Congressional Democrats. We’re shocked—shocked—that they’ve been embracing the Mitt Romney remedy for getting serious about the budget, or at least the tax part, coalescing behind Romney’s idea of putting a cap on the current IRS code that embraces endless exemptions the wealthier you get. Say, who won that election last week anyway?
This whole exemption deal gives the lie to the Obama crusade to “raise taxes on the rich.” We’ve argued here before that you can raise these rates to 100% of income, but the wealthy, by and large, still won’t lose more than a few dimes in the process.
That’s because your rate of taxation is largely based on “adjusted gross income,” which is, even for you and me, nearly always smaller, sometimes significantly so, than the pre-adjusted figure. And that reduced figure, after a few more downward adjustments (like your home mortgage interest deduction) is what you pay your taxes on, not that original, inflated annual income figure—the money you allegedly bring home but don’t.
For really rich guys like that happy cynic Warren Buffett, taxes are even more fun. Uncle Warren, et. al., hide the bulk of what we’d normally call income inside their corporate entities in the form of capital gains. And even though Obama and the Democrats will be taxing these to some extent after January 1, Warren and his friends can easily avoid these taxes, too, by simply not booking the gains. Until you actually sell something for a profit, the government can’t tax that profit. So you just let things ride and evade the tax.
That’s why Uncle Warren and his pals love to make themselves look good by “selflessly” preaching that they, too, are on board with raising their own tax rates even higher. In so doing, they are behaving like classic Democrats: preaching virtue, preening in public as being the epitome of virtue, but, in fact, practicing no virtue at all. Meanwhile, they know full well that the actual taxes they actually pay will scarcely change.
That’s why, at least in outline form, the Romney plan is likely to wipe the smug grins off a lot of wealthy faces. It’s also why they’ll contact their cronies in Congress to try to head as much of this as they can off at the pass. It will be interesting to see what happens next.
Meanwhile, elsewhere in the news, Europe continues its slow proletarian roil, the Middle East continues to seethe, and everything pretty much seems a mess.
The market looked like it might have a positive open this morning, but that jobless number put a damper on things in the futures, at least. On the other hand, by at least some measures, the market became severely oversold yesterday and is really due for a bounce, even if it’s of short duration. That said, the way things have been going lately, a nice one or two day rally is likely to be terminated by more selling as remaining investors use brief upticks to get rid of any remaining positions they might have.
We remain mostly short but cautious this morning. Leveraged ETFs like FAZ—the 3x short financial index vehicle—can turn viciously against you on a good day, so it’s best to bail from them immediately during an authentic rally, even if you plan to get back in at some point. No point in losing those small gains we’ve booked over the last couple of days putting on these shorts vs. our remaining longs.
We regret having had to dump our utilities and REITs, all hammered by an overreaction to likely tax changes. The thing of it is that even after the tax changes, these vehicles will still pay you, in dividends, literally dozens and perhaps hundreds of percent more than your miserable T-bills. But fear is contagious, so we’re staying out for now.
Stay careful, my friends, stay thirsty, and we’ll be back tomorrow.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He is currently long IAU, SLV, SMN, QID, and FAZ, having sold SH for a small profit near yesterday’s close, and continues to hold medium term corporate and municipal bonds.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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