Bulls Take Note: Tax Deal Won't Stimulate Much

There is much less stimulus than touted in the press. Political posturing has resulted in poor policy. Funny to watch the erstwhile critics of the Bush tax cuts turn into Reaganesque supply-siders. They are besides themselves crowing about how a tax cut will stimulate the economy. Where were they when Chirstina Romer was still Obama's head of economic advisors? Her seminal studies showed properly-structured tax cuts had 3x the stimulative impact as increased spending. Instead, they pushed through the Stimulus which they now admit was poorly done.

The tax deal actually creates little incremental reduction in taxes, since it mostly continues what is already in place. Put simply, not letting the Bush tax cuts lapse is NOT stimulative; it just avoids a drag on the recovery. What is actually new is relatively modest in size. If you review this chart from Megan McArdle at The Atlantic, the first three items are continuations; the last four are incremental:

In addition, the highlight of the deal, the payroll tax cut, is poorly structured to have the right type of impact. What the economy needs is business investment that leads to new jobs; this just continues demand-side stimulus of the sort which has kicked the can down the road for the past two years rather than lead to a recovery. Worse, it is temporary, and going back to Milton Friedman, it is well known that temporary tax cuts have no lasting impact. 

The politicization extends to the CBO, which normally does sound work; their assessment of the tax deal is being criticized by center-left commentators like Megan, who notes this:

According to the CBO, the low estimate is that temporarily extending the Bush tax cuts for the middle class aren't very stimulative, while extending the tax cuts for those who make over $250,000 doesn't show up at all; in the high estimate, extending the tax cuts for incomes above $250,000 reduces employment by about a tenth of one percent, while extending the tax cuts for incomes below $250,000 lowers it by about half a percent.

It's true that there is some differential effect. But most of that figure is not driven by the fact that wealthy save their tax cuts, while the middle class spend them; it's driven by the fact that the tax cuts for incomes below $250,000 are much larger, in terms of the federal budget, than tax cuts for higher incomes.

According to CNN, the two-year cost of the tax cuts for high earners will be about $75 billion, while the estimated cost of the cuts for incomes below $250,000 is about $310 billion, or four times larger.

Consider this finalirony: as we head into the 2012 elections, the debate will be about supply-side tax cuts, not demand-side stimulus - the Republican playbook, not the stuff of the Democrats. Worse for the Demos, an Obamcare tax increase (the medicare 3.8% surcharge) will kick in in 2013 and have to be dealt with. 

Comments

[Michael]

Actually, I think that Obama's recent move is a stroke of political genius in that it now lays the groundwork for his State of The Union Address to feature an overhaul of Taxation in this country, since that is the only way to realistically close about a TRILLION dollars worth of tax-loop-holes and genuinely deal with the budget deficits and national debt.

Since BOTH parties have not shown any kind of success in cutting spending during our lifetimes, and the GOP has become the party of "No" . . . Obama will simply be the CENTRIST that he has always been and use an "outside-the-box" tactical move to get both parties to work and focus on deficit reduction via an overhaul of the tax code.

This was achieved back in 1986 when there was far less power in the hands of lobbyists. As a result, it will be much TOUGHER this time around because the lobbyists will do their damndest to try and keep all of those "loop-holes" open.

Call me an optimist, but I think that this Country is about to have it's first real discussion on overhauling the tax code in 24 years . . . You'll hear it first next month during the State of The Union Address.

[Wave Rust]

I hope you are wrong about the 'final irony' discussion into the 2012 election. I hope its about spending cuts and where and when they occur.

If all we get is some weak oblahma-care revisions, the repubs are going to be the losers. They have to pass legislation that actually "does something", whether Oblahblah signs it or vetoes it.

If the young guns can't do it in the House and the Senate, then the economy will be without any substantial foundation for growth higher than 1 to 1.5%.

'Cut spending first' is what the 2010 election was about.

Imagine that Congress cut the rate of spending increases, cut federal reg's and freed up the entrepeneur. (I know! The mind reels!) The whole tax cut issue would become moot, in short order. The federal budget would be racing toward balanced within a year. Growth, positive attitudes return to the American economy and in the American people.

Okay, you can wake up now! Prosperity is still being held hostage by the Oblahblah, and his horde of haters of anything good. Sorry! False alarm.

Merry Christmas and Happy New Year to all.

wave rust

[Hockthefarm]

Y:

I found your latest rather sad. Kind of like a beached whale nobody seems to understand or the guy scratching his ass when he saw the monolith in Kubrick's 2001.

I don't think main street has even come close to feeling the real impact of technology. We have spent about 5k$ this season (includes an unexpected tv purchase). 5k online, 0$ locally. Local commercial rents must be dropping like a stone.

Hock

[yelnick]

Michael, as I said, the tax deal was politically smart altho poor policy. The last time we had a decent tax reform was 1986 under Reagan. Given Obama's new found love of tax cuts like Reagan, why not replicate that feat as well?

[yelnick]

wave, we have had tow elections (and maybe 3) - 2010, 2008 and maybe 2006 - whee the electorate wanted to stop spending and end the partisanship. Obama campaigned as a post partisan centrist and governed as a hyper partisan leftist. If the new Repubs in Congress behave like the old, there will be another Tea Party revolt in 2012. My point about the final irony, though, is that we are not set up to have another tax debate in 2012. Maybe Michael is right and Obama can reform taxes along the lines of his deficit commission ahead of time and avoid that debacle.

[yelnick]

Hock, the political classes are acting like asses, while the underlying economy morphs towards the online future. I would liek to think the Internet can find away around Government, but they have guns and tanks. Julian Assange and wikileaks is a case in point.

[?]

Michael,

BHO is very smart and is obviously planning his strategy to get re-elected in 2012.

[trendlines]

Shanghai Composite: Testing Resistance

Since the last update, the SSEC has been barely able to squeak out some gains on low volume, and is now at stiff resistance from the very downtrendline it broke earlier. Coupled with the 2950 historical resistance, we could see a move down lower from here. Initial support around 2700, followed by 2570. On the other hand, a break above the line on decent volume is bullish, and may lead to a re-test of 3150. Based on volume cues so far, the move down seems more likely.

http://trendlines618.blogspot.com/2010/12/shanghai-composite-testing-resistance.html

[Michael]

"BHO is very smart and is obviously planning his strategy to get re-elected in 2012."

"Maybe Michael is right and Obama can reform taxes along the lines of his deficit commission ahead of time and avoid that debacle." - Yelnick

Of course I'm right.

But all of the "pundits" who regularly post about politics on this blog (as well as others), whining about "Oblablah" this, and "Oblahblah" that . . . clearly have issues in which they can't see past their nose. I'm not sure if they are racially based or what, but they show a tremendous lack of insight into what is actually occuring, and what will most likely happen as we proceed into the next 2 years.

Obama has never been a socialist.
He's never been much of a liberal, either for that matter. He's a CENTRIST that will now stand at the podium and "corral" the three parties into the ring to address reforming TAX POLICY. Make no mistake, the American Public will hear this in the upcoming State of the Union Address.

That's the ONLY way that the deficits can be addressed.

Loop-holes must be closed and LOBBYISTS must be stopped from furthering their selfish agenda which threatens the livelihood of this great Country. It's a very TALL order but I am optimistic that it can be achieved, similar to what happened in 1986.

The Republicans cannot afford to continue being the Party of "No". Their public opinion polls are already in the basement and the American people are far too smart for this kind of political "gamesmanship" anymore.

Obama made his Ideological push during his first 2 years. The Mid-Term Elections have now caused him to "retreat" . . . but this will now allow him to govern from the middle and force EVERYONE to focus on deficit reduction. Cutting spending isn't the exclusive answer. Loop-holes need to be closed, and reform needs to be addressed.

Even with all of the absurd Obama "bashing" on this blog, the fact remains that Obama still commands a higher approval rating than Clinton or Reagan after the mid-term elections. And after this latest tax "deal", they are even higher.

In the meantime, the constant "whining" on this blog about Obama is a joke. Almost smells like Perma-Bears who are bitter because they've been cluelessly short for the last year and a half and gotten hammered.

Where were all of these mega-capitalists when George Bush was socializing and subsidizing the Banking system with the $800 BILLION TARP? Where were they when Bush gave GM a $17.6 BILLION dollar bail-out loan as a Xmas present... knowing full well that GM was going to go BK? They sure weren't bashing BUSH on this blog! Where were these hypocrites???

Sorry political "haters" but the Economy (with a Black President) is getting better, not worse. People like Prechter, David Tice, David Rosenberg, Marc Faber, and Nouriel Roubini have been flat-out WRONG. Had they actually traded their opinions they'd be BANKRUPT by now... every single last one of them. That's a FACT.

And Obama's latest decision to give the GOP what they want in the form of extending the Bush tax cuts + the recent CEO Summit at Blair House are just the beginnings of great things to come for this Country, and it's Economy.

Will their be some "bumps" in the road on the way?

Absolutely.

Most pressing will be avoiding defaults by state and and municipalities on their debt, of which we could easily see 50 or more in the next 12 months according to the likes of Meredith Whitney.

But we are heading in the right direction. The "brighter" minds have prevailed, and so far we have not only avoided 30% unemployment and riots in the Streets . . . but the Economy is actually getting better.

But the bottomline is that this Country is heading in a direction where the potential for GREATNESS lies directly AHEAD. There will be very little wiggle room. But we have a habit of getting it "right" more often than not. If you don't believe me, simply listen to someone that is a lot smarter than I am . . . Michael Bloomberg.... another optimist!

Happy Holidays Everyone.

Signed,

A 4th Generation Californian and Proud American.

[Wave Rust]

michael
"I'm not sure if they are racially based or what"

If you aren't sure whether somebody is saying/writing something racially oriented, then I suggest you either ask, or don't mention it.

I don't tkink you see from your california perch, what others see here on the ground.

I watch deeds and action and, most often ignore a politician's words.

you say oblahblah is a centrist but has had to step back from his idealogical push. contradiction in terms??? The soviets called that "2 steps forward, one step back." It was a formal strategy and most recently still practiced by Putin in georgia. Hitler practiced it quite well until he didn't need to anymore.

Your prognosis for tax reform by Oblahblah is the worst of all possibilities. Letting the Dems reform taxes is like letting the hangman fix the windsor knot in your tie.

If 50 municipalities are at risk of default, many will be in your CA. Fix your own house before telling others how screwed up they are.

any look back at my posts here will find certain criticisms of bush and most other presidents, including reagan. I wish I had something to say that is positive about Oblahblah. I don't.

He's deceitful, dishonest and without any core beliefs, except whatever comes with the arrogance package he wears. He is merely a tool for the extreme left. It has nothing to do with skin colour, race, religion, etc. It's what he has been since Columbia.

He's not an effective politician, even with super majorities in both houses of Congress. He daily showed his inexperience, lack of leadership, lack of management skill, etc. for 2 years. All he has is the ability to read a speech.

In my opinion, he hates America's values of freedom. He is a control freak (verging on megalomania), who can't be blamed for anything, in his own mind. That is an illness, a mental illness. Narcissism, it is. Whether it's pathological is still a question in my mind.

The only thing that gets him re-elected is who his opponent is, and, if nobody runs against him in the 2012 dem primaries.

The economy will recover in spite of Oblahblah, unless he does something really stupid, which he is capable of doing at any time. I have said that more than a few times.

TARP was necessary in Sept.'08 to add reserves to a frozen payment system. No payment system, no economy. By the time Pelosi and reid, (the 2 dumbest people ever to lead the Congress, without exception), finally got legislation to fund TARP, the problem had morphed into a more sinister, long lasting pox on the global economy. It's still here.

So, I ask you, what direction do you think we are headed in? Do you really think it is because of Oblahblah, we are headed in "the right direction", whatever that is?

Do you really think Bloomberg is an optimist? The guy wants to be president so bad, but he's just another Lil' Caesar-wannabe. He certainly can't run on his NYC record.

What the heck is this greatness you see just ahead? Is it the next great social reform led by the likes of california-esque socialist humanism, or some new social order, or some cumbayaha moment inspired by the federal government?

I hope it isn't that or else your whole vision of the future "greatness" is flawed at best.

Greatness takes work, sacrifice and pain for a result determined by people who want it, and not from government decree or policy. The government can only impede it, choke it and limit it.

The best thing the fed's can do is leave the economy alone, quit trying stimulate "greatness", and let the people get on with what needs to be done. American history is strewn with failed "tax reform", but spending reform is what is needed. Shrinking government is the only way that is done or begun.

By the way, I don't hate Oblahblah, I just hate what he's done. That's not a fine point of difference. Hate of a person is a waste of energy and time.

I hated TRA 1986 as much as I hate the Healthcare reform act. Just stupid socialism in both cases. bush 41 got unelected for the same reason. socialists always view criticism as whining, until something like the tea party arises. Then they call it bigotry or racism, elitism, etc.

you have always sounded like an elitist to me. Are you michael? Is that your method of feeling good about yourself? You often remind me of Oblahblah in your remarks about your trading and your condescension about how others trade or what they trade.

Interesting to see your true colours come out, Michael.

Take care of your california greatness before you lay it off on others who might be dismissive of California's track to greatness.

wave rust

[Wave Rust]

yel,
I can see the tax reform potential, but it's always been a 'bill of goods' sold to the people as some grand effort.

how do you reform a spendthrift? Change his income when he has an unlimited charge card? No.

You cut up his card, right?

What I'm stating is, tax reform is the wrong discussion. Dems want a VAT tax added to the income tax. repubs want a flat tax.

As for taxing income, I'll go with whatever replaces the tax code that is the simplest, fairest, least regressive, and penalizes the poor the least. Flat tax has my initial nod.

I am completely against taxing/seizing assets, like the estate tax/death tax. The wealthy know how to make the estate laws work for them. Regular folks don't. Even with higher exclusion limits, it's anti-American to take someone's assets that they accumulated through work or through birth. And, I realize those are opposite ends of the wealth spectrum.

Property rights are what the core of the Constitution and the Bill of rights was based on preserving. And, I hold that truth to be self-evident. :)

Without a sacred right to own property, none of the other rights in the Constitution have a leg to stand on.

It's all about federal spending and how it's done. Until federal spending is limited, the federal power that comes with spending/money will expand, and the people's rights and power will diminish. But thats what leftists want. power concentrated at the federal level makes it easier for the few to rule the many.

wave rust

hoping the 5-4 supremes vote for the people and against oblahblah-care socialism.

[Hockthefarm]

Wave:

Well said all around. I find it interesting that Michael would toss out the race card. I for one have never drawn that conclusion from your writing.

There is really no defense when someone throws that card, so I thought something should be said.

Hock

[Manav]

You versus me...as Prechter has theorized ? Bear Market chatter on yelnick's blog, a split down the line...whatever

[Mamma Boom Boom]

>The economy will recover in spite of Oblahblah,<

That's the only line I can disagree with.

[Wave Rust]

thanks Hock

i have seen over the long haul that most race card dealers are bigotted hypocrites of the first order. I don't think Michael dealt the card.

I think he is wondering and doesn't have the tools to ask someone a question or have a discussion about much of anything. On a forum/blog, it is easy to misunderstand what someone writes.

Merry Christmas to all.

wave rust

[Hockthefarm]

Y
"Hock, the political classes are acting like asses, while the underlying economy morphs towards the online future."

Yes, poor old Jimmy Carter was the last pres to try and hold the line and that was after Nixon completely lost control of the economy (that is the economic meaning of wage and price controls).

http://mikelove.files.wordpress.com/2007/12/deficit.gif

The range of the Y axis on this graph will have to change before Obama completes his first term.

In this season of reflection, I think of the countless people (particularly single moms) that made a go of it working at grocery stores and local merchant shops in the communities we have lived in over the years. When government designed their policies around wild increases in the cost of living (housing, education, rents), they created wealth for a very small group of people and essentially destroyed this way of life. The mall here (an affluent retiree community) is on its last legs. They can't compete with amazon.

Hock

[yelnick]

wave, couldn't agree more - it is the spending, stupid. tax & spend, borrow & spend - both are wrong. Cut the spending

[yelnick]

manav, yes, socioeconomics would predict a hardening of idealogical positions in these times, as we are seeing. You can see it in blog comments in general, altho this blog for the most part has evolved to fairly reasoned positioning with the occasional flame.

[yelnick]

Hock, I wouldn't connect Amazon/malls to the hollowing of the middle class. Take a look at Steve Keen's site http://www.debtdeflation.com/blogs/

His models show convincingly that as he banksters suck more profit out of the economy (rule of thumb: their sweep should be 1% of GDP or 10% of profits) the largest loser is the middle class real wage. This is because they divert capital to speculation and away from business investment, and hence middle class jobs fall behind global competition and potential growth. A consequence of the moral hazard & the attendant credit bubble is the destruction of middle class wages. The continuation of debt to repair a credit crisis simply drives the middle class further down. 

Obama could help his constituents a lot more by fixing this dynamic than continuing handouts such as the FICA tax relief. Bush similarly did not have a clue. 

The last one who did might be Volcker. 

[Hockthefarm]

Y:

"His models show convincingly that as he banksters suck more profit out of the economy (rule of thumb: their sweep should be 1% of GDP or 10% of profits) the largest loser is the middle class real wage."

I couldn't agree more. The financial industry has just about sucked the country dry. All I'm saying is that the reach and economies of scale of an Amazon have finished local, retail economies. When I bought my tv (LG led lcd 55") I didn't even look locally. Turns out there is a local shop. They check amazon and crutchfield every day and match prices. All their money comes from installs. They basically give the tv's away. Lots of luck there.

Hock

[Hockthefarm]

Here is the extra you are going to need to save to atone for Obama's reckless trillion dollar deficits:

If your Social Security payments are scaled back, or worse, what would it cost you to buy something similar in the private sector?

We can do some math.

According to ImmediateAnnuities.com, a 66-year-old man would have to pay $128,000 for an annuity providing him with income of $10,000 for life. A 66-year-old woman would have to pay even more, about $138,000.

That's for an income of $10,000 a year. If you think you'll need $40,000 a year to live on, naturally you'd need to set aside four times as much, or about $550,000.

And this would only be for a straight annuity, with absolutely no inflation protection at all.

Few life insurers provide inflation-protected annuities. New York Life offers something close: an annuity that increases payments by a certain percentage each year. This won't protect you from runaway inflation. But at least an annual increase of, say, 3% will give you some cushion.

I asked the company how much a 66-year-old would have to pay for an annuity paying $10,000 a year, with a 3% annual increase.

The answer? About $180,000. It's about the same for men and women.

Right now, the average retiree is getting about $14,000 a year from Social Security. To buy a similar income stream on the open market, a 66-year-old would have to pay about $250,000. Someone getting the maximum benefit, $28,000 a year, would need to pay about $500,000.

It's something to bear in mind as we debate cutting Social Security. Most Americans are already grossly underprepared for retirement and have saved far too little.

According to the most recent survey by the Employee Benefits Research Institute, a think tank specializing in the topic, fewer than half of workers have even saved $25,000, and only a third have saved as much as $50,000. Forty-four percent have saved less than $10,000, and a quarter have basically saved nothing at all.

To put these numbers in context: Someone with $25,000 can buy an annuity (with the 3% annual bump) paying maybe $1,400 a year. Someone with $50,000 can raise that up to $2,800 a year. That works out to an income of $54 a week. Good luck with that.

If we want to cut Social Security, even prosperous middle-class Americans need to save much, much more. Starting about 20 years ago."
//

What government wants is another "we have no choice, the consequences of not cutting SS to anyone that did some planning will bring down the financial system"

Hock

[yelnick]

Hock, polls show the FICA reduction is the one aspect of the tax deal a majority dislike. I think this is why:

The general public gets that social security was social contract - you pay in, you get out. The reduction in paying in breaks the contract, turning it into just another welfare program. It was a very good decision by FDR to tie the social security concept to a social contract, even if the Congress has fiddled and fussed with it since; it gives the worker a stake in the system.

Now, Michael's beloved Obama may try to tackle the long term insolvency of social security, but he should be careful not to break the social contract. As you point out, a whole bunch of Boomers have not saved, and found their housing equity has evaporated. Nor can they count on their underfunded pensions. This leaves them social security.

One solution is a new social contract: opt out in exchange for forced savings into regulated types of investments - essentially, safe ones. Something similar to what ERISA provided in 1979. The ones who stay in get their benefits. The ones who opt out go for what they call in Australia the Superannuation Funds - a forced 9% of wages saved to a restricted set of fund managers.

The restrictions keep the funds in relatively safe investments while unleashing it from the political finagling of Congress in to social security.

[Hockthefarm]

Y:

What you lay out is so simple that it really speaks to how shoddy government has been in this country for a long, long time.

It will be interesting to see how many foreign bases we have (156 currently as I recall) when this social contract is broken.

What a mess. And absolutely no reason for it at all.

Hock

[Wave Rust]

yel
I may have said this before, but the problem with the Fed Res is not that they didn't follow Bagehot's rule of when in a financial crisis the lender of last resort should be "lending freely on good assets". They did. BUT, they can't figure out how to "make" the banking system lend again. So many banks have just become bond trading houses for their profits.

If, instead of 3 Trillion in spending, the Congress had stepped up and backed lending and lenders with 3 Trillion of reserves for regional and community banks, based on an asset to peformance risk basis, I don't think we would be having this discussion. Banks of all sorts would be lending.

It is/was the Congress that thought they heard the words 'spending freely' in a financial crisis, instead of 'lending freely'.

No Fed or Fed monetary policy has ever been able to fight a spendthrift Congress, although the Fed does get the blame many times. Not even Volcker could.

==========
you wrote,

"altho this blog for the most part has evolved to fairly reasoned positioning with the occasional flame"

I agree, quite fair indeed. Thanks for that.
I hope you and your family have a great Christmas, Duncan. :)

wave rust

[JT]

"He is merely a tool for the extreme left." - Wave Rust

That's hysterical.
What kind of drugs are you on?

Obama's spent his first two years in office ALIENATING the extreme left... from extending the Bush tax cuts to pushing further battles in Afghanistan and increasing troops there.

You are an idiot.

With the above quote, you have ZERO credibility here whatsoever. In fact, I wish that Yelnick had an ignore button.

[yelnick]

wave, I doubt Bagehot would favor QE. Banks borrow short ad lend long; as long as long rates are depressed, they won;t lend but speculate. We needed to recap the banks by siphoning off the bad debt and letting them restart clean. We still need to do that.

[Hockthefarm]

"He is merely a tool for the extreme left." - Wave Rust

That's hysterical.
What kind of drugs are you on?

Well if it walks like a duck:

http://www.youtube.com/watch?v=usvG-s_Ssb0

I found my thrill,
On Fannie Mae hill

Hock

[Hockthefarm]

And the best for last. Barney "Bagdad Bob" Frank on the soundness of Fannie and Freddie. Remember, this guy actually gets paid!

http://hotair.com/archives/2008/09/29/video-democrats-insist-nothing-wrong-at-fannie-mae-freddie-mac-in-2004/

Hock

[Account Deleted]

Dow Jones analysis after closing bell
http://niftychartsandpatterns.blogspot.com/2010/12/dow-jones-analysis-after-closing-bell_21.html

[JT]

Hock,

Guantanamo Bay is still open. There is no public option for health insurance. Obama has 50,000 troops in Iraq, and MORE TROOPS in Afghanistan than George W. Bush had on his last day in office.

The Patriot Act was renewed with no added oversight of surveillance. You still can't buy reimported prescription drugs. And now Obama extends the Bush tax cuts and chops the Estate Tax down to 35% and hikes the exemption up to $5 million.

And Obama's a Liberal?
That's funny.

[Wave Rust]

yel,

maybe the Fed can do a "BOGO" sale on toxic assets. Tell banks, if you lend a new million, we'll take a million of your garbage.

That might actually double the leverage for banks creating money. twice the punch for half the price.

wave rust

[?]

Hock,

Your comment about annuities.... With QE2, interest rates are so distorted. You cannot even guarantee that the company that sells you the annuity will even be able to make a decent return on their investment to pay out the annuity. Then again, maybe if they blow up the government will bail them out...

[Perigee]

Hi Yelnick

I live in Australia and so am very conversant with our superannuation system. It is indeed 9% of incomes as a contribution, but a couple of points to tidy up on your comments:

1. There is virtually unlimited choice on investment portfolios and the fastest growing sector of superannuation is the do it yourself funds which allow virtually anything (i.e. we can buy 100% US muni bonds if we want to as an example)

2. The Government are starting to eye the honey pot and are starting to (by stealth) confiscate the super savings of many people, even though the people don't realise. As a recent example, one superannuation fund in which many public servants are members was effectively forced by the QLD Government (QLD is a state of Australia) to spend billions on a previously publicly owned tollroad that in my view has little prospect of reward in the future - so what the QLD Govt effectively do is confisacte forced super savings of their workers and pay doen the massive debt that had on this infrastructure project.

So i think while super (forced saving) is good, the Government see this massive pool of funds and someone at ome stage (like QLD Govt) is going to want to get their hands on it - that is a real worry here.

But the majority of sheeple are ignorant to this going on and this is but one small example - so my only advice is that while on paper it appears sound, you need to be able to control your own destiny or end up getting robbed blind while you aren't looking.

[DG]

With the above quote, you have ZERO credibility here whatsoever. In fact, I wish that Yelnick had an ignore button.

Posted by: JT | Monday, December 20, 2010 at 01:13 PM

Get in line on that one.

Although, I do find your little decrees on who has what level of credibility a laugh riot. They remind me of Chaplin in "The Great Dictator".

[yelnick]

JT, on Obama, I think his campaigning to the center then governing to the left has led a lot of voters to believe he is more a duplicitous wimp than a hapless centrist. My view is a bit different. I don't think he is a wimp; but also do not find him the type of leader we had in FDR or Reagan. He was always a leftist (look how he was raised) but is a very clever politician, and took positions he was not serious about in order to get elected. In contrast Reagan at least was very clear about what he intended to do.

I think he cares a lot about Obamacare and redistributing as much wealth as he can ("social justice") and has put his focus there, rather than a bunch of emotive issues for the left like Guatanomo or the wars. He will continue to pursue social justice outcomes where he can find them, like the FICA tax reduction, and hang on for dear life to Obamacare, his signature achievement.

I truly hope I am proven wrong about him. Nothing would be more delightful than a President who gets us out of lousy wars, who puts an end to crony capitalism, who fixes the banks, who reforms taxes to broaden the base and lower the rates, who ends the assaults on civil liberties, and who finally gets serious about tackling the horrific structural spending levels of the Federal government (24% of GDP).

Instead what you outline is the one of the worst of a set of outcomes - a continuation of W's poorest policies combined with unaffordable spending increases and social justice payouts layered on top.

If calling Obama a liberal is funny, the joke's on us.

[yelnick]

wave, what has worked in the past is the Swedish model, which is something similar to what we finally stumbled into in 1932: recap the banks, carve out the bad stuff into a resolution trust, and free the banks to go back to lending. Reinstating the Glass-Steagel separation would help focus commercial banks on commercial lending not trading & speculating. The recap basically pronounces the banks as insolvent, and the carving out repairs their balance sheets, but the cost is a loss of equity and unsecured debt. The resolution trust works off the bad stuff over a decade or so, probably in the end coming up with a profit.

You might ask, wasn't TARP designed for this? Well, it seemed more like a way to buy the bad stuff and keep the banks whole, rather than forcing them to take the hit for their excessive lending. In any event, it was never used in the way it was first sold, but turned into a slush fund of sorts.

[yelnick]

perigree, this is mightily depressing. Here I thought I could bail out of the US if things really went into the crapper by sheepishly showing up in Oz. Now, I can deal withe the first problem - unlimited choice is a poor idea as people will tend to foolishly chase yield over security, a poor idea in a pension plan. But I am more concerned over the second - now that the Labor Government is getting its hooks into the slush funds, all bets are off. Is NZ any better? Or do you expect a Liberal Government to take control back? Or might that not even help if the State Governments can get their mitts on the moola; I understand they are all pretty much Labor playgrounds.

[Wave Rust]

Thanks JT

i accept the evident wisdumb of your considered comment about my credibility. I bow to your superior knowledge of the "hate america leftist political movement" since you are an insider, I guess. California also?

Or are you and michael still wanting us to believe that you are not one in the same ,,,, since tone, style, and your neuro-linguistics are identical. :)) So here it is for you: Oblahblah is a closet republican, probably a John Bircher at heart. How could I have missed that? wow!

======

any way ,,,, this spx has done everything but breakout above 1250. looks like tomorrow might get at least a headfake break. trend is up but the day trades have been treacherous.

I thought the correction would start today but it didn't.. I did catch the morning reverse. the hourly charts are offering little to point to a down but each day in christmas trading is either very weird, very flat or very wild this year.

look at the globex now ,,, up 4 and been up 5 ,,,, the intra day downs have gotten so oversold so fast, the trade barely lasts long enough to tell whether it was a good trade. (good does not always equal profitable,imho)

but like DG says, it's a bullish formation and no reason to fade it yet. pretty crazy bull. fwiw, i'm trading tweezer sized positions ,,,, teeny ones

wave rust

[yelnick]

wave, I think JT's overall point is that the tendency to think the worse of Obama and be bearish seem to go together, and may reflect not an objective view of the situation but a subjective desire for Obama to fail. He is trying to give balance rather than cheerlead for Obama. His point is that if you look at Obama's actual decisions and not his presumed intentions, he has left a lot of Bush still in motion.

As to the expected reversal, it would be a bit of a shocker for market reversal to happen in the next three weeks. The Santa Rally begins now, historically, as traders check out and go home. The machines don't really get humming until the 2d week of January. This is why the seasonal pattern shows a reversal is common in January, and continues into Feb, a bad month typically. We saw that in 2010, and in 2009. The day I would be cautious about is Jan 10.

[Wave Rust]

yel,

glass steagall re-installed would be quite a feat and take alot of time, imho. That would likely freeze the lending even more as banks would "wait' through the lead up to the legislation passing, and then through the time the regs get dissected, and then banks try to decide what they will be or become under the new law.

and yes, completely agree on what TARP was supposed to be. it was such a simple straightforward attack on the illiquidity crisis in Sept '08. The resolution trust type facility would have probably stopped alot of the 2008-9 financial wobbling.

everybody has their favorite set of reasons that were the root of the crisis. if all the remedies like Glass steagall/resolution trust/TARP/TAF were immediately applied back then, much different outcomes may have changed what the economy and government are dealing with today.

but the elephant would still be in the room. The innumerable derivatives spaghetti, strewn around the world with no way to price these trillions of dollars holdings. that's the mess thats still with us.

i don't know whether it's a financial time bomb or a financial landfill.

"may you live in interesting times" comes to my mind more often than I could have ever imagined! :)

thank goodness we have a bull market to amuse us and pass the time, while waiting for whatever the 'good dough' pizza delivery guy is going to bring.

wave rust

[Hockthefarm]

?:

"Your comment about annuities.... With QE2, interest rates are so distorted. You cannot even guarantee that the company that sells you the annuity will even be able to make a decent return on their investment to pay out the annuity."

Point taken and I believe you are quite right. As I understand it, insurance companies do a lot of this work and they are regulated far less than banks. So it could be a real crap game.

Then you have Merideth W (see mish's board) saying she has punched the numbers and 50 to 100 muni's will fail in the next 12 months.

I really feel for people about to enter retirement. There is a lot of uncertainty out there. A mistake or two and retirement becomes a nasty mess.

And that is where government has really let us down. Say what you want about The Bernank, but the reality is that he sat and watched the whole thing unfold. Just sat there and did nothing until the system was about to collapse. That is not management. And listen to the fools rant about how great and sound Fannie and freddie were in the videos I posted. Government is packed full of garbage today. And it really is starting to show.

I had no say in the election of Barney Frank. What is democratic about me having to watch him bury my kids futures? Or what about the hard working folks that saved and bought a house only to watch its value implode because of fools like Barney Frank. You can only hope that the RE in his state has been cut to pieces. At least they got to vote him into office.

Hock

Hock

[Wave Rust]

yel,

not even msnbc believes that obama has alienated the left. where are they going to go? the left is happy, delighted with Oblahblah. This is faux outrage and disappointment at the tax cuts.

the whole symbolic anger about the rich getting equal treatment was all for the unions and government leeches in congressional districts for the 2012 elections. this is how the dems in congress will behave for 2 years. they are the new party of No.

they got shamed and embarrassed in the 2010's.

as for the bush policies still intact ,,,, look at any pres in the 1st term, same thing. reagan stopped a few things but could not stop the spending of the dem congress.

the ship of state is monolithic and isn't turned around in a day or a year. reforming health insurance/care will probably be overturned ,,, i hope. and good riddance. maybe reforming the cause of the systemic problem will be addressed first, next time.

but 3 trillion of govt dole in a dem congress with dem prez, has accomplished little positive except to fund a bull market and huge unproductive debt. where da yobs, man?

single payer is socialist dictator stuff. card check is socialist dictator stuff. wait till your internet access and your radio host are controlled/regulated by an arbitrary by the freaks he installed at FTC and FCC. i'm sure they are republicans too.

so the real question is this, did bush end up as liberal as Oblahblah is? in some ways he was. even so, I'd take bush over Kerry any day, under any circumstance.

afghan was a given to stay and fight ,,, no choice.

the left want control and they may have gotten it if healthcare mandate is validated by the supremes. their whining is just BS, irrelevant and meaningless.

Best laugh I've had about Oblahblah was what soros said a couple weeks ago. "If he isn't going to do the job, we'll get somebody else." the great big lie ,,,, ala goebbels, lenin, etc. this guy is the perfect leftist tool.

why has the left not screamed about the patriot act since he's been pres? well, because now they control the info, not those 'evil' repubs.

the masses are so easily duped by a smile and a speech ,,,, as it has always been. the Fabians rule. they have owned both sides of each pres election for the last 80+/- years, even goldwater.

the left got the message in November 2010. back off and act like Oblahblah isn't part of your gang of thugs. criticize him. mock him. then he citicizes back, mocks back. and, all the little people say, " oh my Oblahblah isn't so evil afterall." the wolf has donned his sheepskin suit again. "I'm really a sheople just like you little people, and all these evil people are trying to stop my work for you. I'm so misunderstood."

believe what you want. it's still a somewhat free country.

again, i have seen this movie before too many times in many countries. same lies, same platform, same promises, same results. Oblahblah and the leftists are running a beautiful con and it's working like a piece of great criminal treasonous art.

but the american people will eventually overcome this too. of that I am sure.

wave rust

[Account Deleted]

ES Negative divergence

http://niftychartsandpatterns.blogspot.com/2010/12/s-500-futures-before-opening-bell_21.html

[Mamma Boom Boom]

>I thought the correction would start today but it didn't.. I did catch the morning reverse.<

Wave, I tried to give you a heads up last Friday. Odds are we get a blue chip rally through year end.

[Perigee]

Yelnick

Most people who run their own super fund (i.e. unlimited choice) have tended to have significantly overweight positions in cash, which has propbably helped a bit in recent times. But the real issue for superannuation here is the massive legislation burden that tends to increase year after year. The Government are again toying with more rule changes that in my view aims to enable them to start to exert greater control.

The biggest super funds here are what we call industry funds, which are funds that group people in similr occupations (i.e. hospitality workers etc) - and of course they are run by unions or similar. A lot of legislation being spoken of or introduced seems to come from these sorts of funds/organisations. The banks here will also benefit from changes being mooted.

There are currently billions of $$ in "lost super", or accounts where people are lost or uncontactable - the Government are now going to have these funds deposited into their coffers after a certain time.

Many of these lost accounts are from overseas wrokers who come here for a period and then head back home - if you are very cycnical you could argue it is just another tax burden on employers and ends up in GOvt hands.

There is also a likelihood of the 9% increasing to 12% of salary/wages, which the employer will pay.

Of more conern is the actions we are starting to see as described earlier by the QLD Govt - this will only increase in the future.

As far as NZ goes, they don't have a compulsory scheme but have introduced a form of voluntary super where additional matched payments I think are made for the member, but the levels are quite low. They call it Kiwisaver.

I think the real issue with Aussie super and any similar arrangement is the heavy Government legislative control which means they can manipulate the rules as needed - and given the large pot of $$ available, it must be mightily tempting. When the 9% is put in (or more if employees sacrifice income), the Government take 15% as an immediate tax. There is also lump sum tax on encashing the benefit unless you are age 60, after which there is no tax.

The Govt see super as a cash cow they will likely try and milk to the best of their ability.

[yelnick]

wave, yes, it appears the Fabians did much better than the Marxists at creating their socialist paradises. Whether the encroachment of big govt can be turned is unclear, at least before it goes bankrupt under its own excesses.

[vipul garg]

spx has pretty much behaved on expected lines.. relentless upward push.

but it is unreasonable to expect to cross this level without a small panic correction.

[Wave Rust]

mama
didnt you say SELL?

wave rust

[Wave Rust]

yel,

the object is crisis, so that all will look to the Oblahblah (or the next pres) and his backers, the neo-globalists, for help and solutions to the Fabian created crisis. Pretty simple plan

it's like a english bulldog that gets a bite and holds on till there is a bit or slack in the resistance, and then the dog takes an even bigger bite. eventually the opposition dies due to blood loss. They were bred for that tactical method.

It's just a matter of time.

the next crisis be blamed on a new straw man. the straw man is selected because of how believable he is drawn in the media.

they wash rinse and repeat better than just about any organized political entity.

wave rust

[Mamma Boom Boom]

>mama
didnt you say SELL?

wave rust<

Yes, I put out a sell over the intermediate time frame, 6-12 months. But last Friday I brought up the probabiility of a 2 week blue chip rally. Did you miss that?

Different time frames ... different strokes for different folks.