Tax What You Wish to Discourage

Taxing activities means you wish to discourage or perhaps even eliminate them.  Cigarette and liquor taxes are a good examples.  Is their purpose revenue or to discourage undesirable activity?  So, why does Obama want higher taxes on the rich?  To discourage?  To eliminate?

One clear reason not to tax the rich is that you want the economy to improve or you want to lower the national debt.  Taxing the rich will actually have the exact opposite effect.

So, the Obama argument is that we should extend the Bush tax cuts for the middle class only if we can guarantee a weaker economy than we have now and offset the middle class tax cuts with lower revenues (though higher rates) from the rich that will increase the national debt.

And half of the nation wants to vote for this.

Good quotes about losers (and losing)

Great collection of quotes on losing from Jeff Watson's blog. 

You'll see that many of these observations apply to trading and business. Here are a few of my favorites:

"A loser doesn’t know what he’ll do if he loses, but talks about what he’ll do if he wins, and a winner doesn’t talk about what he’ll do if he wins, but knows what he’ll do if he loses."

“One of the first businesses of a sensible man is to know when he is beaten, and to leave off fighting at once.” -  Samuel Butler

"There may be as much nobility in being last as in being first, because the two positions are equally necessary in the world, the one to complement the other." - Jose Ortega y Gasset

"Wise men never sit and wail their loss, but cheerily seek how to redress their harms." - Shakespeare

"When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost." - Motto 

Head on over to Jeff's blog to see the full (bookmark-worthy) list.

*Photo credit: The Frustrated Gambler, via Christies.com

Boom or Bust?

The last hope of the Bulls is fading quickly. Chairman simply repeated what was in the FOMC meeting, i.e. they are ready to help. But with SPX at 1360+, Crude near $ 90, and given the political situation, he is unable to do much even while his fingers are itching for press “Print”. I think we have a A-B-C counter trend rally which is nearing the end. Whether C will make a higher high and over shoot the sloping trend line, I am not sure. But the short term cycle which caused this pop is topping now.

May a little bit push is remaining but I think we are nearing a major correction. Let us see how it plays out. If Bernanke was giving hint for any future QE, gold did not get the hint. Only equities jumped high in air and remain floated. It seems the only game in town is QE. If it has been priced in, when it comes, how far will the equities go up from here?  I do not see much of an upside for the risk assets as a whole given the economic situation of the world. (Liquidity pumping not withstanding). My thinking is bit simplistic. No QE, no Rip. We will see in couple of days.

VIX is at 16.48 as I write it. Almost at historic low level.

How low you think it can go down from here given all the headwinds?  Even Bernanke agrees with me: "Economic activity appears to have decelerated somewhat during the first half of this year." So what are they celebrating anyway? Hope? Hope is not a good investment strategy. However good the SPX chart may be looking, whatever reversal or reversal you have, hammer, rock or whatever candle pattern is there, it all boils down to central bankers provided liquidity. Without that, nothing.

Only positive I see is the strength of AUD. Even that has no basis given the dependence of AUD on China and the weakness of the Chinese economy. I would be very surprised if we do not see a severe downturn soon. Question now is, how low the 10 year rate will go down to?  And that is bleeding the Pension funds dead by thousand cuts.

There have been some changes in my personal work situation. From July 25^th , I may not be able to post on a daily regular basis for at least a month, as I may have to travel extensively.  But as and when I come across important issues, I will definitely reach out to you through Twitter. For now we wait for the end game to begin soon.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

How to Prolong Economic Stagnation

The coming 'fiscal cliff,' by itself,  is enough to bring the American economy to its knees.  There is considerable evidence that the process is underway.  The American economy shows virtually no economic growth at all and employment gains are miniscule.

 "If you've got a business, you didn't build that...somebody else made that happen."  Now who would you think would say that?  Try the President of the United States!  Obama made that statement yesterday.  That pretty much sums up his attitude and understanding of free enterprise and explains the underlying rationale for his economic policies.

Obama's hatred of capitalism and free enterprise is apparently boundless.  His policies, his rhetoric, and his body language exhibit this hatred every day.

Meanwhile the media is focused on non-issues that underscore the media's contempt for capitalism.  The "libor scandal" is a joke, based upon a confusion.  Unfortunately, the joke is on the economy as banks continue to spend more time with their lawyers than with their customers.  Meanwhile, the media has decided that the presidential election should be a referendum on whether or not private equity is an ethically-based business.  Who cares about unemployment and economic collapse, when we can focus on how terrible it is that there are rich people out there?

All of this means there is no economic growth in our future and the economy is likely headed for a generation of economic stagnation with the ultimate destination something like the morass that is modern day Europe.

France in Denial

Francois Hollande, the new Socialist leader of France, is the new Obama of Europe.  Peugeot announced last week that they were laying off 10,000 employees in order to "return to profitability."  Naturally, Hollande responded with a government inquiry and statements that implied that the government would never permit the layoffs, by this private company, to take place.  And you wonder why no one wants to hire anyone in France?

If that isn't enough, Hollande responded that labor costs in France, now averaging 34.20 Euros per hour were not all that high.  Do the numbers.  34.20 times a 35 hour work week (mandated by French law) means 1,197 euros per week.  With four weeks off per year, (also mandated by French law), that means hiring someone in France cost 57,456 euros per year, or approximately $ 69,000 per year.  Gee, at that price, why not load up?

Good luck with that.  An 11 percent unemployment rate is just the beginning.  Look for a bull market in France in the unemployment numbers!

The Week Ahead.

Europe had bit of rest last week. There was not much noise about Spain or Greece. That is funny because Greece is on the verge of getting booted out.

http://www.testosteronepit.com/home/2012/7/13/greece-flails-about-troika-inspectors-paint-awful-picture-me.html

Time is really running out for Greece.

How about Spain. We have not heard about it for few days. Remember all those Spanish Banks who borrowed money from ECB at 1%? Pray what they did with that money? They mostly bought Spanish bonds at 4% coupon rate. Now those same bonds are 7%. So the Spanish Banks are under water within 6 months, they are more in debt and their collateral is less in value and they will be required to submit more collateral to ECB. But they do not have any more assets in their vault except some dead rats.


Lets see what the country of Bunga Bunga Berlusconi is doing. Its debt to GDP is already over 120% and it cannot print any money unlike USA. Its 10 yr rate is around 6% which is way more than any future growth prospect of Italy. 

I do not want to get started with USA any more because it is a train wreck in slow motion.

It is a case when nobody does math anymore. But the MSM is owned and controlled by rich billionaires and business groups who create panic when they need to buy cheap and create euphoria when they need to sell high. So it is no wonder that while the markets are being pumped up higher, there is absolute news blanket. This is going to culminate in SPX 1375 range?

I think we are coming close to an important correction. It has already started. Sell signals have been given. But lets for a moment forget about the technical indicators and step back to think as to who runs the market. Major part of the trading, between 30% to 50% is done through dark Pool, network of private exchanges, which are not revealed to public.

The TBTF banks that run these dark pools are flat broke and they are fudging their books from 2008. Because inside their assets all they have are messed up toxic sludge. They have to , they must get free money from the Fed at 0% and recycle it back to the Fed to get 4%. That is the ultimate ponzi scheme of America. If only they can do it many years, they can survive and continue to draw high salaries and bonus.  That is why we see Sharks and Whales running a hedge fund which generates 30% of their reported profit. Unfortunately. now they will have to close their hedge fund. Even then they lie about the pricing of their CDS and nobody knows what price they are considering to mark it and book profit. These TBTF banks need QE every year just to survive.  QE does not help the economy, QE help the TBTF banks. It is that simple. Obama needs QE to get re-elected so that assets prices gets inflated, 401K looks better and voters mood is right. But they cannot get QE if the stock market is near its high.  And VIX is at its low level since 2007.

Whenever VIX has reached this level, it has lead to a correction. Right now it is at 16.74. May be we will have to wait till it reaches below 16 or even 15. But not beyond that.

I do not see SPX going much higher in 2012. But we have to respect the Presidential Election Cycle and it is highly unlikely that the market will roll over before the election. If we put everything together, it surely points to a mini panic coming soon. At least my cycle says so. If you are an investor, you are well advised to remain in cash and after this correction is through, we will get another buy and hold opportunity.

That’s all for this sunny Saturday.  Thanks for reading http://bbfinance.blogspot.com/ . Join me in Twitter (@BBFinanceblog) if you like to share my comments and market actions. 

Irrational Exuberance Redux.

Are you trying to figure out why the stock market jumped the way it did today? Was there an expectation of stronger economy, higher yield, problems in Euroland solved or Obama managed to create employment for everyone in America? Only worthwhile news I can think of is that Italy was downgraded last night.  But look no further, we are here:

And that is why the bounce.

I did call for a bounce yesterday and said that it will be an opportunity to short at a higher level.
I expect Monday to be small range bound may be tiny red and Tuesday another jump up. Then hopefully game over.

You may ask why did I go short before? For one, we can never exactly time the market. And secondly, that is why we are only half invested and going short in stages.

I took off the most volatile part yesterday and am happy to keep the rest in.

Amongst all the noise and euphoria, Apple was definitely weak today with a jump of only 1%.

By the way, do you remember that bear market correction starts on good news, not on bad news. So by next Tuesday, you will see all the talking heads saying how nice and blue the sky is!

The above tape will be played out in the next few days and I can hardly wait with all the excitement.

Before we go for the weekend party, I have this write up on the investment philosophy by George Soros:
http://www.marketfolly.com/2012/07/george-soros-best-investment-advice.html
Take your time to read it.

So have a great weekend folks. Rest the brain. We will need it functioning well next week.