Running the Gauntlett

Taxes:

The ubiquitous “necessity” that engulfs us continually. That sentence reminds me of just how complex and absurd the tax code is to follow and comply with every year and every day. On another board there was recently a discussion about the Auto companies with respect to their inefficiencies. Simply looking at all the rules and regulations they must follow in addition to the UAW well no wonder they need a bailout. Henry Ford was on the cutting edge and now Ford is close to falling off a cliff.  If I had to pay a worker $70.00 an hour for a repetitive task how could I be competitive?

So, back to the issue of taxes. I’d love to say they we don’t legally have to pay them, but you go right ahead and give that a try and see where you end up. The IRS will find you or your money and take it. Remember they have the backing of the US Government, which has plenty of people who will enforce the IRS rules if you decide to not comply.

Today is December 31, 2008 and in a few hours 2008 will be put in the history book. There will be plenty to say and perhaps in five years it might be considered the beginning of the end. Who knows…

I obviously have plenty to say about 2008, but at the end of each year investors have to decide if they are going to take any unrealized gains or losses to offset their other gains and losses to minimize tax consequences. You then have to wait 30 days before interacting (buying/selling short) with that particular equity if you want to take the loss.

Something about this just doesn’t sit right with me. So, 2008 draws to a close and I have to close out positions just for tax reasons, but I can’t buy them back for 30 days. Heaven forbid if I entered the market at the wrong time and want to reenter prior to 30 days. I’m sure someone gave a great reason when instituting this law, but really it punishes even a swing trader unless they are designated as a trader (which there are plenty of stipulations for). Once designated a trader you can elect mark to market status, which eliminates the wash rule as well as eliminates the limitation on carry forward losses.

Ultimately, I just don’t see how these laws benefit anyone except by “decreasing volatility”. If you trade more often than an “investor” you may be penalized. What happens if a trade is accidentally executed that then puts you in the wash rule category and you can’t take the loss? Bummer.

All in all these rules are supposed to “help” the taxpayer and average citizen, but really I’m missing something here. For all you commenters out there I’m sure someone will have something to say as to why it is needed. Go right ahead and show me.

Don’t we pay enough in taxes from inflation?

Sometimes I come across something that give me pause.  I don’t need to say much about this video except that the truth is frightening.  Enjoy!

Christmas is past, New Years on the horizon, hope for change lingers in the air like a slow moving mist.  2008 will go down in the history books.  Oh it was memorable, but like a lemon is bitter.  Collapse oh what collapse the economy is fine.  Bush reassured us that the fundamental of the economy are solid.  Head on over to my quotes page and you will see the stumbling follies.  How could so many miss the storm with its blackening clouds enveloping the world to unleash thunder and hail that would bring equities and commodities crashing down?

So, here we are awash in retail inventory priced to go, but to whom?  People are losing their jobs, being moved out of their houses, hoping not to foreclose or go into bankruptcy.  Silently they pray and hope things will get better.  They remind themselves that change is on the horizon, and we will be saved.  However, just as when we overextend ourselves with credit change will do the same, and at an enormous cost to the present and future generations.  How big a pit will be dug I don’t know, but I’d place a large wager that it will be quite large.

Like the eye of the hurricane all is calm in the eye, but the pre and post can be devastating… if you survive.  As we sit in the eye watching the clearing above, the clouds move by, the presents exchanged, and champagne ready to be uncorked.  As we go about our daily lives in the eye we want 2008 to go in the history books, and not to come back.  Oh I wish that were possible as it would be as sweet as honey.

As the eye passes the next front moves in.  The wind grows fierce, sheets of rain and hail pelt all and everything in its way.  Yes, I think the time is near.  Batton down your hatches, have your “preparedness kit” at hand, and be ready for 2009, it will be another year for the history books. While Subprime was the 2008 buzzword are you ready to learn all about Alt-A and Option ARMs?  Or what about oil exporting countries such as Russia who need oil to stay above $40.00 a barrel?  What happens when they sell their foreign debt?  Expect much higher interest rates.

Ahh but you say wait a minute everything will be okay as change is in the air.  The government will stimulate us out of this mess and we can continue on our merry way…  Perhaps, but I don’t concur.  Remember we are a debt laden economy with a very large trade imbalance funded by our exporting friends.  Sure we will “print” money, but I ask you at what cost?  To print money means to make more out of thin air.  To take a bit from you, me, and the rest of dollar holding persons is theft, but unseen theft.  Add that to more debt that we have no way to repay and I see a storm brewing so violent that everyone will be in shock, awe, and amazement at its velocity and ferocity.

Just remember with every crisis there is opportunity.

Sometimes your environment is a great tell of what to expect in the future.  All may look great, but beneath the surface lurks a silent disease.  Enough with the metaphors…

I was in line this morning grabbing a coffee when the person in front of me being wrung-up paused at his total bill of $15.00 and change.  He seemed startled at how expensive coffee and food was.  Then the cashier was asked to go through the prices of each item.  Not only did he get coffee, he also purchased some baked goods, which totaled the $15.00 and change plus tax.  What startled me is what happened next.  He asked for paper and pen and then wrote out line by line each purchase and then added them up.  The total was $14.00 and change, which gave him pause because the two didn’t match up.  However, sometimes we forget tax, which he did.

He was mainly unnerved by the cost of everything, and proceeded to apologize to everyone in line.  Personally, it wasn’t a big deal to me, and I felt for the man.  To add up every purchase signed to me that he no longer trusts anything to do with finance.  He remarked about not trusting banks, and I’m concluding that he has lost faith in the system.

I imagine this is happening all over the country, but many aren’t vocalizing it.  They are only thinking in their heads either I need to put something back, walk away, or make the purchase with a cringe.

The holiday season will be a difficult one for retailers.

This is going to be short and sweet… We’ve broken the lows from 2003. It is very possible that we go much lower from here. We may get a bounce, but there seems to be a major lack of buyers. I wouldn’t be surprised to see a gap down tomorrow as all the people who weren’t watching the market today realize what happened and decide to sell first thing.

Frankly, we are now in uncharted territory. It seems as though we’ve corrected (in the US equity markets) the excesses from 2003 - Present, but that leave the bubble up to 2000 that was never allowed to correct due to the cheap money thrown around.

My fear is that we are only part way there. Remember in the movie Titanic when the ship started sinking. At first everything was calm and orderly. Eventually panic broke out as it started to go down and eventually broke in half. Have you seen panic yet? I sure haven’t. If this isn’t panic then imagine what is.

More soon.

The following are responses that Richard Maybury gave in an interview with Investor Insight.

He makes a case for the coming of a great inflation. We haven’t seen the beginning yet as we are still going through a process of de-leveraging.

–Article–

Obama is a boomer, and I think an understanding of the boomers is a valuable tool for seeing what is coming. Boomers were raised in government-controlled schools and colleges where they were taught Keynesian and socialist economics. Neither Keynesianism nor socialism contains the concept of malinvestment, meaning the distortions caused by the government injecting massive money into the economy. These two forces, the injection effect and malinvestment, are the foundation of the economic crisis, and I’ve never heard Mr. Obama or his advisors say anything about them.

Money responds to the law of supply and demand just as everything else does. When the supply of dollars goes up, the value of each individual dollar falls, and prices rise to compensate. That’s inflation. Inflation isn’t rising prices. Inflating the money supply causes rising prices.

As prices rise, people become poorer and they demand relief. The politicians stop injecting money, people have less to spend, and business slows down, often causing a recession. The shakeout can be very painful, depending on how long the inflation has lasted and how many new dollars have been injected into the economy.

The government has only two ways to finance its spending — taxes, and printing money. Seven years ago the White House and Congress decided to finance the war by printing dollars instead of raising taxes. According to the St. Louis Federal Reserve’s MZM measure of money supply, the number of dollars circulating in the US on 9-11 was $5.3 trillion, and now it’s $8.7 trillion.

What is generally overlooked is the fact that the Federal Reserve has been inflating the money supply almost without pause ever since the Fed was created 94 years ago. So, underpinning the most recent seven years of injections and malinvestment, we have the residual from the previous 87 years.

Remember that I said events will control Obama much more than Obama will control events. Ever since the Great Depression, the way the federal government has dealt with shakeouts has been by re-inflating. They halt recessions by expanding the money supply further, which stops the shakeout. But that leaves a lot of bad investments in place, and it also creates a lot more. Of course, the so-called rescue pushes the day of reckoning into the future.

The interview continues and he mentions that eventually as the reserve currency the United States will have to do something to regain support of the dollar. He proposes this will be done through a return to the dollar being backed by some basket of currencies. Something will have to be done if the dollar isn’t to be completely destroyed. The entire interview is worth the read. Here it is: Interview.

Retirees a threat… reading that sounds absurd to me. However, take a moment to think about it. Say I’ve been putting money into my retirement savings for many years and I’m about to retire. The general prescription for retirement accounts is a variety of approved funds, unless you’ve elected to go with a self-directed account. Last I checked most are down by 20% or more for the year.

Imagine being in your late 60’s and watch 20-40%+ of your wealth vanish. Whoa… what do you do?

1) Keep your money invested because you hope the balance will recover
2) Sell to get cash so at least you can survive the future

Regardless you will be selling as time marches on to fund your retirement. As the market continues its descent and people’s frustration and anxiety grows the propensity of panic will grow as well. People aren’t panicking yet. They are anxious, full of anxiety, and want help from the government or at least some accountability. Once the people still holding on just want cash then we will see a capitulation pushing all the indices down further. Will there be bear market rallies… YES! We have already seen many.

The chop over the past couple weeks is forming a bit of a channel as the bears and bulls fight it off. People wanting to enter the market long in hope of hitting the bottom only sell at a loss later when the market continues it primarily downward trend. I’d love to say there will be a major (SUSTAINABLE) rally, but look at all the economic news. Citi laying off 50,000 people worldwide… WOW! If that isn’t yelling recession then umm I don’t know what to say.

Okay let’s pull this all together. Really bad economic news on many fronts all around the world. A large percentage of the US population is about to retire. The retirees are depending on their savings to retire. They face a choice of either holding on until they no longer can if things continue to deteriorate, or getting out now. Either way there is a downward pressure that the bulls will have to push through to rally for any serious amount of time.

Will someone please explain why those who take undue risks get the most support? I’m not behind on my mortgage payment, I pay my bills on time yet I’m not getting any governmental support.

Troubled Homeowners: article

To qualify, borrowers would have to be at least three months behind on their home loans and would have to owe 90 percent or more than the home is worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.

People that put 10% or fewer down are getting help on their mortgage. These are considered a riskier mortgage because the borrower has much less collateral in their homes and it make it much easier for them to walk away. Unless of course your parents come in and throw you some cash to stay afloat. Where did this cash come from? You and me the taxpayer.

Since when has the United States become a country where we reward the careless. The responsible are punished and have to pay for other people’s mistakes.

Here is the best part… look what they get!

Qualified borrowers would get help in several ways: The interest rate would be reduced so that they would not pay more than 38 percent of their gross income on housing expenses. Another option is for loans to be extended to 40 years from 30, and for some of the principal to be deferred, interest-free.

Imagine if you are a plumber who took out an ARM that is adjusting and you have a relatively minimal income. Your payments are going to be absurdly small. You put little to nothing down and are now getting your house for practically nothing.

Is this really for the homeowner? Remember that when you have a mortgage you don’t own the house the bank does. The only thing preventing them from taking it is a contract, the law, and their desire to have a stream of income. Two choices exist for them if you can’t pay. Take the house or reduce your payments.

If they knew there was no chance of a bailout they would have been much more prudent in their lending practices because they aren’t setup to become sellers of houses. However, the implicit knowledge that too large to fail companies are bailed out enables them to do reckless things that the taxpayer gets to pay for.

Since where has there been a problem with renting? Not everyone is going to own a home. Get over it. Foreclose and go rent. I don’t want to pay for your loan. You took on too much risk. Just because you think it can’t happen doesn’t mean it won’t. Yes, housing prices fell when everyone said they wouldn’t. Do you buy a car thinking that it will always appreciate? No… why because you understand that a car loses value. Generally house prices increase in value, but there have been times in history where they fell. Do you take out a loan that adjust to an unaffordable rate in 5 years if you won’t be able to pay it? NO

Wake-up America these bailouts are for the careless. These bailouts are for those who took on inordinate amounts of risk. ultimately the bailouts are for major industry and banks at our expense. Are you okay with this? I’m not.

I’ve had this nagging in the back of my head saying something foul might be looming out in the near future.  Normally I don’t watch Bush on TV or listen to him on the radio as I can’t stand it.  That aside I watched and listened to his speech today.  It sounded good… all this talk about suporting the free markets and free trade… mind you we have neither.  It felt like a pep talk to make everyone feel warm and fuzzy inside when the exact opposite was going on behind the curtain.

He mentioned revamping the current financial systems and having a organization oversee markets.  Without saying it he was essentially saying yeah free markets are great in theory, but this was all caused by free markets.  Therefore we are going to create more bureaucracy in the name of the free market to prevent a future failure.

Last time I checked business come and go, the economy goes up and down, and that is okay.

So what is this potential future I speak of?  …>

The election is over yet the transfer of power hasn’t occurred.  What could happen to delay the transfer? A major crisis of sorts would do just that. Why isn’t Obama going to the G20 meeting? Why is he so reluctant to play a larger role during the transition?

Did anyone notice how Bush was almost smirking when he was talking about the wealth destruction that has occurred in people’s retirement accounts. I had this sinking feeling that he was telling someone that it is time to initiate plan X (whatever that may be).  He said GLOBAL MELTDOWN in a very strange way.  He said it a couple times with an emphasis and as though it was a joke.  It really seemed as though he was telling someone something.

To create the larger oversight organizations on an international scale there will have to be a crisis of much larger magnitude than at present. People will have to be in full panic mode and asking to be saved. Once people are in that frame of mind the government will be able to usurp all the power they want. Best of all they won’t have to take it because the people are freely giving it to them.

What might cause such a ripple….
War: Iran, Russia, Pakistan…
Financial Crisis:
Domestic Riots:
Terrorist Attack:

These are a few and there exist others. Hopefully none of this will transpire, but I find it difficult to believe that our present financial panic is the last in a string of events that began with 911. From this perspective I think it prudent to see it as a real possibility if minimal, but possible. Really no different from preparing for an earthquake, hurricane, or tornado.

Lastly, war is generally considered the acceptable means to get out of a financial crisis.

Link

The hedge fund giant, whose flagship fund is down almost 40% this year, denied a Wall Street Journal report that banks were demanding increased collateral as its losses mounted. Gerald Beeson, the firm’s chief operating officer, said Friday that it was meeting its daily collateral requirements with Goldman Sachs, Deutsche Bank, Merrill Lynch and others without being forced to sell its assets to cover the margin calls.

Haven’t we heard this tune before? Wasn’t Bear Stearns reassuring the public that they were financially sound or how about Merrill, with a bit of Wachovia and then a touch of Washington Mutual.

Regardless of the rumors it makes no sense for them to actually come out and say we are in trouble and the ship is sinking get out. Sure they have the interests of their investors to look after, but they will probably goto great lengths to keep plugging holes until there are simply too many.