Here we go again!
All aboard the volatility train. We have trade data out today and Congress is debating taxes, which always freaks Wall Street out but it's the same old, same old that is spooking the markets this morning. The timing of these events make me wonder if this market melt-down isn't being used to help conservatives push their new mantra (which I heard 75% of the guests on Fox say) – "Now is not the time to be eliminating the AMT."
The Alternative Minimum Tax is a crushing and ridiculous tax law that might have made sense in 1970 but has never been adjusted for inflation and was intended to stop the wealthy from avoiding taxes but has been perverted into an onerous burden on the middle class that will affect 1 in 5 taxpayers next year and shifts $1 Trillion dollars of tax liability from the top 1% of the country down to people in the 75-99% income range (this is probably you if you earn $50K+!). According to Wikipedia: "In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code. The advocate noted that the AMT punishes taxpayers for having children or living in a high-tax state, and that the complexity of the AMT leads to most taxpayers who owe AMT not realizing it until preparing their returns or being notified by the IRS."
Bush is already threatening to veto the House measure that will raise taxes on the top 1% to prevent 23M households from owing more taxes next year. Rangel's plan is to offset lost revenue by doubling the tax rate on so-called carried interest, the payment that executives at buyout and venture-capital firms, as well as real estate and oil and gas partnerships, receive for managing investments.
So that's what's bothering the US markets this morning and I know it sounds paranoid but tanking the markets is just what the conservative doctor ordered to get the Congresspeople to back off on the poor hedge fund managers. Here is a chart detailing the proposed changes to the federal tax rate. Notice EVERYONE making less than $500,000 a year gets a DECREASE. Those making $500K-$1M will pay 1.6% more taxes and those making more than $1M per year will pay an additional 3.6%. Remember these numbers when you see these idiots on Fox trying to tell you how Rangel's plan will destroy civilization as we know it.
Why the Republicans are looking to screw over 23M people right before the 2008 election is beyond me but that seems to be their plan and I'm sure the Democrats thank them for it as this bill, even if shot down, is sure to be passed as soon as enough Republicans are purged from Congress.
Meanwhile, over in Asia, the Nikkei continues to dive, falling all the way to 15,583 today as that economy was declared DOA on Wednesday. Banks led the way lower as sub-prime write-offs are particularly painful when you lent the money out at 1%. The rest of Asia traded more or less flat as our spectacular afternoon recovery off of 13,100 only printed as another red day to the international observer as we failed to close green in the end.
Poor Benazir Bhutto has been placed under house arrest in Pakistan "to protect her from possible attacks from terrorists." This just happened to stop her from going to a planned rally today. According the to WSJ: "Friday morning, dozens of police ringed Ms. Bhutto's residence in Islamabad, Pakistan's capital. They laid down coils of barbed wire and moved cement barricades into place to block access to her house from surrounding roads. Police were equipped with riot gear and bamboo batons and were backed up by armored vehicles."
In a related matter, Michael Mukasey was confirmed as our new Attorney General and will be heading straight to Pakistan to begin working with that government to find out which detainment protocols work best ahead of our own elections.
Over in Europe, where they are celebrating 62 fascist free years (oh wait, Russia's in Europe – scratch that!) financial worried tanked those markets too and they are down about 1% this morning. There was a rumor that BCS was on the hook for $10Bn in write downs, which they've denied but the denial did not go so far as to give any real numbers, just that it was not $10Bn. Also bad news, the EU cut it's economic forecasts, saying "rising oil prices and turmoil in financial markets, stemming from the subprime mortgage debacle in the U.S., will SIGNIFICANTLY cut growth over the next two years." The European Commission forecast that growth in the 27-nation bloc will slow to 2.4% in both 2008 and 2009, from 2.9% in 2007.
Don't forget that nobody ever forecasts a real melt-down, they just sort of happen… We got yet another round of bad inflation news as import prices rose at a 9.6% pace for the past 12 months. This means that next month, we can pretty much guarantee breaking 10% as oil prices were up sharply since these statistics were taken.
We will be very lucky to hold our levels today and let's make sure we are very well covered into the weekend. I did a review of our 4 main virtual portfolios this morning and we were hedged down at the end of yesterday's session so let's hope we have a reason to sell our index puts before the day is done!
Have a great weekend,
– Phil
