Stock And Option – Intraday Comments For Dec 12 2012 – Thank You Ben

You just have to tip your hat to Mr. Bernanke. On one hand we have the fiscal cliff issue which if not resolved could see some damaging results to the economy of the US. Those results would be far-reaching and definitely impact more than the US. This is what the Republicans find so difficult. They are between a rock and a hard place. No matter how they try to sell it, if the fiscal cliff issue fails to be resolved they will be held accountable by most Americans. Yet a lot of what the Republicans are arguing for makes sense. Spending cuts, fair taxation, fiscal responsibility all make sense. But both the Democrats and Republicans are to blame for the mess the economy and government are in after years of irresponsible spending. On the other hand unemployment is stubbornly high, growth anemic and housing looks like is just might be ready to turn the corner.

Teddi’s Take On Fair Taxation

I have always been a big believer in a consumption tax without any loopholes. You buy something you pay the tax. To me that makes a lot of sense. In Canada we have a value added tax. By and large its pretty fair. If I spend more than someone who spends less, I pay more tax. I have friends who have a lot more money than I and when I buy a nice new LCD TV it is a 40 inch. When they buy, it is a 3D 60 inch and the other day I was at a friend who bought a 70 inch LCD which set them back $5000. But they have the money and they can pay the tax. So a flat consumption tax I think makes perfect sense. But I am just an investor and I am getting off track. I’m interested in what readers think so tell me your take on taxation below in the comments section.

Stock and Option and Mr. Bernanke’s Early Christmas Present

Getting back on track, Mr Bernanke’s move today to tie in the Bond-Buying program to the unemployment rate and inflation rate is a good move for investors. Now instead of a mid-2015 deadline we can actually get some idea as to when to expect the gravy train to slow down. All we have to do is watch unemployment and the inflation rate. Nice move Mr. Bernanke. This man is definitely friendly to stock and option investors. This has to be the longest running party I have ever attended. If my mentor were alive today he would be amazed. My mentor went through the 1920’s and 1930’s and he told me repeated that the next financial crisis, he hoped governments would open the liquidity floodgates rather than tighten them up.

So while the fiscal cliff issue reigns, Mr Bernanke has given support to the markets and the economy which could assist in a “just in case” scenario. Now add in yesterday’s market direction breakout and you have all the workings for the market direction to push back and beyond the highs for this year. Once again thank you for an early Christmas Present!

The World Needs The Stock Markets

Mr Bernanke certainly seems to understand the importance of the stock market. While the bond market dwarfs the stock market, stocks still are what everyone sees. When stocks move higher people feel good even if they are not investing in stocks. Pension plans are tied to stocks and with stocks continuing to stay positive Bernanke knows that companies can continue to issue bonds and grow and that’s the big connection between stocks and bonds. Just recently Intel issued a huge bond offering for up to 30 years. A number of Canadian Banks have also recently issued bond offerings at historic low rates.  We may never see these low-interest rates again in our lifetimes but by the Federal Reserve continuing the Bond-buying program they are pushing rates lower and this appears to be having the desired effect on assisting a housing recovery. The bond market may be in the throes of the biggest bond bubble in history but until interest rates climb, that bond bubble will take time to burst and who knows, when the bond bubble finally does break it may not have the same repercussions as a stock market bubble.

Stock and Option Ben Bernanke

Merry Christmas Ben Bernanke!

Thank You Mr Bernanke and Merry Christmas

The Fed Chairman has once again assisted in putting a floor under the stock market through continuing to seek lower unemployment, lower real interest rates and boost housing. This doesn’t mean we won’t see stock market selling. That’s just a natural part of the stock market, but a market direction decline of magnitude at present I believe is still in check. If the fiscal cliff is not resolved, this move by Bernanke is sure to help in any stock market decline and that may be all it takes should the politicians continue to stay uncompromising. So thank you Mr Bernanke and a very Merry Christmas to you. I will be keeping my capital in stocks and I really should send him a Christmas Card.

If you have a comment, disagree with me or just want to say hi, post it below. I’d love to hear what you think of the Fed Chairman’s announcement today.

  • jason inget

    It’s funny I was speaking about the tax issue the other day and I said the US federal government should just tax all consumption at a few % similar to HST in Ontario and that provide extra revenue to the government and affect the rich and poor equally.
     
    I don’t know if it is much of a Christmas present though, other than to support a decline if the fiscal cliff issue does not get resolved.  I don’t want stocks to go higher as it becomes more dangerous to sell puts and the premiums decrease.
     
    Remember the last day to get a bill into congress to solve the fiscal cliff is December 18th, so that is the real fiscal cliff deadline and Obama is leaving for him Hawaiian vacation on Dec 17th.

  • jason inget

    It’s funny I was speaking about the tax issue the other day and I said the US federal government should just tax all consumption at a few % similar to HST in Ontario and that provide extra revenue to the government and affect the rich and poor equally.
     
    I don’t know if it is much of a Christmas present though, other than to support a decline if the fiscal cliff issue does not get resolved.  I don’t want stocks to go higher as it becomes more dangerous to sell puts and the premiums decrease.
     
    Remember the last day to get a bill into congress to solve the fiscal cliff is December 18th, so that is the real fiscal cliff deadline and Obama is leaving for him Hawaiian

  • I didn’t know the President was off to Hawaii on Dec 17. That sounds like a nice vacation. I have a couple of friends that live there. Maybe he could take a Christmas Present to them for me.
    Teddi

  • jmacdon1

    It’s not even worth listening to what Bernanke says after the FOMC meetings because it has been so well telegraphed in advance that there is no longer a surprise. Pretty much everybody knew weeks ago that Operation Twist would be replaced with QE4 at $40-45B/mo.

    There is just no surprise anymore. Not like when The Maestro would come out from behind the curtain and make obscure statements that would have to be parsed by the cognoscenti for weeks. Where is the fun in all this plain English?

    As for the consumption tax, I think the devil is in the details. I don’t disagree in principle, but the proposals I have seen involve businesses being exempt. The first thing I thought of was how I could structure a shell company that was in the sole business of buying stuff and giving it to me.

    Sounds silly, but do the ‘Dutch Sandwich’ and the ‘Double Irish’. Rich people and corporations with the means will always find ways around regulations.

  • How you could exempt businesses is strange I would agree. In Canada businesses pay the tax and can then apply iI an input tax which is all taxes they have paid to operate or run their business. The consumption tax is pretty black and white from what I can tell.
    Governments need to get serious and leave no loopholes. Everyone pays the tax, end of story.. Now wouldn’t that be nice. Thanks for your comments.

  • eyekew

    I am 100% with you on the consumption tax as long as it replaces the income tax.  Low income consumers can be exempted for a portion to make it progressive.  It has the additional advantage of decreasing taxes on business which, theoretically,  lowers the cost of goods and makes companies more competitive.  In fact, some estimates suggest the lower cost of goods might offset the tax.  Another big plus, it captures a lot of off the books transactions.  Here in CA the marijuana trade is thought to be the largest industry, bigger than the huge traditional agriculture industry. Sure would be nice to tax that!

    As far as the mess in D.C.  I tend to believe we have a spending problem primarily, exacerbated by inefficiency, waste, and cronyism.  I’d like to see a good analysis of the Penney Plan which cuts spending everywhere by 1%/YEAR…supposedly after 5 years, debt and deficits are back to :normal” levels.  

    Most of the other “cuts” are smoke and mirrors based on assumptions of increased spending previously projected or “cuts” from changes already made.

  • Thanks for your comments. If only the politicians of both parties would realize what a powerhouse the USA would be if they could just get their spending under control. There is so much waste. Yes I realize entitlement programs are a big problem too, but everything needs to be reviewed and if only they could get realistic. The USA is so diversified with everything from small to large businesses many of which lead the world in innovation. We only hear the negative, but there is a lot of positive things happening as individuals try to build businesses and expand existing ones. It’s hard to do in this kind of climate. I appreciate your comments.
    Teddi

  • eyekew

    Thanks for the reply, Teddi.

    Social Security is pretty easily solved by increasing the eligibility age gradually, e.g. one month/year. Even better, let people have private accounts invested very conservatively in 4 or 5 ETFs that mimic the college endowment model. Chile (and as I recall the Galveston and San Diego teachers) + the investment does and returns about 5x the income + the invested $$ give the economy a nice boost (Imagine what might happen if your systems were applied?!!)
    Medicare is much tougher, but some of the suggestions like tort reform and allowing policies to be sold throughout the US (CA, again, requires so much be covered that ins is very expensive) would probably reduce costs by 20%. Then, the system needs some reasonable controls. A few personal examples: when my mother was hospitalized, I identified $20K of unwarranted charges. By the time they admitted it, they had been paid. Neither Medicare or her insurance company were interested in getting the money back.
    I recently had surgery for a smashed ankle. To be eligible for rehab, I had to stay in the hospital 3 overnights. It turned out to be reasonable, but had I been able to be discharged a day earlier $10K+ would have been saved. Rehab determined I could use a knee scooter ($300). Medicare won’t pay for them. I wanted to go home and paid myself. Otherwise I would have had to stay in rehab for 4-8 weeks longer at $500+/day. Ridiculous!! N

  • What I could never figure out is there are so many areas that can be improved and we the average citizen come in contact with them every day. If we can see them why in the world are they not seen by governments and businesses including insurance companies. It’s weird to say the very least.

  • eyekew

    It’s not in the unenlightened self interest of the bureaucrats and insurance companies to do better. It’s really sad.
    If you haven’t seen the work of Tom Coburn who is unfortunately leaving the Senate you might find it interesting to google him and his work. His staff has proposed rather mammoth cost savings from studies on medical care (he’s an OB-Gyn); defense; overlapping bureaucracies; redundant and unused buildings and equipment…hundreds of billions of savings to be had from relatively low hanging fruit found by just his office. Nobody has acted.
    Obviously, you hit on some of my major frustrations! N