Smells Like Pork, Feels Like Tsushima, Watch This Sector, and More!
Senate passes bailout bill… 451 pages of total Washington insanity
Byron King on the “Tsushima effect” hitting the U.S…. and what shares to for protection
SEC extends shorting ban… the one event that could legalize short selling
The one sector our options aficionado is watching like a hawk
Singapore SWF changes investment allocations… have they been reading The 5?
The dollar’s unbelievable performance during the credit crisis
What started as a three-page “blank check” request for $700 billion to buy “toxic” assets on Wall Street, has now passed the Senate as a 451-page pork-laden piece of detritus. Ian sifted through the table of contents for tax exemptions and picked out a few of his favorites:
Sec. 101: Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102: Extension of increased alternative minimum tax exemption amount.
Sec. 201: Deduction for state and local sales taxes.
Sec. 202: Deduction of qualified tuition and related expenses.
Sec. 203: Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204: Additional standard deduction for real property taxes for nonitemizers.
Sec. 205: Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 304: Extension of look-thru rule for related controlled foreign corporations.
Sec. 305: Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 307: Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308: Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309: Extension of economic development credit for American Samoa.
Sec. 310: Extension of mine rescue team training credit.
Sec. 311: Extension of election to expense advanced mine safety equipment.
Sec. 312: Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 314: Indian employment credit.
Sec. 315: Accelerated depreciation for business property on Indian reservations.
Sec. 316: Railroad track maintenance.
Sec. 317: Seven-year cost recovery period for motorsports racing track facility.
Sec. 318: Expensing of environmental remediation costs.
Sec. 319: Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320: Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321: Enhanced deduction for qualified computer contributions.
Sec. 322: Tax incentives for investment in the District of Columbia.
Sec. 323: Enhanced charitable deductions for contributions of food inventory.
Sec. 324: Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325: Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401: Permanent authority for undercover operations [as related to tax provisions].
Sec. 402: Permanent authority for disclosure of information relating to terrorist activities [as related to tax provisions].
Sec. 501: $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502: Provisions related to film and television productions.
Sec. 503: Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504: Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505: Certain farming business machinery and equipment treated as five-year property.
Sec. 506: Modification of penalty on understatement of taxpayer’s liability by tax return preparer.
Sec. 601: Secure rural schools and community self-determination program.
Sec. 602: Transfer to abandoned mine reclamation fund.
Sec. 702: Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados and flooding.
Sec. 704: Temporary tax-exempt bond financing and low-income housing tax relief for areas.
Sec. 709: Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710: Special depreciation allowance for qualified disaster property.
Sec. 711: Increased expensing for qualified disaster assistance property.
Seriously, did they think no one was going to read this thing? “Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands”? “Seven-year cost recovery period for motorsports racing track facility”? “Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds”?
It’s one thing to drown a piece of legislation with pork. But the urgency laid on thick by the administration and Sen. Gregg over the last two days all but guaranteed even armchair economists like yours truly would be reading this thing line by line.
C’mon, fellas. Couldn’t you be a little more discreet? Guess you just couldn’t help yourselves.
Maybe it’s us… maybe we’re just thinking about this whole thing the wrong way. Yesterday, we began renovating our headquarters in the Mount Vernon district of downtown Baltimore. Maybe we should be sending Ian down to Sen. Mikulski’s office in Little Italy and squeezing a “tax exemption for historic renovation” into the WALL STREET BAILOUT BILL!
There are also “provisions for the television and film industries.” We made a movie. Maybe we could get a few of those, too.
Oh, there they are — "foreclosure mitigation efforts”… No. 109. Good.
At least Hank Paulson got what he wanted. Under Section 115 of the bill, Paulson will get $250 billion to start. Then, with congressional and presidential approval, he can get up to $350 billion. And then, if he still needs more, Bush and Congress can authorize him to have up to $700 billion “outstanding at any one time.”
What the last phrase really means, we’re not sure. But if Congress meant to say the Treasury secretary could receive no more than $700 billion for his effort, we imagine they’d have worded it that way.
Let’s not forget… the bill bumps the national “debt ceiling” again, this time to $11.3 trillion. If this bill worms its way through the House, the tally for all the various rescue measures launched by U.S. authorities this year runs to about $1.8 trillion — more than the total economic output of both Canada and Spain last year.
Both the presidential candidates flew in on campaign-funded private jets to vote “yea” on the measure.
"I have not heard either candidate talk about the $53 trillion worth of unfunded liabilities that we have as a nation,” I.O.U.S.A. star Paul O’Neill said last night on MSNBC, “that we need to do something about, or we’re going to have a problem that makes this current financial crisis look like child’s play not too far down the road."
“The bottom line is that the U.S. is now at the edge of an economic Tsushima,” writes Byron King. Tsushima?
“That was the epic battle fought at sea in May 1905, when the Japanese navy annihilated a Russian fleet off the shores of Korea. It was a defining moment of the last century, when the rest of the world realized that Europeans and their weapons and policies could be defeated. Many of the ‘liberation movements’ of the 20th century (from Indochina and the Philippines to Persia and Egypt) trace their roots to the symbolism of Tsushima.
“And now we see the U.S. — and, more generally, Western — models of monetary governance and investment going down the tubes. People are talking about a ‘Greater Depression.’ The usually sober Steve Forbes claims that the U.S. economy is ‘in cardiac arrest.’
“If Congress passes any sort of bailout plan — allegedly to re-energize the world’s credit markets — it will rapidly inject about $700 billion into the world financial system. It looks like almost all of these ‘bailout bucks’ will be new money. That will dilute the buying power of every other dollar already in circulation. It’s basic economics. And it’s almost the textbook definition of inflation.
“So that’s why people are buying gold. And that’s also why — in a volatile market — it’s probably a safe long-term bet to pick up precious metal mining shares now. Could the shares still go lower? Sure, anything can happen. But will the U.S. dollar keep on losing purchasing power? As surely as night follows day.”
Byron just issued a special report of six “screaming buys” in the mining sector. Get the list of tickers by subscribing, here.
Elsewhere in Washington, the SEC extended their ban on short selling. Who would have guessed they’d do that? Oh yeah, we did .
The ban will now last until Oct 17. However, the SEC hinted this morning that if Congress passes an acceptable bailout package before then, it may lift the ban early.
Ironic, isn’t it? That Monday’s 777-point decline in the Dow — the biggest point fall in history — occurred without a single short seller.
General Electric remains on the “do not short” list. Warren Buffett said he bought $3 billion worth of GE yesterday. The common shares? Of course not…
Just like his deal with Goldman Sachs last week, the Oracle got a sweet package of preferred stock. They’ll pay a hefty 10% dividend and can be bought back by the company in three years for a 10% premium. Buffett also got warrants to buy $3 billion more of GE for $22 a share… anytime in the next 5 years.
Shares of GE were down as much as 8% when the company announced it would be raising $15 billion, but then rallied to “just” 2% losses when Buffett’s role was revealed.
The broader market did the same. Stocks started low and managed to work their way back to small losses yesterday. The Dow fell 0.2%, the S&P 0.5%, and the Nasdaq 1%.
Despite the Senate’s approval of the Wall Street Bailout bill, the Dow opened down 100 points this morning and fell another 100 points by lunch-time.
“I’m telling my subscribers,” writes options aficionado Wayne Burritt, “to keep an eagle eye on positive changes in real estate market data. After all, it’s common knowledge that the implosion of real estate prices — and the shell game of incessant refinancing and purchases parlayed by lousy lenders and borrowers — sparked the subprime mess we’re wallowing in right now.
“As a result, it’s just as clear that when the real estate market begins to recover, everyone will breathe a bit easier. When real estate prices start stabilizing, bankers will begin to feel better about their collateral, buyers will look at real estate as a solid investment again and investors of all shapes and sizes will flock to the sector — once again — for opportunity and profits.
“I’m not calling the bottom in the real estate market… at least not yet. There’s simply too much risk out there. But the government’s recent moves — especially the nationalization of undercapitalized Fannie/Freddie and the eventual bailout package — are certainly steps in the ‘right’ direction.
“All told, the fundamentals supporting a bullish market are improving as we speak. And while it’s going to continue to be tough out there, opportunities are emerging like never before.”
(BTW, if you want Wayne’s trading advice be sure to check out his new service, Easy Money Options .)
Singapore’s $100 billion sovereign wealth fund says it’s shifted its focus toward emerging markets, hedge funds, natural resources and infrastructure. Heh, sound familiar?
In its first ever annual report last month, the Government of Singapore Investment Corp (GIC) revealed a much more aggressive investment plan. Gone are the days of fixed income and boring blue chips, the GIC’s governance said. Aside from their recent losses on UBS and Citigroup, the GIC has traditionally underperformed Tamasek, the other Singaporean SWF, as well as other mega-funds around the world.
"Looking ahead, we see a more challenging investment environment than what we have seen since GIC’s formation in 1981," said the GIC CIO, Ng Kok Song.
The dollar’s performance during all this madness has been nothing short of amazing. Witness the dollar index – at the height of the U.S. credit crisis – soaring to a one year high:
“We all sat here and shook our heads in disbelief yesterday,” Chuck Butler tells us, “as the ISM Index (manufacturing) collapsed in September, but the dollar rallied anyway. The ISM Index fell from 49 to 43.5, the lowest print since October 2001, which happened to be near the end of the 2001 recession and right after the awful period following 9/11.
“To me this really paints the recession picture clear and bright for all to see. So, why did the dollar rally with this albatross around its neck? Can you say, bailout package? I knew you could!”
Thus many of the world’s currencies are looking cheap today . The euro is at $1.38, down seven cents this week. Same with the pound, down to $1.76. Seems like a buying opportunity for the loonie, down to $0.93.
Kudos to the Japanese yen for holding its ground at 105.
And as the dollar goes up, commodities go down. Oil has fallen well off its recent perch, down an extra few bucks to $93 a barrel today. Gold is suffering the same fate too, now as low as $850 an ounce.
“It is unfortunate that some, many, most people still don’t get it,” writes a reader of yesterday’s inbox. “The government can ‘print money’ but it cannot ‘create wealth.’ If $700 billion of created out of thin air money is good and will make everybody better off, why not go all out and really fix things? What’s wrong with $3 trillion, or $700 trillion. Hell, just go ahead and make everybody rich. Too bad your reader will probably be voting in a few weeks. Money vs. wealth. It’s not a difficult concept to grasp.”
“Saying less financial regulation will solve our problems,” writes a reader, “is like saying removing criminal laws will reduce crime. Will murder rates go down if we ‘deregulate’ murder? Hardly. The Wild West days are long behind us and we don’t need to bring them back.
“Government may not be terribly efficient at regulating because of politics and money. But there HAS to be rules. Wall Street is not insulated from the rest of the economy. When they fail, they take us with them. We’re getting the result of decades of deregulation, where "self regulation" was the new great idea. That’s working great, don’t you think?
“And even more telling, the derivatives market had NO regulation. How’s that working out?
“I agree on no bailouts. But we need to reinstate usury laws and we need regulation of the financial industry.”
“Cox and colleagues at the SEC,” notes another, “are RELAXING the mark-to-market accounting requirement businesses must use to value the toxic assets on their books… you know, the crap no investor with as much as a neuron between his ears (except Hank and Ben) would touch with a 10-foot pole.
“Anyway, all I can say is, ‘JESUS H. CHRIST!’ Are these people really so out of touch as to not understand that this is what got us into this mess?! I am no brainiac but I am at least minimally observant. How they can come up with this stuff, and actually say it with a straight face, is unfathomable.”
The 5: Amen.
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