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Dallas, TX
December 8, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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The New Fear Is Higher Taxes
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What's Hot Today: |
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U.S. stock index futures were flat in very early pre-U.S.
market action. The politics of the moment continue to dominate trading
activity.
Today's Economic Calendar:
- Motor Vehicle Sales[Report][djStar]
- ICSC-Goldman Store Sales 7:45 AM ET
- Redbook 8:55 AM ET
- ISM Mfg Index 10:00 AM ET
- Construction Spending 10:00 AM ET
- Pending Home Sales Index 10:00 AM ET
- 4-Week Bill Auction 11:30 AM ET
News For Thought
Here comes the Labor Department. According to The Wall Street Journal: "Labor
Secretary Hilda Solis said her agency will seek to enact an array of 90 rules
and regulations next year aimed at giving more power to workers and unions." According
to the report: "Ms. Solis's agenda will promote rules requiring employers to
increase disclosure to workers on how their pay is computed, strengthening affirmative
action requirements for federal contractors, and compelling greater disclosure
from employers about their dealings with consultants who advise the companies
on how to deal with workplace unions or unionization attempts."
Dirty water is present in one fifth of water treatment centers in U.S. According
to The New York Times: "More than 20 percent of the nation’s water treatment
systems have violated key provisions of the Safe Drinking Water Act over the
last five years."
Green offensive begins. Despite the fact that global warming data is increasingly
controversial, the White House is pushing on with its agenda. According to The
Wall Street Journal: "The U.S. Environmental Protection Agency, as expected,
on Monday declared greenhouse gases a danger to public health, a decision that
could soon lead to new emissions regulations for businesses across the economy." According
to the report: "The "endangerment finding" announced by EPA Administrator Lisa
Jackson is necessary to move ahead on new emissions standards for cars due out
in March 2010. Made under the Clean Air Act, it also opens up large emitters
such as power plants, oil refineries, chemical plants and metal smelters to regulations
that limit their output of carbon dioxide and other gases."
It will be interesting to see what happens to the jobs picture in the U.S., and
the general economy as the two stories cited above start to have an effect on
employers, especially the potential increases in expenses as well as the potential
for new taxes that are being suggested.
Notice to subscribers. Starting December 2, we are introducing a rating system
for individual stocks and ETFs. Visit our health and biotech as well as our energy
and S & P 500 sections for more information and ratings. |
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The New Fear Is Higher Taxes
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2010 Could Be A Very Tough Year If New Taxes Are The Major Theme From Washington
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The threat of higher taxes is starting to become the dominant
theme for investors in 2010.
Higher taxes tend to raise the fear level on Wall Street. And while it can be
argued that during some periods of time, such as the Clinton years, higher taxes
could co-exist with huge stock market gains, we suspect that in the current environment
that is not certain.
This is especially tough to swallow when the higher taxes are being targeted
at Wall Street. According to multiple sources, the Democrats in the House of
Representatives want to tax mutual fund managers in order to pay for $30 billion
worth of tax breaks. The Wall Street Journal reported that the proposed bill "would
renew for one year a raft of provisions scheduled to expire on Dec. 31, including
a research tax credit for businesses; faster depreciation of assets for restaurants
and retail stores; and deductions of state and local sales taxes for individuals.
The breaks -- 49 in all -- would cost the government more than $30 billion over
a decade, according to the House Ways and Means Committee. House Democrats want
to increase taxes on investment-fund managers' earnings to help pay for the breaks."
According to The Journal: "The House proposal would require private-equity and
hedge-fund managers to pay tax on much of their earnings at ordinary income rates
starting next year. Those rates could reach 39.6% or more in coming years. Much
of fund managers' income is now taxed at the capital-gains rate of 15%. The new
tax is estimated to raise about $25 billion over the next 10 years, according
to the House committee." Also important is a second aspect of the bill which "proposals
to crack down on U.S. tax evaders by imposing new requirements on foreign banks
to report their U.S. customers. That measure, which would also be permanent,
is estimated to garner $7.7 billion over 10 years."
Yet, there is another proposed bill which is even more controversial and is facing
opposition from both Democrats and Republicans. According to The Hill.com: "House
Democrats who are opposed to a new tax on stock transactions are rounding up
their colleagues to oppose the measure, and say they have at least 20 Democratic
and Republican supporters." To be sure, there is a whole lot of nuance and small
print involved. According to The Hill: "Rep. Mike McMahon (D-N.Y.) is circulating
a letter against the tax idea that Reps. Peter DeFazio (D-Ore.) and Ed Perlmutter
(D-Colo.) are backing to raise $150 billion each year." Sen. Tom Harkin (D-Iowa)
and several House Democrats support the provision, but House leaders are wary
of pushing forward on the measure if other countries don't proceed at the same
time."
And, there is even more. According to theNewspaper.com, higher taxes and user
fees on drivers are being considered in order to pay for public transportation
projects and other related issues. The measures would include the use of more
tolls on roads, the initiation of what transportation secretary Ray LaHood calls " an
infrastructure bank where you sell bonds and set aside money, usually for big
projects, multi-billion dollar projects," as well as "the VMT, Vehicle miles
traveled, where you actually measure how many miles people travel and then they
pay a fee on that," and "indexing the taxes that are collected at the gas pump."
Finally, there is the great unknown, the potential tax increases, open, hidden,
and yet to be determined related to the White House's green initiatives that
will be based on regulations, not legislation. According to Fox News, new regulations,
representing the potential for higher costs due to redesigns or required modifications
will be aimed at "motor vehicles be regulated, so would light-duty trucks, heavy-duty
trucks, buses, motorcycles, planes, trains, ships, boats, tractors, mining equipment,
RVs, lawn mowers, fork lifts, and just about everything that has a motor."
The hotel is strategically placed, just two blocks north of a new hospital whose
parking lot was packed when we passed by it at about 8:00 in the evening. It's
clearly a regional medical center as it has a well marked helipad.
Conclusion
The economy is trying to recover. If the November unemployment report is reliable,
then unemployment may be close to bottoming out. But the potential for taxes
and fees, aimed at anyone who has a job or can produce more jobs may have a significantly
negative effect on whether the recovery, such as it is, has a chance of lasting.
Excessive regulation is never a good thing for job creation. And in this day
and age, businesses will find a way to sidestep whatever makes life hard. If
that means hiring fewer workers, or using barter as a means to continue to operate
then that's what they'll do. If it means closing marginal stores or not growing,
then that's what they'll do. And if it means hiring more contractors with no
benefits, that is also what will happen.
The government will likely try to close such potential loopholes. And businesses
will find ways to get around them. Meanwhile, the U.S. economy will stagnate
and China's will continue to grow. Someday we'll look around and a few of us
will know what happened. Most folks will likely be scratching their heads and
continue to vote incumbents into office.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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S & P SPDR ETF (NYSE: SPY) Struggles To Make New Highs
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The S & P
SPDR ETF (NYSE: SPY) is struggling to remain above 110.
Chart Courtesy of StockCharts.com
In "Reminiscenses of a Stock Operator," legendary speculator
Jesse Livermore's biggest worries about the start of a
bear market came when Washington thought of raising taxes.
It's hard to figure out if anyone even reads that book anymore. Yet, it's an
important one for all traders, since it gives us a glimpse of how a master trader
thinks. And in this case, it's fairly obvious that lots of folks on Wall Street
are starting to fret about 2010.
Consider this. Last week was looking fairly good. The employment numbers were
better than expected and stocks got a good start on Friday. But as soon as the
inside baseball publications such as The Hill, and other Washington types started
reporting on the latest potential tax hikes, the market started to roll over.
On Monday, even as we penned this missive, we were watching the pre-market stock
index futures roll over. We scanned Google News, and found lots of stories about
potential tax increases, not just in the U.S. but also in the U.K., where the
market is also starting to roll over.
So, what does it mean? There is a new fear on Wall Street, that of the potential
for higher taxes.
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Technical
Look at the Market |
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1100 Holds Again - SPY ETF Remains at 4-stars
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The S & P
500 closed the week of December 4 above 1100 and didn't
drift too far away from the key chart number on 12-7.
The bad news is that the 1106 resistance area remains
very difficult to penetrate and again proved to be a
place where sellers lurked on 12-7.
That means that nothing has really changed. Thus trading is still being influenced
by the two major issues of the moment. One is that we are in a strong seaonal
period for up trends. The other is that the economic picture is still evolving.
So a lot of what's going on now is technical and depends to a large degree on
which way the majority of traders that are still working at this time of the
year decide to go. If they decide to go with the season, the trend is up. If
they decide to go with the economic news, then things may be volatile.
That translates into a climate where investors will do well to track each position
on a daily basis and keep what's working while getting rid of what's not working.
Raising cash is not a bad idea as long as investors are culling losers or paring
back positions.The key to success remains sector and individual stock selection
are still the most important aspect of trading this market. With an employment
report due out on Friday, anything is possible.
We are adapting our star based rating system to the S & P SPDR ETF (NYSE:
SPY). In this section a 5-star rating for SPY is a signal that down side risk
is very low and that the chances of a further rise in prices are greater than
those of a fall. A 4-star rating Means that the risk is less attractive but that
the odds of a rise in SPY still outweigh the risks of a fall.
A 3-stars rating on SPY suggests that the odds of a rise and a fall are even.
2-stars and 1-stars suggest that down side risk is on the rise.
In no way is this star rating system intended as a series of buy and sell recommendations.
The system is intended as a guide to the general trend of the market and the
S & P SPDR ETF.
Star ratings can change rapidly based on the market's action. Followers of the
ratings should review them on a daily basis.
Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-7-09
S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing
price on 12-4-09 111.01. Short term support is at 109.57. Resistance is at 111.74.
A move above 111.74 would raise the rating to 5-stars.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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