Dallas, TX
March 9, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

The Darker Side Of Unemployment
What's Hot Today:
U.S. stock index futures were pointing to a lower opening on Tuesday as Wall Street frets about the fact that today is the one year anniversary of the bull market.
  • ICSC-Goldman Store Sales 7:45 AM ET

  • Redbook 8:55 AM ET

  • 4-Week Bill Auction 11:30 AM ET

  • 52-Week Bill Auction 11:30 AM ET

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News For Thought

Overtime pay negates state employee furloughs in many cases. According to The L.A. Times: "Like many other state employees, prison nurse Nellie Larot was hit last year with furloughs that cut her salary: It dropped $10,000, to $92,000. But she more than made up for it by working extra shifts, raking in $177,512 in overtime, according to state records. Her total $270,000 in earnings last year eclipsed the $225,000 paid to Matthew Cate, head of the entire state prison system."

The Times added: "Records show that the top 50 recipients of overtime last year each received more than $100,000 in extra compensation. Most were from the departments of corrections and mental health, which account for more than half of the overtime doled out by state agencies; 35 of the top 50 were registered nurses." There are rising allegations that the state's overtime policies are being "gamed."

Sex for sale. According to Reuters: "Sex.com, often touted as one of the most valuable Internet domain names, is due to head to the auction block next week." The report gave further details: "DOM Partners LLC, a New Jersey lender that backed a 2006 purchase of the domain name for a reported $14 million, is foreclosing on the Internet property, and is due to auction it on March 18 at New York law firm Windels Marx Lane & Mittendorf LLP, according to legal notices. Bidding for the Internet property, the tumultuous past of which includes several lawsuits and two books, is due to start at $1 million."

Financial advisors shot in Dallas. According to The Dallas Morning News: "A gunman this morning shot a father and son who run a North Dallas financial services company, then turned his weapon on himself, police said." The report added: " Richard Smith, 66, and his 39-year-old son, Christopher, were taken to Parkland Memorial Hospital. Richard Smith was in stable condition Monday afternoon with wounds to the legs, and Christopher Smith was in serious condition with wounds to the face and neck, police said. The gunman, whose identity was not released, was in critical condition Monday afternoon at Baylor University Medical Center." The shooter's identity was not released. There are no motives or other details available.

Poll: Those in Congress who vote for health care could be out of a job in December. According to Investor's Business Daily: "Lawmakers who back the health care bill are hurting their re-election chances, according to a new IBD/TIPP poll released Monday. The poll found that solid majorities prefer to see Congress start over and reject using "reconciliation" to pass the bill. A strong plurality would oppose candidates in the next election who supported the legislation. The survey also found that the recent bipartisan health care summit featuring President Obama and congressional leaders turned more people off than it won over." Data from Rasmussen.com confirms the IBD/Tipp results with regard to the public's attitude toward health care legislation. According to Rasmussen.com 53% remain opposed to health care plan and 55% say Congress should start over on health care. Even mainstream comedy shows are catching on to the trend (http://www.youtube.com/watch?v=D5rsVDis8K4).

The Darker Side Of Unemployment
When Jobs Go Underground
The longer the unemployment and underemployment rates remain near current levels, the greater the chance that an underground economy, always present in society, will increase to a size in the U.S. where taxable revenues fall significantly.

According to The Wall Street Journal: "more and more of the unemployed and underemployed are doing whatever it may take to pocket extra money each week -- including, if necessary, "working under the table" for cash and then stiffing the tax man by not reporting all their income." The particulars are not surprising, but do give a sense of where things are for some in this economy as "For some, it's a second or even third side job. For others, it's a way to supplement unemployment benefits that don't cover the bills while they look for permanent work."

The tie that binds all variables in the underground economy is cash and while to some it may seem as a way to battle the current economy "working for cash -- and misrepresenting your income to the Internal Revenue Service -- can have big financial and legal consequences. And the IRS has ramped up its enforcement of income-tax reporting over the past few years."

According to the Journal, those who engage in these practices do have a way out, paying back taxes. There are many ways of doing this. One is to file a late tax return and face the penalties. But even then, things could get rough as "The late-payment penalty is 0.5% of the taxes owed per month. And the late-filing penalty is about 5% of taxes owed per month, maxing out at about 25%, according to the IRS."

And while it is possible to set up some sort of arrangement with the IRS, there are some limits and some caveats. If you come clean before they catch you, you have a better chance of coming out better. The key figure seems to be $25,000 in total taxes owed. Figures above that are more difficult to work out with the tax authorities.

Meanwhile, consider this. If you plan on tryig to collect social security at some point, there are some clear rules that can affect you. According to The Journal: "You risk reducing Social Security benefits or not qualifying for them when you retire or if you become disabled. And survivor benefits can be affected as well. You need to work and pay Social Security taxes for at least 10 years to qualify for benefits, whose calculations take into account the average of the 35 highest annual earnings an employee makes in his or her lifetime. Those who record fewer than 35 years of work have an annual salary of zero factored in for years they don't work -- or work off the books. This lowers their 35-year average and overall Social Security benefits. So will underreporting income."

Finally, working off the books could also affect any social security related disability payments.

Conclusion

As the economy continues to remain difficult for a good number of people, it's tempting to hide money from the government. But with huge deficits lurking for the next decade or longer, the IRS is likely to become more vigilant.

That means that understanding the rules of engagement and looking at the long term picture may be the better road to avoiding significant problems with the tax man in the future.

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.

 

Market Moves - Stock Of The Day
Can The S & P 500 SPDR ETF (NYSE: SPY) Deliver A Happy Anniversary?
Today marks the one year anniversary of the current bull market and it will be interesting to watch the action in the S & P 500 SPDR ETF (NYSE: SPY) and the rest of the market.



Chart Courtesy of StockCharts.com



This bull market, like most such phenomena was launched out of the jaws of despair. Fear was rampant. And the market climbed a constant wall of worry.

A year later, and some 60% higher as measured by some of the major indexes, it's important to take a look around and see if some of the same ingredients are still present.

First, we should look at fear. This is a bit hard to gauge, as some of the traditional fear gauges in the market, such as the put/call ratio and market sentiment surveys are not as accurate a set of predictors as they once were. So we are left with looking at headlines and culling through much of the talking head commentary that's available.

What we find is that there is no overwhelming optimism in this market. And that's a positive for investors, as when the world seems rosiest, is when bull markets tend to end. Remember the giddiness at the top in December 1999 when the Internet bubble burst. And who can forget the summer of 2007 when TV shows featuring housewives and ex-lawyers who had become house flippers were on every channel.

If you look at the headlines, many of them are still negative. For example, local papers are still running stories about houses being foreclosed, jobs being lost, and the lack of political will in Washington to get anything accomplished. Those stories are negative for Main Street. But on Wall Street, they are a sign that the bull market still has some legs. Remember markets climb a wall of worry. When no one is worried, it's time to sell.

The bottom line is that even if the market dips for the next few days, unless world peace breaks out, Congress starts doing the right thing, and Mr. Obama becomes a born again supply sider, the market will still have plenty to worry about. And as long as there is worry, the bull market has a chance to keep rising.

What would worry us? For one thing, if the recent rally in the small and midcap stocks starts to sour in a significant manner, that would be worrisome. Another thing that would concern us would be if currency traders turned against the dollar. Those are two very important benchmarks at the current time and should be kept in mind.
 

 


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