Stimulus Plan Includes Tax Breaks: Stocks That Will Benefit

An article in the WSJ has this little tidbit about the upcoming stimulus plan:

As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. In effect, this would entitle companies to receive cash from the government that they otherwise couldn't have claimed.

This approach was talked about for a while last year and then the noise died down. If it becomes law, it is not too hard to think of a few stocks that would reap large benefits: specifically, that would be companies that incurred huge losses – there are a few of them out there.

One set of beneficiaries would be homebuilders, which have been taking serious write-downs, but made a lot of money in the course of the housing bubble. Many of them have written down their deferred tax assets, but could now carry the losses back 5 years and get refunds. My holdings in Toll Brothers (TOL), Ryland (RYL) and KB Home (KBH) should benefit. Maybe some of the distressed homebuilders would do even better.

Bond insurance companies such as MBIA (MBI) and Ambac (ABK) could also benefit, again because they have taken huge impairment and mark-to-market losses after operating very profitably for the five years running up to the housing melt-down. They have so far been successful in maintaining their deferred tax assets are good, but carrying the losses back would make that potential problem go away.

How about Fannie Mae (FNM) and Freddy Mac (FRE)? I seem to recall something about how Freddy Mac's entire shareholder's equity consisted of deferred tax assets which they had no reasonable basis to claim they would ever make enough money to use them. Carry them back another few years, there had to be some profits somewhere in there.

With 2009 losses also included, the opportunities to book losses and turn them into refunds could be substantial. Tax lawyers and accountants very possibly could develop refinements, angles, strategies and tactics to maximize the proceeds of this congressional largess.

I almost feel guilty owning the stocks. But now that I think of it, I have another idea. Maybe the opportunity to carry losses back five years should be extended to private investors too. I have incurred some very distressing losses on owning these types of money losing stocks, but if I could just carry them back to the years where I made money and paid taxes, that would be wonderful and in point of fact only fair, just, right and proper. Everyone deserves a slice of the pie, or a spot at the trough, or a slab of pork, maybe a rasher of bacon: that's for sure, this is America in the 21^st century.

Instead of EIC, we need ILC, investment loss credit. I am not talking about a deduction: I mean a credit. So, if you lost money you could just apply to Uncle Sam for a refund. After all, you were patriotically trying to provide capital to enhance the economic might of the country, and suffered losses in the process. But now the gummint is providing the capital and then sending you a tax bill for it and cutting your balls off in the process. If Paulson would have done what he should have done and bailed out Lehman (LEHMQ.PK), everything would of been OK but no he was on a mission to stamp out moral hazard and he stamped it out for sure that day. He also stamped out a couple trillion of stock market value but by God he saved us from moral hazard and for that we should be grateful. Hallelujah Amen.

It would of been simpler and easier to just enforce a few rules that was already on the books and they got there because the last time those greedy bastids trashed the whole effin economy somebody said there oughta be a law and there was a law passed and it is called the Securities and Exchange Act of 1934. That law says stuff about manipulation and so on that is as clear today as the day it was written and it means a lot of those CDS guys and naked short-sellers and Ponzi schemers and hedge fund operators and over-leveraged investment bank crooks should be doing time and I mean hard time. They need somebody to clean off all the seagull droppings at a National Park in the San Francisco Bay that would be Alcatraz so they could spend twenty years on the rock cleaning up seagull poop and that would serve them right for what they done with their lying and cheating and stealing and twisting and manipulating and sleaze-ball antics. Right now they are using fire hoses to spray the poop away but them perpetrators should be down on their knees cleaning it up with their toothbrushes before they brush their teeth in the morning and so on all day until they brush their teeth again before they go to bed at night.

TARP should stand for Tom Armistead Relief Program.

If you don't have some clue what the gummint is gonna do next you can't figure what to buy sell or give away. It is hard enough separating the sheep from the goats, the wheat from the chaff, the scotch from the soda, and so on but now on top of that you gotta figure who is getting the TARP funds or bailouts and now it's tax breaks. If you can't figure out who the gummint is gonna bailout next or take down next or lard them down with pork next you ain't gonna make any money as a matter of fact you will lose it faster than a drunk can piss away his paycheck.

You look at the WSJ today, they are talking about banks and capital, and there you have NCC and WM, they had plenty of money and they was taken over or sold out or acquired and Paulson done it and that Bair woman she had a part in it too and they wasn't broke they was as good as that bank Jimmy Stewart run which was as good as gold.

Please accept my sincere apologies for this rant: I had a dysphoric eruption. I should also apologize to Mark Twain and William Faulkner: I stole some of their ideas.

Disclosure: Author holds long positions in MBI, ABK, TOL, RYL, KBH, and no positions in other stocks mentioned.

Comments

[Ishortyou:]

I agree the fall of Lehman and with that the fall of about 2 trillion dollar market value in equities and collaterals almost wreck havoc of the finantial system and send us to the stone age, but hey we are going to heaven because we have good morals.

Jan 06 07:33 AM

[D. McHattie:]

Amazing. All the companies you mention that will benefit from this tax break are precisely those unconscionably irresponsible companies that created this greed-fueled credit bubble in the first place.

Shouldn't we be thinking about a tax break that benefits the victims? And by 'victims' I do not mean irresponsible borrowers either. The victims in this are the honest, hard-working taxpayers. Those who are financially responsible will best know how to allocate any additional resources that are channeled their way and should therefore be the recipients of any tax breaks or economic stimuli that would improve the fiscal and economic standing of the United States.

Thank you Obama and you enlightened democrats - you know soooo much better than those republicans! Both major parties are utterly gutless, misguided and irresponsible.

Jan 06 09:32 AM

[satguru:]

What change??? The beat goes on??? I voted for Ron Paul. All of you deserve what you get. You get who you vote for.
The more things change, the more things remain the same.

Jan 06 10:46 AM

[Ishortyou:]

I think we should propose the creation of a third power 'the economic power' which runs independent of politicians and runs only on intelligence or knowledge. We have the legislative, executive/justice power, an economic one, independent of politics is needed.

Jan 06 11:53 AM

[Rob Viglione:]

We've thus far heard many stories of who deserves what, and how bailing this person or group out will benefit everyone...how about the notion that no one deserves anothers property?

The bailout mentality has severe long term political and economic consequences. No one wants to lose, ever, but enabling risk takers to profit by pillaging the savings of others is immoral.

Many collectivists cling to the notion that their "investments" benefit all of society, but disproportionate gains dispell that notion. You cannot privitize gains and socialize losses for long before the clever learn how to bankrupt the entire system.

Jan 06 12:30 PM

[jimmy46:]

The reason corporations should carry tax losses back 5 years is because their profits (and taxes) are just ESTIMATES.

Estimates of depreciation, etc.

When it becomes obvious later that the estimates were wrong
the tax bill should be adjusted.

Personal income and taxes don't involve estimates,
you know how much you made last year.

Jan 06 12:59 PM

[Jane:]

D McHattie, I couldn't have said it better! And I'd have loved to vote for someone other than the usual republican-democrat but on our state's presidential election ballot, there WAS no other choice and no write in option. It was the usual 'choose the least offensive candidate' election. I am disappointed in Obama's switch to support corporate welfare for the very people who caused these problems. Not sure McCain woudl've been any different, in fact I'm pretty sure he would've also been more of the same. This is not about party it's about pretty much ALL our elected officials being corrupt and incompetent. They all take industry lobbying and campaign money don't they? Therefore they are all looking out for corporate pals, not for their constituents.

Jan 06 01:54 PM

[jackooo:]

All the unemployed people will enjoy the tax break. lol lol

Jan 06 02:52 PM

[secmaven:]

The Obama stimulation law should be called PORK ie. "Positive, Optimistic, Renewed Kleptomania" in honor of all of the wheedling, begging constituents who will get their special interest palms greased by this law.

Jan 06 07:07 PM

[jewel:]

does obama think that the stimulus package is really going to help all the americans he talked about that are losing there homes because they were laid off and there is not any jobs to be found our unemployment pay is not enough to feed and house a single family of three. what about the single familys out there that have been laid off can not pay bills and mortages what will happen to these hard working americans................

Jan 08 01:01 PM

[manik chowd...:]

I believe people should vote their conscious... so other parties can become the majority other than the democrats or republican . if enough people voted for not too well known parties whom can lead us to the right path. and maybe someday we can have a real election and people would go to the voting booth with excitement. If small guys are given the opportunity to be on the debate,maybe those candidate would be known to the public by the media.
we should vote our conscious and should not buy the the FEAR that is put by this two major parties each and every effing year. if we are convinced that our vote will not be wasted, maybe their would be enough people voted for the the minority and minority can become the majority someday and it won't be republican or democrats we are voting for each year.

On Jan 06 01:54 PM Jane wrote:

> D McHattie, I couldn't have said it better! And I'd have loved to
> vote for someone other than the usual republican-democrat but on
> our state's presidential election ballot, there WAS no other choice
> and no write in option. It was the usual 'choose the least offensive
> candidate' election. I am disappointed in Obama's switch to support
> corporate welfare for the very people who caused these problems.
> Not sure McCain woudl've been any different, in fact I'm pretty sure
> he would've also been more of the same. This is not about party
> it's about pretty much ALL our elected officials being corrupt and
> incompetent. They all take industry lobbying and campaign money
> don't they? Therefore they are all looking out for corporate pals,
> not for their constituents.

Jan 13 09:14 AM

[Tom Armistead:]

Reading the comments, a theme that many discussed in one way or another is the need for change to our political system: there is a sense that regardless of the political party in charge or the ideology they profess. the result is the same, more money for those who created systemic risk, at the expense of those who have already been injured by the weakened economy and credit system.

Bernanke's last speech featured observations that those who are bailed out because of the systemic risks they have created will need to accept very close supervision.

Regardless of who is in power, a regulatory system needs to be created that will carefully supervise the financial industry to ensure that they do not create systemic risk, also to ensure that they do not use their skill in creating incomprehensibly complex products to entrap the unwary public.

Jan 13 01:06 PM