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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Market Rallies As U.S. Dollar Wallows 0 comments
    Oct 25, 2010 10:00 AM
    The market mostly spun its wheels last week but edged higher, even challenging 11,200 on the Dow, a critical resistance point. The market could meander as anxiety over the elections picks-up and the media makes one last dash to convince the public to vote for Democrats. I don't think anything was accomplished at the G-20 gathering so the dollar should remain range-bound. There are big earnings reports out this week, but I don't think any of these names will dictate broad market outcomes. But, they will give us a glimpse into the economy at home and abroad. I think the dollar, and momentum, sets the tone for the market although sentiment data at the end of the week could determine if the market finishes the week higher or lower.

    Key resistance numbers on the Dow:
    11,200
    11,421
    11,659

    Key support numbers on the Dow:
    11,000
    10,747
    I sense the economy has hit rock bottom for the moment. It can get worse, but doesn't have to. But, we must go through some pain to not only fix the current problems but avoid future disaster.

    In the meantime, the hits keep coming, and over the weekend seven banks bit the bullet, bringing the year to date tally to 139. That's one short of all the banks that failed in 2009.
    Food Stamps with a Smile
    Over the weekend, California re-launched its food stamp program with a new name and logo. The new look was celebrated with much hoopla in Long Beach at an event headed by Maria Shriver. The California first lady, bubbling with enthusiasm, made the following statement and observation.

    This new logo and name will "erase the unfortunate stigma associated with this program and encourage families to see CalFresh as a resource for putting healthy meals on their table." Say what? There is no doubt that from time to time we all need help, but there should be a stigma for being on this program too long. The fact is the greatest threat to the nation is slipping to a point where expectations are low and apologies for not trying becomes the mantra of parents, teachers, and would-be leaders. The $200.00 that families get is just enough to keep them fed and sedated in a state where poverty is just comfortable enough not to try and escape.

    Right now, many families are in trouble, and it's wonderful to live in a country where people aren't lying in the street begging for food. More wonderful is living in a nation where we believe we are exceptional. The nation is at the crossroads, where we can hunker down and accept lower goals or we could convince Americans it's possible to still shoot for the moon. It begins with family and accountability.

    * 75.3% of families on program headed by a female
    * 40.6% of heads of households in program don't have a 12th grade education
    * 14.0% of recipients have been on program 5 years or longer.

    The same people that are touting the program are also loathing making schooling more difficult for those with the lowest test scores. They feel sorry for these folks, but don't care enough for them as human beings to help them reach their true potential and develop God-given gifts. Ironically, the new program is designed to get more people ON food stamps as California has the second lowest participation rate in the nation behind Wyoming. (I would love to speak to those people who have refused to join the program. If anyone knows someone in this category let me know.)

    Those receiving food stamps should not become owing to politicians that tell you they care about you. Don't become a serf. Understand out of the other side of their mouths these same politicians are saying that food stamps and welfare checks are smart economic policy because poor people spend all the money. According to some in the federal government, each dollar of benefits creates $1.84 in economic activity. So, these people are only a conduit for money, is that the real message?

    The real deal is we must prevent early mistakes, like dropping out of school and the rise in teenage pregnancies. Right now, people must understand they are being lulled into a life of underachievement, and there should be a stigma attached. I gave a speech at Wagner College in New York last week (very impressive place, wonderful faculty and students) and talked about the fact we are being sucked into accepting and celebrating mediocrity. I used several examples of how easy it can happen, and the debilitating long-term impact once it occurs. One cautionary tale comes from the collapse of one of the largest empires in the history of mankind.

    The institute of Serfdom

    #3 Russian Empire

    From the small principality of Moscow in the 14th century, the Empire of Russia grew much like all the "great empires" grew, through military action and intimidation. That growth was sped up by Ivan the Terrible, who adopted the title of Tsar, and lorded over a brutal regime in the 15th century. By the reign of Peter the Great, who lived from 1672 to 1725, Russia was the largest state in the world. Its reach extended from the Baltic Sea to Pacific Ocean. During his rule kholops, essentially slaves whose master had complete rule over them, were converted into serfs. Agricultural kholops were transferred to serfs in 1679, and other kholops converted in 1723. This new status amounted to indentured servitude that came with special taxes.

    Peter the Great had an army 300,000 strong, and went to war with the kingdom of Sweden and Ottoman Turks, and moved the new capital to Saint Petersburg.

    Catherine the Great was a heavy-handed leader, but compelling in so many ways. Through the Charter to the Nobility, she enhanced the power and influence of landed oligarchs. She also allowed the selling of serfs separate from land. She also expanded the empire with the inclusion of Ukraine, Belarus, Lithuania, and chipped away at the Ottoman Empire. During her reign, Russia increased by more than 200,000 miles. She was a diplomat as well, starting trading with Japan, signed a treaty with Great Britain, and helped to establish the League of Armed Neutrality.

    Tsar Alexander I was young and idealistic enough to think he could bring liberty to the serf system. Yet, it was those very serfs too entrenched in the feudal serfdom way of life that made his efforts futile. They were too far gone, an example of the ultimate outcome of people that become so hooked on mediocrity even the specter of true human freedom doesn't look like a fair exchange after accepting crumbs for so long. Frustrated with the lack of enthusiasm by the people, Tsar Alexander I turned his ideological dreams outward and decided to help quell the march of Napoleon.

    The Russo-Austrian army met Napoleon's army at Austerlitz on December 2, 1805, and suffered a humiliating defeat that only energized the French dictator even more. Alexander eventually cut a deal with Napoleon that allowed him to takeover and absorb Finland and its army into his own. But, in 1812, Napoleon invaded Russia with his Grand Army, 600,000 strong, and found little resistance as he marched all the way to a burned out Moscow. By now, we all know the story of how Russia trapped Napoleon deep into its country with a path of burned out fields and the harsh winter setting in.

    Napoleon retreated, and finally ended back in France with just 40,000 men or 7% of his invading force. The victory inspired Tchaikovsky's 1812 Overture, and established Russia as a diplomatic leader. But, throughout it all the great nation in terms of land, and now military conquest, missed out on the industrial revolution and agricultural innovation adopted in Western Europe in large part to its reliance on serfs. Its massive borders proved difficult to maintain, and its centralized government halted economic progress.

    Tsar Alexander II finally emancipated serfs in 1861, two years before the Emancipation Proclamation in the United States.

    With 42 million Americans on food stamps, we are becoming serfs, and when we vote for the guy or gal that promises higher minimum wages or more food stamps we are rejecting freedom like the serfs rejected the efforts of Tsar Alexander I. It's amazing that politicians are spending more time trying to get people on welfare and food stamps rather than creating a climate for exceptionalism.

    One day this week I'll share my review of the British Empire and how its demise also serves as a warning for where our nation is today.
     
    Chaka Con

    Representative Chaka Fattah (D-PA) introduced a bill titled: HR 4646 Debt Free America Act in February of this year. The bill didn't garner much attention initially as it seemed preposterous and came from a Congressman who only had 52 bills out of 61 sponsored make it out of committee since January 1995. But, now there are rumblings of plans to pass this law during the so-called lame duck session in November. Essentially, a 1% fee would be levied on all transactions involving banks and financial institutions. The fee would go to the government ostensibly to erase the nation's debt. So, if you get your social security check directly deposited in your account and go to the ATM machine it will cost you 1% each time.

    If you deposit a check into the bank it will cost you 1% of the amount deposited as a fee, and it will go to the government. This is beyond crazy and equates to outright highway robbery. I guess by calling it a "fee" the Democrats avoid breaking their pledge of not hiking taxes on the middle class, but this would-be law would make life more expensive for everyone, including the poor. Could you imagine a fee to the government every time you wrote a check? This thing would become a monster. By the way, how long would the fee stay at 1%? Moreover, a fee is supposed to apply to services rendered, a cost for a special benefit.

    SEC. 2. FINDINGS; PURPOSES.
     
    (a) Findings- The Congress finds the following:
    (1) The current tax structure creates economic distortions that limit growth and job creation.
    (2) The estimated cost of compliance to taxpayers is five billion hours and approximately $200 billion.
    (3) Restructuring the tax code will promote economic prosperity.
    (4) Replacing existing Federal taxes with a fee on transactions eliminates systemic inefficiency that plagues the current tax code.
    (5) The United States, from its beginning in 1790 to the present, has been free of a national debt for only two years, 1834 and 1835.
    (6) The national debt has grown from $75.5 million in 1790 to $5.8 trillion in 2008.
    (7) Expressed as a percentage of gross domestic product (NYSE:GDP), the national debt reached a high of 108.6 percent of GDP in 1946.
    (8) After 1946, the national debt as a percentage of GDP declined, reaching a low of 32.5 percent in 1981.
    (9) The large budget deficits of the 1980s and 1990s reversed this trend and pushed the percentage to another high of 49.5 percent in 1993.
    (10) The Federal budget surpluses from fiscal year 1998 to fiscal year 2001 were used to retire a portion of the publicly held national debt.
    (11) Between fiscal year 1997 and fiscal year 2001, the publicly held portion of the national debt declined by more than $400 billion.
    (12) Since fiscal year 2002, a return to budget deficits has caused the debt to grow again.
    (b) Purposes- The purpose of section 3 of this Act is to establish a fee on most transactions. Such fee--
    (1) is different than a sales tax in that a sales tax is charged only on sales to the final consumer and the transaction fee would apply to intermediate users as well as end users,
    (2) is different than a value added tax (VAT), commonly used in European and other countries, in that a VAT is imposed only on a portion of a transaction's value (roughly the difference between an item's selling price and it's cost) and the transaction fee would apply to the entire amount of the transaction, and
    (3) is intended to raise sufficient revenue to eliminate the national debt, which was $10.6 trillion in January 2009, during a period of 7 years and to phase out the income tax on individuals.
     
    SEC. 3. IMPLEMENTATION OF A TRANSACTION FEE.
     
    (a) In General- Subtitle D of the Internal Revenue Code of 1986 is amended by inserting after chapter 36 the following new chapter:
     
    `CHAPTER 37--TRANSACTION FEE
     
    `Sec. 4501. Imposition of transaction fee.

    `SEC. 4501. IMPOSITION OF TRANSACTION FEE.
     
    `(a) In General- There is hereby imposed on every specified transaction a fee in an amount equal to 1 percent of the amount of such transaction.
    `(b) Specified Transaction- For purposes of this chapter--
    `(1) IN GENERAL- The term `specified transaction' means any transaction that uses a payment instrument, including any check, cash, credit card, transfer of stock, bonds, or other financial instrument.
    `(2) TRANSACTION- The term `transaction' includes retail and wholesale sales, purchases of intermediate goods, and financial and intangible transactions.
    `(c) Liability for Fee- Persons become liable for the fee at the moment the person exercises control over a piece of property or service, regardless of the payment method.
    `(d) Collection- The fees will be collected by the seller or financial institution servicing the transaction and shall be paid over to the Secretary. In the case of a person who fails to collect and pay over the fee as required under this subsection, such person shall become liable for the fee not so collected and paid over.
    `(e) Potential Exclusions- Subsection (a) shall not apply to transactions involving stock (and any options or derivatives with respect to stock) until--
    `(1) such time as the United States enters into an international agreement that regulates domestic and international stock exchanges, or
    `(2) the Secretary issues recommendations regarding the application of the fee as it applies to stock.
    `(f) Regulations- The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance which require reporting of such information as the Secretary determines appropriate to prevent under reporting of the amounts on which a fee is imposed by this section.'.
    (b) Clerical Amendment- The table of chapters for the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36 the following new item:

    The Market

    We are riding the weak dollar higher out of the gate but the market needs more to breakout.
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