All of a sudden it felt like one of those nondescript sessions in August where everyone was away, leaving only a handful of bears to wreck the joint. Actually, these bears were more like gremlins, leaving a trail of damage, but are more annoying than anything else. Still, there is a fair amount of anxiety that could morph into an avalanche of selling. Remember, light volume means there are fewer believers between here and an all out bum's rush for the exits. That being said, fear of missing out is also on the rise. Virtually all individual investors missed the rally, and most pros did as well (window dressing doesn't count). So it's going to be tense. A few buyers emerged in the waning seconds of yesterday's session, underscoring the fact money is poised to go to work.
The more I think about the Bush tax cut situation the more it feels like a disaster waiting to happen. There are eight major changes that come with the expiration. In addition, more than likely tax brackets will be constructed in such a way that individuals making less than $200,000 and families less than $250,000 will face tax hikes. If we used 2010 brackets, single filers making more than $171,851 and families more than $209,251 would be treated like millionaires, and would feel the pain of the lash.
> The 10% bracket will be gone (that means a tax hike at the very bottom of the economic ladder
> Return of marriage penalty
> Capital gains tax goes to 20% from 15%, and 10% for some currently paying zero
> Dividends taxed at marginal tax rate
> Personal exemptions phased out
> Itemized deduction gone
> Child tax credit cut in half to $500
> Estate tax reinstated probably on more than one million dollars at 55%
This is a high-stakes game of chicken that could be a disaster for all; it should have been the first order of business, and not kicked into lame duck zone where it will be bartered by a bunch of people who think they have nothing to lose.
One thing I noticed a long time ago is that it's possible to make poverty just comfortable enough that it permanently snares the recipient. In fact, some on welfare have actually developed a "get over" mentality where they think they're gaming the system. In some cases they are getting over, but they are still stuck on the outside looking in. Fraud investigators in California have discovered $69.0 million in welfare money that has been spent or withdrawn outside the state in recent years. State-issued aid cards have been used at hotels, shops, and restaurants in 49 states, the U.S. Virgin Islands, and Guam. The top destination for the folks using these aid cards was Vegas. Casinos don't accept the cards, but shops around the strip reported heavy usage.
To qualify, a single parent with two children must earn less than $14,436 a year, and can continue to receive assistance until their income eclipses $20,000. It sounds like destitution, but you don't need to drive from Los Angeles to Las Vegas to get the baby milk. $16,010 was withdrawn from 14 cruise ships from around the world, including Rio and Beijing. That doesn't sound like destitution. Ballers spent money in South Beach and Waikiki Beach. Nobody wants to be on welfare, but many people can't extricate themselves off the assistance. We have the fattest poor people in the world despite all the talk about the surge in poverty. It's taboo to suggest people could actually be getting over on the system.
It's not politically correct to suggest too many people are too comfortable with the way things are. Out of state spending accounted for less than 1% of the $10.8 billion spent by welfare recipients during the period covered. That's the real sin; the needle on that number only goes up in good times and bad because you can be on welfare and not have any urgency to get off. I would like to see how much has been spent on textbooks and night school. If you have enough to go to Walt Disney World then maybe, just maybe, you are too comfortable on welfare. Even if you aren't heading out to the next fiesta in Guam, and if you aren't working to get off welfare, then you aren't getting over on the system as the system has gotten over on you.
Now, like Miami Vice that meteoric rise of Japan's economy is a fading memory and soon will sound like an urban myth but we shouldn't ignore its value as a cautionary tale.