Bill Cara’s Blog for July 2, 2010 [See post-close report]

Good morning.

There is nothing to report at this time.

ignoring the bad news admitted by the talking heads:

http://www.bloomberg.com/news/2010-07-02/payrolls-...

Heard of at least one twit(ter) calling the bottom yesterday. I know better than that, but am thinking bounce followed by sell off as working thesis going into opening. Europe showing something similar at present, but with varying degress of chop-chop. Just airing my thoughts and then comparing to actual events for learning.

Interesting to note that VIX has decreased, even as new lows are made. If I remember correctly that means that the price of puts are decreasing. Please correct me if I am wrong.

good hunting today.

regarding bills' comment today on the public or retail investor being 'locked out' for an hour or so when these reports come out at 8 30. I agree it is wrong and there are easy fixes. Fixes we won't get. Right now, futures are up on the employment report. Don't know it it will hold, but either way the retail investor should not be locked out.

MSFT - Microsoft initiated with a Buy at CLSA. Target $32

kaimu - i have always enjoyed your posts. This one is by the far the best I have read and downright scares the hell out of me.

Shortly after Spain's credit rating was cut it had a successful sale of its sovereign bonds. I have never seen a satisfactory disclosure regarding the identity of the bond purchasers. I wonder whether the bond buyers were the ECB or the US Federal Reserve, or both. Does anybody know?

The successful sale is very close in time to the recent rally in the euro and decline in the price of gold. Could there be a connection?

I don't think I've ever been much good at assigning 'value' to 'stuff'. Once Jon Koncak (*BWS) got a 6 year, 12 million dollar contract to play in the NBA, value concepts took on new meaning.

*BWS - Big, white stiff

Ergo, disaster 'options' seemed 'as good as anything'...like some FAZ LEAP calls when things were 'good' and now some BLK near-term butterflies in a countering move.

All of us have to ask, where do the jobs come from? (I'm told it's hard for a teen to get a McDonald's job because older people have been getting them)...

Longer-term, trying to become more energy self-sufficient would seem a logical 'theme', even if the existing energy purveyors diversified into it to continue to profit...via biofuels, batteries, wind, solar, geothermal...and making the energy grid more efficient. Selling 40K Chevy 'Volt' cars doesn't seem really smart in this economy...

The next quantitative ease by Bernanke and company? Is he planning on guaranteeing everyone's debt in the world? Or is it possible that 'zero hour', when more debt produces zero growth has already arrived.

Is there any more important chart than the ten-year yield? No matter what the knuckle-draggers may say on Tout TV, the ten-year seems to keep saying deflation.

So much for my Thomas Wolfe impression...

http://www.businessweek.com/news/2010-07-02/rosenb...

PIMCO's Bill Gross said it wasn't him & guessed it was the two big Spanish banks, I assumed STD & BBVA, at the request of the govt. Which govt? It was so successful it was over-subscribed. I want to issue some personal bonds and then just roll them 4ever.

Price discovery for PMs happens over on the CRIMEX, oops, COMEX. Banks control this too. JPM & HBC hold big shorts according to COT report. Could there be a connection here?

FSLR - estimates were raised through 2011, UBS said. Checks show better pricing, given utility momentum. Neutral rating and $128 price target.

JNPR - price target reduced to $25 at UBS. Estimates also cut, as routing demand should begin to slow down. Neutral rating.

lol eccentric and honest beats Ben Bernanke et al.'s act anyday. Perhaps eccentric is codeword for taking to task the Washington elite too frequently? bon weekend.

Eccentric? Hell, I thought you were the new normal.

Congrats.

Good show, uncle Bill!
Later.

"Bodes well for shorts on Tuesday"

Don't read too much, or in fact, anything, into it. The hired slaves are minding the HB&B desk while the slezy boys rejoice in the Hamptons. One look at the volume tells you it was a day to forget.

Bill:

Does that put me out of the box or just a basket case?

Interesting question....

Congrats..

from Fleck tonight.... http://adventuresincapitalism.com/post/2010/07/02/...

http://www.spiegel.de/international/world/0,1518,7...

The gulf accident looks like one of the shallower regions of deep water drilling in the world. Oil looks like it is about to get much more difficult to extract and thus expensive.

so bounce extreme was for amateur hour before a sell off and brief revival towards close. It is getting easier to ignore the wandering, aimless action during the middle of session and concentrate on the volatile opening and close, although HAL offered a .50 short trigger at midday as its fellow conspirators BP APC RIG were all down while it was, I assume, chewing through bids.

I noticed on the $vix chart that spikes in volatility coincide with bottoming of $spx before a market bounce occurs. I'll be interested to see if it is bounce time Tuesday.

I've not paid daily attention to chart analysis in larger time frame as I have now the flexibility to work with whatever opportunity arises in real time, but I was surprised to look over a chart commentary I made at the beginning of May and saw how pertinent it was. Hey, even a broken clock is right twice a day! The MA crossover was a short (is that the dark cross being referred to?).

Renewal time is coming up for this subscription, which I am not going to renew, but there certainly is something to learning TA. I'm a lazy sod lacking Bill's gift for numbers, so I'll stick to what I believe is my niche, at least until the great purge occurs in the markets and politics to clean out the rot. Then perhaps as Vad points out, I'll take this strategy and use it in a larger time frame.

bon long weekend all.

http://ronsen.blogspot.com/2010/07/will-field-of-e...

Commentary from around the Net, including some gems on 'dark crosses', job creation, and a new leader in home building. Have a terrific weekend; I got the short straw on the long weekend.

¹²Royal Bank of Scotland: Get Ready For The “Cliff Edge”
Click here for a link to complete edited article:

By PragmaticCapitalism | 30 June 2010

I've read some alarming research in recent weeks and months, but this one takes the cake. RBS is sounding the alarm on risk assets with a call that markets are "at risk of falling off the edge of the cliff". They refer to equity investors as the "worst cult in history…. which has no basis in fact, or history, but yet seems universally accepted". (There's actually a strange truth in that comment). They believe the current downturn could very well "destroy" this "cult":

"Get ready for the cliff-edge. Be maximum long duration of nominal government bonds in safe haven markets. This means US, UK, Germany, in that order, and perhaps others. Be long gold. Think the unthinkable— we always do, and you should ask yourself why the consensus refuses to do so, and seems perpetually on the 'everything is ok' side of events. If I was any more bond bullish we would explode, this is identical to 2008, including the incredible complacent (and we believe wrong) consensus."

They're not just bullish on treasuries— they are super bulls with a 2% target on 10 year yields:

"Get ready for sub 2% on 10-yr USTs; sub 2% on 10-yr bunds; and the UK not far behind, 2.5% 10-yr Gilts. Our long held US$2000 gold view as a trade for the breakdown of the financial system looks increasingly ok. We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe), and for the global economy (particularly in the US/Europe). We have been wrong before, but we think the risks associated with us being wrong are low (ie, rates just stay where they are, yields back up a little bit, after all we are not about to enter a new global economic upswing!). The risks associated with us being right are >10% returns in 10-yr USTs at the same time that equities/commodities will collapse far beyond what even some equity bears anticipate."

In terms of valuations they don't see today's levels as being particularly attractive:

  M O R E...

"Get ready for the cliff-edge. Be maximum long duration of nominal government bonds in safe haven markets."

If I understand monetary history even a little now, I believe this is one of the worse calls that can be made or at least one with significant risk. I'd be more willing to bet on destruction of value on these bonds with inflation or debt default and a significant haircut in value. Then again, I'm not buy and hold equities, so I don't have to choose either.

http://www.businessinsider.com/niall-ferguson-sove...

Not knocking the post. Discussion is always good. But if I'm guessing end game according to Kaimu's observations, Uncle Sam doesn't pay its dues this time. Of course I can be wrong.

¹²

Les: If I understand monetary history even a little now, I believe this is one of the worse calls that can be made or at least one with significant risk. I'd be more willing to bet on destruction of value on these bonds with inflation or debt default and a significant haircut in value. Then again, I'm not buy and hold equities, so I don't have to choose either.

No, you've simply succumbed to the current error of looking for either a deflation or a runaway inflation. In fact, we will see both. But, immediately ahead lies the spector of deflation. As Evans-Pritchard (who is hardly a Krugmanite) says:

Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt. At the time, the broad money supply was growing at 6% and the Dallas Fed's 'trimmed mean' index of core inflation was 2.2%. We are much nearer the tipping today.

The US M3 money supply

has contracted by 5.5% over the last year, and the pace is accelerating: the 'trimmed mean' index (of inflation) is now 0.6% on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

There is no doubt that the Fed has the tools to stop this

[[FDR succeeded in shifting the economy from deflation to inflation within months of his inaugeration, though it did not seem to help the economy much: normxxx]]. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

[[1932, here we come!: normxxx]]

but Norm, how does maximum duration bonds in US debt protect investors?

1932, here we come. Yeh, it took WW2 to fix America's woes. I wonder what it'll take this time. Can't be good for debt holders IMO.

As page 8 of Armstrong's paper on the Euro suggests, it is one heck of a wild ride we are possibly going to be subjected to. What happens in a Euro crash? Holding govt. debt in such a scenario is not for the faint hearted.

cheers.

"Those who predicted that globalization would produce a convergence of lifestyles (US lower, emerging world higher) as a result of capital finding more attractive use, sure are looking like geniuses now."

This I do remember as an argument from some years ago. Pity there was no informed debate for the average 55 year old as to end game possibilities and consequences. As we fully appreciate here, choices are now significantly limited and still people are being herded by Washington's game. Come on Americans, buy our victory bonds.

Sorry Norm it's not a question of expectations of outcomes, for me it all comes down to risk. And Uncle Sam is the 800lbs gorilla threatening everyone's wealth.

g, it's not my intention to suggest that World War 2 was anything but an excuse to ratchet up the industrial output of the United States. This was the case. What will retool the United States this time, so that its people may create REAL wealth? Crikey, I'm starting to sound like Kaimu now...

k thanks norm.

OK

The complaints I read on this blog about conditions in Illinois appear not to be harsh enough.

http://tinyurl.com/37dkv3f

"For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.

Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up."

"From suburban Elgin to Chicago to Rockford to Peoria, school districts have fired thousands of teachers, curtailed kindergarten and electives, drained pools and cut after-school clubs. Drug, family and mental health counseling centers have slashed their work forces and borrowed money to stave off insolvency.

In Beardstown, a small city deep in the western marshes, Ann Johnson plans to shut her century-old pharmacy. Because of late state payments, she could not afford to keep a 10-day supply of drugs. In Chicago, a funeral home owner wonders whether he can afford to bury the impoverished, as the state has fallen six months behind on its charity payments, $1,103 a funeral."

BH,

This is the first I've heard of him. He was being interviewed by Paul Giggot and sounded impressive, so I googled to read about him.

He looks young and has a pragmatic approach. One of his comments today ended with, "We will let the people decide." Sounds great to me and a lot of what he set out to do has been accomplished.

It was done in spite of a Democratic state legislature. (At least that is what I picked up from the interview. His approach was that if these guys want to keep their jobs they had better address the issues the people are most concerned about.

A revolutionary approach — from 1775!

I'll watch him with interest. I'm unimpressed with any others who may want to challenge Obama so far.

ALOHA!!

Its a good start and worth a second thought ... Once again there is Nothing New Under The Sun.

Consider the effect upon the production of wealth.

To abolish the taxation which, acting and reacting, now hampers every wheel of exchange and presses upon every form of industry, would be like removing an immense weight from a powerful spring. Imbued with fresh energy, production would start into new life, and trade would receive a stimulus which would be felt to the remotest arteries. The present method of taxation operates upon exchange like artificial deserts and mountains;

* it costs more to get goods through a custom house than it does to carry them around the world.
* It operates upon energy, and industry, and skill, and thrift, like a fine upon those qualities.
* If I have worked harder and built myself a good house while you have been contented to live in a hovel, the taxgatherer now comes annually to make me pay a penalty for my energy and industry, by taxing me more than you.
* If I have saved while you wasted, I am mulct, while you are exempt.
* If a man build a ship we make him pay for his temerity, as though he had done an injury to the state;
* if a railroad be opened, down comes the tax collector upon it, as though it were a public nuisance;
* if a manufactory be erected we levy upon it an annual sum which would go far toward making a handsome profit.
* We say we want capital, but if any one accumulate it, or bring it among us, we charge him for it as though we were giving him a privilege.
* We punish with a tax the man who covers barren fields with ripening grain,
* we fine him who puts up machinery, and him who drains a swamp.

How heavily these taxes burden production only those realize who have attempted to follow our system of taxation through its ramifications, for, as I have before said, the heaviest part of taxation is that which falls in increased prices.

To abolish these taxes would be to lift the whole enormous weight of taxation from productive industry. The needle of the seamstress and the great manufactory; the cart horse and the locomotive; the fishing boat and the steamship; the farmer's plow and the merchant's stock, would be alike untaxed. All would be free to make or to save, to buy or to sell, unfined by taxes, unannoyed by the taxgatherer. Instead of saying to the producer, as it does now, "The more you add to the general wealth the more shall you be taxed!" the state would say to the producer, "Be as industrious, as thrifty, as enterprising as you choose, you shall have your full reward! You shall not be fined for making two blades of grass grow where one grew before; you shall not be taxed for adding to the aggregate wealth."

And will not the community gain by thus refusing to kill the goose that lays the golden eggs; by thus refraining from muzzling the ox that treadeth out the corn; by thus leaving to industry, and thrift, and skill, their natural reward, full and unimpaired?

Henry George's, Progress & Poverty "Part IX — Effects of the Remedy: Chapter 1 — Of the effect upon the production of wealth" (1879)

Consider the "Community" first, not Wall Street and most certainly not DC ... Today we live in a World where the reverse dominates our daily lives. Everything and every political and monetary entity is first, while Community is dead last. This is un-Constitutional in practice.

http://www.dailymail.co.uk/news/article-1291837/Ca...

Bill, is this what you hoped would happen with Cameron?

Some level of government activity is required to maintain society. To me a more interesting question might be, how do we fund such activity? (I'm assuming you are not advocating no government at all) To have government, it needs to be funded in order to support its operations. So assuming that, what types of taxes would be considered "ok" - and why is one tax better than another?

In my opinion, that's more interesting than simply calling for abolition of taxes using the whiny golden-egg-laying-goose approach.

EDIT: my first draft of this was more like what Ross wrote but I was not in my cups, as he so clearly is :)

Great wir. and great idea to take time off! I hope you don't read this comment as that would mean you are cheating! The pressure is on the rest of the distinguished commenters to carry the ball. I am sure they will. Thanks to everyone. I learn a great deal.

http://tinyurl.com/35kavqt

"Browne is widely blamed for the drastic cuts of BP’s safety and maintenance program of its oil installations in the U.S. while he was BP’s CEO between 1998 and 2007. The consequence of those cuts were three major accidents in the U.S.—an explosion at the Texas City refinery in 2005, two oil spills in Alaska in 2006; and the current catastrophe in the Gulf of Mexico. Adamantly, Browne has refused to discuss his responsibility for the Gulf crisis. He is undoubtedly relieved that the British government decided to ignore the allegations about his culpability and promote him to a senior position."

This makes no sense unless the so called PR gaffes, e.g. "I want my life back" and "little people", are not gaffes at all and represent a glimpse into a world where policies that willfully cause environmental damage and loss of life are officially sanctioned and not unforeseen accidents.

and could issue $40,000 fine for coming closer than 65 feet of booms, vessels, or wildlife/oil on beaches, etc.

http://bit.ly/dhH99p

As we celebrate this Country's Declaration of Independence from Great Britain, I wonder if we are independent at all from the corporatacracy and fallacy's used to keep the spirit of freedom locked idle deep in the corners of our hearts.

Enjoy your Independence!

baz22,

I agree there will be a time for judicial selection, but after reading a link here (sorry I don't remember who gave it) I am more cautious than ever.

The Macro Trumps All Else

July 2, 2010 8:57 AM

http://tiny.cc/l13ub

I saw a similar pattern in my own business. With the globalization push all the old measures went out the window — quality, service, loyalty. The ONLY thing which mattered was price.

A new term appeared in the graphics business (probably elsewhere too) the "reverse Auction".

A client would call for a quote — choose the 3 or 4 lowest, have them rebid with perhaps more stringent specs like better paper, more photos or increased number of copies.

Then it would go to anyone willing to work for nearly nothing just to keep his employees paid.

ALOHA!!

Meanwhile over at TIME magazine on the cover June 28, 2010 is this ...
LINK: http://www.time.com/time/covers/0,16641,1101100628...

When I was in my 20s just entering the workforce, with all the raw enthusiasm of youth, I would have never imagined that by time I retired I would see a TIME magazine cover like that! Even now it is shocking to look at! At some point contrarian is just another word in the dictionary.

The notion that a country's wealth is measured by where the DOW sits seems about as accurate as saying all Americans are wealthy as Oprah always implies. But Oprah ... what exactly is "wealth"? If it is the ability to spend beyond ones means, living off credit, then yes America is truly a wealthy Nation. I would suspect that most of Oprah's audience lives in a house with a mortgage. If that is the case then I would not consider anyone tied to a 30 year mortgage as "wealthy". Unless debt is wealth! Certainly the US TREASURY considers "debt" as wealth, otherwise the treasury would not accumulate so much of it. Debt is not wealth. Far from it. The ability to pay a mortgage depends upon your income, your job. Then when you consider how much "net income"(after taxes) you need to produce in your lifetime to pay off your mortgage you have to wonder just exactly who's AMERICAN DREAM is it anyway? Debt slavery isn't exactly what I would classify as a "dream". Who exactly has "sold" us on the whole AMERICAN DREAM concept of debt accumulation, because as far as I can see the AMERICAN DREAM is yet another monetary fraud of the political and banking industry.

LINK: http://tinyurl.com/29zvord

As we all celebrate the FOURTH OF JULY or INDEPENDENCE DAY you have to wonder what our Founding Fathers would say if they were alive today. Many Americans have died in the name of Freedom over the many decades since 1776. Is this truly the vision they had of America over two hundred years ago? Have we finally arrived at the PROMISED LAND as Martin Luther King used to say? Well, we certainly have been "promised" many things by many Presidents. Come November we will be hearing a barrage of yet more political "promises".

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty and the pursuit of Debt.

HAPPY FOURTH!!!

Sure, we'd all love for INCOME TAX to go away. But why is it worse than the others? Your chosen advocate was not suggesting just eliminating INCOME TAXES, he was suggesting getting rid of all sorts of taxes.

Why is INCOME TAX worse than, say, sales taxes or property taxes? I'm assuming you have more information on why one tax is better than another to support your opinion, and I'd like to hear what they are.

Simple advocacy is less interesting to me than reasoned argument. And an "appeal to history" is not convincing to me either. As an example, our original founders wrote slavery right into our constitution, and that worked right up until it didn't. Founders make mistakes too.

I'm not arguing FOR income tax, nor against. I'm interested in hearing why ONE TAX is preferred over ANOTHER TAX.

You say that income taxes are irrelevant. Why are excise taxes relevant and income tax is not? Isn't money fungible?

I have read all your postings on how the USG has basically overrun its income sources. I understand all of that. I'm focusing on why you're picking on income tax, without looking at the myriad of other tax sources that could also be eliminated.

"Then it would go to anyone willing to work for nearly nothing just to keep his employees paid."

Grym,

I assure you, nothing has changed since your old business days.

Here in PA, most companies involved in the building/construction trade, have found their business down 30 to 50%. If it wasn't for Government busy work (paid for by guess who), most would be out of business. The ones working are doing so for peanuts, just to keep the cash flow going, hoping for better times.

Many of these contractors are not paying their bills. The sub-contractors are finding it difficult if not impossible to collect their money.

"We are headed in the right direction." --- Barack Obama

Regards,
BH

woha norm, that's a lot of ruminating there. I'd happily wallow through it, but already went through Mauldin's letter this arvo which I see you've included:

http://www.businessinsider.com/america-the-screwed...

Rick Santelli feeds the deflation argument, calling it the central bankers bogeyman, in an interview with King World News:

http://www.kingworldnews.com/kingworldnews/Broadca...

Its the weekend, so I'm feeling a little more free to...digress on the whole tax issue today.

Kaimu said - "In a perfect World where citizens take care of their own and disparage government no taxes would be needed. I would prefer that, but we do not vote that way and our "learned" belief system is to depend on government for solutions not ourselves."

Until such time as consciousness expands among mankind to a point where warfare is eliminated among nations, where crime is a truly exceptional event, and where civic-mindedness and care for the planet and each other are the rule, I'm guessing we'll need government. It's less about "learned belief systems" and more about how people really act.

As for income taxes, kaimu said - "Its worse because its not Constitutional and unlike the IRS claims reporting is not "voluntary" by any means. It is also discriminatory. It violates my civil rights. The way it is administered is unfair, as some people even foreigners and corporations pay less than their fair share or no INCOME tax at all. How many US citizens are sitting in jail for failure to pay their property tax?""

Does the 16th Amendment not explicitly provide authorization for an income tax?

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration"

This was passed by the congress and the states in the approved manner in 1913. The language is pretty explicit. I'm not a constitutional scholar, but "Congress shall have power to lay and collect taxes on incomes" seems to have little scope for interpretation.

http://en.wikipedia.org/wiki/Sixteenth_Amendment_t...

As for taxes not being voluntary: of course they aren't. No taxes are.

As for violations of civil rights - which ones would those be? Assertion is not a compelling argument to me.

Kaimu, don't get me wrong, I'd love to stop paying income taxes, but - your points seem weak to me. I wouldn't keep on this issue otherwise.

davefairtex said:

This was passed by the congress and the states in the approved manner in 1913. The language is pretty explicit. I'm not a constitutional scholar, but "Congress shall have power to lay and collect taxes on incomes" seems to have little scope for interpretation.

But, from what I have heard the so called ratification was not complete. Further, the IRS will not produce a legal document requiring a person to pay taxes...could this be why several several people have been cleared of tax evasion when a literate jury refused to indict them? It is mass delusion...would not be the first time a type of Stockholm syndrome was elicited and we just took one for the team.

I think the best reason for abolishing income tax is that its an abomination. Why is it so complex that you need software to produce your return? Because of all the "breaks" given to special interests that can't be made available to the "average Jo", so fill the tax code with enough complexity that we all waste hours trying to ensure that we're taking advantage of the breaks "allowed" to us but not risking an audit which might cost us nothing but lost time and sleep.

Abolish income taxes, and you no longer need an IRS - all those people that might be doing something productive with their lives.

Replace it with a consumption tax (VAT or simple sales) and you've freed the producers and savers from a burden, and placed it upon those who choose to spend. I know this is typically considered regressive, but the rich spend more because their toys are "better" than mine. Food and staples can be taxed at a lower rate. Sorry kaimu, but orchids are likely going ot be hit hard.
Side benefit might be reduced imports, since so much of our consumption is imported.

Great argument ChrisM. If it could be borne out that income taxes are more expensive to administrate than an VAT, I'd certainly be in favor. As a taxpayer, I'd rather have something simple than tracking everything I do that makes money. Businesses already track this sort of thing for sales taxes, so presumably the societal administrative burden would not increase.

A consumption tax might well reduce consumption. The 50% of america that pays no income tax would definitely not be better off with this tax in place, but as someone who tends not to consume that much, I'm in favor. Goes along with Ross's "tax the fellow behind the tree" concept.

As for Congress not having the power to tax incomes, wiki quotes "Penn Mutual Indemnity", a decision by the Third Circuit Court of Appeals, saying:

"It did not take a constitutional amendment to entitle the United States to impose an income tax. Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 158 U. S. 601 (1895), only held that a tax on the income derived from real or personal property was so close to a tax on that property that it could not be imposed without apportionment. The Sixteenth Amendment removed that barrier. Indeed, the requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes.

... Congress has the power to impose taxes generally, and if the particular imposition does not run afoul of any constitutional restrictions then the tax is lawful, call it what you will."

As for the income tax amendment not passing legitimately, this seems to me unlikely to be factual. Urban legends start from all sorts of seeds. This seems like another one of them. How likely is it that an attack of nationwide mass delusion allowed for an income tax that everyone in the country pretty much agreed to for the past 100 years? I'd say, not likely. Possible - but not likely. Occam's Razor applies: the simplest explanation is most likely correct - income taxes are entirely constitutional, regardless of people's wishes to the contrary.

ALOHA!!

Until such time as consciousness expands among mankind to a point where warfare is eliminated among nations, where crime is a truly exceptional event, and where civic-mindedness and care for the planet and each other are the rule, I'm guessing we'll need government. It's less about "learned belief systems" and more about how people really act.

Forget all your Utopian dreams about consciousness. It comes down to "money". As I said before even if income taxes were raised to the 90% level we could not pay for the 800% deficit in current revenues. You do not need to be Oprah to figure that out! Just how do people really act? You mean voting? Just where do you learn to trust government to take care of you? That is the "learned belief system" I speak of and its being taught every day in every Public school in America. Who teaches the value of less government other than the US Constitution?

This was passed by the congress and the states in the approved manner in 1913. The language is pretty explicit. I'm not a constitutional scholar, but "Congress shall have power to lay and collect taxes on incomes" seems to have little scope for interpretation.

I am not arguing the 16th Amendment exists I am saying it is un-Constitutional for all the reasons I stated prior. When I speak of un-Constitutional I am referring to the original US Constitution, in its "original" form and not the more modern versions and Amendments of the Constitution as interpreted and manipulated by political and monetary monopolies. The 18th Amendment is a great example of an Amendment that did not work and was repealed, so there is precedence to repeal an Amendment that failed. I see the 16th Amendment as a failure as it no longer has any fiscal viability, otherwise the US PUBLIC DEBT would not be over $13TRIL and spending near 100% of GDP.

Then again there is a matter of interpretation. Here is one of the definitions that outlaws "involuntary servitude" under the 13th Amendment.

Definitions of conditions addressed by the Thirteenth Amendment
Peonage
Refers to a person in "debt servitude," or involuntary servitude tied to the payment of a debt. Compulsion to servitude includes the use of force, the threat of force, or the threat of legal coercion to compel a person to work against his or her will.

Since the US government has been in debt since 1836 we are all in "debt servitude" tied to the payment of a debt, the US PUBLIC DEBT. Are we not threatened with force and/or legal coercion if we refuse to pay taxes? The USD is "debt based".

The key words are "permanent" and "peacetime". Prior to the 16th Amendment income tax was only collected to repay the costs of a war then repealed. The first 126 years of America's history had no permanent income tax. In 1894 there was the first peacetime income tax passed under a "tariff act" called Wilson-Gorman, but in truth was just the bankers getting their "shoe-in-the-door" due to bank failures during the Panic of 1893. After all if the US Treasury only had excise and tariff revenues then how could banks get bailed out? Income tax is a conduit to transfer wealth to banks. What exactly do income taxes repay now?

In 1895 the Supreme Court ruled income taxes from certain sources un-Constitutional, so thereby it was politically impractical to tax wages and not tax income from real property or interest. Income tax was originally held as un-Constitutional by the US Supreme Court.

Income taxes were made permanent the same year the US FED came into existence, just in time for WW1 and the Great Depression. Since then government has continued to grow into the exponential debt based government we have today.

As for taxes not being voluntary: of course they aren't. No taxes are.
If you would have read what I posted more closely I said "reporting", not taxes. There is a difference.

As for violations of civil rights - which ones would those be? Assertion is not a compelling argument to me.
Do I not have a right to not be discriminated against? Then why is it income from life insurance is not taxable? Is that not a "gain" just like a gain from selling stock at a profit or working 80 hours a week? Scholarships are not taxable. Then the myriad of tax credits for child care, for the blind, for the elderly. Where is the tax credit for the male Caucasian who was responsible enough to not be on welfare his whole life? Who paid all his bills on time? Who started numerous businesses that employed other Americans? Who obeyed all the laws? Where's that tax credit? I see no difference between tax law discrimination and discriminating against race, sex, handicapped or elderly. Damages exist both monetary and emotional. There are many ways government can discriminate and even though there are laws against such discrimination they still exist, but there are no laws against tax discrimination. The last time Congress even attempted to right those wrongs was the introduction of a Bill entitled the TAX SIMPLIFICATION ACT Of 2007, which was to repeal the entire IRS Code and replace it with a flat tax. Hummmm ... what ever happened to that Bill? It probably went the way of this ACT ... When I was working at the IRS Congress passed the PAPER REDUCTION ACT 1980, something we all openly laughed about at the office and of course it was yet another useless tax law that actually did the reverse.

Then there is the civil rights of innocent foreigners who have been bombed to the "stone age" in Vietnam and Afghanistan and Iraq. None of those wars did Congress ever debate or make a formal declaration of War, yet my tax dollars were confiscated without my vote or permission to be used in the execution of millions of innocent people who's only crime was not being American and Democratic in the case of Vietnamese and in the case of Iraq and Afghanistan add in the oil and gas factor. That is the very definition of "taxation without representation" in my book, whereby government does not represent my voice. In fact not even Obama supporters have been represented as Obama is still in the Middle East and in fact just put "Betrayus" Petraeus in charge of the US Military. Obama is now BUSH 3! In fact Obama is outspending Bush 1 and 2 on Defense Vendors.

Once again ... I go back to my original post on this thread. Someone here please convince me there are "real" benefits to paying income tax. If there are so far Dave hasn't convinced me and neither has anyone else.

What exactly is your point Dave? You keep saying you would love to not have to pay income tax. And ... so you agree then? In 2011 you are about to pay a lot more income taxes on your day trading capital gains. Who takes all the risk when you trade?

Unlike Bill, if you are an American citizen then you cannot escape paying taxes by moving to the Bahamas. So much for the Land of the Free and the Home of the Brave. Maybe we should have stayed under British Rule and never fought for Independence, because we certainly have not been freed from "taxation without representation". Its alive and well!!! If anything Americans are about to be even more tax oppressed than ever. I ask again ... for what reason? What fiscal solvency will come of it? Or is it yet more "wealth transfer" from those who spend their lives producing wealth to those who do not.

http://ronsen.blogspot.com/2010/07/holiday-morning...

-The Charts
-The answer to the question about who is the only one who looks consistently good in a half-shirt (photo)
-Social mood in video?

The holiday medical marathon is ovah...

This is an interesting mental exercise, but I have read that Peter Schiff's father is serving time in prison for attempting to buck the tax system.

The same year that our T-Sec, Little Timmy, made a small $30,000 "honest mistake" on his income tax — I had to file a return to prove I didn't need to file that year. It ain't what you know, it's who you know.

I see the US Tax Code as a metaphor for everything governmental — purposely made complex, confusing and overwhelming in order to be able to be interpreted as the situation presents itself.

General George Marshall demanded a one-sided, one sheet report on WW2 daily.

If a war involving 16 million US troops can be done thusly, so could a peace-time tax system.

The argument about abolishing taxes is a futile exercise. One way or the other households always are forced to pay to support governmental services and excesses.
Nominal interest rates which permit cheap governmental borrowing is one such method. Taxes is another. Conscripted servies, e.g., a draft, is also a method.

The fairness of the distribution of the burden of supporting government and the justness of the governmental expenditures are always subjects of dispute. Almost everybody has a complaint. I came of age at a time when young men were drafted into military service and provided with little more than bare subsistence in exchange for their lives.

It always appears that the burdens of supporting government are unjustly distributed, not just in the US, but in every country. It also appears that some governmental services are excessive, corrupt, and unjustly enrich the elite or unwisely protect the poor, not just in the US, but in every country. That is the way it is. That is the way it has always been. That is the way it will always be. At this point in history the system is much less harsh than it has been in the past. I hope it remains that way.

¹²Clarity, Conviction, Consensus

By Barry Ritholtz | 1 July 2010

[ Normxxx Here:  As gloomy as I have been lately, I get worried when so many people and so much data agree with me!  ]

The theme I have been discussing lately are the 3 C's: Clarity, Conviction & Consensus:

1) Clarity: Right now, there is none. By our metrics, we are not at a major bottom. Nor can we say that the data supports the argument that we are at or near a top. Indeed, we are now more than 15% away from recent highs.

Nor are we in any sort of trend. There is no clear momentum in any direction. And with the prior trading range of SPX 1041 to 1170 now decisively broken, the most we can say is that we might be in a new trading range, say from 975 - 1040.

2) Conviction: The street fight between bulls and bears is notable for the lack of real conviction amongst the players. The bears have had the upper hand for 2 months, yet we don't see the shorts pressing their bets.

The bulls argue that earnings are good, companies have clean balance sheets, and growth is supposed to slow after the initial post recession surge. Yet they don't seem to back up their arguments with cold hard cash. Some Value guys argue stocks are cheap, but they recall getting burned in 2008 the last time we saw that. They seem to be sitting pat.

Yes, its the Summer, and trading should slow down— but the abysmal volume tells us there is little institutional interest in making any commitments to equities and even less enthusiasm from Main Street.

3) Consensus: I cannot recall the last time a) so many people were projecting a recession; b) the crowd got it right. There seems to be a consensus that a 'double dip' is 'likely'. Most everyone is arguing that ECRI's weekly leading index supports a double dip. Everyone, that is, except for ECRI themselves.

The recessionistas— Hussman and others— argue from a sample set of 7 recessions, and while I do not disagree with using historical data, we are constrained by having a mere century's worth. Its better than nothing, but only marginally so. The worst thing about being mortal is that we won't be around 1,000 years from now. By then, we will have a sufficient data set to draw better supported conclusions as to what, if anything, historical data projects about markets and the economy.

Until then, exercise, watch your cholesterol, and wait for more clarity.

For $194,000; one can now fly with the birds.

http://presstv.com/detail.aspx?id=132926&sectionid...

Chinese court sentences US geologist to 8 years

BEIJING (AP) -- An American geologist held and tortured by China's state security agents was sentenced to eight years in prison Monday for gathering data on the Chinese oil industry in a case that highlights the government's use of vague secrets laws to restrict business information.

http://tiny.cc/usiu8

davefairtex -

This is like tying your tail to kaimu's with some string and tossing you both over a clothes line. Income tax debate is simple: It's far too complex and burdensome to society and no longer covers even a small fraction of the U.S. deficit. Those are FACTS. What we have here is an overregulated and corrupt system which will resolve when the U.S. transitions to full-on empire with central control and reform as found with the likes of Augustus, or not, and the U.S. transitions into CHAOS and an ill-advised war with China while expanding its will over the Middle East oil interests. If we go the Augustus route, the two-party system will morph into one under a singular leadership whose popular reforms will replace the income tax, healthcare, and oil dependence with an iron fisted NEW WORLD order. A Putin-like character but with the republic's former glory and U.S. Constitution in hand. Hail! The Emperor cometh ...

It's bigger than the debate on the merits of a VAT over income and all the other thousands of taxes imposed on us now. Severe deflation will solve all of it. We're already down the rabbit hole, my friend.

Cheers.

I wasn't sure whether to title this post like I did, or maybe "Know Your Enemy!" is more apropo...

Canadian markets were open today, during the U.S. holiday.

Volume during the last 3 U.S. holidays:

Jan 18 63.2M
May 30 58.7M
Jul 5 54.3M

Average daily volume during the last 200 days:

191.0M

Goes along with my belief that ALL markets (currency, domestic bourses, gold, oil, bonds, etc) are simply the playthings of ... you know who ... and that we're all just along for the ride.

I think I've been digesting too much information the last few years. I thought the U.S. consumer was deleveraging. Did I miss something earlier this year? Why was there an off-the-charts 45% increase in outstanding consumer(individual) loans between Feb 2010 and April 2010? Was this a rush to capitalize on historically low interest rates before anticipated Fed rate hikes? There was quite a lot of noise about that possibility earlier this year but, of course, that's all dissipated now. What gives with this chart?

see attached chart.

Dr S. - ok, I was wrong. You DO think discussions should go directly to your personal endgame scenario without any passing GO (or collecting $200). :)

Like I said, it could happen. History provides case studies of what has gone before and what could be in store for us, but it does not confine us to specific endgames, it only presents possibilities of what might be. Your case is possible, yet by no means certain. Because of this uncertainty, I feel discussions along the way are not myopic. I am interested in defining a world that I'd like to create regardless of the near-term political outcome in the US.

To create a new world, we first have to imagine what it looks like. Bill does this constantly, by reminding us what "social equity" means and why it's something we sorely need. Another way of saying that is, if I were the charismatic General, what system would I put in place? As I recall, I don't remember proposing any particular methodology of implementing a VAT - or repealing the income tax for that matter - just a discussion of which tax seems better for the country. You're the one who created the straw man Frank Capra and then assigned his naive thought process to me. I think they call that a "straw man fallacy."

Looks like the old relationships are back too. Euro, Gold, and SPX all up in lock step. Euro especially hitting 1.26. Who knew?

As Bloomberg writes that:

"Deficits Shrinking Most in Decades as Growth Lets S&P 500 Rally

Rich nations will reduce their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since the Organization for Economic Cooperation and Development began keeping records in 1970...There’s going to be a meaningful deceleration in growth, but it will still be solid"

http://www.bloomberg.com/news/2010-07-05/deficits-...

(sorry, couldn't help myself guys. The Tuesday morning funny pages:)

"Representation of the people's interests is gone, gone, gone. Really gone."

BINGO!

The original intent was that OUR representatives would act as OUR lobbyists.

We need Constitutional change.

Real term limits for all in congress — to discourage professionals making a lifetime career.

Prevent those in office from gaining benefits better than the "ordinary citizens". We can start with the health care bill.

No formerly elected official allowed to take on a lobbyist role.

I lost all confidence in our government gradually over the last two or three decades as they sold off our best jobs, destroyed the dollar at an increasing rate, and pandered to racial biases for votes.

CAT - estimates increased at Goldman through 2012. North American demand should accelerate in the near term. Neutral rating and $70 price target.

JNPR - PT Lowered from $33 to $30 @ RBC. Sector Perform

LLTC - Linear Technology upgraded to Overweight at JP Morgan.
JP Morgan upgraded Linear Technology to Overweight from Neutral on expectations the company will outperform peers during the economic downturn. The firm upped its target for shares to $28 from $27.

NOK - PT Lowered from $14 to $11 @ RBC. Sector Perform

davefairtex -

Okay, forget Frank Capra. There is no way in hell to repeal income tax or pass a VAT for the benefit of the People. The only legislation today is, for instance, a Healthcare Bill so packed with lobbyist influence that We The People have no idea what it holds for the future. No one in Congress even read it. The legislative process is about to give because the current Capitol Hill clown act ramped up the money printing into the trillions and now put the system in jeopardy. The rule of law has become so convoluted that it's all an amoral workaround to impoverish the gullible working class stiff.

Good luck fixin' the economy with a new tax scheme. You just need to extract a few hundred thousand from every man, woman, and child with U.S. legal status after making them productive again ... Got VAT? Under faux-Kenysian demand, there will be little real consumption left to tax, my friend, when deflation grows large. And how are you going to collect a dime premium on the nickel I charge you for an apple? Barter and cash will rule and credit will go away.

Cheers.

"Barter and cash will rule and credit will go away."

I believe there are signs of this being on the increase here in Illinois. I might add another feature — crime IS definitely increasing in what were formerly "good" neighborhoods.

Last week we had to forced invasions where armed guys broke in while people were at home, beat and tied them, then made off we new "electronic" (per newspaper). It is suspected the empty boxes for HD TVs may have been an invitation.

I'm beginning to identify with the people of Arizona.

Even post Supreme Court 2nd Amendment decision, as far as I know IL is still the only state without a right-to-carry feature for non-felons. If this keeps up I expect we'll soon see a test by someone who has decided it is more prudent to defend oneself first and defend that basic right if needed.

Todays' Morning Call, by Geoff Goetz, is now posted. Our apologies for the delay.

Jack