Friday, October 24, 2008



Although this commentator was recently quoted in a print media outlet as "a former stockbroker," most of my career in the investment arena was spent as a securities analyst, portfolio manager, and research director. Be that as it may, as investor attempt to find their way, with most serious investors likely keeping most of their cash on the sidelines, many market pundits and manager/advisor wannabe's are simply perplexed.

Lately, as I observe all of the financial media via print, television, Internet outlets, and investment firms, there is talk mainly regarding two schools of thought - bargains and volatility.


A reasonable person - investor or otherwise - might define "bargain" as something that can be purchased at a below-market, or below-true value, price. I suppose you could define bargain in other ways. But these definitions seem to apply to things like stocks and real estate. So I'll stick with them.

In order to identify a bargain, you need to be able to relate its price to some historic norm or, on a more speculative scale, to a reasonable expectation of future value based on performance. Herein lies the problem with the argument for bargain-hunting.

How reliable are forecasts for future earnings? Sure, if you are that now rare "buy and hold" long-term, ten-year investor, you might be able to throw darts. However, if you're more focused on one, two, three, even five-year horizons, can you truly forecast, with any accuracy, earnings for many companies? And if you can, what value do you place on those earnings? In the face of a severe recession, how accurate can corporate CEOs really be when discussing future prospects with analysts?

I know, some readers may be thinking that I am beating the proverbial dead horse. But as you watch the incredible market volatility, particularly in light of the observation that quite "suddenly" market professionals have only just begun to consider the makeup of the current recession - it's depth and length - you just have to wonder what people are thinking, and who's best interests they have at heart, when they suggest that the stock market is at or near a bottom.


The other day, a number of supposed investment professionals were quoted in our daily newspaper regarding volatility:

"I don't believe this volatility is the real norm..."

"Volatility will persist..."

"The current volatility level has to do with the unique circumstances of the global credit crisis and the bottoming of the bear market."

"It is not uncommon for volatility to increase for prolonged periods."

"Definitely abnormal, but tumultuous times bring volatile markets."

"Unfortunately market volatility is here to stay for a while."

"For now we will continue to see wild swings in either direction."

Oh my! And these folks are actually paid to manage billions of our dollars? Golly gee! The market is volatile. Yep.


On October 10, I suggested that this stock market might not see a bottom until around 7,200 on the DJIA and 700 on the S&P500 Index. This morning, the stock market has, so far, hit an intraday low of about 8,200 and 853, respectively. We can be looking at further declines of 12 percent or more in the much-watched averages. Some stocks will decline more, some less, of course.

But this bear is not finished growling.

This morning, OPEC announced "their intention" to cut oil production by 1.5 million barrels a day. That's more than "Sister Sarah" and other oil industry "experts" believe can be pumped from ANWR ten years hence! It's a pretty big cut, even given collapsing near-term demand for oil.

I keep harkening back to the recession of 1973-76 and THAT stock market decline. We are in the midst of the biggest market collapse since at least that period, and perhaps yes, since the 1930s.

The following questions do not yet have clear answers:

How high will employment reach?

How much will gross domestic product (GDP) decline? And for how long?

When the dust clears, will there be a U.S. auto industry? And if not, how startling will be the ripple effects throughout the economy? Under Clinton (yes) and Bush trade policies, we have shipped a huge portion of our basic manufacturing capacity for goods overseas, perhaps not to return...ever. We could yet see several million more Americans out of work, and perhaps one or two million is a low number.

Will declining energy prices once again dent our will to switch to alternative fuel sources?

When will inflation finally rear its ugly head? While it is imperative for interest rates to continue to decline internationally in order to try to mitigate the recession, the end result of such declines is often inflation. And that will again result in much higher interest rates - bad for home buyers, for credit card holders, for the bond market, for equities, for everyone.

Despite OPEC's decision to cut production, the price of crude oil has plummeted. This morning, it broke $63 a barrel, down 57 percent from its peak. This is good news for consumers of energy, bad news for producers, bad news for developers of alternatives, possibly fatal news for General Motors and the development of the Chevy Volt electric plug-in.

Gold continues its march lower, suggesting that inflation is not yet seen as a problem, but rather deflation. And the evidence is all around us.

I must say, at the same time all this volatility and horrible economic news is before us, circumstances have created potentially great "bargains" in equities - assuming that you can see an end to the current recession and your investment horizon is long enough. Baby Boomers perhaps cannot see ten years down the road as an investment horizon for equities. At some point, especially after they evaluate their third quarter 401(k) and other retirement plan statements, they will (we will) at least gradually shift to less volatile investments. This will create less demand, perhaps for equities.

As suggested in earlier posts, this commentator has tip-toed back into the market during this recent leg of the bear. But 75-80-percent cash still feels pretty good to me. No one catches bottoms, well most professionals don't. Sure, we can all agree that bear markets bottom before recessions end. But when will this recession end? It is not like any recession that we've experienced in some time. And virtually no one that is managing money right now, hundreds of billions of dollars of investment portfolios, was around the stock market in the early '70s, let alone the 1930s. No, I wasn't around for the 1930s either. But I didn't learn about the investment climate of the 1960s and '70s through text books and lectures during my MBA years, either, I lived them. "B school" didn't teach me anything about effective investment management despite my investment in the degree. I simply had to get my hands dirty.

Today, we have a system of portfolio managers and securities analysts that too often landed in their positions simply because they "went to school." Think about that next time you open up your reports from your mutual funds and retirement plans. These folks often rely on other analysts, or equally bad, what self-serving CEOs of corporations tell them. They see trees, but not the forest. They follow unsustainable trends. They "go with the flow" and explode with the bubbles.

Thursday, October 23, 2008


John McCain loves to talk about taxes, especially corporate taxes, comparing our 35 percent corporate tax rate to that of Ireland (11 percent) and the rest of the world. What McCain and all other pro-corporate tax welfare advocates fail to state is that essentially no U.S. corporation pays that kind of tax rate.

The following is excerpted from an article by Citizens for Tax Justice from September 2004.

Citizens for Tax Justice 1311 L St. NW, Washington, DC 202-626-3780
WEDNESDAY, SEPTEMBER 22, 2004 at 12:30 P.M. EDT
CONTACT: Bob McIntyre, 202/626-3780, ext. 22

Bush Policies Drive Surge in Corporate Tax Freeloading

82 Big U.S. Corporations Paid No Tax in One or More Bush Years

Eighty-two of America’s largest and most profitable corporations paid no federal income tax in at least one year during the first three years of the George W. Bush administration — a period when federal corporate tax collections fell to their lowest sustained level in six decades. This is one of the many troubling findings of a major new report on corporate tax avoidance by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The report covered 275 profitable Fortune 500 corporations, with total U.S. profits of $1.1 trillion over the three-year period.

“The sharp increase in the number of tax-avoiding companies reflects the results of aggressive corporate lobbying and a White House and a Congress eager to do the lobbyists’ bidding,” said Robert S. McIntyre, director of CTJ and co-author of the report with T.D. Coo Nguyen of ITEP.

Skyrocketing Corporate Tax Avoidance

In part due to a major expansion in corporate tax breaks in 2002 and 2003, along with continued failure by Congress and the White House to curb abusive corporate offshore tax sheltering, corporate tax avoidance has skyrocketed. For example:

# Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in at least one year from 2001 to 2003. Many of them enjoyed multiple no-tax years. In the years they paid no income tax, these companies earned $102 billion in pretax U.S. profits. But instead of paying $35.6 billion in income taxes as the statutory 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury, totaling $12.6 billion. These companies’ “negative tax rates” meant that they made more after taxes than before taxes in those no-tax years.

# Twenty-eight corporations enjoyed negative federal income tax rates over the entire 2001-03 period. These companies, whose pretax U.S. profits totaled $44.9 billion over the three years, included, among others: Pepco Holdings (–59.6% tax rate), Prudential Financial (–46.2%), ITT Industries (–22.3%), Boeing (–18.8%), Unisys (–16.0%), Fluor (–9.2%) and CSX (–7.5%), the company previously headed by our current Secretary of the Treasury.

# In 2003 alone, 46 companies paid zero or less in federal income taxes. These 46 companies, one out of six of the companies in the study, told their shareholders they earned U.S. pretax profits in 2003 of $42.6 billion, yet received tax rebates totaling $5.4 billion. In 2002, almost as many companies, 42, paid no tax, reporting $43.5 billion in pretax profits, but $4.9 billion in tax rebates. From 2001 to 2003, the number of no-tax companies jumped from 33 to 46, an increase of 40 percent.

# After 2001, the average effective rate for all 275 companies dropped by a fifth, from 21.4 percent in 2001 to 17.2 percent in 2002 and 2003, less than half the statutory 35 percent corporate tax rate that corporations ostensibly are supposed to pay.

The Size of the Corporate Tax Subsidies

Over the 2001-03 period, the 275 companies in the survey earned almost $1.1 trillion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 35 percent corporate tax rate, the 275 companies would have paid $370 billion in income taxes over the three years. But instead, the companies reported only about half of their profits — $557 billion — to the IRS. Over the three years, the effective tax rate on the companies as a group was only about half the ostensibly required 35 percent rate.

Wide, Economically-Distorting Disparities in Tax Rates

The study found wide disparities in taxes among industries and among companies within particular industries. Over the 2001-03 period, industry effective tax rates for the 275 corporations ranged from a low of 1.6 percent to a high of 27.7 percent. In 2003, the range of industry tax rates was even greater, ranging from a low of –30.0 percent (a negative rate) up to a high of 27.9 percent.

# Aerospace and defense companies enjoyed the lowest effective tax rate over the three years, paying only 1.6 percent of their profits in federal income taxes. This industry’s taxes declined sharply over the three years, falling to –30.0 percent of profits in 2003.

# Other very low-tax industries, paying less than half the statutory 35 percent tax rate over the entire 2001-03 period, included: transportation (4.3%), industrial and farm equipment (6.2%), telecommunications (7.5%), electronics and electrical equipment (10.8%), petroleum and pipelines (13.3%), miscellaneous services (14.4%), gas and electric utilities (14.4%), computers, office equipment, software and data (16.0%), and metals & metal products (17.4%).

# Not a single industry paid an effective tax rate of more than 29 percent, either for the entire three-year period or in any given year.


The study points out that the losers from widespread corporate tax avoidance include:

# The general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens.

# Relatively disadvantaged industries and companies that will find it harder to compete for investment capital with tax-favored corporations.

# The U.S. economy, which is harmed by the distortions that corporate subsidies produce.

# State governments and state taxpayers, which see their corporate tax systems erode along with the federal system.

# The integrity and sustainability of the tax system as a whole.

“Most of the loopholes and tax dodges that corporations use to slash their taxes may be technically ‘legal’ in the sense that the tax law allows them,” said McIntyre. “But remember that these subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn’t mean that it’s right.”

You can download the entire report from:

Wednesday, October 22, 2008


Several days ago, the political world potential - hopefully - imploded for one Republican Rep. Michele Bachmann (MN). On Chris Matthews, MSNBC "Hardball" program, Rep. Bachman, when asked by Matthews if she believed Obama held anti-American views, she replied, "Absolutely. I'm very concerned that he may have anti-American views. That's what the American people are concerned about. That's why they want to know what his answers are."

Further, Rep. Bachman called for the media to launch an investigation of Congress to determine who is pro-American and anti-American.

To paraphrase, former Senator Lloyd Bentsen, from his 1988 Vice-Presidential debate with Dan Quayle, "Representative Bachman, I knew Joseph McCarthy. You're no Joe McCarthy." Well, I really did not personally know McCarthy. But even as a very small child, and as a student of history, I know enough about demagoguery to scream about it when I see it.

The McCain/Palin team and their "band of reckless and ruthless brothers and sisters," try as they may out of desperation, will never be as successful in destroying lives as was Joe "the liar" McCarthy. Seems like everyone on the Republican side wants to label people "Joe." I wonder how popular the name, Joe, is amongst their children.

So now - suddenly - Bachmann says she regrets using the term "anti-American" while discussing Democratic presidential candidate Barack Obama's views? Why you may ask? Because since her remarks, her Democratic opponent, Elwyn Tinklenberg, has raised more than $1 million in campaign contributions. In just a few days!

Well no wonder she has regrets. a remark that could threaten her re-election bid. Prior to her remarks, she only held a 4-point lead over Tinklenberg. This week's polls should be quite interesting.

Bachmann claims to have never seen "Hardball" prior to her appearance. Ever! Is she just too busy? Does she not have access to television or electricity?

But Bachmann's remarks are all too typical of a political movement that has lost all credibility.

McCain and Palin, and their surrogates, continue to talk taxes. They continue to claim that Obama will raise taxes on all the Joes and Jills out there, that he will be sending tax dollars - "your tax dollars - to people that don't even pay taxes.

Of course, they conveniently lie about virtually every aspect of Obama's tax proposals. The ones that will cut taxes for "working families." As opposed to "non-working" families. They forget, probably because "they" have never paid their fair share of them, that most members of the lower and middle income strata in America pay payroll taxes on 100 percent of their earnings, unlike the folks that earn more than $250,000, who pay payroll taxes only only a minority of their income.

And they lie about Obama's healthcare plan as well as their own. I guess they don't have access to the "Internets." I guess they don't really know anything about their own federal healthcare plan that is far from a single payer Medicare plan, but rather a menue of private plan choices called the Federal Employees Health Benefits Plan, or FEHBP.

You can learn everything you need to about FEHBP right here:

Obama simply says keep your current insurance, or if you can't or do not wish to, or just plain do not have health insurance, you can take a look at FEHBP and the very same variety of choices that are available to members of Congress and other federal employees.

On one hand, I am morally, emotionally, intellectually, and spiritually disappointed that we have had to once again endure such a negative political campaign season. But on the other hand, most polling shows that Americans are responding negatively to the negativity. Hand in hand with that, many voters are actually sensitive to the real issues.

I just hope that by the end of the day on November 4, people will have sifted out the lies and chosen to side with actual facts.

Cluelessness may be an excuse for checking the wrong boxes on the ballot. It is not an excuse for running a political campaign.

Sunday, October 19, 2008


1. A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
2. Procedure or practice in accordance with this theory.
3. (in Marxist theory) The stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

American Heritage Dictionary


1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.
2. The stage in Marxist-Leninist theory intermediate between capitalism and communism, in which collective ownership of the economy under the dictatorship of the proletariat has not yet been successfully achieved.

Webster's Revised Unabridged Dictionary


A theory or system of social reform which contemplates a complete reconstruction of society, with a more just and equitable distribution of property and labor. In popular usage, the term is often employed to indicate any lawless, revolutionary social scheme. See Communism, Fourierism, Saint-Simonianism, forms of socialism.

[Socialism] was first applied in England to Owen's theory of social reconstruction, and in France to those also of St. Simon and Fourier . . . The word, however, is used with a great variety of meaning, . . . even by economists and learned critics. The general tendency is to regard as socialistic any interference undertaken by society on behalf of the poor, . . . radical social reform which disturbs the present system of private property . . . The tendency of the present socialism is more and more to ally itself with the most advanced democracy. --Encyc. Brit.

McCain and Palin...oh and the rest of their Republican supporters are so out of touch with the concepts of socialism, like virtually all of McCain's campaign tactics, the use of these labels is only designed to frighten uninformed people into once again voting against their own interests. It is likely to fail, thankfully.

McCain and Palin have criticized Obama's proposal to raise taxes on high earners and require that businesses provide health insurance. Palin referred to the plan as "a little bit like socialism."

Over the weekend, McCain said: "At least in Europe, the socialist leaders who so admire my opponent are upfront about their objectives."

William Wallace, a former vice president and chief operating officer of the Federal Reserve Bank of Dallas, said the country's progressive tax code, which Mr. McCain does not propose abolishing, is "socialist in nature.

Let's not forget that just recently McCain voted FOR allowing the federal government to take ownership stakes in private banks - as did Obama.

According to the nonpartisan Tax Policy Center, Mr. Obama's plan would reduce taxes for 80 percent of households, while raising them for 10 percent. Mr. McCain's plan would lower taxes for 60 percent of households, and raise them for 1 percent.

At a rally in St. Louis on Saturday, Obama said, "John McCain is so out of touch with the struggles you are facing that he must be the first politician in history to call a tax cut for working people 'welfare.'"

McCain, Palin and their surrogates scream - without any factual basis whatsoever - that Obama will raise taxes on small business that provide 16 million jobs, that his proposals to hike taxes will kill jobs. But less than 2 percent of all small businesses in the country earn enough to qualify for the top tax brackets, according to the Tax Policy Center. The majority pay either 15 percent or 25 percent, according to the center.

Social Security, Medicare, Medicaid, programs that have been phenomenal successes by any measure even despite shortcomings and flaws, they can all be considered socialistic in nature. Conservative Republicans have been working tirelessly to weaken, even eliminate these critical social safety nets since FDR first proposed the first programs during the depths of the Great Depression.

Ronald Reagan, the conservative Republican "God-substitute," wailed away about the evils of Medicare well before he became an iconic political power.

Where would we be, as a nation, without these critical programs?

It's like the 2000 election myth of George W. Bush's "compassionate conservatism." I'm still looking for evidence of anything resembling compassionate action in any of Bush's record, let alone that of Republicans since the "Reagan Revolution."

Nope, I'm looking...don't see it at insurance companies...don't see it in any plan to propose Social Security invest in the volatile stock market...don't see it in a Republican administration that almost annually reduces Medicare physician payments...nope, don't see it in tax giveaways to the wealthiest Americans...nope, don't see it in free trade agreements that are far from "fair" trade agreements...I just don't find it anywhere. It was all a myth, all a lie.

Yet, America? You fell for it in 2000 and 2004. And thanks to you all falling for it, millions more people are without health insurance, without jobs, and living in failing communities in every single state - including Arizona and Alaska. The only thing that keeps Alaska afloat is, ironically, oil company taxes - which Sarah Palin was proud to increase as governor! Hmmm.