Monday, September 13, 2010

Last Call

From the Department of Duh:

Hand the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy. President Barack Obama wants to extend the cuts for individuals earning less than $200,000 and couples earning less than $250,000 while ending them for those who earn more.

“I would tend to wonder how much the tax cut actually influences spending behavior,” said Chris Cornell, an economist who mined government reports back to 1989 for West Chester, Pennsylvania-based Moody’s Analytics. “Spending by the top 5 percent of households seems much more closely tied to business- cycle issues than it does to tax-cut issues.”

Shocking, I know. Tax cuts for folks making more than a quarter million a year don't get spent but saved. Great for banks and investment firms, bad for anyone else.

Two things: one, let's not forget that under Obama's plan, everybody still gets the current low tax rates on that first $250,000. Marginal tax rate hikes are just that. Second, the paradox of thrift means that upper bracket tax break gets saved, not put into new capital or new hiring or expansion of business.

Let's also not forget that marginal tax rates historically have been much, much higher than 39.6%. If the wealthiest among us were in a millionaires tax bracket of 50% or more only on income above that million a year, they'd still be paying less taxes than just thirty years ago. From a historical perspective, taxes are the lowest overall in generations.

The Tea Party would have crucified Eisenhower or Nixon. Food for thought.

The Supersonic Stock Market

The stock markets have gone supersonic, literally, as in above the range of hearing:  high frequency, low volumeThe details are really grim:

The latest Abel/Noser analysis has been released and according to the data analytics firm just 112 stocks now account for half of the day's volume, the top 20 stocks account for 26% of all domestic volumes, and the first 1,029 stocks are responsible for 90% of all volume, meaning the remaining 17,349 account for just 10% of all dollar traded. These are also the stocks where HFT will never tread, so if anyone wishes to avoid the HFT marauders, just stay away from the top names. And since the last time we did an update, there have been some notable changes in the top 10 most traded names: in June, courtesy of the GOM catastrophe, BP and Exxon were solidly in the most traded stocks. Since then they have fallen way down in the listing, having been replaced with two other M&A candidates, HP and Potash, in 7th and 10th place, respectively. Intel has also done a great job of getting raped daily by HFTs, moving up from 19th place, to 8th. Yet not surprisingly, as the total volume of shares has fallen off a cliff since June, the 16th most active stock, Google, just barely makes the $1 billion in principal traded day cutoff at 16th place, while in June, all of the top 20 names were trading above $1.2 billion notional daily. And once again, just like every other month, the most actively traded security continues to be the SPY. As ever more of the volume is concentrated among fewer and fewer stocks, it is certain that one day, when a top 10 name crashes, will crash the the entire market, which continues to trade near record-high implied correlations.

And a lot of that is coming from the fact that only the Big Casino investors are left.  Everyone else has gotten out of the market, particularly hedge funds.  Outflows from the stock market are reaching critical levels.  The Fed is inflating the balloon as fast as it can, because at this point any sort of real downtick to the market is going to be a 400 point drop.   We're approaching maximum melt-up territory here.  Treasury keeps dumping in action to keep the Dow going up and the few folks who are left are following along.  Everyone else is off the roller coaster or worse, playing buy and hold.

The Fed's got to keep the markets going until Election Day.  Then again it was just about this point two years ago that John McCain lost the election so who knows.  If things get out of hand and the market breaks, well, all bets are off.

It's only a question of when the hammer falls.

Nate Reads The Tea Leaves

Nate Silver at Five Thirty Eight still has the GOP winning the House back by a small but significant margin, but the GOP runs into real trouble taking the Senate back depending on how tomorrow's primaries shake out in Delaware and New Hampshire.

The primaries in Delaware and New Hampshire have implications far beyond their borders. The forecast model that we ran last week gave Republicans a 26 percent chance of taking over the Senate – and enough states are tossups that they would be well within reach of doing so if the elections were held today. But this forecast was based on a weighted average likelihood of various candidates winning their primaries – for example, we had estimated that Ms. O’Donnell had a 25 percent chance of prevailing in Delaware, and Mr. Lamontange a 30 percent chance of doing so in New Hampshire – leaving Mr. Castle and Ms. Ayotte as the favorites.

If Ms. O’Donnell and Mr. Lamontange were both to win their primaries, however, the Republican chances of a Senate takeover would fall to just 16 percent, according to the model. Conversely, if Mr. Castle and Ms. Ayotte were to win, Republicans chances would rise to 30 percent. Thus, Republican prospects of claiming the Senate could be nearly halved if both the insurgent candidates were to prevail. They would still have a chance of doing so — but it might require them to expand the playing field further, like to West Virginia or Connecticut, where the Democratic candidates are clear favorites but not prohibitive ones – or to perform a quick makeover on a candidate like Ms. O’Donnell, who is unlikely to make a good first impression with moderate and independent voters.

The question is will the Hoffman Effect put the Senate out of reach for the GOP?   It may not matter too much in the end.  The GOP can still filibuster legislation with 41 votes, or it can do so with 47 or 48, the outcome to Obama's agenda is the same.  And if the GOP does take back the House, then from a legislative position, the paralyzing gridlock and endless investigations will preclude anything getting through as legislation anyway.

In the end, it may not matter much at all.  But it could.  Every vote counts.  The Tea Party insurgents definitely come up losers in the general, and we're going to see more and more of that, especially in the Senate this year.  How many remains to be seen.

Mitch Pitches A Fit(ch)

GOP Senate minority leader Mitch McConnell is throwing a screaming hissy fit at the notion that Orange Julius is caving on tax cuts for the rich, and he's having none of it.

I have no idea what the strategy will be from the Democratic leadership, but it doesn't appear especially complicated. Step 1: bring a bill to the floor that would permanently lower the rates for families making $250,000 or less. Step 2: dare Republicans to kill it.

It's a rather classic game of chicken. Republicans think they have the advantage, because they're in a position to block lower rates for the middle-class unless Dems go along with breaks for the wealthy. Democrats think they have the advantage because their plan is more popular, and because they'll blame Republicans for blocking middle-class tax cuts during an election season.

Republicans will say, "Give us everything we demand or tax rates will go up on everyone." Democrats will say, "Um, voters? The other guys are holding Obama's middle-class tax breaks hostage because they're worried about millionaires and billionaires."

The fact that McConnell's spokesperson "declined to say whether all 41 Republicans would support a filibuster" was interesting. It may be because the Minority Leader's office hasn't taken the caucus' temperature on this yet, and just can't say for sure.

But it sets up an interesting showdown -- are Republicans really prepared to filibuster middle-class tax breaks shortly before voters head to the polls? I know plenty of congressional Dems are afraid of this fight, but they should be approaching the debate with more confidence than trepidation.

Retiring Ohio Sen. George Voinovich is the Republican going along on Obama's jobs measures.  It would be nice if he stayed for the tax cut fun too.   Still, this can't be sitting well with the Tea Party folks much, either.  Orange Julius is playing smart, but Mitch hasn't changed his tune at all.  Who's going to be right?

Drilling For Derangement

And the NY Post's Joe Mason has hit a gusher of Obama Derangement Syndrome.

The president and many in Congress are using this year's catastrophe in the Gulf to push for sweeping, unrelated measures that would punish not only the US oil and gas industry but the American economy as a whole.

Just last week, President Obama explicitly targeted the industry for two massive tax hikes. First, he'd ban oil and gas companies from using the "Section 199" tax credit, a measure for domestic manufacturers enacted in 2004 to boost US employment. (The Senate is set to vote this week on its version of the ban.) Second, he wants to end "dual capacity" protection for US energy firms.

Without this shield against double taxation on foreign revenues, American companies would be competing on an uneven global playing field. Again, Obama aims directly and specifically at the US oil and gas industry.

Yet, by the federal government's own economic model, these tax hikes would lead to huge, immediate job losses. I ran the numbers through the Commerce Department's RIMS II model; it shows, under the proposed changes to Section 199 and dual capacity, Americans would almost immediately lose more than 150,000 stable, private-sector jobs.

Wow, an immediate loss of 150,000 jobs from passing the oil drilling safety bill!  It's chaos!  Worst President ever!  Just like he cost the Gulf Coast hundreds of thousands of jobs with his drilling moratorium...

Oh wait.  Except that didn't happen.

When the Obama administration called a halt to virtually all deepwater drilling activity in the Gulf of Mexico after the Deepwater Horizon blowout and fire in April, oil executives, economists and local officials complained that the six-month moratorium would cost thousands of jobs and billions of dollars in lost revenue.

Oil supply firms went to court to have the moratorium overturned, calling it illegal and warning that it would exacerbate the nation’s economic woes, lead to oil shortages and cause an exodus of drilling rigs from the gulf to other fields around the world. Two federal courts agreed.

Yet the worst of those forecasts has failed to materialize, as companies wait to see how long the moratorium will last before making critical decisions on spending cuts and layoffs. Unemployment claims related to the oil industry along the Gulf Coast have been in the hundreds, not the thousands, and while oil production from the gulf is down because of the drilling halt, supplies from the region are expected to rebound in future years. Only 2 of the 33 deepwater rigs operating in the gulf before the BP rig exploded have left for other fields. 

So ending the tax credit these oil companies are getting at the expense of you and me will immediately cost 150,000 American jobs?  Really?  One of those most profitable industries on Earth is complaining that they'll have to cut jobs if they can't make money?  Exxon Mobil made $7.5 billion profit just in the second quarter. We're supposed to buy that line of crap that the industry will cut 150,000 jobs if they lose their sweetheart deal on tax breaks?

Right.  They think you're stupid.

I Don't Think That Word Means What You Think It Means

Delaware Tea Party Senate hopeful Christine O'Donnell apparently isn't aware of the definition of the word "appeal".

Christine O'Donnell says she has an election strategy -- and it includes appealing to those die-hard PUMAs who wanted to see Hillary Clinton elected president in 2008.
"I do want to point out that we have broad based support, we've got a lot of Hillary Democrats working behind us -- with us -- because they're frustrated with what this administration is doing," O'Donnell (R-DE) said this morning on Fox News.
O'Donnell, now just slightly ahead of Rep. Mike Castle in a poll of Republican primary voters who will decide a nominee for Senate tomorrow, complained that national Republicans and the Delaware GOP aren't giving her a fair chance. She said that when voters and party officials get to know her they will see she can win the general election by reaching out to independents. And, presumably, those Clinton voters.
She didn't say if she's gotten those Democrats to actually switch parties, since the primary tomorrow is closed and you must be a Republican to take part.

Apparently, her definition of appeal means "Convince Hillary Clinton voters to jump parties and become a Republican just to nominate an anti-feminist, anti-sex, gay-bashing, liberal-hating Christian Dominionist nutjob to the Senate."

Last time I checked, that was actually the definition of the word "delusional". But hey, as the Rumpies point out, what happens when delusional meets "completely wrong about everything"? Something has to give...

Orange Julius And The Briar Patch

John Boehner may have signaled fold on tax cuts for the rich, but that's only because he clearly expects there's enough Democrats to scuttle the entire tax cuts bill without maintaining the Bush tax cuts for the wealthiest Americans, too.  He's up to something, and that something is clearly blaming the Democrats for not getting this thing passed and behind them before the tax cuts expire for all Americans on January 1.

Boehner clearly wants this out of the way and figures that once again the Dems will shoot themselves in the head on this one.  He may not be wrong.

Senate Majority Leader Harry M. Reid (D-Rev.) and House Speaker Nancy Pelosi (D-Calif.) are pledging to back the president's position as in sync with the views of a majority of Democrats in each chamber. But amid signs of a weakening economy, a growing number of Democrats would prefer to extend all tax cuts, at least for a year or two - a compromise that Obama did not explicitly rule out during his news conference on Friday. Another approach that is gaining traction would raise the $250,000 income threshold to $1 million per household, to exempt families who live in regions with high costs of living.

Half a dozen Democratic senators and Senate candidates have voiced support for a temporary extension of tax cuts for the rich. In the House, more and more incumbents have also taken that position. Among them is Rep. Gary Peters, a Michigan Democrat who represents a traditionally Republican seat in the Detroit suburbs. Peters told the Detroit Free Press last week that extending the cuts "is the right thing to do, as anything less jeopardizes economic recovery."

Some Democrats would even prefer to push the tax cuts aside until after the election. 

And if the Dems blow this, it's going to end them.  Boehner is counting on that happening and is already putting all the blame on what happens squarely on the Dems.  He figures enough Blue Dogs will revolt to kill the whole thing, and that's exactly what he wants to see happen.

Can the Dems maintain enough coherence to get this together?  That remains to be seen.

Regarding Charlie

Raw Story is reporting that Florida Gov. Charlie Crist will announce strong support for gay rights as part of his independent Senate campaign.
Charlie Crist, the current governor of Florida and Independent candidate for US Senate, is prepared to issue a ringing endorsement of gay rights in a document slated to be released as early as this week, according to a copy of a position paper provided in advance Sunday to

Crist, who was elected governor as a Republican, left the GOP after it became clear he could not win his party’s nomination for Senate.

The document provided to includes Crist's vocal support for gay couples, including hospital visitation, inheritance and adoption rights; opposition to the ban on gays serving in the military; support for anti-discrimination laws and appropriations for HIV and AIDS programs.

"It's great to hear a sitting governor take such a strong stand on equality issues," Nadine Smith, Director of Equality Florida, told by telephone Sunday night. "This is the first time in Florida's history that a sitting governor has taken these public positions on a wide range of LGBT equality issues. It marks a shift in the debate in our state."

"For us, having the governor of Florida articulate so clearly stands that are in support of equality on a wide range of issues is a new day," Smith added.
If this is accurate, then the votes Crist will lose to Marco Rubio may more than be made up by Florida's LGBT community, which right now is supporting Kendrick Meek. Meek is running a distant third at this point in the race however.  Crist announcing this support while still Governor will certainly get him votes in the blue parts of  Florida too, subtracting from Meek's total.

It's certainly going to bring up questions again pertaining to Crist's sexuality.  Rumors that Crist himself is gay have been swirling around him for years and you can bet Republican Marco Rubio and company will jump on this as proof.

We'll see where this goes.  The fact remains such a sea change on gay rights issues by a former Republican still running for office is notable.


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