Thursday August 19, 2010
A few posts back we led off with photo of the $200,000 Mercedes SL AMG gullwing sports car. Our point is that the mood had improved such that there is no fear of backlash against high priced luxury goods. Which is to say the public mood is a good ways from where it was March 9, 2009. Mark our words, the eventual bottom of the stock market will be marked with an extremely negative social mood. A past example was the public mood in reaction to the taking of American hostages in Iran in 1979. Unable to extricate them, and after a failed rescue attempt, Carter took a serious beating in the election. The mood had spoken. Likewise, the mood was running against Bush in the last election. Obama now occupies the same office but is no doubt surprised to see his rating tanking like that of Bush. Same economy, same sentiment, no surprise there. And remember we re only half way through this 18 year cycle of stagnation.
All sorts of wonderful silly things are taken seriously in a bull market. The ultimate was the dot.coms which the public bought despite the total lack of earnings. Even the new term, burn rates, to reflect how fast dot.coms ate up their IPO capital did not dissuade most folks. THe purpose then of a bear market is to unmask the bad practices of the past bull market, wipe them out, and come round to those that do work to start the next bull market. But since we are only half way through this bear market, we are nowhere close to good practices. Indeed the worst business model is about to become law, see Mish posting today August 18.
We bring this up as an excellent example of our New Civil War thesis. Right to Work states have attracted most all the new manufacturing business in the US, indeed the entire auto industry has moved south. This explains the bankruptcy of GM and Chrysler with their unfunded union pensions. Anyone reading the blogs is aware that CA, IL, NY, NJ are in desperate condition due to the inability to make good on promises to unionized government employees. And so are those states becoming right to work states, hardly. The New Civil War continues as I outlined at the start of this blog. This map from the WSJ details the New Bargain.
The details of the bill are in the link to Mish. My point however is this, does this map look familiar? It should, it is the same as the three maps we have in our New Civil War section, the original CIvil War states as well as the western states, the Red Blue States, and the Right to Work States. The Administration is trying to promote compulsory union membership in police and fire unions in right to work states. Whether you personally believe that is a good idea or not, our point is that this will only increase tensions and bad feelings. These tensions and bad feelings will peak at the eventual bottom of the stock market.
Here is another view of the New Civil War-income taxes. The most favorable states, to avoid income taxes, in order are AK, WY, NV, SD, FL, TX, WA, TN, and NH, according to Steve Kaplan at True Contrarian. AK, WY, NV, SD, FL, TX, TN are either southern or western states. Rather than emulate these states, in Washington Bill Gates' dad is actually backing a state income tax. If the Administration really wanted to attract business it would eliminate all Federal Corporate Income tax as well as the double taxation of dividends. This would allow start up corporations to return more to investors. Instead we are about to have some of the largest tax increases in history. Coupled with new employee mandates and ever increasing unemployment insurance, it is no wonder unemployment is stuck in the double digits.
But enough of the accounting specific recommendations. We are still full tilt in foisting one bad economic idea on another group which has already rejected that idea. This will not improve the public mood. Expect that mood to deteriorate with the market.
Our recommendations are performing well in UUP and TLT. One should no longer be buying TLT. It is time to either place orders to sell above the current 104 or let TLT continue to rise and use a trailing sell stop. For now we look forward to the end of the summer doldrums and for the real Jack Bauer action to begin after Labor Day.
Comments