Monday, April 16, 2012

DOW + 71 = 12,921

SPX - 0.69 = 1368
NAS – 22 = 2988
10 YR YLD - .02 = 1.97%
OIL +.24 = 103.17
GOLD – 5.60 = 1653.90
SILV +.03 = 31.63
PLAT – 10.00 = 1581.00

Spanish 10-year government bond yields broke above 6 percent for the first time this year as concerns over the country’s ability to keep its finances under control pushed debt markets back into crisis mode.

Spanish 10-year yields were at 6.15 percent. Five-year yields topped 5 percent, while two-year yields spiked to 3.70 percent, all 2012 highs. Six percent is psychologically important because the the quick slide in prices has accelerated on previous occasions when that level was broken. Beyond 7 percent, Greece, Portugal and Ireland struggled to raise cash in the market and were forced to seek financial aid.

The cost of insuring Spanish debt against default hit a record high Monday of $520,000 a year to buy $10 million of protection; that is to buy credit default swaps, and after the Greek fiasco, nobody really knows how much protection a credit default swap really buys.

The ECB seems reluctant to resume bond purchases. We’re back in full crisis mode, it is looking more and more likely that Spain is going to have some form of a bailout. Absent an intervention from the ECB, you would not see a cap on Spanish yields; they would just keep increasing.”

Top European Central Bank officials are calling on the rest of the world to pledge more money to the International Monetary Fund's crisis war chest. European leaders have pledged to boost the euro zone's bailout resources to around $1 trillion and to contribute an extra $200 billion to the IMF. And apparently this is not enough.

George Soros has made a real fortune by wagering on the breakdown of European governments; he made one billion dollars in one day, Black Wednesday 1992, shorting the British pound; he became known as the “Man who Broke the Bank of England”. Now, Soros says, “The euro is undermining the political cohesion of the European Union, and if it continues like that could even destroy the European Union.”

Soros admits he has cried wolf on more than one occasion, but if you remember the story, the wolf finally did show up.

On Saturday, the NY Times reported on “suicide by economic crisis”; we've talked it. People, especially the elderly have committed suicide as the economic situation has worsened. There is a huge human cost. In Spain, the unemployment rate is 23.6% and unemployment among young adults is 50%. Spain is already in a Depression. The prescription from the ECB is more fiscal austerity, even though there has never been an example of a country shrinking its way out of a Depression. The idea of the euro has failed. Spain will have to exit, sooner or later. Greece and Portugal will have to exit, probably sooner than later. Continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is inconceivable. It won't work; it will only extend the suffering. When people reach the point where suicide seems like an alternative, they revolt because of course, suicide is not a reasonable alternative. It seems that all governments involved have simply lost their collective minds. In Europe, the stronger economies, such as Germany, are forcing the weaker economies to adopt austerity programs that help no one and have been seen to worsen the economic problems throughout the world. They would rather drive the Euro-zone economy over the cliff than admit that they've been wrong. At this point I'm not confident there's anything they can do. Expansionism and accommodative monetary policy is just throwing gasoline on the fire. Austerity is nothing more than the old boot on the throat mentality that never worked very well in Europe.

Back in the USSA, the Dow Industrials rose, the S&P 500 was flat, and the NASDAQ slipped. Apple hurt the NASDAQ Index. There are probably some people who are looking at a tax bill and they selling Apple to raise cash; shares have had a tremendous run-up. I'm not trying to explain the movement of the markets with that comment.

Retail sales increased 0.8 percent in March, after rising 1.0 percent in February. Maybe it was the warm weather, maybe people are feeling more confident about buying things; maybe it's just pent-up demand; maybe people were getting tax refunds; maybe we were just paying more for gasoline.

Citigroup reported $2.9 billion in first quarter profit. The results beat estimates. Modest increases in investment banking and trading. Solid, and un-spectacular consumer banking results.

Every year about this time of year, we hear politicians saying taxes are too complicated and we need to “dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes.” The IRS would use information it “already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return.” Experts estimate this would save 200 million total hours or work and $2 billion. There is a type of quick and easy system in effect already in California, called the Ready Return. You probably don't know about it because the software firms managed to lobby to prevent it receiving much coverage. In fact one of the biggest reasons you won't see a 5-minute tax form is Intuit, the company that makes the Turbo Tax software. Intuit has hired some powerful lobbyists and paid them about $9 million over the last 4 years to make sure tax day is a nightmare;

Intuit would lose a lot of money if the government makes it easier to file your taxes. There was a plan for an easier, 5-minute tax form. It has been tried in other countries and it works. So how did Intuit manage to prevent the implementation of Obama’s campaign promise? Here’s what Intuit had to say about its strategy.

“Although the Free File Alliance has kept the federal government from being a direct competitor to Intuit’s tax offerings, it has fostered additional online competition and may cause us to lose significant revenue opportunities. The current agreement with the Free File Alliance is scheduled to expire in October 2014. We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future.”

Did you catch that? Intuit is worried about the government encroaching on their tax business.

What is the Free File Alliance? It’s a coalition of 14 software makers that signed an agreement with the IRS to provide tax preparation software to the public. The IRS was mandated to provide free online tax prep services to the public, so it outsourced this to existing commercial tax preparers. The Free File Alliance indicates on its web page that “Treasury has indicated it does not want the IRS to enter into the tax software business.” And Intuit said on its investor report that this alliance “has kept the federal government from being a direct competitor to Intuit’s tax offerings.”

Lobbyist dollars have great ROI.

Yeah, it's a racket.