Friday, December 14, 2012 -

A Sad Day

by Sinclair Noe

DOW – 35 = 13,135
SPX – 5 = 1413
NAS – 20 = 2971
10 YR YLD -.02 = 1.71%
OIL +.97 = 86.86
GOLD – 1.10 = 1697.20
SILV - .23 = 32.31

A total of 27 people dead at school in Newtown, Connecticut; 20 children, 6 adults, and the shooter; the kids were between the ages of 5 and 10. There was possibly another person shot before the massacre at the school. The shooter's mother was a teacher at the school and she was killed, but it is pretty clear this was more than just an attack on the mother.

So, if you see the flags at half mast today, this is why. We've seen it before at Columbine, at Virginia Tech, at Aurora, and just earlier this week in a mall in Portland. This time it was especially horrible because it was mostly children; the innocents. It is estimated that there are 87 gun related deaths per day in the US, and this week it was kids.

I understand that tragedy is a part of life. I understand that other places in the world experience tragedy. What is happening in Syria is tragic, what is happening in the Sudan is tragic. What is happening in Afghanistan is tragic. None of that discounts the tragedy in Connecticut. Thoughts and prayers and consolation for the victims are appropriate and comforting to some extent, but there should be something more. Something is wrong in this country.

I have no great expectations. The politicians in Washington don't engender expectations of greatness. Sometimes I wonder how they manage to install their shoes on the feet each morning. The current debate over the fiscal cliff keeps sliding back to accusations and fear mongering. These aren’t normal negotiations in which each side presents specific proposals, and horse-trading proceeds until the two sides converge. By all accounts, Republicans have, so far, offered almost no specifics. They claim that they’re willing to raise $800 billion in revenue by closing loopholes, but they refuse to specify which loopholes they would close; they are demanding large cuts in spending, but the specific cuts they have been willing to lay out wouldn’t come close to delivering the savings they demand. Part of the problem is that they want to cut Social Security, Medicare and Medicaid, but those are popular programs. If you tell someone that they are going to lose “X” dollars each month from their Social Security check, they'll get angry. So the talks are stuck.

Jamie Dimon, the CEO of JPMorgan Chase would like to see the fiscal cliff talks get unstuck. He says he's even willing to pay higher taxes on his own income of about $23 million a year. But JPMorgan, the bank, is not willing to pay more. The bank has spent millions on lobbyists to avoid paying tax on its foreign income. The corporate tax break is known as the "active finance exception," and it allows multinational companies to earn interest on overseas lending and defer paying taxes to the U.S. government indefinitely. Technically, the "active finance" exemption expired at the end of 2011, but Congress is expected to extend it once again at the urging of lobby groups.

Citizens for Tax Justice reports that a little more than half of the companies in the Fortune 500 have at least $1.6 trillion-dollars in untaxed profits parked offshore. Just 20 of those companies, including multinational behemoths like Apple, GE and Microsoft, have nearly half of the total, or $794 billion, in untaxed offshore profits.

If the federal government could tax that $1.6 trillion at the statutory 35 percent tax rate, then it could raise $560 billion -- more than enough to cover the cost of making all of the Bush tax cuts permanent. The government isn't able to tax that money at 35 percent, of course, partly because companies can deduct the amount of money they have already paid overseas. After all, nobody wants to tax companies twice for the same income. The trouble is that these companies never bring that money back home, and the IRS gets nothing.

So, the companies are hiring lobbyists to try to change what's known as the territorial tax system. The idea is that companies wouldn't pay any US taxes on overseas profits as long as they could prove they paid foreign taxes. Here's how it works. Last year Apple paid 1.9% in foreign taxes; the year before they paid 2.5% in foreign taxes. A territorial tax system means that they wouldn't have to pay US taxes on that money because they already paid the foreign tax.

You've heard about the Fix the Debt campaign; 82 companies that sent representatives to Washington to look for a bipartisan solution to the debt problem, as long as it doesn't mean they have to pay their fair share of taxes; because if a territorial tax system is put in place just 63 of those 82 companies would save approximately $135 billion.

In a Bloomberg BusinessWeek article, Leslie Patton writes about a McDonald's employee in Chicago. His name is Tyree Johnson. The 44-year-old has worked at the fast food chain for two decades, yet still makes just $8.25 an hour, and doesn't get 40 hours a week of work. So Johnson has jobs at two Chicago McDonald's. Twice a month he goes to church food pantries to stock up on cereal, soup and powdered milk. Johnson would have to work for 1.1 million hours to earn the $8.8 million that McDonald's CEO James Skinner was paid last year. If he worked for 40 hours a week, every week of the year, that would take five centuries.

The Department of Labor reports Americans earning hourly wages didn’t see their average pay go up at all over the last year. Not even a little bit. Real average hourly earnings and real average weekly earnings were unchanged at 0.0 percent over the past year, adjusting for inflation.

The number of people who applied for new U.S. unemployment benefits last week fell below Pre-Sandy levels and were near a four-and-a-half-year low. So, there are apparently some jobs, just not money.

Don't despair, prices dropped. The Labor Department also says the consumer price index dropped a seasonally adjusted 0.3% last month. Gas prices were lower. The Commerce Department reports retail sales rose 0.3% last month after declining 0.3% in October, but when you factor in falling gas prices, sales were actually more than twice as strong. Instead of paying more at the pump, consumers bought a variety of goods such as autos, electronics, appliances, building materials, clothing, meals and liquor, home furnishings and personal-care products. Retail spending has climbed 3.7% in the past 12 months, a pace consistent with a U.S. economy expanding at about 2% a year. When we get it we spend it.

Yesterday, we talked about the Federal Reserve's new target, or guidepost specific monetary policy; they'll continue quantitative easing until the economy hits 2.5% inflation or 6.5% unemployment. Yesterday, I questioned how that would work without triggering a rush for the exits. Today, Dallas Federal Reserve President Robert Fisher said he was extremely concerned that it would become increasingly difficult to exit the Fed’s accommodative monetary policy.

Fisher said: “We are at risk of what I call a ‘Hotel California’ monetary policy, referring to the Eagles’ song, where we can check out any time we want from this program, but we can never leave.”

So, Fisher gets the quote of the day award.