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Sunday, November 27, 2022

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Top 1% Tuesday – $105,637 for Me, $80 for You!

Wheeeeeee – isn't this economy FANTASTIC?

It sure is for those of us in the top 1% (1.4M) – people earning over $352,000 in annual income.  We made $105,637 more Dollars in 2010 than we did in 2009 – thanks in large part to the Fed's fantastic policy of printing more and more money, which lets us borrow cheaply or invest with leverage in inflating equity as the Dollar collapses.  Sure the Dollar collapsing hurts everyone – but an extra $105,637 keeps us ahead of inflation, right? 

I'm stil jealous of course (good Capitalists are always jealous), as the top .01% (14,000 of us) – who earn an average of $23.8M, were able to add another $4.2M to their annual incomes in 2010.  That's 52,500 TIMES the average $80 increase earned by the bottom 99% (thank goodness we're not one of THEM!).  That's right, somehow, the riff-raff in the bottom 99% managed to grab 7% of the Nation's total increase in income – clearly Congress needs to make immediate changes to prevent this travesty from happening again! 

Steve Rattner has a different opinion, saying:  "The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up."

That's Commie talk!  If we allow the bottom 99% to make a fair share of the money, they would make 5% more and you know they would only SPEND it on stuff they need TO LIVE.  Then our companies would have to provide more goods and services to the bottom 99% and jobs would be created and we, at the top, would have to WAIT for the money to trickle UP from the bottom as only companies that do a good job servicing the bottom 99% would increase in value.  Even worse, we may have to WORK (a four-letter word) to provide goods and services for the people who have money in order to EARN (another four-letter word) our Incomes.  That's no fun for us at all! 

We like it when we get ALL the money and we create just the jobs we choose by buying really expensive cars or really expensive homes or really expensive ($8.50) burritos at CMG because you know an $8.50 burrito creates more jobs than four $2 burritos that poor people would buy at Taco Bell – it's a Rich Person's FACT!  My $1M, 6,000 square-foot home created 2 more jobs than the standard $250,000 2,000 square foot home and sure, you could argue that 4 could have been built instead of one for the same price and that 16 people could have been housed instead of 4 and – oops, what was my point going to be??? 

chartOf course it's not just flesh and blood people in the top 1% that hog all the income – top 1% Corporations are also choking off the bottom 99% by sucking up all the money.  On the right you see a chart that illustrates how AAPL has GAINED 8% in earnings since Jan 2011 while the ENTIRE rest of the Technology sector has LOST 3% as a group. 

AAPL employs 60,400 people while the rest of the sector empolys (employed) millions but, to be fair to AAPL, they probably employ millions of Chinese people so it's all good somewhere on the planet, right? 

The fact that the bottom 99% of the Nasdaq 100 is actually going DOWN in earnings per share doesn't stop investors from taking the AAPLdaq to fresh highs for the century but we're bearish on the Nasdaq because we feel that IF AAPL falters, the crash is going to be SPECTACULAR.  Even if AAPL does well, what happens when the sheeple who sampeded into tech get the Q1 earnings reports and discover that AAPL is one of the only positive stories out there? 

Last year, the Nasdaq rebalanced AAPL from 20% of the index down to 12% of the index but now AAPL is almost back to 20% again, as it completely shreds all competion and grabs up those consumer Dollars before they can accidentally trickle anywhere else.  Even in the S&P 500, AAPL is now 3.8% of the index, well ahead of #2 XOM (3.3%) and #3 MSFT (1.9%).  AAPL's 33% gain (so far) has boosted the Nasdaq and the QQQs 16.6% and added 9.6% to the entire S&P 500. 

The problem has become so acute that several major firms' analysts are delivering clients two sets of market reports, one with Apple included and one "ex-Apple."  The chief equity strategist at UBS AG (NYSE: UBS) creates two versions of his S&P 500 outlook reports; so do analysts at Goldman Sachs Group Inc. (NYSE: GS), Barclay's Capital, Wells Fargo & Co. (NYSE: WFC) and Morgan Stanley (NYSE: MS).  For example, they point out to clients that the S&P's fourth quarter 6.6% rise would have been only a 2.8% gain ex-Apple (reflecting Apple's 40% gain since Thanksgiving) and profit margin growth, which registered a 0.05% gain in the fourth quarter, would have actually been a negative 2.2% ex-Apple.

 Oh well, that's Capitalism, isn't it?  AAPL isn't doing anything to the bottom 99% of the Nasdaq that any top 1%'er does to the bottom 99% of the American people – they make more and more while the bottom 99% make less and less or work harder just to stay in place.  As long as you look at the WHOLE basket – it looks like things are getting better for the group – only a closer examination shows you how unhealthy the bottom 99% are and how disparate the incomes of the top and the bottom have become over time

Of course things seem just fine to you if you are in the top 1% and they can only get "better" if you make more money and that means – very simply – less for the bottom 99%.  When do we have the ideal amount?  When we have 100% and the bottom 99% have zero?  We already have 25% and in 2010 we captured 56% of the income gains so our diproportionate share is, indeed, growing even more disproportionate every year.  Don't you think we should have a stated goal for how little we want the bottom 99% to have?  We've already put them below the 50% line that held in the great depression.

Actually, there's a funny story there because the bottom 99%'s share of the income bottomed out in 1927 and that was 3 years BEFORE the US Economy collapsed.  One might say we over-did it back then as the resulting Depression impacted the incomes of the top 1% as well but, as noted above, the top 1% have their own top 1% and, every once in a while, it's good to purge the bottom 99% of the top 1% because those 14,000 people have never had it so good.  While the bottom 99% may complain that they only got 7% of the income gains in 2010 – they bottom 99% of the top 1% also got screwed, capturing just 1/3 of the gains for 1.4M while the top 14,000 took 66% of that pie as well! 

Just like in 1927, the stock market is roaring as the rich get richer and trickle their increased earnings into stocks and commodities, with commodities being the most fun as rich people get to buy things they don't need like bars of gold or tankers full of oil and they SPECULATE that the prices will go up.  Of course, when people who don't need a commodity take large quantities of the commodity out of circulation with no intent to consume it – they create an artificial shortage that drives the price of that commodity higher – it's BRILLIANT

jm041709image002

Of course it all ends very badly but BOY – what a ride!  No one wants to miss out on the rally, regardless of the consequences and the top 1% have LOTS of money to throw into the markets and, when your income jumps 20% a year – you do tend to want to toss a little more cash into the market and that's how "hot" money flows in.

That then is followed by what Guy Lerner refers to as the "dumb money," who are 4 dif­fer­ent groups of investors who his­tor­i­cally have been wrong on the mar­ket: 1) Investors Intel­li­gence; 2) Mar­ket­Vane; 3) Amer­i­can Asso­ci­a­tion of Indi­vid­ual Investors; and 4) the put call ratio. This indi­ca­tor shows extreme bull­ish­ness. As stated by Lerner last week: “If we look at the “dumb money” indi­ca­tor in fig­ure 1, we know that as long as the indi­ca­tor stays above the upper band (see green arrow on chart), prices should con­tinue to go higher – albeit in a grind­ing fash­ion at this stage of the rally.

I had made a similar observation in Friday's post, saying anything other than a move up into Friday's end of quarter would make us very bearish.  As I mentioned in Friday's post, we had added some bullish plays in expectations of this but yesterday's move up was so sharp that we took the opportunity to press a few bear side bets – just in case we don't get another crack at yesterday's highs.  If we do head higher into the week's end, we still plan to short some more – and if the markets do hold up into April, we'll be happy to capitulate and add more bullish trades but, for now – I'm just not seeing the internals to support these levels. 

We've exhausted our 10 Bullish Trade Ideas from our 3/14 post and we took the 50% profit and ran after just 2 months on our "One Trade for 2012" (BAC)  – although some of our trade ideas are still playable and will do very well if Bernanke does come through with April QE3 but now we're going to look at MORE AGGRESSIVE trade ideas if our new 13,200 goal on the Dow holds up along with 1,420 on the S&P (our 2.5% line).  As I mentioned to Members on the weekend, we keep pressing our levels because – IF this is a real bull market driven by underlying inflation and Fed money printing – then we expect it to go up and up and up.  Any signs of faltering should immediately turn us more cautious – you DO NOT want to be the last man to leave this Ship of Fools if it starts to sink.

On Thursday, for example, I mentioned our aggressive DDM trade from Wednesday's Member Chat.  DDM was $69.66 on Thursday morning and shot up 1.7% to $70.85 on yesterday's move and that's not bad for a few days "work" but the leveraged trade ideas was buying the DDM May $70/75 bull call spread at $2.10 and selling MCD, XOM or OIH puts to offset (or a combo of the 3).  The spread is up .20 and the XOM and MCD puts are up .20 while OIH is flat so .20 to .40 gained in a week on a net $0-.35 credit is very nice for a week in which the Dow has only gained 50 points since Wednesday morning. 

So we, in the top 1%, don't fear inflation – nor do we fear a devaluation of our currency because we get to borrow that currency cheaply and leverage it up into massive gains against relatively small moves in the market and, best of all – we get to pay you bottom 99% people the same wages we paid you last year, perhaps even with less benefits, using that rapidly devaluing currency in exhange for your increasingly productive labor.  No wonder Corporate Profits are at record highs (even if it is just the top 1% of Corporations)…

God bless Capitalism – and praise be unto Him that we're not at the bottom (99%) of it! 

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In fact, people are already "forced" to buy health insurance, de facto. If you aren't poor enough to have Medicaid, and not rich enough to have a job which provides it, you are playing the health lottery. You either pay $150 a month out of your pocket, or risk facing a $2000 visit to the ER, for which insurance would pay the hospital $125. And, it doesn't take much to get a bill of $2000. The heart attack, well, that's off the charts. A bout of food poisoning, that will get you to $2k, or maybe more depending on what the hospitalist would like to order on your behalf. (been there, seen that).
 
Hospitals and insurance companies would love you to have to buy insurance. Just like trial lawyers love the fact that you have to buy liability insurance.
 
The model we have is deeply flawed. Obamacare is even more flawed.

St J:  Logic is a road, it is neither a point of departure nor a destination.  Logically, one could argue that anyone who smokes cigarettes, drinks alcohol, exceeds the speed limit or has a Body Mass Index of over X should A/ pay more taxes, B/ be denied medical care unless they can pay for in full, C/ fired at will without unemployment benefits, D/ chopped up and used as cattle feed [you didn't think they were just feeding cattle wheat and corn, did you?] if they are unemployed as well, because they clearly impose greater costs than benefits upon the greater society.
 
It is the moral and ethical norms of a society which constitute the proper starting point for laws and regulations.  If you are going to pass a new law that affects society — which they pretty much all do — you must argue and decide within those norms, which are not mathematical in nature and hence do not, per se, dictate a particular result, logically speaking.  That's why we have courts to interpret laws — it is not possible to write a law that can be logically and rigorously applied without causing great injustices in the context of those societal norms.  

And, zero? can you define "hermetic"?
 
Must have missed that word along the way 🙂

Bar:  I've never understood Obama care.  I just know that I'm not poor enough to qualify for free health care, nor do I have a "job", so I can't get health insurance.  If there is an alternative, I'm not aware of it, other than paying my medical bills straight up, which is clearly a ripoff.  Ideas welcome.

Hermetic- as in "air tight". Remember Carnac?
 
http://en.wikipedia.org/wiki/Carnac_the_Magnificent

I once lived in Rochester, NY. I worked in the health care system, and learned about "community rating", which meant that anyone could get insurance, at the general rate of cost. My business provided health insurance, 100%, for every full time employee. The cost was reasonable, but it increased for several years at 10% or more, and eventually became the subject of discussion.

I realize, as I type this, that the issue can not be addressed through the keyboard. Many things are involved. Many judgements may become law. I'm suspicious of all of it.

http://www.cato.org/pubs/wtpapers/ObamaHealthCareReform-Levy.pdf

One side- the case against the mandate-
The Department of Health and Human Services has asserted three constitutional provisions as sources of authority for the mandate — the Taxing Power, the Commerce Clause, and the Necessary and Proper Clause. Each of those purported sources is deficient.
First, the penalty for not buying health insurance is not a tax. Even if the penalty were a tax, it would fail the constitutional requirements for income, excise, or direct taxes. Second, the power to regulate interstate commerce extends only to economic activities; it does not permit Congress to compel such activities in order to regulate them. Third, the mandate is not necessary; indeed, it is merely a means to circumvent problems that would not exist if not for PPACA itself. Nor is the mandate proper; it cannot be reconciled with the Framers' original design for a limited federal government of enumerated powers.
An essential aspect of liberty is the freedom not to participate. PPACA's directive that Americans buy an unwanted product from a private company debases individual liberty. And it's unconstitutional.

Health insurance
 
It seems to me that part of the issue revolves around forcing people to pay for something that is enormously profitable both to the insurers and to the health care providers, who in most cases are much richer or better paid than the average person. Wasn't the CEO of United Healthcare the highest paid CEO in the nation? Seems to me that the insurance providers should be regulated like a utility so that they can make enough profit to stay in business and pay a dividend to shareholders, but not enough to force up the cost of health care.
 
Here in the Dominican Republic I have just signed up for health insurance for 2 adults and a child, and the monthly premium is 2700 pesos, which is approximately $US 68 per month for all three of us (900 pesos each). There are some co-payments and you are allowed about $US 100 of medications per year, but no excluded conditions except that you cannot use maternity services until the policy has been in force for 90 days. You also have to wait 20 days from signing up to getting your card and coverage.
 
Now I am not in any sense claiming that medicine in the DR is as good as medicine in the US. Frankly, it is not, because the budget is not the same and health care workers including doctors are not well paid.
 
But the lab tests, the x-rays, the ultrasounds are the same, the drugs and medications are the same, the vaccinations are the same, and so on. The standard of medicine is much better than it was in Britain when I was a child, for the simple reason that medicine has advanced so much world wide. I never had blood drawn for lab work until I was 44 years old. Now it is standard even for small children and a large part of being a doctor (or vet) has been reduced to ordering blood tests, interpreting the results, and prescribing medications.
 
If there is NOT to be a single payer system in the US, then health care simply needs to be opened up to free competition. Like the Dominican Republic, you could have purely local insurance plans that just provide care at one hospital or clinic. It could be basic, but it would be better than nothing. In the Internet age, you could probably have doctors in China providing video conference consults via Skype and prescribing medications from offshore pharmacies.
 
Government could offer some subsidies or low interest loan guarantees to providers willing to provide care at a certain (low) price level, or pay off their student loans in exchange for a number of years of service. Where there is a will there is a way, but the problem is that there is very little will in the US, not least due to the world class level of political corruption.

Skype medicine
 
Medicine by Skype may sound far fetched, but we already have doctors in the US dictating their medical notes into telephones on their desks, which are transcribed by expert medical typists in India and then downloaded as pdfs within 24 hours. A friend of mine runs a company that does this.
 
I have been wearing for a few years a pair of progressive bifocal glasses in excellent unbreakable frames that I purchased online for about $70 versus $300 in Walmart. Delivery takes a couple of weeks, no doubt so they can be shipped from China or India. http://www.eyebuydirect.com/
 
 
 
My dentist in the Dominican Republic can do a crown or a root canal for less that the COPAYMENT for dental insurance in the US.

Since I will be enjoying the hospitality of the American Justice system tomorrow and unavailable to update the portfolios, here is the current situation on all of them:

There is still a $9.00 stop the weekly FAS calls but looks OK now!

There is a $17.50 stop on the IWM Jan 68 Calls.

Cashed in the TLT calls at $3.00 today!

Rolled the TZA calls to May 16 calls.

By the way, I meant jury duty, not jail time!

Justice Sotomayor
 
I like her suggestion that Obama could have a health tax for everyone and then give credits to people who opt for private insurance. Very elegant

Kustomz:  I would agree that Canadian real estate will be going down, even though my friends largely disagree with me.  About a week ago there was a condo development in Vancouver that a local developer was selling 418 units, of which 130 buyers bought within 4 hours. I used to work for two major Canadian banks, and most people that I saw (mostly clients in their 40's, 50's and 60's) had a principal residence and an investment property or two.  Very few had substantial rrsp's or non-registered savings (meaning over $150,000).  From what I hear from my former bank colleagues, they are bracing for an announcement from Flaherty this Thursday that the amortization on mortgages will be scaled back to 25 years.  I also recently read an article from a blogger (who was a former Member of Parliament) that they are considering getting rid of automatic mortgage renewals. 

stjean/jury
 
Enjoy yourself. I had the honor of being foreperson of a jury a couple of years ago. Unfortunately not a death penalty case, but a female drunk driver from out of town facing a small town jury and calling our local cops liars. Interestingly she claimed she had come down from Minnesota as part of an ESPN team to film a boxing match at the fairgrounds and had free cocktails for breakfast on the flight, and that she was a sound engineer. Unfortunately the boxing match was not at the fairgrounds and was filmed by a different network. Nice try though.

"hermetic", I think, generally refers to "airtight."  OK, here's from a dictionary:  "1. Completely sealed, especially against the escape or entry of air.;2. Impervious to outside interference or influence: the hermetic confines of an isolated life.
 
There's also more esoteric references related to Hermes, the Greek messenger god, but I wasn't trying to be obscure.

And a Tina Turner song, slightly modified: "I'm your Spanish banker, your banker for money, I'll do what you want me to do.." http://online.wsj.com/article/SB10001424052702303404704577307910878289278.html?mod=djemheard_t

Canada is in a pickle. Mark Carney (Canada has their very own Bernanke) has been pushing for Canadians to take on more debt to keep the economy grooving along, tied to fake markets (equities/pensions/Mfunds) being pushed by cheap money, Canadians feel richer. Bernanke put the brakes on too late and while the US household deb to income only reached +130%, it was enough to send the whole system into a tail spin.

Personally, I'm not confident they can cool it off without crashing and one only needs to look at CMHC raising the cap to 600B in 09 from a level of 350B in 07. When you take into consideration that 20% of jobs growth since 06 are tied to the housing market, I find it hard to believe policy makers are willing to make the logical decisions. They will let it crash and burn and find someone else to blame (banks/speculators). How long will it take and how could we profit from it?

This one article explains it well…although it doesn't mention the record profits from Canadian banks along with major hiring due to the housing bubble…its another sign they are close to peaking. You'll shake your head once you read it, that I guaranty.
http://webcache.googleusercontent.com/search?q=cache:eZxaqjpNU9cJ:www.peoplesworld.org/canada-s-dirty-little-sub-prime-loan-secret-threatens-to-sink-housing-market/+&cd=1&hl=en&ct=clnk&gl=us&client=firefox-a
 

Jury/Stj – If you are not familiar with it, take a look at the Fully Informed Jury Assoc website before you go, print out their fact sheet. Excellent organization which helps combat some of the systemic failures in what i refer to as our "judicial-industrial complex."

LATE AFTER HOURS POST
-will be referenced with short note Weds or Thurs in Chat
 
3X Index based ETF's
I began a fresh study tonight on the TZA+TNA  to  RUT relationship, covering the period March 1 to March 27.
 
Although I spent several hours with Mr. Excel tonight, I did not quite finish the computations to be able to post the results tonight.
 
I will take another look at the sheet sometime soon when I get time to breath.
 
This entire subject (actually two subjects) has been oft' studied in the past couple years, by quite a few people, and posted on sites all over the place (SA, etc).
 
There is the issue of decay, which is basically the friction of what Direxion has to do every day to try to get the ETF to match the 3% goal (at least I think that's the explanation). This is what is at the heart of the "short both at the same time" theory. Yes, in some cases it does work, but generally takes a LONG time to play out enough to make it worthwhile.
 
I refer here ONLY to TZA and TNA.   A LOT of the studies that have been done by various people (intentionally trying to find data to support the desired conclusion that "All 3x Index ETF's are BAD") in the past have focused on the worst cases, like FAS/FAZ.
 
The other primary subject is the "tracking accuracy". I've written here at PSW about this previously, as it is one of the few things I've actually studied in depth. The primary take away is that the tracking accuracy is "good 'nough for government work" most of the time, and in time periods ranging  from a few days to a few weeks, but then varies enough to be noticeable.
 
For most traders, the tracking error is not enough to matter. This subject was discussed here a month or two ago. Typically, over the course of a few days to a few weeks, ( and I am commenting ONLY on TZA/TNA, and NOT on any other etf's) a typical tracking range would be between 2.9 to 3.1.   If you're trying to play 3x lev on the RUT, that's close enough.
There is no way to "calculate" or "predict" it in a going forward manner. It can only be studied based on past numbers. Traditional behavior can then be extrapolated as an approximation.
 
Most of the "tracking error" (when there is any) comes from the "continuity of the trend" (or the lack there of) in the RUT. Example:  assume RUT is up exactly 1.0% every day for 15 days. The "tracking accuracy ratio" for TNA would probably be MORE than 3.0000, maybe 3.05 or 3.08, something like that. So you get more than you had hoped for, because of the compounding, and the "continuity" of direction of daily change.
 
Now assume 15 days of total true random movement (using a random number generator) in RUT ranging between +.05% and 1.5%  Same AVERAGE movement PER DAY over the 15 days (positive 1% each day). The tracking accuracy is going to be much worse, and could be slightly more than or slightly less than 3.00%, due to the "wandering" nature, and day to day compounding that shaves a few microns a day off the accuracy.
 
At least that's how I understand it. Like usual, I could be completely wrong. If I get some truly robust data and mathematical studies completed, I'll mention them here in the future. I've done about 3 of these studies in the last 3 years, over varying time frames. The results of those studies have agreed with what I've described above.

Phil,
I know you are not a big proponent of gold but what do you think of Matthew Lynn's case for gold?
 
http://www.marketwatch.com/story/the-next-leg-of-golds-bull-run-2012-03-28

From FT:
US, France and UK consider oil release
The US, France and the UK are considering a co-ordinated emergency release of oil stocks, the French energy minister signalled on Wednesday, as concerns mount that high crude prices risk derailing economic recovery.

Asked by reporters after the weekly ministers’ meeting in Paris whether France would join a US-UK move to release strategic stocks, Eric Besson replied: “It is the US that has asked for it. France is favourable to the suggestion.”

The oil lines for today will be:

R3 – 108.71
R2 – 108.22
R1 – 107.5
PP – 107.01
S1 – 106.29
S2 – 105.8
S3 – 105.08

Testing S1 now. Gotta go now!

Cdn Housing/Vancouver,
Mainland Chinese investors have had a huge impact, specifically in my area.  Prices were up 20-30% from 2010-11, and the pace has backed off in late 2011 and early 2012 – funds  from offshore investors specifically has slowed but that being said, over 90% of purchasers in my area are still Chinese. 
Lot values range from $1.8 million for a 33' x 120' lot, up to $2.3million for a 66' x 120' lot.  They buy the existing house, tear it down and build a new one.
This cannot continue at anywhere near this pace.

cdn Housing,
 
it should also be noted that mortgage regulations did not allow anywhere near the type of robo-signing that went on in the US and the Cdn gov't was reasonably quick to get rid of 40 yr amortizations and zero downpayments – so the bubble in Canada did not expand at the pace nor to the extent that happened in the US, but that does not mean that we are not succeptible to a correction.
Many cdn investors are pulling equity out of there homes to purchase vacation homes in the southern US states

Thanks for your reply.  Wished I could have watched the clip you sent but it is not available outside the US.  I always trust your view on things, that's why I wanted to run it by you.  I am loath to trust anything Bernanke has to say though especially as the US dollar as a reserve currency in some ways competes with gold.

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