EquityJungle - v0.1

US, Japan Gain on Rest of World in 2013

Bespoke — Thu, 23 May 2013 02:25:35 +0000

Earlier today we looked at US sector weightings, and below we take a look at the percentage of total world stock market cap that the largest countries make up. As shown below, the US and Japan, which were the two largest stock markets at the star...

Thursday: New Home Sales, Weekly Unemployment Claims

Thu, 23 May 2013 00:50:00 +0000

Most of the coverage of the FOMC minutes today focused on this sentence:

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome."
emphasis added

Three words: Will Not Happen. Not in June. Probably not this year (although tapering could start late this year).

The real Fed story today was that Fed Chairman Ben Bernanke scolded Congress. In his speech he said:

"Notably, over the past four years, state and local governments have cut civilian government employment by roughly 700,000 jobs, and total government employment has fallen by more than 800,000 jobs over the same period. For comparison, over the four years following the trough of the 2001 recession, total government employment rose by more than 500,000 jobs.

Most recently, the strengthening economy has improved the budgetary outlooks of most state and local governments, leading them to reduce their pace of fiscal tightening. At the same time, though, fiscal policy at the federal level has become significantly more restrictive. In particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year."

And in the Q&A, Bernanke added:

“I fully realize the importance of budgetary responsibility, but I would argue that it’s not responsible to focus all of the restraint on the very near term and do nothing about the long term, which is where most of the problem exists. I do think that we would all be better off, with no loss to fiscal sustainability or market confidence, if we had somewhat less restraint in the very near term – this year and next year, say – and more aggressive action to address these very real long-term issues, which threaten within a decade or so to begin to put our fiscal budget on an unsustainable path.”

Current policy is "not responsible". Unfortunately most members of Congress weren't even aware that Bernanke was giving them a failing grade! Most of the media reports ignored the reprimand too. Even the FOMC statement mentioned fiscal restraint several times. Oh well ...

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 345 thousand from 360 thousand last week.

• At 9:00 AM, FHFA House Price Index for March 2013. This was original a GSE only repeat sales, however there is also an expanded index that deserves more attention. The consensus is for a 0.9% increase.

• Also at 9:00 AM, The Markit US PMI Manufacturing Index Flash for May. The consensus is for a decrease to 50.8 from 52.0 in April.

• At 10:00 AM, New Home Sales for April from the Census Bureau. The consensus is for an increase in sales to 425 thousand Seasonally Adjusted Annual Rate (SAAR) in April from 417 thousand in March.

• At 11:00 AM, Kansas City Fed regional Manufacturing Survey for May. The consensus is for a reading of minus 2, up from minus 5 in April (below zero is contraction).

Wednesday Market Wrap 5/22/13

UpsideTrader — Thu, 23 May 2013 00:24:01 +0000

The post Wednesday Market Wrap 5/22/13 appeared first on UpsideTrader.

Rand Paul Has the Right Idea, Congress Should Apologize to Apple; Holy Grail of Tax Avoidance; The “Golden Goose”; Hypocrite McCain

Mike Mish Shedlock — Wed, 22 May 2013 23:51:00 +0000

Rand Paul created quite a stir in Congress when he Tweeted 'The Senate should apologize to Apple'.

@SenRandPaul: Instead of examining our broken tax system, the US Senate is about to harass Apple-one of the greatest business success stories in history.
@SenRandPaul: I am offended by a $4 trillion government bullying, berating and badgering one of America's greatest success stories.
@SenRandPaul: To US Senate: I say, instead of Apple executives, you should have brought in a giant mirror if you want to see who is responsible.
@SenRandPaul: Instead of doing the right thing we drag businessmen and women in here to berate them for trying to maximize their profits for shareholders.
@SenRandPaul: Apple has done more to enrich people's lives than politicians will ever do.
@SenRandPaul: To the Apple executives here, I apologize for this theater of the absurd.
@SenRandPaul: If you want to chase companies like Apple away, continue to vilify them. Congress should be giving Apple an award today.
@SenRandPaul: It's absurd for Congress to vilify businesses like Apple for wanting to minimize their tax code just like every other American rightly does.
@SenRandPaul: The Senate hauled before a committee one of America's greatest success stories—and wanted what? Applause?

Why did Paul Tweet Those Things?

Because the Senator Carl Levin (D-Mich.) ripped Apple's 'Holy Grail' Of Tax Avoidance ahead of congressional testimony.

It's absurd that Apple CEO Tim Cook Should be in Congress in the first place.

Did Apple break any laws? Of course not. Is Apple responsible to absurd tax code or is Congress? The answer of course is Congress. So yes, Rand Paul is correct for forcing Cook to testify.

What About GE?

Tax law is so absurd that GE paid no corporate income tax in 2010. GE also paid no corporate income taxes in 2009.

For doing precisely the same thing, Cook had to appear before a senate subcommittee.

GE's response "GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions."

Mish says please note that the CEO of GE, Jeffrey Immelt, advises president Obama on business.

Holy Grail of Tax Avoidance

The Wall Street Journal reports Apple CEO Tim Cook, Lawmakers Square Off Over Taxes.

Apple Inc.'s tax strategies came under harsh scrutiny Tuesday in the Senate, where lawmakers are finding it far easier to call for a simpler tax code than to produce one. Still, nothing in the deluge of bad publicity about the tax code in recent weeks touches on the most durable obstacle to congressional action on a broad tax overhaul. The two parties remain far apart on whether such a rewrite should also raise revenues to reduce the deficit. Democrats insist it should, while Republicans insist it shouldn't.

Sen. Carl Levin (D., Mich.), chairman of the investigations panel, on Tuesday accused Apple of employing "alchemy" and "ghost companies" to escape tax collectors in the U.S. and Ireland, the base of the firm's international operations outside the Americas.

"Apple has sought the Holy Grail of tax avoidance," said Mr. Levin. "Apple is exploiting an absurdity, one that we have not seen other companies use."

Who is responsible to tax code, Levin or Apple?

The "Golden Goose"

Barron's reports ‘You Shifted Your Golden Goose, It’s Not Right,’ Says Levin

Apple (AAPL) CEO Tim Cook‘s offered his testimony on Capitol Hill, before the U.S. Senate Permanent Subcommittee on Investigations, regarding tax policy and overseas earnings, followed by questions from the Senators.

Senator Carl Levin comes back and presses Apple’s tax administration head, Phillip Bullock, as to whether the company effectively “shifted economic rights” to intellectual property, the “crown jewels of Apple Inc,” as Levin puts it, to Apple’s Irish subsidiaries.

Levin persists: “You shifted something, the most valuable thing you have, the economic rights to the most valuable thing you own, intellectual property, the thing that produces the profits, to those three Irish corporations that you own. 70% of the profits worldwide now end up with those Irish corporations. Of course you can bring those profits home. The only reason you’re not is because they’re transferred to those three Irish companies.”

Hypocrite McCain

Fortune magazine says Senators Carl Levin and John McCain were careful to balance praise for Apple's (AAPL) achievements with outrage over its "convoluted and pernicious" (McCain's words) tax avoidance strategies. Sen. Rand Paul showed no such balance. He lit into his own committee's leadership for "dragging" one of America's great success stories into what he called a "show trial."

Mish says McCain is one of the biggest hypocrites you can find when it comes to tax avoidance.

There are two reasons companies keep profits overseas.

Tax law (for which McCain has voted for)
Tax repatriation holidays for which McCain has personally sponsored

McCain Sponsors Repatriation Tax Holiday

Accounting Today reported on October 6, 2011 McCain and Hagan Introduce Repatriation Tax Holiday Bill.

Senators John McCain, R-Ariz., and Kay Hagan, D-N.C., introduced legislation Thursday allowing multinational corporations to repatriate their foreign earnings at a reduced tax rate. The bipartisan bill, known as the Foreign Earnings Reinvestment Act, aims to trigger the flow of $1 trillion from the foreign subsidiaries of U.S.-based multinationals at a reduced tax rate of 8.75 percent, as opposed to the statutory corporate income tax rate of up to 35 percent. It would accomplish this through a temporary dividends received reduction of 75 percent.

As an incentive to create jobs, the bill would allow companies to further lower the tax rate they pay to 5.25 percent if they grow their domestic payroll during 2012.

McCain Should Apologize to Paul

It seems to me that hypocrite Senator John McCain should apologize to Senator Rand Paul as well as to Apple.

Instead The Hill reports Sen. John McCain (R-Ariz.), also defended the Senate inquiry, calling it “offensive” for anyone to accuse Levin of bullying.

Final Thoughts

It is absolutely absurd for taxes to be lower overseas than in the US.

Current policy encourages movement of jobs and capital to foreign countries. If anything, taxes ought to be higher on foreign profits than lower. That would encourage investment in the US.

I have been writing about this for years. Levin acts as if this is something new. Perhaps he is dumb enough that he just figured this out. Regardless, he still is not bright enough to realize where to point the finger.

Finally, and as I also pointed out, tax repatriation policies do not help at all. And on that score Senator McCain is personally responsible. He does not know where to point the finger either.

I will be glad when McCain retires. Rand Paul is the future of the party, McCain is the past.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Discuss: TBTF = Too Big To Jail

Barry Ritholtz — Wed, 22 May 2013 23:30:29 +0000

Click to enlarge Discuss . . .

The ChannelAdvisor IPO Has Arrived, Strongly

Jon C. Ogg — Wed, 22 May 2013 22:13:15 +0000

ChannelAdvisor Corporation (NYSE: ECOM) has now announced the pricing and details of its initial public offering. ChannelAdvisor provides cloud-based e-commerce solutions that enable retailers and...

Swiss IPO Filing in US: Luxoft

Jon C. Ogg — Wed, 22 May 2013 21:48:12 +0000

Luxoft Holding, Inc. has filed to come public in an initial public offering. No financial terms were offered other than that it may sell up to $80 million in shares. The company has applied to list...

Wall Street Strategist Year-End S&P 500 Price Targets

Bespoke — Wed, 22 May 2013 21:33:25 +0000

While the S&P 500 had a big downside reversal lower today, it's still more than 8% ABOVE the average year-end price target that Wall Street strategists placed on the index at the start of 2013. Below is a table highlighting these price target...

U.S. GDP: America is About to Look Richer – But Don’t Be Fooled

Gary Gately — Wed, 22 May 2013 21:21:53 +0000

America's about to become more wealthy - on paper, at least.

That's because the way the country's gross domestic product, or U.S. GDP, is measured will change significantly come July 31, enough to boost the closely watched economic barometer by 3%, or $400 billion.

That translates to the equivalent of about $1,500 more worth of goods and services per person in the United States.

The U.S. Commerce Department's Bureau of Economic Analysis claims the changes will allow for more consistent comparisons with data for the economies of other nations.

What the revised U.S. GDP, which will apply retroactively to 1929, will really do is make the country look healthier than it actually is.

What it speaks to in my mind is the oldest of all games: It's administrative whitewash, Money Morning Chief Investment Strategist Keith Fitz-Gerald said. If reality doesn't fit your statistics, you adjust your statistics and say, 'Let's make everybody feel good about what we're doing by readjusting the calculations.'

To continue reading, please click here…

High Taxes Mean It’s Lights Out For California

Guest Editorial — Wed, 22 May 2013 21:13:23 +0000

Would the last person leaving California please turn out the lights...

Whether by coincidence or design there is a mass exodus of business and upper management from the golden state.

Here's a guess why: California is the highest taxed state in the nation.

Its top income tax rate is 13.3%, and its property tax per capita is $1,450. California also has the highest sales tax at 7.5% and is the proud bearer of the country's highest gas tax according to the Petroleum Institute.

To continue reading, please click here...