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Cliff-Mania Holds Only Bad Outcomes

By Rick Ackerman Posted on December 31, 2012, 3:06 am EST Last Updated December 31, 2012, 5:55 am EST

Index futures remained hard-wired to vibrations from Capitol Hill Sunday night, nervously discounting each mood shift perhaps 30 to 40 minutes ahead of whatever web-based reports were to follow.  Shortly after 7 p.m. EST, the E-Mini S&Ps were up the equivalent of about 50 Dow points, suggesting DaBoyz were willing to go way out on a limb based on the flimsiest reasons for optimism.  For index-futures traders who make their living at night in the thinnest of markets, this amounted to a game of chicken, since any hint of a new impasse threatened to reverse the current rally, turning it instantaneously into a 100-point decline.

At last glance, news reports had Republicans giving ground on a measure that would have changed the way inflation is calculated to determine Social Security and other benefit payments. It’s hard to believe a formula exists that would lower the marquee inflation rate beneath where it already is. Be that as it may, as we went to press there were evidently gaping differences on some other key issues, including the Alternative Minimum Tax (AMT). [Late-breaking news: Talks adjourned Sunday night with no agreement in place.]

Think You’re Safe?

Whatever fiscal package emerges, it would appear that Joe Taxpayer confidently believes it’s going to be someone else’s ox that gets gored. A headline in the local paper revealed the public’s not-exactly-shocking ignorance about what’s going on in Washington: Shoppers Not Fearing Plunge Off ‘Cliff’ was how the Boulder Daily Camera presented the story-of-the-hour.  Oh really?  It’s a tragedy for America that people like those quoted in the article are allowed to vote, since they in fact have much to fear, even if they are not among Obama’s “filthy-rich” earners of $200,000 or more.  For starters, a steep upward skew in the Alternative Minimum Tax that is set to take effect on January 1 will hit households down to the level of $75k.  Even worse, it will be retroactive to 2012, taxing income that most people didn’t expect to pay taxes on. Click here for the extremely scary details.

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  • bc January 2, 2013, 12:43 am

    Oh good. Saved again by CHS. I am not the BC in this link.
    http://www.oftwominds.com/blog.html
    I have reached the same conclusion but I believe the cattle in insurance and hedge investing are getting restless and the Fed is more explicitly offering insurance though the ways of hiding it in dark pools is probably correct as described by Smith. Kind of like asking what happens when an irresistible force meets an immovable object if the force uses leverage? Lots of heat and light released followed by a loud bang I suspect. Extra louder because of the leverage? We’ll see.

  • Hardrock January 2, 2013, 12:31 am

    I don’t think the French aristocracy was paying 50% of their total income in taxes when Marie met her end.

    I believe in providing a safety net for those who need it but I do wonder how much of my middle class income would be sufficient to satisfy those who know better than I how much of it should be taken from me for redistribution? I estimate that between taxes and charitable contributions (10%), I’m living on only 40 % of my gross. Please inform me as to how much is the right percentage for me to live on….30%?…..15%? Let’s make government smaller, eliminate loop holes, stop baling out poorly run corporations, take care of those who really need it, and put to work those who don’t.

    BTW, for the sake of accuracy, there’s no indication that M.A. ever uttered the famous phrase that was attributed to her.

  • bc January 1, 2013, 4:14 am

    Rather drunk at the time. I’ll try to respond in the new year. Cheers All.

  • bc January 1, 2013, 1:09 am

    I said:
    The Fed is clamping downside volatility by selling vol and even writing uncovered puts and selling them at a discount to insurers and hedge funds. With their deep pockets and options leverage this formalizes the Bernanke put. We are entering total (risk) lockdown mode. The gloves are off with regard to shorts. Have you looked at the price of volatility lately? I swear GDP could fall ten percent and the market wouldn’t budge. In a weird way Gary is right.

    • Jill January 1, 2013, 2:02 am

      BC, is this a guess on your part, or is there evidence that this is going on?

      &&&&&

      I was wondering the same thing, BC. I’ve seen volatility levels rise and fall in 40 years of option trading, but I was never convinced that anyone could make sense of it, let alone tie it to a conspiracy. RA

  • gary leibowitz December 31, 2012, 9:14 pm

    Neither the Dems or Repubs will allow a tax hike to the middle class despite the supposed firm stance by both sides.

    As for the supposed govenment intervention in propping up the market, they not only know how, they seem to keep it levitated over many years. I would call that miraculous.

    As for the pulse of the nations views on things perhaps the recent data on consumer confidence is very telling, as is housing and unemployment.

    The number of Americans filing new claims for jobless benefits fell to a 4-1/2 year low and new home sales hitting their highest level since April 2010. While consumer confidence is lower this last month a sub-index measuring how consumers feel about their present situation rose to its highest level in more than four years, even as sentiment for the future plunged. A preoccupation over the fiscal cliff.

    The above information is easily obtained from recent articles and government data.

    The news suggests that we are not yet at a top. I have stated this supposition over the last 12 months, and I can assure you if I do see a sharp reversal in the economy I will switch sides on a dime.

    • gary leibowitz December 31, 2012, 9:19 pm

      Sorry, just realized I basically stated the same facts in the last article. It is witching hour today. Wonder how the political arena plays out in the next few hours.

    • gary leibowitz December 31, 2012, 11:19 pm

      As I speak it looks like a deal is set for determining the definition of “RICH”. Now looks like 450K per couple. Any objections? Just kidding.

      I am still cautious on the market. SPX has to break above 1428 in my mind to be viewed as positive going forward. 1440 is even better. If it fails here than January could be another slow drawn out correction.

      The credit rating and debt ceiling being raised yet again is my main concern. That puts the market in possible muddy waters till mid-February.

      I have still not committed any more money even though I expected to a short while ago.

    • Jill January 1, 2013, 1:42 am

      “As I speak it looks like a deal is set for determining the definition of “RICH”. Now looks like 450K per couple. Any objections? Just kidding.”

      There’ll be nothing but objections by most folks on this site to taxes of any kind, I’m sure. Seems like the attitude of most folks here toward Social Security & the rest of the safety net is “I won’t pay any taxes to support it. Let them eat cake.” I guess folks here never noticed in the history books what happened to Marie Antionette AFTER she said that.

    • mava January 1, 2013, 3:01 am

      Jill,

      Marie Antoinette made one crucial mistake: she was stupid enough to remain in the country. Today, such is impossible, because for as long as you remain here, you will be robbed by “the poor”, whether you object or not. And if you leave, then you stop paying, and you also stop being available for the execution, – all pluses, no minuses.

      This all of course beside the point that the M.A. was a thief. She robbed people of what was theirs (everything M.A. had), and therefore, in that case, what the people did was absolutely proper and just. In modern times, the rich man earned everything he owns. None of his property belongs to the poor. But this is only a point of inapplicability of M.A. example from a moral point of view. In practice, it doesn’t matter, of course.

  • bc December 31, 2012, 7:16 pm

    I just realized the Fed is selling out of the money puts at a deep discount. This is why the markets show so little fear. The Fed is back stopping the market by selling volatility insurance on the cheap. Seems to me when a fool is selling below market the smart thing to do is buy from him.

  • mava December 31, 2012, 4:39 pm

    Actually, many wealthy people are busy getting their papers in order on the way out, not in. Personally, I don’t blame them. Since this country lately is only about theft (someone else must pay), then I think it is a good time to f. the poor, and to let them to find out how does it really feel if the rich are gone. They want the socialism? We should let them taste it.

  • John Jay December 31, 2012, 3:45 pm

    Jill,
    OK.
    Here is some good news.
    http://tinyurl.com/ban49aw
    Wow.
    At long last, a Government program that makes economic sense!
    Encourage wealthy, useful, people a path to US Citizenship!
    Happy New Year to all!

    • Jill January 1, 2013, 1:12 am

      Thanks, John. That’s great & encouraging news. Perhaps foreign investors can help us to jump start the economy out of this recession, since our banks seem to just sit on cash & not lend it to businesses very much.

  • crusty December 31, 2012, 5:02 am

    Tax increases for $75k and up? it seems coincident that the figured value for welfare benefits, cash, food and healthcare for recipients is 63kw – too bad no one seems to think about a permanent cap on taxation as part of this deal –

  • John Jay December 31, 2012, 3:57 am

    Congress, the Fed, and the POTUS will always and forever be taking the blue pill.
    The red pill of reality is not, and will never be in their medicine cabinet.
    They will stay deep in Matrix Land until someone yanks that cord of Fiat Money and Debt from the back of their collective necks.
    And the same goes for the ever expanding American Matrix population on SSDI, Food Stamps, Section 8 Housing, 3% (or less) FHA Home Loans etc.
    And at the other end of the Matrix, the MIC, the Oligarchs, etc. are also plugged in.
    They all have that Matrix cord plugged in the back of their necks.
    And we don’t.
    Those plugged into the Matrix will continue to enjoy it.
    And we won’t.
    Those plugged into the Matrix get their money for nothing.
    And we don’t.
    In the minds of all Matrix dwellers, we exist only to enable their Dream World existence.
    We will need the Wachowski brothers to write the ending to this movie!

    • Erin December 31, 2012, 5:47 am

      JJ,
      Please refrain from that kind of negative talk which is very likely to bring more negative talk and that will somehow cause consumer spending to plummet. We just don’t need that right now.

      Please read previous posts from Gary who resides in Utopia and you will immediately feel better. Just wait till our leaders agree on a fix for the fiscal cliff and our problems will be solved.

      I always try to be positive, only problem is, there really are no positives.

      What I admire about RA is that he can just plug away while Rome burns and make money no matter how bad things get and not let the reality of our situation bother him. He just focuses on the pivot points. I on the other hand, keep waiting for the truth to be exposed. My job inside the belly of beast leaves me zero hope for a happy ending. If you could see inside of Rome, small fires are everywhere.

    • mava December 31, 2012, 4:35 pm

      Well said, JJ! That’s exactly how I see it.

      Also agree with Erin, funny, but true!


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