Saturday, January 31, 2009

AT & T and VZ/Limbaugh, the Titular Head of the GOP, on How to Save the Economy/ Dems Go Wild in Stimulus Package/GOP and the Lochner Era

I heard Bob Pisani say yesterday that this January was the worst decline on record for the Dow, S & P 500, and the Russell 2000.  After I heard him say that, I said to myself, hey Bob, it could have been worse.  The papers had some of the details this morning.  The Dow fell 8.4% which was the worst decline for a January in the Dow's 113 year history, beating the 8.64% decline from 1916. Dow Closes at 8000 -

On the bright side, the Russell 2000 also had its worst month but suffered a larger decline of 11.2% for the month.

I have added some small caps recently, trying to focus on those with low correlations to the economy, such as SNTA, ISIS, CXW, DK and USPH.  Of those I had a good pop to the upside in ISIS and SNTA from my December 2008 purchases.  SNTA was bought at 5.5 on December 31st and it closed January at 8.80. SNTA 

ISIS was bought at around 10.45 and 1/2 sold quickly on a pop to over 14. Microsoft Buy/ISIS sold in IRA 

USPH is slightly profitable,  U.S. PHYSICAL THERAPY (USPH) BUY 

Delek was sold after a good percentage pop, with the last of two sales at 7.28 in late January with those shares purchased at 4.61  Sold Delek Some of the other micro caps, like SLTM and NADX, are close to break even as are CBR and GPX. Given the heightened level of risk and uncertainty, I am being extremely cautious, limiting my exposure by being selective on each stock purchase and by limiting my exposure to any one issue to a meager amount of money. I would conclude by saying that I am  net positive for the month of January on my small caps and will continue doing what I have been doing notwithstanding the doom and gloom being so thick now that an industrial chain saw could barely make a nick in it. 

I thought that the current issue of Barron's made a good case for owning Verizon.

I have a small position in both Verizon's common and a senior bond. I almost bought 100 of AT & T last week when it dipped below 25 but postponed making a decision until this next week. My last sale of AT & T common consisted of shares held in an IRA at over 38 on 2/4/08, and I have currently a sizable position in its senior bonds in TC form, JZE and JZJ, spread over my main and retirement accounts.   Most likely, I will add some shares of Verizon and/or AT & T in the coming weeks, partly for the reasons mentioned in this Barron's article but also for the dividend yields at their current prices.  

The inventory build up added 1.3% to the GDP for the last quarter.  This is not good news. MarketWatch

The titular head of the GOP, Rush Limbaugh, wants to scrap the middle class tax cuts in the current stimulus package and instead cut the corporate tax rate in half and eliminate the capital gains tax for one year. He also misrepresents Representative Cantor's exchange with Obama. (Compare Rush's statement about the exchange in his WSJ with the exchange shown on video and reported by reputable news organizations Political Punch:

A one year elimination of the capital gains tax would help anyone desiring to sell their business. Possibly, Rush has something that he wants to sell and avoid even the small tax liability, currently 15% on long term capital gains.  No one with an ounce of sanity would create or expand a business based on a one year tax holiday for capital gains.  

Such a proposal does nothing to address the core problem, a massive fall off in demand and sales. While cutting the corporate tax in half might lead to greater bonuses and compensation for the already highly compensated corporate managers, a tax cut of that magnitude would do nothing to create demand for the corporations' products. Products are already being reduced in price.  Rush's proposals are at least consistent with trickle down economics and the GOP policy of making the rich richer.  Most importantly for them, it is consistent with the results of their policies in expanding the gap between the very rich and everyone else in our society.   

One of the fascinating aspects of Rush's approach, and this is consistent with GOP tax policy, is that only a few scraps are thrown to the vast majority of voters. Yet,  if you listen only to their rhetoric- and ignore the reality of the GOP tax policies - then the rhetoric has been successful in convincing millions that the GOP is actually interested in providing meaningful tax relief to the middle class.  I would also add that few corporations actually pay the top tax rate that Rush complains about, which is 35%.  The tax code already provides them with numerous avenues of relief. And, it is almost humorous to hear someone complain about the "death tax" who has just a few million less than what is needed to pay any estate tax. 

There is not a material difference in the highest marginal U.S.  corporate tax rate and the tax rate of other developed countries.  However, when you add the state taxes, the rate does grow to about a four or so percentage difference. The Tax Foundation - Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures

This last linked article from a "conservative" advocacy group explains a lot about how other countries finance a lower corporate tax rate than the U.S..  In footnote 6, it concedes the lower corporate rate is financed by the VAT. What the heck is a VAT? It is a consumption tax on the value added to a product as it moves through production and at final sale. Value-Added Tax (VAT) 

It is just another tax. I do not profess to be an expert on the U.S. tax code, let alone the tax codes of European nations, but I do understand that those who wish to lower the U.S. corporate tax rate using the same argument as Rush rarely disclose the full picture about the other nations' tax codes,  including their use of the VAT. Besides, how does Rush explain that those countries with a lower marginal rate already have a higher unemployment rate than the U.S.? Shouldn't it be lower if you believe that cutting the corporate tax rate will lead to prosperity? Spain's jobless rate just hit 13.9%. BBC NEWS

The German unemployment rate just hit 8.3%

For the entire Eurozone, the one with the VAT and slightly lower corporate tax rates, the unemployment rate was 8% in December and rising. Eurozone unemployment rises to 8.0% in December; Netherlands at 2.7%; Spain 14.4% and Ireland 8.2%

The U.S. is currently at 7.2%.  So, oddly, even though we entered the recession first, we are doing better on the jobs front than the countries with a slightly different tax structure allegedly more favorable to corporations. 

California,  continuing its inability to deal with its budget in a responsible manner, will delay tax refunds, welfare checks and student loans.

California is just one of many states that refuse to make necessary budget cuts. Part of the stimulus package that the Democrats have crafted go to the states to help them avoid tough decisions on their respective budgets.

You can see the publicity being generated by this one aspect of the stimulus plan by simply googling "stimulus schools".

The Democrats do not help their cause in convincing more Americans to support a stimulus bill by some of the expenditures contained in the House version. In fact, the critics have convinced many Americans that the entire bill is just a bunch of pork by simply cherry picking a few provisions that have no business in a stimulus bill. Some of those are discussed in a front page article in the Tennessean this morning.  

If the Democrats believe that some of those expenditures have merit, they could be voted on and passed in a general appropriations bill. Substituting more tax cuts for these provisions would be more consistent with the stimulus aims of this legislation. I have no quarrel with the GOP advocacy of more tax cuts and less spending, except in degree. It does not help to hear Speaker Pelosi attempt to defend the 400 million expenditure for what amounts to sex education by saying that jobs need to be created for people other than construction workers.     

But, the majority of the spending proposals contained in the stimulus package could be justified as achieving the stated goals of providing a much needed jolt to the economy. Those who oppose virtually any spending  lack even a cursory understanding of the extremely serious and precarious condition of the financial system and the potential catastrophic consequences of inaction that have been hanging over us since September of last year. This would include my representative Marsha Blackburn who demonstrates her ignorance on the subject whenever she opens her mouth.  

This also includes almost all members of the GOP and those who do not identify with the GOP because they are not "conservative" enough for them.

They would prefer to do nothing, and just let events unfold without making any meaningful attempt to change the course.

You get a sense of that attitude in the first part of Rush's WSJ opinion column where he simply equates the current downturn to past recessions. They are the direct descendants of Herbert Hoover's mentality, and there are tens of millions of them in this country. You can read some of the comments to the Tennessean article to understand them some more, particularly the ones calling the AP a democratic and liberal news outlet.  

For me, I would have to save that I would prosper during a Great Depression II. So, my financial interest would be to advocate the same policies as the GOP, letting all of the major financial institutions implode, let the card fall as they may so to speak, let the market decide everyone's fate, and so what if the unemployment rate skyrockets to 20% in a massive deflationary out-of-control spiral. People with money and no debt will prosper under those circumstances and large fortunes could be made by those who can buy assets marked down substantially in price. 

Another interesting article in the Tennessean is about the Sheriff of Davidson County speaking  at what the Tennessean calls a white supremacist dinner.

The ones who call themselves conservative just refer to the Tennessean as a "liberal" paper. The organization was called "Council of Conservative Citizens".  Please note that their very name has the name tag "conservative." What are their conservative beliefs?  For one, they want to prevent interracial dating and  they want to preserve the nation's "cultural and racial integrity". We all know what that means without having to spell it out.  These people really do believe that they are conservative.  

I thought that I would link their statement of principles and anyone can reach they own opinion about this organization's so-called conservative values: Council of Conservative Citizens » Statement of Principles

I do know that any of their members would just be irate if anyone questioned their conservative credentials. 

I would have to say that the word conservative is used to describe many beliefs today in our society and most of them have no relationship whatsoever to conservative ideology. My personal estimate, just based on my admittedly limited first hand observations, is that less than 5% of the GOP tribe members are in fact true conservatives. The rest are something else that does not sound as soothing to the ears as conservative.   

In law, the reactionaries who call themselves conservative have formed a society, innocently named as the Federalist Society. You know, as in the Federalist Papers. Some of the Supreme Court judges appointed by Republicans, including Chief Justice Roberts, Scalia, Thomas and Alito, share many of the beliefs of the Federalist Society and desire to advance this societies agenda in my opinion.  One core belief of the Federalist Society is to turn the Supreme Court back to what is called the Lochner era. 

Another is to eviscerate regulations based on the Commerce Clause, as shown by the successful invalidation in a recent Supreme Court decision of a law that forbade children from bringing firearms into the classroom. (pp 81 to 85 of Toobin's book discussing the Lopez case. United States v. Lopez - Wikipedia) This is ably discussed by Jeffrey Toobin in his book "The Nine: Inside the Secret World of the Supreme Court" In that Supreme Court decision from 1905, the Court invalidated a state law mandating the maximum hours a baker could work as violating the baker's freedom of contract. The gist of the decision would invalidate virtually all government regulations (health, safety, minimum wage, and any other piece of progressive legislation passed by either the state or federal government for the past 100 years). This is what is called a legal conservative. I would beg to differ. At best, they are the intellectual versions of the reactionary forces so prevalent in our society. 

Some of this struggle for control of the Supreme Court between the dark forces and the rest is summarized in the NPR review of Toobin's book: NPR

Justice Roberts was a member of the Federalist's societies steering committee. 

For those unfamiliar with this debate, Toobin's book and the above referenced articles provide a start. There was a great deal at stake in the recent election that went far, far beyond the abortion issue. The Supreme Court was rapidly turning under the GOP into a Lochner court and thereby potentially undermining any piece of progressive legislation found to interfere with whatever their main benefactors want to do with labor, the environment, health and safety or anything else that most people take for granted now. 

Remember Tom Delay. He joined the GOP because he objected to the regulations on the use of chemicals in the exterminating business. That is exactly where they are coming from. 


  1. Marsha Blackburn is my Congressman.
    She is no conservative.
    See her unconstitutional votes at :

  2. The amount of the prior stimulus was not sufficient to add to GDP for more than a quarter or two. While my posts reveal a strong fiscal conservative tendency, I am making an exception for the dire condition the world is now facing. Most economists agree that the additional spending and tax cuts will add significantly to GDP over the course of 2009 and throughout 2010. There is disagreement about the magnitude varying from an additional 2% jolt to GDP for those more pessimistic to as much as 4%. A 100 or 200 or a 300 billion dollar stimulus lasting a few months will not be sufficient in my opinion. We have been skating on the edge of financial armageddon since September 2008 and we still may fall into an abyss. The House package need many revisions, more cuts on the spending side for the programs with an attenuated relationship to economic stimulation. More tax cuts need to be substituted for those spending deletions. Part of the reason that we are in this pickle are the repeals in regulatory restraints that grew out of the lessons learned in the Great Depression. I discuss many of those errors in these posts. The most serious was to allow investment banks to regulate themselves, a libertarian product of the anit-regulation crowd, and this was done by an SEC Rule change in 2004 that allowed them to increase debt to equity above 12 to 1. This was done by all of them, Lehman Brothers, Merrill Lynch, Bear Stearns, etc, in some cases increasing debt to more than 30 to 1 or even 40 to 1. It took only two years for them to hang themselves and the world's economy on their new found freedom from regulation. This is not to say that all regulations are good, far from it, but the issues are often complex, particularly in the financial area, and when discussing rules relating to health and safety.

    I would certainly agree that the government will have to borrow all the money for the current stimulus package, and I simply view that as a necessary evil at this point. It really depends on how serious one views the current crisis and whether all of the actions currently contemplated have a chance to avert a disaster of epic proportions. If someone believes that the economy will recover on its own, just give it some time, and the current contemplated spending and tax bills will only add to the problems, then they should oppose any of the planned stimulus actions. For me, and I just follow what is happening in the world economy every minute of most everyday, as you can see from my posts investing my money, I am more worried more about the future now than I have ever been. These are just my opinions. If we do not take even more extraordinary actions-soon. and the actions already undertaken by the Federal Reserve and the government have been unprecedented, averting in my opinion the advent so far of another a Great Depression II, then the risk of a depression would be greatly enhanced and that is a far greater danger than a deficit soaring past a trillion dollars which is where Bush left us for the fiscal year ending in September 2009 before the stimulus bill.