SPY Transaction

SPY closed at $102.46 today. I will use this closing price for tracking purposes. I will wait until Friday's close, September 4, to determine how I will implement the second 25%.

Harbinger

Two of my posts, "FDIC-Insolvent" and "Stock Market Exuberance" were harbingers of articles in Monday's (August 31) Wall Street Journal. The WSJ's article, entitled "Bank Deals Put U.S. (FDIC) on Hooks for Billions," is what I discussed in the FDIC-Insolvent post of August 27, 2009. The other article in tomorrow's WSJ entitled, "Can Rally Run Without Revenues?" was my theme in my post, Stock Market Exuberance (Friday, July 24, 2009).

S&P 500 Weekly Update for August 28, 2009

The Exponential Moving Average strategy has spoken. The market trend has now reversed from "Bearish" to "Bullish." That is, the 15-Week EMA exceeded the 40-Week EMA as of the close of Friday, August 28. Until the 15-Week EMA declines below the 40-Week EMA, my focus will be on implementing a bullish investment strategy.

Even though I consider the market's rise suspect, I must follow the EMA investment strategy. I will start the implementation strategy on Monday, August 31, by making incremental investments of 25% to the market each Monday over the next four weeks. By the end of the forth week, I will be 100% invested in the market, unless a sell signal is rendered within that time frame. Ny ETF vehicle of choice is SPY (S&P 500). I am not using any of the double or triple bullish index ETFs. I am staying very conservative for the time being. Please go back and read my post entitled, "Equity Index Traded Funds (ETFs)," of Saturday, July 15, 2009 for the symbol listings of the market index funds. For those of you that are either in a 401k or 403b retirement plans, your might want to consider one of your plan's index funds.

Note: To enlarge, double-click inside.

Deflation: Enemy Number One

The major economic problem that we face right now is deflation. That is, deleveraging by the consumer has become the norm, too much excess capacity by businesses, rising unemployment, and falling personal incomes are all the ingredients for deflation. Yes, I know the other camp states that inflation and the possibility of hyperinflation is the real villain. Also, the Fed has been doing its best to re-inflate the economy. Member Bank Reserves have grown at over 100% since last year. Keep-in-mind, the Fed does not increase the money supply. It provides the reserves to foster credit expansion to the banking system, which in turn increases the money supply by making loans to individuals and businesses. The problem is that there must be willingness on the part of individuals to borrow money and for banks to lend money. In a deflationary environment, individuals don’t borrow, because they are deleveraging themselves from previous debt.

The following chart illustrates the parabolic growth of the "Adjusted Monetary Base, which member bank reserves are the main component. Did anyone say unsustainable? But, oh how the Fed has been trying to reinflate this economy.
Note: To enlarge, double-click inside.

The second chart illustrates the year-over-year growth rate of the "Adjusted Monetary Base. This chart tells the same story as the previous chart but in percentage terms.
Note: To enlarge, double-click inside.

The final chart illustrates the growth rate of total loans and investments at commercial banks.
Note: To enlarge, double-click inside.

Notice anything about this chart that differs from the previous chart? The growth rate for total loans and investments is declining (due to the deleverage factor by consumers and businesses), while the growth rate for the Adjusted Monetary Base is increasing at a parabolic rate. That is why the deflation factor is looming greater than the inflation factor.

Best Six-month Rally in Stocks Since 1933

The market continues to defy gravity. Saying that, the weekly-EMA strategy will render a buy signal after the close of the market today. Even though I consider the market's rise suspect, the market has spoken. Since the sell signal in January 2008 until yesterday, the S&P 500 has declined 26.97%. Therefore, the EMA strategy has definitely been successful and kept our investment dollars out of harm's way. I will sent forth my investment strategy going forth after the close of the market today.

FDIC: Insolvent!

The Wall Street Journal reports today that, "The Federal Deposit Insurance Corp.'s fund that protects more than $4,500,000,000,000 in U.S. bank deposits fell to just $10.4 billion at the end of June 2009, as the banking industry continues to struggle with souring loans and regulators brace for pain in trying to clean up the mess."

It further states, "The level of the FDIC's fund, the lowest since the savings and loan crisis, almost guarantees that the government will have to hit the banking industry with another special fee to recapitalize its reserves. The agency said it had 416 banks on its "problem" list at the end of the second quarter, up from 305 at the end of March."

Folks, that was back in June. On August 14, we had Colonial Bank, sixth-largest bank failure in U.S. history, was taken over by FDIC and then sold to BB&T Corporation with some extremely favorable terms. (Favorable terms simply means the FDIC took over all the toxic assets from Colonial Bank.)

Now, let me see if I understand this correctly. Last year, during the financial debacle surrounding our financial institutions (commercial and investment banks), most of these entities had Equity Multipliers (Leverage Factor) in excess of 30:1. That simply means that if a financial institution has to write-off just 3% of its loan portfolio, it is insolvent. Guess what? That is exactly what happen last year. Right now, the FDIC has an Equity Multiplier of 433:1. You guessed it, and it is not pretty! We are talking about just a .23% decline in its equity will make FDIC insolvent. Since this calculation was based on its June 2009 data, I would surmise, especially with the failure of Colonial Bank, that FDIC is insolvent and needs a tremendous infusion of equity capital from the Fed, Treasury, and Banks. What does that mean for you? Well, you will be paying more in bank fees that is for sure; and that pittance of interest income that you receive on your CD will be even smaller.

Medicare Advantage (MA): The New Whipping Boy

What is Medicare Advantage (MA)? MA was enacted in 2003 to allow seniors to use Medicare funds to buy private insurance plans that fit their health needs and their financial budgets. MA has some built-in incentives to encourage insurers to offer lower costs and better benefits. Also, it's a program that puts patients in charge of their health care, not the government, which is why seniors like it and probably why this administration wants to cut it drastically. How drastically? If President Obama gets his way, he will cut the program by close to 20%. (White House fact sheet entitled, "Paying for Health Care Reform," states the administration would cut $622 billion from Medicare and Medicaid, with a big chunk coming from Medicare Advantage, to pay for health care reform.)

Already, an approximately 10 million seniors have enrolled in Medicare Advantage. President Obama is proposing to cut the MA program by nearly 20%, which would reduce the amount of money each senior would have to buy the MA insurance. This, in effect, would force most of the seniors currently on MA into Medicare (Parts A and B), because they could not afford the higher cost of MA. Didn't President Obama promised in New Hampshire that, "if you like your health-care plan, you can keep your health-care plan." Yes, he did say that! You will still be able to keep that MA plan that your like, but it will cost you substantially more. I guess he just forgot to mention that simple fact.

For people who choose to enroll in a MA health plan, Medicare pays the private health plan a set amount, every month. MA members typically also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as prescription drugs, dental care, vision care, and health club memberships. In exchange for these extra benefits, individuals may be limited on the providers they can receive services from without paying extra. Typically, the plans have a network of providers that you can use. Going outside that network may require permission or extra fees.

From my perspective, the main benefit of Medicare Advantage is that individuals are taking personal responsibility for their health care by buying private health insurance that meets their specific health needs. However, for some reason, personal responsibility is an anathema in Washington, D.C.

$4,500 Cash for Clunkers: Taxable

Yes, that $4,500 you received for that clunker is taxable income. This is where it gets interesting in that the "cash for clunkers" is not a trade-in. It is a $4,500 check from the government. Therefore, when you go to register that vehicle, your sales tax is calculated on the full vehicle price (effectively paying sales tax on the $4,500). Plus, if your state has an income tax, you will probably wind up paying tax again, because the state will count the $4,500 as income for state income tax purposes.

Where is all the transparency and full disclosure that was going to happen when we had a changing of the guard in Washington, DC? Since this is a "family" oriented blog, I will not say what I really want to say. But, I think you get my drift!

And, you thought there was such a thing as free cash! Just like that 1099 you are going to receive for selling your house short. (See yesterday's post.)

The "Real Estate" Short Sale

Most investors are familiar with the concept of selling a stock short. That is, when an investor believes a stock price is going lower. Let's say the stock in question is currently selling for $50 per share. The investor can instruct his or her broker to borrow the shares so they can be sold. The borrowed shares are then sold for $50, and the investor's account is credited for that dollar amount. If the investor is correct and the stock moves lower, say to $40, the investor instructs the broker to purchase these shares at $40 to replace the shares that were borrowed. The net results of this short sale is a profit of $10 per share.

A real estate short sale is nothing like the stock short sale. Let's use this example. Homeowner A has a home mortgage with Bank ABC for $400,000. Due to the real estate debacle, the home is only worth $200,000. To say the least, our homeowner is deeply underwater. Also, our homeowner can not afford this house and must sell it or have Bank ABC foreclose on the home. The homeowner does not want the bank to foreclose on the home, because that would have dire consequences to the homeowner's credit score. Therefore, enter potential Buyer XYZ who makes a $200,000 offer on the home. Homeowner A goes to Bank ABC, presents the offer and requests that the bank forgive the remainder of the outstanding loan amount ($200,000). The homeowner's rationale to the bank is that the amount is what the bank would be able to receive if it foreclosed and sold it themselves. The bank agrees and accepts the "short sale." Homeowner A is happy with the transaction, because the bank has forgiven the remaining balance of the loan. In addition, the homeowner's credit score does not suffer. Everyone is happy, especially Homeowner A. However, Homeowner A is going to be in for a shock when the 1099's come out. Why? Homeowner A will receive a 1099 for $200,000, which is a shock of all shocks! How come? In effect, the bank gave our homeowner $200,000 to pay off the balance of the loan. That is the reason for the 1099, which I would surmise not many homeowners realize.

Confidence Tends to Breed Confidence?

Recent headlines in the "Wall Street Journal:" Housing Lifts Recovery Hopes; Central Bankers Breathing Easier; Stocks Hit New 2009 Highs. Remember that markets will do whatever it takes, to prove the majority opinion wrong. Way too many market pundits are in agreement that good times are here again. Enough said. Be very careful.

Does Anyone Have a Magnifying Glass?

It doesn't get any closer than this! However, since this is a weekly investment strategy, we have to wail until next Friday. Stay tuned.
Note: To enlarge the chart, double-click inside of it.

Improving Home Sales: Spin by the National Association of Realtors

The National Association of Realtors (NAR) reports that the housing market has come out of its tailspin, lifted by falling home prices, low mortgage rates, and an $8,000 federal tax credit offered to some first-time home buyers. Now, let's look at reality or simply the facts.

First, the $8,000 tax credit expires at the end of November. What this has done has brought housing demand forward, especially at the very low end of the real estate market. Something like the $4,500 "Cash for Clunkers" program that ends this coming Monday. Once the special incentives end, what do we do for an encore? Where is the demand going to come from?

Second, two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage. One in eight households with mortgages was in foreclosure or late (90 days or more) on their mortgage payments in the second quarter of 2009, which is a new high.

Third, home sales are roughly where they were last year at this time. Last year at this time, the NAR had called the bottom was in after sales of existing homes hit a five-month high.

Fourth, prime loans extended to borrowers with good credit are deteriorating at a faster clip as falling home prices and mounting job losses weigh on more households. These prime loans accounted for 58% of foreclosure starts, up from 44% last year.

Where is the real improvement? Yes, the $8,000 tax credit and $4,500 "Cash or Clunkers" program will push the real growth for GDP to the positive during this quarter, but such growth based on governmental incentives is not sustainable!

It’s about Jobs, Stupid!

The employment picture remains lousy to put it mildly. Where are the job openings? Corporations are still cutting jobs or sending them overseas. How many of the millions of jobs that were lost will ever return? So far this year, the U.S. lost 3.7 million private sector jobs. Even during the last economic expansion, after the dot-com bust, private job creation was conspicuous by its absence (negative 1,068,000 so far during this decade) as compared with the previous three decades where job creation averaged 17,000,000. See the following table, compliment of the Contrary Investor.

Note: To enlarge the table, double-click inside of it.

You can see that from the 1970’s through the 1990’s, the U.S. private sector created a lot of jobs. The numbers for the current decade through July 2009 is a negative 1 million plus. Keep-in-mind that this has been the first decade in the last four where the U.S. private sector has not created on job!

In Barron’s “Up and Down Wall Street” for the week of August 17, 2009, “Fred Hickey points out that information-technology jobs have scarcely proved immune to this recession (the unemployment rate in Silicon Valley is something like 11.8%), extending a decade-long trend. In that stretch, around 500,000 high-tech jobs joined the five million manufacturing slots that have gone overseas, lured in no small part by cheap labor.” By way of illustration, more than 70% of IBM’s workforce is now offshore.

Folks, these jobs are not coming back, which is not good for sustainable growth in GDP going into 2010 and beyond. Yes, we will probably see real GDP growth for the third quarter for statistical reasons, as discussed in my post entitled “Stock Market Exuberance,” dated Friday, July 24, 2009. In addition, without job growth, commercial and residential real estate is dead in the water. A recent report by Deutsche Bank, entitled "Drowning in Debt," estimates that within two years, home loans that are underwater, which are now 26% of the roughly 51.6 million residential mortgages, will rise to an astonishing 48%! In other words, one out of every two homes in America will be worth less than what is owed on the home. This is definitely not going to be a confidence booster to the American consumer.

I firmly believe that the job numbers, or lack thereof, is the key to our GDP recovery ahead. And for now, as far as the labor markets are concerned, there is absolutely no private sector job recovery. Thus, no sustainable economic growth lies ahead without job growth.

Reluctant Shoppers Hold Back Economic Recovery

Wall Street Journal reports, "American consumers are continuing to hunker down, casting a cloud over the durability of the U.S. recovery and underscoring the importance of overseas demand in restoring the world economy to health. Retailers across the spectrum provided foreboding reports. Discounter Target Corp. reported that sales at stores open at least a year were down 6.2% from a year earlier in the quarter ended Aug. 1, while luxury purveyor Saks Inc. reported a 15.5% drop in same-store sales over the past quarter as shoppers stuck to buying basics. Building-supply chain Home Depot Inc. saw total sales drop 9.1% in the quarter ending Aug. 2, and it reaffirmed expectations of a 9% sales drop this year."

It's all about the jobs, stupid! It's not that consumers are reluctant to spend. The reason is that without jobs or prospects for jobs, consumers simply have no income; and without income, consumption is not a viable option.

I will have a post, hopefully, tomorrow about the job situation going forward in the United States. It is not for the faint of heart. But, then again, truth is preferable to fiction IMHO. And that is exactly what you have been getting from the main street media outlets is nothing but fiction.

Quick Update on S&P 500 and TZA

The bears were in control today. The S&P 500 was down 24.36 points or -2.43%. (See the following chart.) The explanation for today's sell-off was that the Wall Street Journal reported that some economist are calling into question the overall perceived strength of the economic recovery. (I, for one, believe that GDP will show positive growth for the third quarter, more for statistical reasons as discussed in previous posts. Then, the economy will experience a "double-dip, negative growth" during the first half of 2010.)
Note: To enlarge the chart, double-click inside of it.
The second chart is that of TZA (300% inverse ETF on small cap stocks), which I mentioned on Twitter today. It closed at $16.89, and in after-market trading, it closed at $17. I will take a close look at it tomorrow morning and update on Twitter.
Note: To enlarge the chart, double-click inside of it.

S&P 500 Weekly Update for August 14, 2009

Note: To enlarge chart, double-click inside of it.

American Express: Despicable

I just received a form letter from American Express telling yours truly that they were increasing my interest rate. Its rationale, "Like all companies large and small, our pricing has to be responsive to the business and economic environment. As a result, we have found it necessary to increase rates and fees."

Let's analyze what American Express, and other credit card companies are doing. They get money for just about zero percent from the Federal Reserve System, because they are a bank holding company. Then, they want to lend it to me at 15% plus, depending on the prime rate, when my FICO score is 800. In other words, American Express wants individuals like myself that are not a credit risk to subsidize all the bad investments that they have made along with all the credit defaults that are occurring. Wonderful! American Express has been bailed out by taxpayers; now they want its credit-worthy account holders to bail them out. This is just another perfect example of rewarding failure and penalizing success.

For those of you that know me, you know that I will truly have a conversation with American Express.

Trillion Dollar Perspective

S&P 500 Update: for August 13, 2009 Alignment of Stochastics, PPO, and CCI

Recording Quality is not what I want it to be. I just don't know why it is not recording in HD, which it should. Thanks for your patients.

Quote for Today

"The problem with socialism is that eventually you run out
of other people's money." (Margaret Thatcher)

Banks Make $38 billion a Year from Overdraft Fees

Please read this post my Karl Denninger over at the Market Ticket.

According to Karl, "70% of the overdrafts happen at an ATM, not by writing a check. The bank knows before they approve the ATM transaction that the money isn't there in the account. It gets better: Banks will intentionally "sort" transactions from a given day to produce the maximum overdraft fee. They sort withdrawals to debit them largest-amount-first, because the fee is assessed per item. An example: You have $1,000 in your account. You write checks for $20, $50, $100, $1,000 and all are presented on the same business day. How many checks will hit you with an overdraft fee? THREE - every time. The bank will re-order the transactions so that the $1,000 check is processed first, guaranteeing that the $20, $50 and $100 checks overdraw, thereby generating three overdraft charges. If they processed the transactions "largest item LAST" you'd generate one overdraft fee - on the $1,000 check."

"But wait, it get better. It gets better. You have that $1,000 in your account. It is after 3:00 PM, the cut-off for a business day. You go to the mall and use your debit card four times to buy a $5 Latte, $15 lunch, a $40 pair of pants and $25 for a couple of movie tickets. The next morning a $1,000 check hits your account. The bank processes the $1,000 check first, even though in terms of actual presentation time the debit card withdrawals were approved first, and whacks you for four overdraft fees instead of the one legitimate fee on the $1,000 check. That Latte just cost you as much as $45!"

"This sort of predation is responsible for nearly $40 billion dollars a year in pure "profit" for the banks, it is directed specifically at those who have the least in resource to cover it, and it relies on lack of clear disclosure and intentionally-predatory "sorting rules" to get past what would otherwise result in a howl of protest by consumers and lawmakers alike."

This is what I want you to do. Forward this post to your banker and ask for an explanation on how they calculate and process those items in determining overdraft fees. Better yet, take a copy to your bank and talk with one of the many Vice Presidents or go directly to the President. Then, send a copy of this post along with your bank's explanation (if they give you one) to your Congressional Representative and Senators.

Allegiant Air (ALGT): Textbook Example of Using P&F Charts as a Contrarious Indicator

Note: To enlarge the chart, double-click inside of it.

Let me know if you have any such P&F examples that demonstrate this contrarious indicator. Keep-in-mind it is the extremes at the top or bottom of the page that is relevant. The P&P Charts that I am using are from StockCharts.

Using P&F Charts as a Contrarian Indicator

The first chart depicts the S&P 500 on a Point and Figure Chart. Notice that when the column of O's reaches the bottom of page, which indicates a very oversold condition, the price has a tendency to reverse. Likewise, when a column of X's reaches the top of the page, which indicates a very overbought condition, the price has a tendency to reverse. The second chart depicts DXD (Double-inverse short on the DJIA).
Note: To enlarge, double-click inside.
Note: To enlarge, double-click inside.

S&P 500 Update for the Week Ending August 7, 2009

If we get a buy signal next Friday, August 14, 2009, the signal would become effective Monday, August 17, 2009. The strategy that I will implement is to average back into the market. Over the next four Mondays, if a buy signal is generated, I will allocate 25% of my investment portfolio to the equity side of the market. For a refresher on the various types of Exchange Traded Index Funds (ETFs), refer to my post of Saturday, July 25, 2009.
Note: To enlarge the chart, double-click inside of it.

SPX Update

If prices stay firm, we may have a "buy signal" on the weekly exponential moving average strategy. However, do not jump the gun! I will have an update tonight with a purchase strategy that I will be using if we do get the buy signal.

U.S. Deficit Climbs to $1.3 Trillion for the Current Ten Months

The U.S. budget deficit reached 1.3 trillion dollars for the current fiscal year in July 2009 (first ten months with two months to go). The deficit for the first 10 months of fiscal year 2009 is close to 880 billion dollars greater than the deficit recorded for the like period last year (July 2008), said the Congressional Budget Office (CBO).

U.S. Job Losses Slow As Rate Drops to 9.4%

Bureau of Labor reports that job losses declined just 247,000 in July, while the unemployment rate surprisingly fell to 9.4% from 9.5%. Why the improvement? I contend that the answer lies with the "Baby Boomers" leaving the civilian labor force to go on Social Security. Look at the following chart provided by BLS. Notice the decline in the category "Not in the Labor Force" from May to July. So, on the surface the job situation does indeed look better. However, I believe we are going to see more and more "Baby Boomers" apply for Social Security as soon as they are eligible and not wait until they reach 66 or 67. What does that say about the immediate financial viability of Social Security and Medicare?
Note: To enlarge the chart, double-click inside of it.

Therefore, drop in unemployment rate is caused by drop in the civilian labor force, which I contend was caused by "Baby Boomers" leaving the labor force for Social Security. Let's look at the math with the following example: 19 people are unemployed out of 200 in the labor force = 9.5% unemployment rate. Then, 1 of those unemployed individuals leaves the labor force. Now, 18 people are unemployed out of 199 in the labor force = 9.0% unemployment rate. Folks, it is all about the math!

Wall Street Firms Could Collect Nearly $1 Billion from AIG Breakup

Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and AIG to help manage and break apart the insurer, according to the Wall Street Journal. This sounds all to familiar. The government gives Wall Street billions to survive and pay bonuses, and then they receive billions more to bury their dead. What a sweet deal!

Toyota Corolla Overtakes Ford Focus as Top Seller

Sorry Ford, but at least you held the first-place status for one day! Where are GM and Chrysler?

Four of Top ‘Clunkers’ Model Purchases Are Foreign

Bloomberg reports, "Four of the top five models sold so far under the U.S. 'cash for clunkers' program are made by foreign automakers, according to Transportation Department data." Ford's Focus was the top seller (good for Ford), followed by Toyota’s Corolla, Honda’s Civic and Toyota’s Prius and Camry. What is missing from the list? Of course, there is "NOT" one of the Government Motors (GM) models in the top five. Surprise, surprise, surprise!!!

GMAC in Talks With Fed on New Capital Infusion

GMAC, which said that its second-quarter loss widened to $3.9 billion (Review my previous post on this subject.) and acknowledged it's in discussions with the Federal Reserve System on the $5.6 billion in new financial capital it needs. This is a joke, isn't it? Sad to say, but it's the truth.

Americans, when are we going to rise up and say enough is enough? I am beginning to believe that we, as taxpayers, are just sheep waiting to be slaughtered. I, for one, will not go down without a fight.

I know that the individuals that read this blog are well-informed and do care for this country. We may have different political views and agree to disagree, but we do care deeply about this country. We have to get involved and tell our Congressional Representative and Senators to stop this insanity that will for sure bankrupt our country.

Close, But No Cigar

Remember that the 15-Week EMA must close above the 40-Week EMA on Friday's close, not tomorrow or Thursday.
Note: To enlarge the chart, double-click inside of it.

Personal Income for June

The Bureau of Economic Analysis (BEA) reports that Personal income decreased $159.8 billion, or 1.3 percent, and disposable personal income (DPI) decreased $143.8 billion, or 1.3 percent, in June. Personal consumption expenditures (PCE) increased $41.4 billion, or 0.4 percent. Now, let me get this straight. Income is down, but consumption is up. Oh, the consumer had to take on more debt. Read on.

Karl Denninger from the "Market Ticker" had this to say about the income numbers. "What's worse in the income and spending report is that "saving" (actually debt paydowns) has decreased; this is particularly troubling given the continuing over-leveraged state of the consumer. The last thing we need in our economy is yet more debt defaults driving even more economic contraction, but it appears that's exactly what we're going to get."

"Oh, and don't look at tax receipts either: they're down huge, with individual income tax receipts down some 22%! The last time we saw numbers like this was The Depression; you can claim that personal income is down "only" 2% if you'd like, but the last time I checked you only paid tax on income actually received, and while the tax system is progressive there is no way you can square a 2% "reported" income decline with a 22% decline in income tax receipts. Someone's lying and I'm quite confident that people aren't paying taxes on money they didn't earn!"

He Who Has the Gold, Makes the Rules

"Let me issue and control a nation's money, and I care not who writes the laws." Mayer Amschel Rothschild (1744-1812)

Tax Dollars Wasted: GMAC Looses Billions (So, What Else is New?)

First, an excerpt from my posting of Tuesday, December 30, 2008 (Please go back and read the complete post): "GMAC reduced the credit score necessary to get a loan from 700 (very good) to 621 (not very good.) Do you believe this? I am loathed at how they are wasting my money as a taxpayer. Everyone that reads this blog should send a copy of this posting to his/her Representative and Senators demanding accountability. By the way, the median (average) FICO score in the United States is 723."

Second, there are consequences for such stupidity (to coin a word from President Obama) from GMAC. "GMAC, who received $13.5 billion in government bailout funds, reported a $3.9 billion second-quarter loss tied to rising loan defaults and said it may sell part of its insurance operations. The loss, GMAC’s seventh in the past eight quarters, rose from $2.48 billion a year earlier." What do you expect when you reduce one's credit score from 700 to 621! Then again, it is not GMAC's money, it is the American taxpayer.

Please forward this posting and the posting from December 30, 2008 to your Representative and Senators and remind them how you intend to cast your next Congressional and Senatorial votes.

Summary of Latest Federal Individual Income Tax Data

The Internal Revenue Service has released new data (July 30, 2009) on individual income taxes, reporting on calendar year 2007, a year in which the economy remained healthy and continued to grow.

In 2007, the top 1 percent of tax returns paid 40.4 percent of all federal individual income taxes,and earned 22.8 percent of adjusted gross income (AGI). Both of those figures, share of income and share of taxes paid, are significantly higher than they were in 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes.

That means the top 1 percent of tax returns paid more in federal individual income taxes than the bottom 95 percent of tax returns. Ok, what adjusted gross income (AGI) qualifies you for the top 1% status? Any dollar amount greater than $410,096. Not what I would consider to be super, super rich; but a whole lot less than what a lot of individuals would have guessed.

The top 5% of taxpayers (AGI over $160,041) paid 60.63% of all individual federal income taxes. The top 10% of taxpayers (AGI over $113,018) paid 71.22% of all individual federal income taxes. The top-earning 25 percent of taxpayers (AGI over $66,532) earned 68.7 percent of the nation's income, but they paid 86.6% of all federal individual income taxes. The bottom 50% (AGI less than $32,879) of all taxpayers paid 2.89% of all federal income taxes.

Therefore, I would surmise from the "2007 Individual Income Tax Data" that anyone whose AGI is greater than $66,000 will see a significant increase in their federal tax burden to cover the ever expanding cost of the federal government. (Did anyone say a national sales tax coming soon, like the VAT in Europe?) And, keep-in-mind that this summary was about your federal tax burden, not your state tax burden that will also be increasing in the near future!

Note: To enlarge table, double-click inside of it.
Source: The Tax Foundation

Weekly Update on S&P 500: 15- and 40-Week EMAs

I have expanded the time horizon for this week's update. The weekly S&P 500 chart goes back to 1972 (some 37 years). What I want you to observe is how accurate the exponential moving average strategy has been in identifying long-term bull and bear markets.

Most market pundits have already preordained that a new bull market is upon us! The cover of Newsweek just proclaimed that the "recession" is over. For me, I will let the exponential moving address speak for itself. Until the 15-week EMA exceeds the 40-week EMA on a Friday's close, everything else is market noise.
Note: To enlarge the chart, double-click inside of it.