What happened to our highs?
We had a nice rally Wednesday and Thursday, after the Fed Minutes but that's gone now and we're back where we were on the 10th – two wasted weeks in the market. You can blame the virus or blame Bernie Sanders (who Leon Cooperman says is worse than the virus) or blame Donald Trump (the list is endless) but, for whatever reason, we're having trouble going significantly higher than we were on Jan 15th (3,320), before we fell back to 3,200 when the virus first broke out.
NOW we have some guidance and, generally, it's not good. Obviously, no one is saying the virus is going to be a boon to business – outside of mask makers and a few Pharmecutical Companies hoping to have a treatment of vaccine. BUT, on the other hand, the Coronavirus is costing the Airline Sector $30Bn and $30Bn is A LOT of money – even these days. In 2003, SARS cost the Airlines $7Bn so – inflation. Losing $30Bn, however, when you are trading at 15x earnings means you are losing $450Bn in market cap or 0.5% of the entire global market.
And, while we don't have the exact figures, I know when I go on a trip, the airfare is generally less than 1/3 of what I spend overall so we can assume another $1Tn of capitalization damage to the travel, entertainment and restaurant sectors so now we're chopping 1.5% off the Global Markets. China's auto sales dropped 92% in the first half of February in the World's largest car market, accounting for 25% of global sales.
We're getting horror stories from manufacturers all over the World, including Apple (AAPL) and Proctor and Gamble (PG), the World's two largest consumer products companies.
"China is our second largest market – sales and profit," PG's COO Moeller said in a statement that was also included in an 8-K filing. "Store traffic is down considerably, with many stores closed or operating with reduced hours."
Moeller said that while some of the demand has shifted online, supply of delivery operators and labor is limited. He added that there were also impacts outside of China, including travel retail, a significant reduction in department store traffic in many Asian metro areas, and global supply.
Procter & Gamble accesses 387 suppliers in China that ship more than 9,000 different materials to the company globally, affecting about 17,600 different finished product items. Each of these suppliers faces their own challenges in resuming operations, he said.
"The operating challenges change with the hour, and of course the path of the virus is unknown, making it very difficult to provide precise estimates of impact," Moeller said.
He added that results for the January to March quarter in China and for the total company will be "materially impacted on both the top and bottom line by these dynamics."
And what PG's stock do yesterday? It went up, of course. And why not? $126.50 per share is only $312.5Bn in market cap for PG and they did make $3.9Bn last year so that's not even 100 times earnings. To be fair, there were restructuring charges and this year they did expect to make $13Bn, which would have been just 1/24th of what they earned (p/e 24) but now they've warned and it's likely going to be closer to a 30x valuation at this price. BUYBUYBUY?
Seriously, WTF is wrong with people these days? Are the markets just broken and only capable of going higher? If so, is that a good thing? It's great for us in the Top 1% as we own 90% of the stocks so money is just flying into our accounts but where is it coming from? When the Global markets go up 1%, that's $1Tn in valuation added and the entire Global GDP only grows about 3.5% a year (not this year!) so let's say there's 3.5% available to add but last year the markets went up 20% so 3.5% of that was accounted for by actual growth and 16.5% came from where?
From Debt and Devaluation! As I've mentioned before, the Global Economy is running on Government Debt and Consumer Debt that is adding 10% a year to "growth" (yes, to net 3.5% growth) on borrowed money and the Central Banksters are running the presses 24/7/365 to push as much new money as possible into circulation.
Then why doesn't this cause inflation? Because essentially ALL of that money is going into the markets and enriching ONLY the Top 1% – the Bottom 99% get, NOTHING! Sorry, not nothing, our Top 1% leader is busy taking away what little they have with $200Bn in Tariffs (a tax on the poor) and the gutting of the Social Safety Net, including even their Social Security and Medicare Benefits – all to sustain the idiocy of tax cuts for Millionaires, Billionaires and our beloved Corporate Citizens.
The biggest corporations enjoyed an average effective tax rate of 11.3% – the taxes a company ends up actually paying – according to a new study from the Institute on Taxation & Economic Policy (ITEP). The low rate is one of the reasons deficit spending soared from $666 billion in the federal government's 2017 fiscal year to $779 billion in 2018 and $984 billion in 2019.
The report identified 379 companies that were profitable and provided enough information to allow for a calculation of their effective tax rates. More than half of those 379 companies paid less than half of the 21% rate. Fifty-six paid an average effective rate of 2.2% while 91 companies paid no federal income taxes at all, or got money back.
Corporations, once upon a time (when America was great, ironically) used to pay a 50% tax rate, as did wealthy individuals. Effectively, because of deductions, the Corporate Tax Rates were more like 40% but then they piled on more and more deductions, loopholes and allowances and, by 1982, the effective tax rate was below 20% but then the Government cracked down on loopholes so the Corporations cracked down on Government and put in a Congress that would lower the tax rate and that dropped from 50% to 40% and now to 21% but, while the taxes have dropped to 21% – the deductions, loopholes and allowances are back too.
According to the Government Accountability Office found in a 2016 study, "at least two-thirds (2/3) of ALL active corporations had no federal income tax liability" in each of the years from 2006 to 2012. By the way, there is no GAO study for 2017, 2018 or 2019 as the Trump Administration has decided that's not something we need to study anymore – how convenient! And you wonder why the people want to elect Bernie Sanders?
After refunds, the IRS collected about $93 Billion more from individual American taxpayers than it did in 2017 – primarilly those in the bottom 80%. Interestingly, that number stands close to the tax break amount that corporations received from the Tax Cuts and Jobs Act (TCJA) in 2018. In 2018, big businesses paid $91 Billion less in taxes than they had in 2017, prior to the new law’s passage.
The center noted: “The lowest income households (those making less than about $25,000) got an average tax cut of about $40. Middle-income households (who made between about $48,000 and $86,000) paid about $800 less. Those in the top 1%, who made $733,000 or more, got an average tax cut of about $33,000.” I would graph it but $33,000 makes $800 look like zero on a graph – the scale of the injustice is literrally unchartable!
Have a great weekend,
- Phil
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