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Wednesday, 7/3, Market WrapUp (there are tax revolts in the making)
Financial Sense Online ^ | 7/3/2002 | James J. Puplava

Posted on 07/03/2002 4:28:53 PM PDT by rohry

 
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On December 16, 1773, patriots said, "No more taxes!" in answer to The Tea Act of 1773. What is known as The Boston Tea Party served to spark the fight for independence.

What will it take today?


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 Wednesday's Market Scoreboard
 July 3, 2002
 Dow Industrials 47.22 9054.97
 Dow Utilities 1.98 260.92
 Dow Transports 23.12 2596.76
 S & P 500 5.9 953.99
 Nasdaq 22.35 1380.17
 US Dollar to Yen 119.92
 US Dollar to Euro

.9805

 Gold 2.4 310.5
 Silver 0.01 4.91
 Oil 0.03 26.8
 CRB Index 0.38 210.8
 Natural Gas

-- 3.145

All market indexes
The Week in Graphs
Storm Watch
Geopolitical News in Focus
Energy Resource Page

Precious Metals

07/03 07/02

Change

  HUI (Amex Gold Bugs Index)

Close
YTD
122.81

125.54

2.73
88.36%
52week High 147.82

06/03/02

52week Low 59.86

11/26/01

  XAU (Philadelphia Gold & Silver)

Close
YTD
70.57

70.27

0.3
29.65%
52week High 88.65

05/28/02

52week Low 49.23

11/19/01


 Market WrapUp for the Week 
Monday  l  Tuesday  l  Wednesday  l  Thursday  l  Friday


Wednesday's Stock Market WrapUp

Taxes, taxes, and more taxes
During this holiday week the country celebrates and remembers its roots of independence more than two centuries ago. The birth of this Nation was founded on the principles of freedom, individual liberty and equality for all. The Nation began its fight for independence over the issue of the tyranny of taxes. The issue of taxes became a central theme and rallying point that motivated our founding fathers in their struggle to gain independence from Great Britain. Like it or not, taxes have played a major role throughout history in the rise and fall of great nations. Some of our earliest records of civilization are about taxes, from Sumerian clay tablets to the Rosetta Stone. Great leaders come and go, but the taxes they impose remain with us, often times long after they have gone. The high tax rates imposed by the Roosevelt Administration during the Great Depression remained with us until the 1980’s. The prosperity as well as the decline of nations has a tax element associated with it.

In his book, "For Good and Evil," author Charles Adams warns of the consequences of high taxes, showing throughout history that angry taxpayers can be a lethal threat to government as King George found out when he tried to raise taxes unjustly on the American colonies. Adams writes that, "Taxpayers instinctively rebel: the first warning phase of rebellion is rampant tax evasion and a flight to avoid tax; the second phase produces riots; and the third phase is violence. Life ultimately can be catastrophic for any government that pushes its taxpayers too far… The first casualty of what we call "dumb taxation" has always been liberty; the second casualty has been wealth and the strength of a nation." 1

That is where we are today in the U.S. Taxes as a percentage of the economy haven’t been this high since World War II. We have already reached phase one where taxpayers are resorting to tax evasion and tax flight as many wealthy citizens of this Nation and companies are exiting the U.S. More companies are choosing to locate their domicile outside the United States even though Congress is attempting to block their exit. Exiting the U.S. still means these companies will have to pay taxes on their U.S. profits. However, their foreign taxes will remain outside the jurisdiction of U.S. tax authorities.

Wealthy citizens are taking steps to do the same by giving up their U.S. citizenship. The top 5% of the nation’s income earners pay 52% of the taxes. When you add up a federal tax rate of 39.6%, a Medicare tax rate of 2.9%, and then add state taxes like California, which are as high as 9.3 percent, you can understand why they are leaving. The combined marginal tax rate can range from 45-50%. For wealthy individuals the government can take half of what they earn.

What is surprising as we celebrate this Independence is a movement in this land to raise taxes even more. If that happens, or if Gephart gets his wish and becomes Speaker of the House after the November elections, he is calling for raising taxes even higher. He wants to raise capital gains taxes, income taxes, and possibly estate taxes. If that happens the U.S. will enter phase two of the tax revolt. The last tax revolt was at the ballot box in 1994 after Clinton and a Democratically controlled Congress raised taxes on income and social security in 1993. The result was a tax revolt, which gave control of Congress to the Republicans. When they no longer held on to their principles, they lost their majority in the Senate.

This week I’ve covered the move to raise taxes around this country, from raising taxes on cigarettes 20-fold in New York City to the move in California to punish owners of automobiles, and especially SUV’s. In other states such as New Jersey and Tennessee, there are tax revolts in the making. It is ironic that a Nation founded on liberty and freedom and as a revolt against the tyranny of taxes should now be moving in the other direction. A final quote from Adams’ book is appropriate as we reflect on what freedoms remain this Independence Day. "Taxes are what we pay for a civilized society." Reading the words of Oliver Wendell Holmes inscribed over the entrance to the Internal Revenue Service building in Washington D.C., "…but how we tax and spend determines, to a great extent, whether we are prosperous or poor, free or enslaved, and most important, good or evil." 1

Today’s Market
The markets rose for the first time in three days on Wednesday. Battered technology stocks led the recovery in stock prices. The chip sector led the rally in technology despite warnings from AMD. AMD warned that it might miss estimates by 3-16%. The news didn’t seem to faze traders who were looking at a reason to buy stocks. Speculators and day traders moved into Internet, hardware and software issues. Investors didn’t seem to care about additional warnings coming from other technology companies. Speculators figure if there is a summer rally, it will be led by the technology groups which has suffered the most this year. The Nasdaq is down 29.24% this year. Traders believe that when the rally occurs, this is where the biggest gains will be because of oversold conditions. The rally could begin as soon as next week, providing this July 4th turns out to be uneventful. Speculators have been reluctant to go long over the holiday-shortened week.

In other news, investors and traders may be hoping for a summer rally and we are close to getting there. But we still haven’t seen back-to-back days of heavy selling with big point drops. Despite the Dow loosing close to 1,000 points in a month, the average investor is still hanging in there, hoping things will turn out better this fall.

More Problems to Surface
But this fall there may be more problems that surface as a result of more companies coming clean with their books. According to a review of company reports by the SEC, the agency found that over 25% public companies make mistakes in the filing of their reports. According to the agency, most of those mistakes turn out to be significant and material enough to affect the price of the stock when the company is forced to amend their statements. According to the study, there are many more potential Enron’s, Global Crossing’s, and WorldCom’s waiting to surface. Because so many of these types of problems are surfacing, the SEC plans on auditing every Fortune 500 firm this year. This will mean we are likely to see a lot more accounting issues begin to surface this fall. CEO’s should be less reluctant to use accounting legerdemain in an effort to meet Wall Street estimates, especially now that regulators will be watching like hawks for any discrepancies. Companies will be more forthright in reporting their numbers.

Despite a growing trend to correct accounting scandals and elevate investor confidence in the financial system, another problem the markets will have to contend with this fall is the growing debt problems of corporations and consumers. The number of companies filing for bankruptcy is headed for another record year. Last year according to Bloomberg 255, public companies, led by Enron, put $260 billion in assets into bankruptcy protection. That was triple the record that stood for more than a decade. This year is shaping up to be another record breaker. Already 113 companies representing $149 billion in assets have filed for court protection. WorldCom, with $103.8 billion in assets, could be the next major company to file. Analysts seem to be letting up in bankruptcy filings this year, a trend that is expected to last for the next two years. Edward Altman, a professor of finance at New York’s Stern School of Business, predicts default rates on junk bonds this year will rise to 12%. The accounting firm of PricewaterhouseCoopers believes the number of companies filing this year will exceeded over 200.

So far we have been talking about corporations. The consumer is the same bad straights. Delinquency rates are up and so are credit card defaults. Many Americans are only two to three paychecks away from bankruptcy. The high levels of mortgage debt, installment debt, and credit card debt are making it difficult for many households to make ends meet. Problems arise when one spouse loses their job, or if downsized they can’t find a replacement job that pays as well.

These are the factors making our recovery so shaky. The ability of consumers to spend and take on more debt is reaching a limit in the same way as the ability of corporations to service their debt payments. The next shoe to fall will be the consumer. The consumer is already on edge due to the hemorrhaging of their investment portfolios and the constant threat of terrorism.

Wall Street is still perplexed as to why the markets haven’t recovered given the spate of good economic news. Most economists and analysts attribute the poor performance of the markets to corporate governance issues and terrorism. That may be part of it. However, the real issue stocks haven’t come back is very simple: its called valuation. The real P/E multiples for the S&P 500 are 40, and not 20 as most investors are told. The 20 P/E ratio is a pro forma ratio. Dividend yields are also miniscule, below 2% on the S&P 500 and around 2% for the Dow. Nobody in their right mind is going to buy sticks again at 100-200 times earnings. The mania is over, but not its conclusion. Not until stock prices, dividend yields, and P/E ratios approach the bargain levels will we ever get a rally, much less a new bull market that is sustainable. This is what economist and analysts don’t understand. There is no going back to the good old days; those days are gone forever and nothing said or done by Washington and Wall Street are going to bring them back. The only thing that Washington is capable of doing is making things worse.

Meanwhile the next edition of the earnings game is just about to begin. Relax, sit back, and enjoy the show; it promises to be entertaining. You will see companies begin to miraculously beat estimates while they lose money, or their business conditions deteriorate. It will be similar to a mystery novel with investors playing the part of detectives trying to find the real earnings numbers. They won’t be available to until 45 days later when they are filed with the SEC. The most important information coming out this quarter won’t be the second quarter numbers, but what companies are saying about the second half of the year. Wall Street has some pretty loony profit projections for the third and fourth quarter. This is where the real danger is with companies trying to meet those estimates. In my opinion, it isn’t going to happen. When that reality sets in, it should take us into the next phase of the bear market, or the capitulation phase, especially if there is a war with Iraq or if there are more WorldCom’s and Enron’s that surface.

Higher volume levels supported today’s rally in the markets. Volume on the NYSE was 1.5 billion shares and for the Nasdaq it was 2.5 billion, with 1 billion of that amount coming from trading in shares of WorldCom. Market breadth was positive by 19 to 12 on the big board and 19 to 15 on the Nasdaq.

Overseas Markets
European markets dropped sharply Wednesday afternoon, amid renewed concerns about company debt ratings. All eight major European markets were down during today’s trading. Asian stocks rose solidly Wednesday, again breaking from the plunging U.S. markets. The tech-fueled Nikkei 225 index lifted 1.79% to 10,812.30.

Treasury Markets
In the bond market, Treasury prices turned slightly lower. The benchmark 10-year note dropped 8/32 yielding 4.76% and the 30-year government bond fell 7/32 to yield 5.45%.

© Copyright Jim Puplava, July 3, 2002



TOPICS: Business/Economy; Editorial
KEYWORDS: economics; investing; stockmarket
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To: jwh_Denver
I think it's going to happen in the streets. Wish people would wake up but I don't see it.

The good citizens of Tennessee appear to have beat back a serious assault by the "increase taxes" crowd. I'm hopeful we'll do the same here in Kentucky. Our Democrat governor seems determined to run rough-shod over a legislature resisting state-financed elections (governors races, of course.)

21 posted on 07/03/2002 6:25:44 PM PDT by toddst
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To: rohry
Yes my home page is empty.

And your agenda is, what?

I perceive the Rep Party to have moved considerably leftward since Reagan. In my mind, I am undecided as to Bush's overall effectiveness. Minimally, I believe he could be more conservative than he has been without loss of support from the left or left of center.

That said, this particular post goes to my view that the bigger problem is the Rep Party itself, most notably Trent Lott and the party leadership, which has abandoned the 'principles' of Reagan and more recently Gingrich.

I am genuinely curious as to how others feel about the Rep Party and it's leadership on fiscal and tax issues.

This post/thread is not about Bush, IMO, but is about the Rep Party.

22 posted on 07/03/2002 6:29:10 PM PDT by Starwind
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To: rohry
When they no longer held on to their principles, they lost their majority in the Senate.

How quickly the Republicans became big-government, tax-and-spend liberals governing the country! And the "conservatives" I talk to, all seem to think that the Republicans will ride to electoral glory on the coattails of G.W. Bush and his war on terror. As much as I would hate to see the Democrats running all of Congress, I think we are going to see the next Democrat coup - they are ruthless political experts; they act as if they have a birthright to govern; and they will have a winning issue before autumn.

Right now, their media allies are anesthetizing the conservative electorate, with confidence-boosting "high poll numbers."

23 posted on 07/03/2002 6:32:21 PM PDT by bimbo
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To: bimbo
all seem to think that the Republicans will ride to electoral glory on the coattails of G.W. Bush

I have often asked about how long are Bush's coat tails and have yet to get an answer.

I suspect many voters may like Bush, but dislike their local Republican.

24 posted on 07/03/2002 6:36:00 PM PDT by Starwind
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To: rohry
HAPPY 4th of JULY!!!

Woo-Hoo!!

25 posted on 07/03/2002 6:37:59 PM PDT by headsonpikes
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To: Starwind
"I perceive the Rep Party to have moved considerably leftward since Reagan. In my mind, I am undecided as to Bush's overall effectiveness. Minimally, I believe he could be more conservative than he has been without loss of support from the left or left of center."

Okay. I'll agree with that...

"That said, this particular post goes to my view that the bigger problem is the Rep Party itself, most notably Trent Lott and the party leadership, which has abandoned the 'principles' of Reagan and more recently Gingrich."

But, you loose me here. This article is an ongoing post (every night) which discusses the economy and investments. It has nothing to do with any party. The government has rigged the market for 7 (or more) years, this has nothing to do with Republicans vs Democrats.


26 posted on 07/03/2002 6:43:14 PM PDT by rohry
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To: rohry
It has nothing to do with any party.

My answer from the article (in which I believe Puplava hits it right on point):

The result was a tax revolt, which gave control of Congress to the Republicans. When they no longer held on to their principles, they lost their majority in the Senate.

27 posted on 07/03/2002 6:48:09 PM PDT by Starwind
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To: rohry
>Market breadth was positive by 19 to 12 on
>the big board and 19 to 15 on the Nasdaq.

Love the report, but I believe the breadth was
negative, and the numbers were correct, NO?

Early in the afternoon, when the index's started to
go green, declines outnumbered advances by 2 to 1 on
both exchanges. The fix was in.......
28 posted on 07/03/2002 7:01:55 PM PDT by evaporation-plus
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To: fogarty
Costa Rica is interested in US citizens relocating there. Their consulate will have the paperwork. All that is required is a stipend from out side the country which pays at least 1200 per month. (or close to that). For that kind of income you can live well, (a cook and maid to assist you). The capital city, San Jose has a modern water treatment system that makes it safe to eat most anything there. It is one of my favorite places to visit, but give up US citizenship? No way. Id rather stay here and join the anti-tax rebellion.
29 posted on 07/03/2002 7:08:39 PM PDT by KC_for_Freedom
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To: evaporation-plus
Nice catch. You are right. NYSE advancing 1215 with 52 new highs. NYSE declining 1903 with 188 new lows. For the rest of the stats, go here:

Market Internals @ bigcharts.com

They are propping up the big index issues and trashing everything else right now. Today was a down day but not how the headlines read.

Richard W.

30 posted on 07/03/2002 8:20:29 PM PDT by arete
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To: fogarty
Belize is also a good location to look at. They have a citizenship program where if you do a direct deposit of $1,000 (I think) in a local bank a month and move in country, they will issue you a passport. You become a citizen of Belize, which has no taxes and a very low cost of living. It is a developing country, so don't expect Wal-marts and circuit cities.
31 posted on 07/03/2002 9:23:47 PM PDT by Brad C.
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To: Brad C.; fogarty; rohry
Man, I'm disappointed. Here it is the 226th anniversary of the birth of America and the ideals enshrined in the Declaration and we have people posting about abandoning ship, when the courageous course is to right the ship.

I do believe that what the spirits of Patrick Henry, the Adams, John Hancock, Washington, Jefferson, Franklin etc. hope to see.

A Happy Independence Day to All.
32 posted on 07/04/2002 6:51:30 AM PDT by Dukie
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To: Dukie
When in the course of human events....

I stand chastened and thank you for your comment. However, I would point out that in the last presidential election, algore received more votes then any other man has in history, including Ronald Reagan. I look around and see socialism growing like kudzu all around, while most people seem to think it is just a part of our normal life. Our government continues to find more ways to protect me from everything including myself, that I am almost out of methods of protecting myself and family, especially from that same government.

The men you mentioned, all pledged their lifes, their fortunes and their sacred honor to each other and to the nation they were building. Do you think you could find even a dozen men with that same spirit currently serving as our elected representatives in D. C.?

33 posted on 07/04/2002 8:07:11 AM PDT by Brad C.
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To: Dukie
"Man, I'm disappointed. Here it is the 226th anniversary of the birth of America and the ideals enshrined in the Declaration and we have people posting about abandoning ship, when the courageous course is to right the ship."

I'm with ya!
I'll supply the ammunition...

We'll call it Dukie's Army!
34 posted on 07/04/2002 10:51:09 AM PDT by rohry
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To: rohry
We'll call it Dukie's Army!

If there is anything that we can do to get rid of those self-interested lying weasels in Washington, I'm for it. Sign me up.

Richard W.

35 posted on 07/05/2002 5:34:42 AM PDT by arete
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To: Dukie
Here's a thought we need to consider. At some point, the Republic will no longer exists as we have known it. As some point, the only only way to 'right the ship' as you say, from the disastrous course that has been set, will be to take up arms against a corrupted and vile federal government.

Are we at that stage yet?

You mention the name of Patrick Henry. I daresay Patrick Henry and Samuel Adams long ago would have taken up arms and forced the bureacrats to relinguish the powers they have entitled themselves to.

Are you willing to do that?

36 posted on 07/05/2002 7:18:17 AM PDT by fogarty
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To: Brad C.; fogarty; rohry
Regrets for my delay in reply, due to our Independence Day weekend.

Brad, certainly the picture you paint may cause one to despair of the future of America as envisioned by the founders.

The challenges we face in restoring this republic are as daunting as those the founders faced in severing ties to the crown. In 1776, independence was a contentious issue, which was strongly supported by about only 33% of the colonials and only a small percentage of those engaged in the hostilities. So, I believe that there are sufficient numbers of American in the traditions of our forebearers to turn things around.

I am also convinced that, like the founders, today's liberty loving are by nature peaceful, but as Jefferson and others recognized it is not in the nature of man or institutions possessed of power to relinquish it. Regretably, the success of incumbents suggersts that it has not been the nature of the electors to unseat power. Because the electors seek plunder which the more senior in office can better deliver to their constituents. As Rome foreshadowed and as Toqueville suggested would happen in America, the corruption of the Republic would begin in the hearts of the citizen.

We need follow the example of Dr. Walter Williams making matters of constitutionality the starting point of any discussion of the exercise of governmental power and fidelity to the constitution as the essential criteria for service in official capacities. If enough of our countrymen proclaim this standard then perhaps we can avoid the alternative fearful path trod by those great men of 226 years ago.















37 posted on 07/08/2002 7:05:55 AM PDT by Dukie
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