Professor Elam

Who’s
In Charge?

 

A
criticism of tax policy, among many, is that it is ever changing. This means
that investors never really know the rules. And the result is often a lack of
investment. 

 

The
same thing is happening in Congress right now. Vice President Joe Biden
declared that the pendulum had swung too far in favor of the President and not
Congress.  That was before he became Vice President.  I suspect that
he and Obama are now finding out what it is like to deal with 535 ideas, (the
total number of representatives and senators)  all different and all
advanced at once. 

 

As
the former head of Vanguard Mutual Funds pointed out this morning, we need
leadership from the Executive Branch of government, not a mish mash of
ideas so that no one knows what to expect. Barbara Mikulski, D Maryland,
 passes a bill with a tax credit to get you to buy a car. The Republicans
decide that mortgages should be fixed at 4%. One day the government wants to
buy stock in banks, another day they want to guarantee mortgages, another day
they want to create a BAD BANK. The stimulus bill is now seen as a pork laden
political package. San Antonio is lobbying for funds for  River Project.  This is not
leadership and that is why the stock market is dithering at a very, very
dangerous level, the post 9/11 lows around 7500 on the Dow Industrials.  

 

In
the past few days, the Administration 
that promised to make ethics a hallmark has seen three nominees withdraw
their names from the process. New Mexico Governor Richardson is being  investigated. Geithner was affirmed as
Treasury Secretary  but clearly
ignored the tax law in failing to pay 
social security  taxes.  Daschle and Killefer withdrew their
names for failure to pay taxes. Ironically Killefer was to be the new Chief
Performance Officer, presumably making sure the Federal Government is a well er
ah, performing. As the saying goes, one cannot make this stuff up…

 

Meanwhile
the situation has gotten worse, much worse in places like California.  California has run out of cash to make
state income tax refunds, school loans, and other payments. So residents have
real cash withheld from their paychecks and IOUs returned for refunds. How long
will residents agree to exchange real money for monopoly money?

 

The
salary caps will apparently not affect folks like Richard Fuld at Lehman that
got off with $300 million dollars, those folks are gone.  Now the ones called in to fix things
are paying for the past misdeeds of others with lower salary caps. Such
maneuvers are calculated to get votes based on class envy, not getting results.

 

The
results of the stock market crash are now being seen. Denny’s offered  a free breakfast. NBC became its own
best client as it apparently could not sell Super Bowl commercials to anyone
else. Car sales have fallen by half from January, 2008. All of these events are
deflationary, prices fall without buyers. And that is why FED Chief Bernake
keeps printing money. He is at a loss to get folks to spend money.

 

Nervous
money is finding a home in gold which has jumped above $900 again.  Oil flirts with $40, five months out it
is $50.

 

Positives
include health care stocks on the rise, rising T Bill rates, a higher Baltic
Dry Index, and Oil Service stocks poking above their daily moving averages.

 

Whether the market can make something
positive of all this will be decided in the next few days. This is no way to
proceed in a crisis and I am watching carefully, and uncomfortably.