Tucker Report

It’s official. Financial Transaction Taxes are starting to hit our brokerage accounts. I just received notification from TradeStation that there will be a .2% tax on transactions of French ADRs. This was passed in France a few months ago, but just starting to be implemented on our shores. Also, on September 14th of this year Rep. Keith Ellison introduced House Resolution 6411 to implement a similar tax on all stocks, bonds, futures, options, and derivatives of all kinds transacted in the USA. So far GovTrack.US gives it a 2% chance of seeing the light of day. Click here for link to GovTrack. Several other similar bills have been introduced over the past few years to impose various taxes on financial transactions. So far they have gone nowhere. Sen. Tom Harkin introduced S. 1787 about a year ago, with only a 4% chance of passing. And of course Rep. DeFazio keeps trying to no avail.

Now I’m no fan of Obama, but he does seem to understand, at least from people I’ve talked with in the trading world, that the unintended consequences of such a tax would be unthinkable. Maybe he’s been influenced by contributions from the Chicago and New York trading firms. But with the fiscal cliff talks going on, there is some speculation that there are members of congress that are trying to slip into the talks some form of a financial transaction tax. Trader’s tax accountant Robert Green seems to think this is a possibility. A remote possibility hopefully, but still a possibility.

Here’s a link to sign a petition opposing the tax: LINK TO SIGN THE PETITION

Also, here is a template for a letter you can copy and send to your congressional representative (copied and pasted from Robert Green Trader Tax website):

Dear Honorable Congressman:
As Congress and the administration consider all types of tax revenues for solving the fiscal cliff, please don’t be tempted into considering a financial-transaction tax (FTT).
President Obama promised he would not raise taxes on the American middle class and poor, and that’s exactly what an FTT does. Instituting one is a shotgun approach that’s principally paid by the users of our financial markets. That includes all investors, retirees, charitable foundations which help the poor, and university endowments which provide scholarships and financial aid to students.  Most pension funds are significantly underfunded, and those funds will never catch up to where they need to be to pay retirees if an FTT is allowed to decimate their portfolios. Taxpayers will have to make up the difference.
For these very reasons, President Obama and Secretary Geithner denounced FTTs many times at the G-8 and G-20.  President Obama has a better approach on taxing banks in his annual budget: instituting a “financial crisis responsibility fee” only charged to big banks on their liabilities (risk capital). President Obama expressed displeasure with Rep. Peter DeFazio for continuing to push his FTT bills in Congress with little sponsorship.
Congress is focused on raising tax revenue from the rich, but not from the middle class and poor.  The Affordable Care Act starts a new Medicare 3.8% tax on Jan. 1 on the upper-income group’s unearned income, principally investment income.  With Bush-era tax rates expiring on the upper income at year-end, capital gains and dividend tax rates are headed higher for them, too.  They’re already being tapped for tax hikes on their investments.
Tax banks directly and target the upper income if you think that’s fair, but it’s unfair to raise taxes on middle-class investors, retirement funds, charities, and university endowment funds.  Don’t buck President Obama on this.
Say no to FTT bills from Rep. Keith Ellison (D-Minn), Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-Iowa).  Congressional leaders dismissed pro-FTT bills to date, not showing them the light of day in Congress. But in negotiating the fiscal cliff deal before year-end, FTT advocates are trying to sneak one back on the table.  Advocates argue it would be a tiny tax, but it’s huge — it will put market makers and traders out of business overnight, which will create conditions for new flash crashes. Investors will lose a significant portion of their portfolio capital over time and it will rebalance their risk premium, further dampening investment.
France adopted an FTT recently and it now includes American Depository Receipts (ADRs) of French equities trading on U.S. exchanges. This means for Americans who buy and sell French ADRs on U.S. exchanges or globally, the exchange is supposed to withhold FTT excise taxes and remit that tax revenue to the government of France. While President Obama hopefully can keep his pledge to protect middle class Americans from tax hikes, without further tools from Congress, he will be unable to block the French tax assault. This reminds me of the British slapping Americans with stamp duty taxes which led to the American Revolution.  Congress must fix this fast!
Please support Rep. Tom Price’s Nov. 30 bill to enable the U.S. Treasury to block this French tax attack in America. It’s a slap in the face of the (French-gifted) Statue of Liberty. Visit tomprice.house.gov/press-release/price-introduces-bill-opposing-financial-transaction-tax.
France and Germany strong-armed nine other EU members to adopt a similar FTT plan.  After the UK, Sweden and several other EU members said no, they used the EU’s minority approach “enhanced cooperation” (EC) procedure.  The crucial upcoming QMV (qualified majority voting) round of EC can defeat FTT EC-11, and that vote is extremely close.
The UK and Sweden are vehemently against this EU FTT since it mostly falls on investors using London’s dominant exchanges. If the UK is very against it, the U.S. should be too, since the U.S. also has the world’s largest financial exchanges channeling investors from around the world, and stands to lose the most.  Are you ready to allow the U.S. to become a minor player in financial services and cede financial industry jobs, payroll and income taxes to Asia on your watch? Sweden tried an FTT in the early 1990s and it decimated Swedish and Finnish banks overnight with financial transactions, along with banks and jobs fleeing to London. While Paris and Berlin may be willing to take this gamble as part of their effort to federalize the EU, London, New York and Chicago can’t afford this great risk. We have different interests to protect. Germany may slow this down to 2016, but France is pushing ahead and attacking the U.S. with this tax now.
Rep. Price says in his press release: “Paying taxes to other countries is a bad idea – and we need a law to stop it! This financial transaction tax would harm small businesses and investors while damaging American entrepreneurs’ ability to compete in a competitive global environment. France and other European Union nations want to charge more taxes on financial transactions, ignoring the fact that small investors will be forced out of capital markets. This move would impede financial markets efficiency, decrease liquidity, distort and discriminate within markets, and raise costs all at a time when what our economy desperately needs is more private capital investment in growth and job creation. I urge my colleagues to act on behalf of American entrepreneurs, investors and job creators by joining this effort to preempt the imposition of any form of a financial transaction tax on American markets.”
To learn why a diverse group of people oppose the FTT, please read “Straight talk about the FTT” at: http://www.financialtransactiontaxes.com. (This includes more than 40 references with research from experts around the world.)
The goal of tax discussions is to raise revenue in a productive and fair fashion.  An FTT fails this test.  It falls on the middle class, and the rich can navigate around it by using markets that don’t charge one. President Obama, Speaker Boehner and the other Congressional leaders have enough on their plate right now with the fiscal cliff.  It’s a bad idea to throw a major monkey wrench like an FTT into the mix, after President Obama and the other leaders already took it off the table.  We can’t negotiate backwards.
Revenue from an FTT would be more than offset by lost tax revenues related to job losses (payroll and income taxes), capital losses rather than capital gains taxes, and net operating loss tax refunds rather than business income taxes.
In the end, a FTT is a punitive attack against free-market capitalism. Why play politics and seek revenge, when we have an economy to fix and jobs to create?
Thank you for your cooperation and caring for your constituents’ needs.
Sincerely,

It’s been a long time since my last post. Much has happened in the stock market, of course, and I hope to comment on that soon. But first I wanted to take a look at the natural gas market. Natural gas has been in a bear market for a very long time. You can see on the weekly chart above that the moving average lines (blue and cyan lines over the price bars) have been persistently down for the entire chart. In fact you’d have to go back to 2008 to find this particular moving average combination to be bullish. It doesn’t matter much what moving average you use, most but the very shortest would show a prolonged bearish trend. And the trend is still bearish. But there are some signs that maybe the downtrend could be approaching a major low, or possibly has already seen that low. Note that the charts shown are of UNG, which is the etf of natural gas futures. The actual futures price will be a bit different, especially if you string together the individual contract to make a longer term chart.

The chart above is the daily UNG chart. For most of the chart there is a series of mostly lower lows and lower highs. That pattern hasn’t changed yet, but the moving average lines finally crossed up after a triple bullish divergence in the momentum indicator in the lower sub-graph. These divergences don’t by themselves indicate a bottom, but it can sometimes be a good advance warning. The price structure is the most important factor. But with the weekly cycle also up, and the moving averages positive, it is worth keeping an eye on the next decline to see if this market can put in a higher low and then make a breakout to the upside, which would confirm a trend change.

Regarding sentiment, I know of many traders that have been trying to pick a bottom in this market from much higher prices. I could see no reason to probe the upside during such a well defined downtrend. I don’t hear as much from the bottom pickers lately, but I hear accelerated news coverage about the oversupply of gas from new extracting techniques, the warm winter, the lack of storage, and on and on. At markets bottoms the news is usually the most bearish. It will seem that the market can never go up again. There seems to be no logical reason for a price advance with so much negative news, and with analysts projections of even lower prices. This reminds be of the sugar market back in the 1980′s, when world sugar went under 3 cents a pound. Every analyst I heard said sugar was headed to a penny. There was only bearish news. There were jokes in the financial media suggesting that sugar would trade at less than the cost of the bag to put it in. It was certainly under the cost of production. At the time that the news media wrote more and more bearish stories about sugar, prices were actually already on the rise to a new bull market. Natural gas seems to be in a very similar situation now. Of course the major trend still remains down, but it might be worth keeping a close watch on the price action to see if this major downtrend comes to a conclusion.

As interest rates trend toward a zero percent yield it seems most traders and analysts are calling the interest rate market a bubble. Some are calling it the greatest bubble in years, and one that is about to burst wide open. That argument does seem logical on the surface. It doesn’t seem to make sense to tie up money for two years at less than a quarter percent, or ten years at less than two percent, which is a negative yield after figuring for taxes and inflation. It seems that the bill, note, and bond market must head down soon. However, that argument has been around for some time. That seemed to be the consensus a year ago, yet the bond market was one of the best performing markets of 2011, as illogical as it might seem. Can interest rates still head lower from these seemingly impossible levels? It seems so. That is the case in Germany right now.

Of course these very low yields are for the perceived safety of government dept. There’s little intrinsically safe in any government dept other than the fact that they can print their own money when they run out of revenues, unlike everyone else. But there is a wide spread between government dept and various levels of corporate dept, especially in the lower rated issues. Investors are being paid high yields relative to the risk on the lower rated corporate side. These are unusual times, and they may be around a bit longer than most traders think.

It would seem obvious that with governments running up dept like crazy, with the eventual need to monetize that debt, that inflation would be starting to get priced into these markets, with yields starting to rise and bond prices dropping. Yet just the opposite is happening, so far. Bernanke has said that interest rates will stay at these low levels for at least another year or more. But markets tend to discount the future and so far they aren’t discounting much inflation.

Perhaps deflation is the larger fear. Perhaps the analogy of pushing on a string is still relevant. Until jobs and spending resume it will be difficult to have any pricing power no matter how much the governments around the world try to destroy their currencies. The resumption of more normal times may be a long way off.

Most traders I know, and some very smart traders, are heavily short bonds with very large and mounting losses. They all seem to have thrown their money management out the window. It seem so obvious that this bubble will soon burst, but what seems so obvious is usually wrong. The weekly chart above shows that the trend is still up. The momentum indicator in the middle sub-graph got a bit overbought and has kinked down, but the trend indicator is still up and the adaptive CCI in the lowest sub-graph is still hovering around the +100 line, indicating the trend is still alive. Meanwhile, I’m leaving the short side of this market alone from a trading point of view until these indicators indicate that the trend has changed direction. And I’m parking some money in the high yield end, as those spreads seem to be well compensating investors for the risk, especially in diversified bond funds (as boring as that sounds).

The action in world markets last week took many markets down, of course, but especially hard hit was the gold market. I’ve been suggesting that this market has been in a bubble for some time. Bubbles do tend to grow larger than anyone expects, and this one certainly exceeded the expectations of all but those who are constantly and annoyingly hawking gold coins. It would seem that the news from last week would have caused a further upward move in the price of gold. We are all told that this is the place to be when there is a crisis, especially one involving debt and currencies. Maybe the market had already discounted the worst. This market was certainly ripe for a rout. One thing I had been keeping my eye on was the reluctance of the gold mining stocks to participate in the meteoric rise in the underlying asset. But recently the gold miners were starting to come to life. But it wasn’t to last. When the stock markets around the world started to unravel, gold joined the party. It is probable that large traders and hedge funds were overcommitted to gold (duh?) and there was likely liquidation in profitable assets to cover loses in the losers. Sometimes it doesn’t take much to pop a bubble, and once popped the air comes out quickly. Silver was hit even harder.

But what about technicals? The above chart is of the weekly etf of gold. I like to use the GLD etf to avoid having to create a continous contract of the futures. The GLD is close enough. You can see blue moving averages have remained bullish through the entire chart, and that whenever prices approached the blue line that a good entry point on the long side presented itself. We are once again sitting on that blue line. However, the last weekly candle is perhaps too large to expect support to hold. The middle indicator is the double stochastic and it defines cycles fairly well. Upturns from oversold, or the lower dashed line, represented good long entries. I use this only to enter in the direction of the trend. However, sometimes will use the overbought readings above the upper dashed line to exit, especially after a break of the upper dashed line. The lower indicator is the adaptive CCI. It has stayed above the zero line for the entire chart. When it is above the plus 100 line, which is the line that the indicator is still holding above, this suggests that the trend is strong. However, when the indicator crosses above the plus 200 line, which is the upper dark cyan line, prices are usually extended and ripe for either a pullback or a pause in the uptrend.

It would be very bullish in my interpretation of the gold market if that blue support line were to hold and then the cycle (middle indicator) were to turn up along with the CCI remaining positive. I really don’t expect this to happen because of the severity of the decline. It seems that the bubble still has more air to let out, but that’s just a feeling. Until the uptrend as been structurally broken on this chart, I’ll still trade from the long side, even though I would rather from gut feel be on the short side. I’ve learned not to trade against the trend, and that is still up according to the weekly chart, despite the huge drop last week.

It’s been a long time since my last update. I took the month of June off for vacation in New York as well as a Sheridan reunion in Chicago. Upon my return I was facing the huge task of moving my mother from a large home into a small retirement apartment. It is amazing how long it takes to dispose of much of a lifetime’s worth of accumulation. So I decided to take July off as well as it would be too distracting to trade with that huge task facing me. Then August happened, with unprecedented whipsaw swings. Trading the wild swings was just too hard for my frame of mind. I guess I needed a little more time off anyway.

There are times when technical analysis can help to make trading decisions, and then there are times when market uncertainty along with multiple standard deviation moves makes even the best analysis extremely challenging. We are in a period now that makes trading, at least for swing and position trading, very difficult. It could last a while longer. I plan to sit this out until I see more normal markets return. Whatever comment I could make on the market would probably be invalidated by the market action the next day, as these triple digit swings continue to knock traders off both sides. Perhaps day-traders are having fun with this.

Regarding gold, that asset bubble became much larger than I thought possible. Nothing much has changed my opinion. I good washout was not a surprise. A clue, as I’ve mentioned many times, was the huge divergence between the price of gold and the price of the gold miners. Many believe that relationship no longer is valid, but I think they we justifying the divergence, thinking, as always happens at tops, that “this time is different.” I’m still a bull long term. When the radio ads disappear I’ll jump back in.

Just a side note for any bloggers out there, I had a terrible run-in with Getty Images. I helped a nursing organization put up a small website. The site was for about 30 nurses in the Northwest to announce meetings and collect via PayPal their $12 membership fee. Nothing was being sold on this site, and the organization is non-profit. On the home page we put up a generic photo of the Seattle skyline copied from Google images, with no reference to a photographer, photo bank, copyright, or anything. The organization received a very nasty letter from Getty Images demanding that the photo be taken down and also demanded a settlement amount of about $1200 for the past usage of the image, and the threat that if payment wasn’t received within 14 days that the matter would escalate and the organization would face a lawsuit. Now I can understand that if someone were profiting from the use of one of their copyrighted photos that a demand for settlement would be in order. But if a small non-profit website accidentally put up a photo, I would think that a cease and desists letter would be in order. But a threat and demand for $1200 is more like extortion. The photo was immediately taken down, of course, but Getty Images would not remove the demand for the money. After many back and forth emails, they asked for proof of their non-profit status, which was supplied. Getty then cut the demand settlement in half. Then I got involved and went through the entire Getty archive of Seattle skyline photos, and could not find an exact match between the image they accused the nurses of using and any of the images in their catalogue. I sent them an email with my findings and said the nurses would settle if they could explain the discrepancy between the image they used and the one they accused them of using. As it turns out the image the nurses used was shot at a different time of day, had a different cloud pattern in the sky, had more of the skyline than the Getty image. It was obviously a completely different image. So they eventually acknowledged their error and said they would drop the case. But it left a really bad impression of Getty Images. As a result I took down all the images on my website, just in case one happens to be something that is in the Getty Images data bank. I did a Google search and found horror stories of people using a simple little image on multiple pages and then were handed a bill for tens of thousands of dollars. One was even a student project with no commercial intent, and Getty Images wouldn’t budge on their demand. They are really bastards. So if anyone is reading this, make certain you have no images that can in any way be linked to Getty Images. They’ll find the images eventually. They apparently have some way they scan the entire internet looking for matches. I suppose that method isn’t so perfect, as in the case of the nursing site where they made an error. But it was a real pain to sort it out with them.