America to Congress: Jump!

December 17, 2012

  • Devil in the details… most Americans want to take the fiscal leap… even if they don’t know it…
  • The pernicious double tax on income investors that awaits…
  • GM’s “government cheese” giveaway program… how innovation in the market (for hefty trucks) really works…
  • Whadafukka is an “apocalypse ball'”…
  • A chilling tale from the war on small business… introspective military spending… announcing the all-new 5 Min. Forecast Pro!… and more!

  “Democracy is the theory that the common people know what they want,” wrote the sage of Baltimore, H.L. Mencken, “and deserve to get it good and hard.”

A recent poll taken by the Pew Research Center asking Americans about a variety of methods Congress and the White House could employ to cut the federal budget deficit:

“The only deficit reduction proposals that garner more support than opposition — among 12 items tested — are those that affect higher-income Americans,” reads a summary.


  The Pew researchers apparently didn’t think it was worth their time to inquire about the other side of the ledger. No worries. In a joint effort, Politico and George Washington University did:

While “eating the rich” got a similar response in the Politico poll, across-the-board spending cuts — i.e., the fiscal cliff — got 3 out of 4 “yea” votes.

Only 14 days left until the federal government takes the big leap. Congress was meant to adjourn last Friday. Last year, it took until Dec. 23 to pass a two-month payroll tax cut extension. Only two lawmakers were in attendance for the voice vote.

The drama.

  Normally, we wouldn’t dig into the politics too much… but this time around, the consequences for you could be unusually harsh.

Exhibit A: “With tax rates set to jump in 2013,” our managing editor Chris Mayer warned readers over the weekend, “it makes more sense to not pay the dividend at the new confiscatory rates.”

One of Chris Mayer’s “Special Situation” plays announced a special dividend last week.

“When a company chooses to pay a dividend,” the company’s press release put it clearly, “it pays those dividends after it has paid about 35% in income taxes on its taxable income; individuals pay an additional 15% on any dividends received, for a total effective tax rate of 45% on this stream of income.”

Double taxation? You bet.

“If there is no solution to the ‘fiscal cliff’ by the end of this year,” the statement goes on, “the dividend tax rate will climb as high as 43.4% after factoring in the new tax due to the recently passed Affordable Care Act.

“In simple terms, dividend income is first taxed at 35% and then again at 43.4%, for a total of approximately 63% effective tax on that stream of income.”

[Ed. note. Your taxes are going up. Unfortunately, the devil is in the details. What happens for you next depends on how closely you read the fine print. Tomorrow… to address specific problems you’ll be facing on other side of the fiscal cliff… we’re releasing a beta version of a new 5 Min. Forecast we’re calling The 5 Min. Forecast Pro.

The new Pro version of The 5 will give you specific actions to take on the nuggets you read each day… for more details on the beta test and how you’ll be able to give The 5 Min. Forecast Pro a test-drive, look for the Special Announcement below….]

  Stocks are moving up this morning, the Dow touching 13,200. The financial media are giddy about “progress” in fiscal cliff talks.


“As much as we would like to ignore all this talk about the cliff,” comments market forecaster Greg “Gunner” Guenthner, “it’s possible that it completely takes over the headlines this week. That’s fine — as long as you strive to keep it all in perspective. Any fiscal cliff decision (or nondecision) could move the market. However, any reaction — positive or negative — will likely be short-lived.”

Spot gold sits where it did when the market closed Friday afternoon — $1,697.

  Factory activity in New York State has shrunk for a fifth straight month, according to the New York Fed’s Empire State Manufacturing Survey.

Nearly every internal of the survey was bad — number of employees, average workweek, prices paid (still rising), and prices received (flat).

100  Maybe General Motors — still 32% owned by the federal government — could give away their big pickup trucks for free. As matters stand, that’s the only way they’ll go out the door this month.
Researchers at estimate GM is offering rebates and other incentives of up to $5,000 per truck this month on the Chevrolet Silverado and GMC Sierra — more than last month, but less than Ford and Chrysler.

“The company earlier vowed to hold the line on such promotions to protect profits through the end of the year,” Bloomberg reports, “even as competitors flood showrooms with traditional year-end deals.”

“There is a price for that pricing discipline,” adds the Detroit Free Press. “By the end of November, GM dealers were holding 139 days’ supply of full-size pickups, far more than the 80 to 90 that is considered ideal.” Ford ended the month with a 90-day stockpile.

There’s precedent for giving away a backlog of GM cars: Remember the backlog of cheese the government started handing out in the early 1980s?

“When cutting into a block of government cheese, you never really knew what type of cheese you were eating,” writes food blogger Harrison Jones. “The taste and smell can only be described as a cross between very low-grade American cheese, a generic Velveeta knockoff and a somewhat rancid cheddar.”

100  “Does anyone else find it interesting that the next-generation 2014 GM trucks,” asks our Dan Amoss, “look almost the same as the old models, which date back to 2007?

“On first impression, the only difference seems to be cosmetic differences in the grille and lights. Here is stock photo of the 2013 Chevy Silverado:

“And here is a photo of the 2014 Chevy Silverado:

“Perhaps the ‘Dilbert’ government bureaucrat mindset is seeping into GM management?” muses Mr. Amoss. “No flair for risk-taking anymore?”

After all the inventory is given away, maybe Congress could take a further page from their own farm subsidy bill… and pay GM to not make trucks at all.

  Meanwhile, Ford is eating GM’s lunch with the EcoBoost engine in its flagship F-150 pickup.

“Ford’s move to new technology has helped it grab the lead,” writes Jeff Bennett of the Dow Jones Newswire. “It offers the F-150 with a V-6 EcoBoost engine that includes turbocharging and other technologies to cut fuel consumption yet give it the power of a larger V-8 engine.

“Through November, more than 40% of the 576,529 F-series pickups Ford sold were EcoBoost models.”

  “No problem,” says Liu Qiyuan, peeking out from one of his “apocalypse balls” after his assistant slammed into it with a truck. “Didn’t feel a thing.”

Seats 14 comfortably, up to 30 in a pinch…

Inspired by the John Cusack disaster film 2012, “Noah’s Ark” is one of several yard-high fiberglass and steel spheres Mr. Qiyuan has spent 300,000 yuan ($45,675) to complete in preparations for the apocalypse.

“The pod won’t have any problems,” Mr. Qiyuan explains, “even if there are 1,000-yard-high waves… it’s like a pingpong ball, its skin may be thin, but it can withstand a lot of pressure.”

Each pod is equipped with enough seat belts, oxygen tanks, food and water supplies to supply up to 30 people for at least two months. And due to a meticulous insulation job, “a person could live for four months in the pod at the north or south pole without freezing, or even feeling slightly cold.”

“If there really is some kind of apocalypse,” Mr. Qiyuan declares, “then you could say I’ve made a contribution to the survival of humanity.”

As the Mayan calendar careens to a halt in just four days, we’re assuming it’s a little too late to put in our orders.

  “The next money-grabbing scheme from, of course, the state of California,” writes a reader from the front lines of the ‘war on small business,’ “has now arrived (drumroll please).

“My small custom landscape company, with six employees, was accosted by a tactical team consisting of a representative from the Contractors State Licensing Board, the Employment Development Department (EDD, the payroll tax people) and (of most concern) Cal/OSHA (the ‘safety inspection guys’ — the heroes that protect us from ‘sweatshops’).

“We play by the rules as well as anyone can, but one of my employees was ambushed. The team started in with a barrage of questions about who he was and ended rapidly with a demand to see the job site. The job site is someone’s backyard behind gates and walls and not visible at all from the street.

“When I arrived, they were cheerful enough, explaining over and over that they had been given permission to enter the property. This later turned out to be a shrug from my overwhelmed employee and the words, ‘I guess, if you have to.'”

  “The good news,” the reader goes on, “since we had all our safety programs in place and all licensing and insurance in order and the job site was quite clean, our friendly inspector from OSHA recommended that we be fined only $5,000, instead of $18,000 or more for the guard covers that were missing on two small grinding machines in the client’s backyard.

“The person from EDD wanted everyone’s IDs, home addresses and phone numbers, tax numbers, etc., and from me also wanted the name of my bank. I assume the bank info was meant to expedite any needed transfers in the quiet of the night in case any paperwork was found to be out of order in the future.

“In between the several mentions of permission to enter my client’s backyard, I was informed that they had been following likely trucks from the Home Depot and ambushing the unsuspecting drivers when they reached their job sites.

“Apparently, before that, they had just been sitting around the office doing nothing and were finally given funding to embark on this new adventure. I’m not sure what this new funding was for, since I am sure they all got paid the same to just do nothing. In retrospect, I am happy that my tax dollars paid them to do nothing, and would have preferred to keep it that way.

“The part you’ll appreciate most: One of my employees asked the EDD representative for a welfare form if she had any with her. Once he heard the dollar amounts in question, he assumed we’d go out of business and he would be out of a job. The EDD rep looked shocked and replied that wasn’t what they were there for at all.”

The 5: Of course, not.

  “Thanks for pointing out,” a grateful reader writes on another theme, “that all government spending involves taking first, and then giving money.

“I do think that it is appropriate to ask if there are any effects of what the Congress is giving borrowed money to do. Does it have any real effect on additional job creation? NASA created the space industry, which has more positive ancillary effects than most government programs. From miniaturization of health monitoring equipment to better weather forecasts through private satellites, I don’t think we can begin to cover the long-term positive effects of that program.

“Spending money on food stamps does not have that effect. In fact, even Twinkies were not saved by pouring money down that rathole.

“While there are undoubtedly some benefits from military research spending — night vision developments, for example — most military developments remain hidden from public view. But money spent in foreign lands to house U.S. service people and blow things up does not create new jobs nor long-term development here in the U.S.

“Stand fast. Never let your readers forget that every dollar, no matter how little it is worth, cannot exist without taking it from a productive person or be created with the depression of a computer key. In either case, every one of us is made worth less.”

Enjoy your Monday,

Addison Wiggin
The 5 Min. Forecast

P.S. “Focusing on the world’s markets is not as daunting as it may first appear,” writes Robert Weinstein at The Street. “I recently read World Right Side Up… by Christopher Mayer. The book is a must-read for investors wanting to explore investing opportunities worldwide.

“Mayer does outstanding work in explaining the pitfalls and possibilities in markets around the world. Moving from region to region, Mayer puts the power back into the investors’ hands with the knowledge that anywhere at all is a potential winner (and loser).”
World Right Side Up is available at 50% off through Dec. 31 — as is every other title at the Laissez Faire Club. Grab your copy (and explore the entire catalog) right here. Great spot to find inexpensive gifts!

SPECIAL ANNOUNCEMENT: Starting tomorrow, Agora Financial Reserve members will begin beta testing The 5 Min. Forecast Pro. The new Pro edition will give you specific actions to take on the back side of the observations you read in The 5.

(If you’re not already a Reserve member but would like to take part in the beta test, call John Wilkinson at 866-361-7662. John can help identify credits that may already be sitting in your Agora Financial account. The Agora Financial Reserve is by far the most economical way to take advantage of the ideas and advice you read here in The 5 every day.)


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