Facts You Need To Know

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This week in Barrons December 2, 2012 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Thoughts: The New Normal:  "Why work hard for $60,000, when you can earn $14,000 and sit around collecting another $50,000!" I realize that welfare benefits, Medicare, and cutting the spending side of the fiscal cliff - are all painful topics to discuss.  Thanks to James T. - if you somehow believed that it was the top 1% that is stealing from the middle class, please realize that it is also those individuals at the bottom of the economic ladder that rip off the middle class - courtesy of the world's most generous entitlement system.  It's horrific when you can do as well working one week a month at minimum wage as you can working a $60,000/year, fulltime, high stress job.  This chart tells the story, and is fairly self-explanatory: Money Earned in a Year       $3,625          $14,500         $30,000        $60,000   +Payroll and Fed Inc. Tax   (    278)        (   1,225)        (   4,574)       ( 13,034)   +Childcare Cost                    ( 2,400)        (   9,600)        (   9,600)       (   9,600)   +Mississippi Inc. Tax            (    109)        (      725)        (   1,500)       (   3,000)   +Earned Inc. Tax Credit         1,450              5,020             2,163                     0   +Food Stamps                         6,312              6,312                     0                     0   +National School Lunche      1,800              1,800                     0                     0   +Temp. Assistance(TANF)    2,040                      0                     0                     0   +Medicaid and CHIP            16,500            16,500           10,890                     0   +Section 8 Rent Subsidy       1,450               4,350                     0                     0   +Utility Bill Assist (LIHEAP)  1,240                  845                      0                     0 Total Disposable Inc.           $31,630          $37,777          $26,379         $34,366 This chart shows that a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.  Then I realized that a family provider working only one week a month at minimum wage, makes 92% of that same $60,000 a year - ugh! Did you ever wonder why Obama was so focused on health reform?  It is so that those who have no interest or ability in working can make as much as representatives of America's endangered, middle class.  -       First, working one week a month, saves a lot on childcare. -       Second, by only working one week a month you have minimal deductibles and copays - so you virtually get total medical coverage for next to nothing.  -       Third, the low-income parent will have more energy to attend to the various stresses of managing a household.   -       Fourth, say that one-week-a-month worker maintains an unreported cash-only job on the side - then the deal gets even better than the $60k a year job.  And some economists estimate that there is $1 Trillion in unreported, earned income each year in the United States. Now where it gets plainly out of control is if one throws in Supplemental Security Income (SSI).  SSI pays $8,088/period for each "disabled" family member.  A person can be deemed "disabled" if they are totally lacking in the cultural and educational skills needed to be employable in the workforce.  If you add $24,262 a year (for three disability checks), now the lowest paid welfare family would again have far more take-home pay than the $60,000 a year family. The topic of wealth redistribution in America is truly a touchy subject.  But this chart matches the disposable income chart recently released by the Congressional Budget Office - who just released a key paper titled: "Share of Returns Filed by Low- and Moderate-Income Workers, by Marginal Tax Rate, Under 2012 Law". Perhaps the most disturbing set of figures resides below, and tries to summarize our unsustainable welfare burden: -       For every 1.65 people employed in the private sector, 1 person receives welfare assistance, and -       For every 1.25 people employed in the private sector, 1 person receives welfare assistance or works for the government.   Currently there are 110 million privately employed workers, and there are 88 million welfare recipients and government workers - rising rapidly.  As much as everyone keeps throwing stones at the top of our social order, the facts show us that individuals at the bottom of the entitlement food chain also make out like a bandits.  On our path to socialistic welfare - we've long surpassed capitalistic/communist China - because in capitalist/communist China you actually need to work to eat.   The Market: -       Monday was a surprisingly mild day for profit-taking day.  After a blistering run during the holiday week, a bit of "let's take some off the table" was certainly appropriate. -       Tuesday dawned with flat futures and I thought we could either plunge back down, or "hold the line" and work off the excess.  There was a lot of overhead resistance to slog through in order to move higher.  The only reason most of the traders weren't selling was because they knew if a "deal" is announced concerning our "fiscal cliff" a lot of folks that sold dividend stocks would rush back in, and they didn't want to miss that.  But Senator Reid came out and said that he wasn't seeing much progress toward the fiscal cliff, and that sent stocks down for the day. -       Wednesday was the forever reversal day.  If you spend enough time looking at the market, you begin to notice that often Wednesdays reverse what ever happened on Monday and Tuesday.  In fact it's so common, it's termed "reversal Wednesdays".  In any event, Wednesday dipped in the morning as we heard some rumblings about the "cliff", and soon we were testing support at the 12,800 level (an area I said would be important).  Then Boehner made some comments about how he's optimistic about the cliff and up we went.  So, from a morning dip of 100 points we ended the day positive by 107.   -       The remainder of the week was spent treading water ending with the 13,025 line for the DOW, and the 1,416 line on the S&P.  The market has spent 2 days above the DOW 200-day moving average of 12,994, and that's a good thing.  That should mean they're willing to push this market up and challenge the next resistance at 13,100 and then 13,200 on the DOW - 1,426 on the S&P.  I'm leaning long on the side that has traders not being left on the sidelines when a 'fiscal cliff' deal is announced.  If that happens we should be challenging the October highs and the all-time highs by late January.  Unfortunately the markets are dominated by 'fiscal cliff' news right now, so it's great for day trading, but will cause some 'angst' for longer term investors for sure. Tips: My current short-term holds are: -       AAPL - in at 525.35 (currently 586.30) - stop at 572.00 -       DBA - in at 28.30 (currently 29.45) - stop at entry -       SIL - in at 24.51 (currently 22.89) - no stop yet -       GLD (ETF for Gold) - in at 158.28, (currently 166.05) - no stop ($1,710.90 per physical ounce), AND -       SLV (ETF for Silver) - in at 28.3 (currently 32.44) - no stop ($33.20 per physical ounce). To follow me on Twitter and get my daily thoughts and trades - my handle is: "taylorpamm". As you've seen - we continue to exercise a lot of discipline in terms of selling at our stops and just moving on to another stock. We'll continue that philosophy especially next week. To follow me on Twitter and get my daily thoughts and trades - my handle is: "taylorpamm". Please be safe out there! 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