The War on Profits
Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
Time and time again, I have told you the market is a lot smarter than all of us…thus I watch the market. I believe everything you need to know can be found in the market’s action. A keen eye for spotting important turns in market action could mean the difference between good returns or destructive returns. During this bear market, the ample money that I manage has bypassed this bear market entirely. In fact, the money I manage is right at its high watermark from the prior bull market and I beat ’07’s market handily. This has occurred because of my intense study of bull and bear markets and the characteristics they show at the outset and during these markets. I will take partial credit in that I have just followed in the footsteps of William O’Neil, publisher of Investors Business Daily and author of “How to Make Money in Stocks” as well as several other books. I don’t know where I would be without the template he put out many years ago.
But I do not want to talk about the market itself today. I want to talk about the war on the market. Yes…the war on the profits of the stock market. When all is said and done, it is profits that drive stocks. When profits expand, the market expands. When profits contract, the markets contract. It is quite simple. Most of the time, profits are based on the talent and wisdom of corporate America and then there are times where profits are based on policy. I believe we are now in a period of a war on profits…not just on corporate profits but on individual’s profits. I am not talking about the slime bags at the financial companies that caused all this. In fact, not only should they be out of business, I am still waiting for just one of them to go to jail. They deserve everything they get.
I believe there is a war on success. I believe there is a war on anyone who does well. I believe there is a war on hard work. I believe there is a war on upward mobility. How else to explain the first days of this new administration? I am not so worried about what they have done. I am very worried about what is to come…as I believe they are just setting the table. If able, I believe they will raise taxes farther and higher and longer than anyone can fathom. Why? I think they believe it is their money. I actually heard someone say tax cuts are benefits. Do these people realize that any money not sent to the treasury is OUR money? It is the government that gets the benefits from the people. It is not the people who get the benefits from the government. At least, that was what it is supposed to be. The government only has money because of all of our hard work. Yet, every word out of this new administration is about how to take more money out of the success stories in order to fund THEIR ideas. Just remember, we are in the situation we are in because of too much money and too much power in too few hands…those hands were the financial companies. We are now headed into the same situation…but this time in the hands of Washington.
You may agree with me or disagree with me. That’s okay. That takes me back to the market…which again, is smarter than all. Despite the normal “honeymoon” period for a new president, the market has tanked since this new president took a large lead in the election…even before he won. It just gets worse and worse as proposal after proposal to penalize the success and penalize the profits of both corporations and individuals continues. So forget what the republicans say. Forget what the democrats say. Let’s look at what the final arbiter, the market, is saying.
On February 11, 2009, Barney Frank said this: “The math is compelling: if we do not make reductions approximating 25 percent of the military budget starting fairly soon, it will be impossible to continue to fund an adequate level of domestic activity even with a repeal of Bush’s tax cuts for the very wealthy.”
Since February 11, Lockheed Martin has dropped from $78 to $63. General Dynamics has dropped from $54 to $44. Raytheon has dropped from $47 to $40. Now we can argue about how much money should be spent on defense. I am not a defense expert. My point is in showing you what happens to stocks of corporations when it is believed profits will contract.
If this is not enough, since President Obama proposed his heath care plan…just a couple of days ago, health care stocks as a whole have dropped 8%-10%…in just a couple of days! Many stocks have dropped much more. For instance, Merck has dropped 15%…Baxter 11%…AMGEN about 14%. HMOs are down much worse. Again, we can argue about health care. My point is what happens when stocks believe profits are in trouble.
The HOUSE approved the gargantuan stimulus plan in late January. The Senate passed the bill on February 10. The DOW is down another 1300 points since that day. Major averages are down about the same in percentage terms. Again, argue all you want about the plan. My point is that this bill has to be paid for….and who is going to pay for it? Correct…the private economy. When it is believed the profits of the private economy are headed south, the market goes south.
I have watched for days as people argue that raising taxes is no big deal. In fact, it would just be unwinding the Bush tax cuts…and that it would be no biggie. Again, we can argue whether this is a biggie or not…but there are some facts about today’s environment that these people fail to want to understand. These people that are going to be taxed more have money as well as retirement plans in the stock market. The stock market is down 50%. Many of these people own their own home. Home prices have also come down markedly. Many of these people own businesses. Business income is down. So…what is the answer for these people who are the job creators, the success stories? Yup…kick them while they are down. Yup…35% plus state taxes in many states is not enough. Let’s confiscate more. What happens when you cut the profits out from underneath people who are already suffering? Simple! They feel less wealthy. They spend less…adding to an already suffering economy. Take more money from the business owner. What does that business owner do? Yup…they watch their money more carefully. Maybe they wont buy another computer. Maybe they hold off on expansion. Maybe they even let go of an employee or two…just adding to the problem.
I can go on and on. We can argue back and forth. But facts are facts. It all started with the rhetoric against the “greedy” oil companies when they were making too much. I don’t think they are making too much any more. I am in hope sane minds prevail but so far, all I have seen from this administration and the party in power is a want of more money…confiscated from the private economy. Only this time, they got the spending side of it passed first…and then they will come get the money. These people had better remember that capital will go where capital is treated fairly. There is case after case where people and businesses moving from one high tax state to a low tax state. This even occurs in other countries from county to county. I have yet to hear one pro-business idea…one idea that promotes success. So far, the only ideas have been to confiscate wealth to fund massive spending and a sham of a tax credit of $8-$13 week to lower level income earners. Tax cuts are not to keep people wealthy. They are to make MORE people wealthy. This administration is on its way to making it tougher to attain that wealth. Again, I am not worried about a 39% tax rate. I am worried about what comes after that. They are now going after deductions for charitable contributions. As Chairman of the Board of The Boys and Girls Club of Central Florida, I know how tough it already is to get donor contributions. These clubs help take care of 13,000 at-risk kids who otherwise could make wrong choices. But let’s now cut into one of the benefits of contributing to such an important organization to a community? They are now going after the mortgage interest deduction. I don’t even need to explain the folly of this move. We have even seen trial balloons floated to tax mileage.
The worst part of all this is that the sycophantic mainstream media refuse to even talk about the good or bad about all these proposals. They are too busy talking about the tingling in their legs whenever Obama speaks. They are too busy going gaga over how the new president talks or how the new first lady dresses. They are too busy applauding that the “enemy” is out of power. Well, I have news for them. The only enemy is when one turns a blind eye to a government run amok…a government that is not being questioned…a government that is in the position of no checks and balances. Do these people even remember the road to the war in Iraq? Why aren’t they questioning a man who comes up with the largest spending bill in history and a week later, in the height of hypocrisy, holds a fiscal responsibility summit? Why aren’t they questioning a man who told the world he will not redistribute wealth and now everything he does is the definition of it?
Well…time will tell. You may think I am just some sort of ideological nutcase. I am not. You may think I hate government. I don’t. I just don’t like government that is in everyone’s face. I drink no one’s kool-aid. I carry no one’s water. To this day, I rail against the hypocrisy of the Republicans who went on a spending binge during their time in power who now, all of a sudden, are against spending. I blasted Bush day in and day out for his reckless spending, his mismanagement of the war, his spending on the war, the TARP and everything else I disagreed with. Since so few are critiquing this new administration, someone has to. I received an email this weekend telling me Obama has only been President for little over a month and that I should give him a chance. I am keeping my fingers crossed and wishing him well. I hope he succeeds. I really do. But I have news for the writer of the email. It does not and will not matter what I think. In the end, the market will have the final vote. So far, the vote has been loud and clear. Obama may think he will bring in more money by raising taxes to fund his programs. History shows that revenue to the government will only go down as you raise taxes as business and commerce continue to slow. The good news, no matter what, in the long run, it has not paid to bet against this country because of the extraordinary capability of the people of this country….not the capability of the government. The best news for Obama: good policy or bad, the market is already down over 50%.
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