April 4th, 2011
By: David Kocieniewski
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
April 4th, 2011
By: Robert Oak
Everybody knows multinational corporations are not paying U.S. taxes. Yet instead of making corporations cough up, our government is busy planning more screw jobs on the U.S. middle class and labor force, all under the guise of reducing spending.
Senator Bernie Sanders is trying to draw attention to the insanity with a top ten list of the worst corporate tax avoiders.
Here is the list from Sander’s floor speech.
- Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.
- Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.
- Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.
- Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.
- Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.
- Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.
- Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.
- Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.
- ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.
- Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
Did you know G.E. didn’t pay any taxes? That’s right, in 2010, G.E. made $14.2 billion in global profits, $5.1 billion inside the United States, paid zero taxes and got a $3.2 billion dollar refund from Uncle Sam.
Literally Obama put G.E., yes that G.E., in the White House.
It appears the Obama administration somehow believes shipping jobs overseas and letting multinational corporations manipulate the U.S. corporate tax code magically creates jobs. This insanity is assuredly touted by some corporate lobbyists explaining in great detail how . Yes, corporate lobbyists do literally attempt to spin math to politicians. If there was ever a need for better mathematical skills, frankly, it’s in the White House and Congress to see through this baloney. Literally Obama claimed he thought about jobs as soon as he woke up and before he went to sleep. That’s one scary statement, for the obvious, stop offshore outsourcing them has magically never been brought up as a remedy for the jobs crisis.
We’re not alone in noticing the insanity of putting a corporate tax dodger, labor arbitrager and offshore outsourcer in the White House to create American jobs. Seems Russ Feingold has formed an organization to get G.E. out of the White House. Yet Obama, he’s standing by his campaign donor man, G.E. CEO Immelt.
Someone like Immelt, who has helped his company evade taxes on its huge profits — and is now looking to workers to take major pay cuts after his compensation was doubled — should not lead the administration’s effort to create jobs.
In Stop the Freeloaders, one op-ed out of many demanding we stop this never ending corporate welfare, we have more damning facts:
GE spent $200 million to lobby for loopholes in the federal income tax code over the past decade, made $26 billion in American profits over the past five years, and not only paid absolutely no federal income taxes, but got itself a $4.1 billion rebate from the IRS.
That is far from an anomaly. Two out of every three U.S. corporations paid no federal income taxes from 1998 through 2005, according to a report by the Government Accountability Office. And the situation hasn’t improved since then.
Lest one focuses exclusively on G.E., there are many, many multinationals doing the same thing, offshore outsourcing jobs, squeezing workers and manipulating tax codes. In fact it’s so bad, the we want to be a Chinese company Cisco Systems is demanding a tax holiday to bring their ill-gotten offshore outsourcing gains back to the United States tax free. This latest screw the nation tax agenda is all about distributing parked profits to shareholders and of course, corporate executives. In 2010, corporations made record profits, all the while offshore outsourcing jobs in the biggest jobs crisis since the Great Depression.
In 2008, the GAO found 23% of U.S. corporations pay zero tax in a given year. From 1998 to 2005, we have:
For large U.S. corporations — defined as those with at least $250 million in assets or gross annual receipts of at least $50 million — the GAO found that 25% reported owing no federal income tax in 2005. That percentage has been falling significantly since 2001, when it reached a peak for the period of 38%. The study also found that about 24% of these large U.S. corporations reported no tax liability for at least four of the eight years being studied.
Also, 72% of large foreign-owned corporations that do business in the U.S. reported no tax liability for at least one year during the period, the GAO found.
Today, Kevin goes over the basic steps to become successful in network marketing. Find out why everyone should consider starting their own network marketing business and get the secrets behind making money faster than you ever imagined!
FREE Vitamin D3
Take Trudeau on the Go! Click here to download this show to your iPod, mp3 player, or PC through iTunes!
February 22, 2011
By: Jonathan Benson
In an effort to ease the overall budgetary burden in 2012 and reduce the federal deficit, the Obama administration has targeted Big Pharma by going after a few drug industry darling laws for alteration or extinction. The 12-year market exclusivity for patented, brand-name drugs, for instance, could be reduced to seven years under new proposals. And the controversial “pay-for-delay” scheme where brand-name and generic drug makers settle patent disputes in a way that purposely blocks lower-cost rivals from entering the market, could also be eliminated.
During a time when nearly half of the U.S. states are going bankrupt, and the national debt nears $15 trillion, it only seems reasonable and appropriate to cut wasteful spending and reduce the size of government. And setting aside for a moment the fact that Obama’s near-trillion-dollar health care scheme will significantly swell the U.S. budget far more than cutting a few drug industry deals will shrink it, proposals to curb Big Pharma’s runaway monopoly on the health care industry are commendable.
The Obama administration believes cutting drug patent durations from 12 years to seven years will save $80 million starting in 2015, and up to $2.3 billion from 2012 to 2021. And ending the sweet deal “pay-for-delay” program that benefits only drug company interests will save $540 million beginning in fiscal year 2012, and nearly $8.8 billion through 2021.
Naturally, drug companies, particularly those who rely on such schemes to achieve billion-dollar profits from blockbuster drugs, are up in arms over the proposals. They warn, almost threateningly, that the proposals will stifle innovation and discourage research and development into new therapies. But proponents say the measure will lower the cost of drugs and increase competition.
Today, Kevin reveals exactly why he does this radio show and why he will never give up the fight! Plus, find out what the banks are doing this time to take your hard-earned money from you!
Harry Reid’s Name Already Filled In On Ballots
Take Trudeau on the Go! Click here to download this show to your iPod, mp3 player, or PC through iTunes!
October 14th, 2010
By: Blake Ellis
CVS Pharmacy Inc. has agreed to pay $77.6 million in fines and returned profits in a case alleging improper control in the sale of an ingredient used to make methamphetamine, federal prosecutors said Thursday.
The U.S. Attorney’s Office in Los Angeles said CVS, the largest operator of retail pharmacies, repeatedly failed to properly monitor sales of pseudophedrine, which is contained in some cold medicines and is also used to make meth.
Through failing to monitor these transactions, the pharmacy helped methamphetamine traffickers in Southern California and the area around Las Vegas to get their hands on “large amounts” of pseudophedrine, the prosecutors said in a statement – adding that the sales fueled a rise in methamphetamine production in California.
As part of the pharmacy’s agreement with prosecutors, CVS will pay a $75 million fine, the largest civil penalty ever paid under the Controlled Substances Act, the prosecutors said. They also said CVS will forfeit $2.6 million in profits received from illegal transactions.
“This case shows what happens when companies fail to follow their ethical and legal responsibilities,” said U.S. Attorney André Birotte Jr. “CVS knew it had a duty to prevent methamphetamine trafficking, but it failed to take steps to control the sale of a regulated drug used by methamphetamine cooks as an essential ingredient for their poisonous stew.”
Because CVS has admitted to the charges and has agreed to enter a compliance agreement with the government, criminal charges against the pharmacy will not be pursued, according to the U.S. Attorney’s Office.
CVS said it will continue to cooperate with federal prosecutors on the case.
“While this lapse occurred in 2007 and 2008 and has been addressed, it was an unacceptable breach of the company’s policies and was totally inconsistent with our values,” CVS Caremark CEO Thomas Ryan said in a prepared statement. “CVS/pharmacy is unwavering in its support of the measures taken by the federal government and the states to prevent drug abuse.”
Shares of CVS (CVS, Fortune 500) slipped nearly 2% in afternoon trading Thursday.
October 5th, 2010
The Alliance for Natural Health
How worried should drug companies be about supplements eating into their monopoly profits? A lot—as this story will show. Please share it with anyone you know who is suffering from Alzheimer’s or is worried about it.
Of course, just about everyone worries about Alzheimer’s. It currently afflicts 5.2 million people in the US and is the seventh leading cause of death. The cost of treating it is estimated at $148 billion.
Mary Newport, MD, has been medical director of the neonatal intensive care unit at Spring Hill Regional Hospital in Florida since it opened in 2003. About the same time the unit opened, her husband Steve, then 53, began showing signs of progressive dementia, later diagnosed as Alzheimer’s Disease. “Many days, often for several days in a row, he was in a fog; couldn’t find a spoon or remember how to get water out of the refrigerator,” she said.
They started him on Alzheimer’s drugs—Aricept, Namenda, Exelon—but his disease worsened steadily. (It should be noted that the latest research shows that the various Alzheimer’s drugs, like Aricept, have proven disappointing, with little real benefit and often distressing side effects.) When Dr. Newport couldn’t get her husband into a drug trial for a new Alzheimer’s medication, she started researching the mechanism behind Alzheimer’s.
She discovered that with Alzheimer’s disease, certain brain cells may have difficulty utilizing glucose (made from the carbohydrates we eat), the brain’s principal source of energy. Without fuel, these precious neurons may begin to die. There is an alternative energy source for brain cells—fats known as ketones. If deprived of carbohydrates, the body produces ketones naturally.
But this is the hard way to do it—who wants to cut carbohydrates out of the diet completely? Another way to produce ketones is by consuming oils that have medium-chain triglycerides. When MCT oil is digested, the liver converts it into ketones. In the first few weeks of life, ketones provide about 25 percent of the energy newborn babies need to survive.
Dr. Newport learned that the ingredient in the drug trial which was showing so much promise was simply MCT oil derived from coconut oil or palm kernel oil, and that a dose of 20 grams (about 20 ml or 4 teaspoons) was used to produce these results. When MCT oil is metabolized, the ketones which the body creates may, according to the latest research, not only protect against the incidence of Alzheimer’s, but may actually reverse it. Moreover, this is also a potential treatment for Parkinson’s disease, Huntington’s disease, multiple sclerosis and amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), drug-resistant epilepsy, brittle type I diabetes, and type II (insulin-resistant) diabetes.
So Mr. Newport, not being able to get into the drug trial, started taking the coconut oil twice a day. At this point, he could barely remember how to draw a clock. Two weeks after adding coconut oil to his diet, his drawing improved. After 37 days, Steve’s drawing gained even more clarity. The oil seemed to “lift the fog,” and in the first sixty days, Dr. Newport saw remarkable changes in him: every morning he was alert and happy, talkative, making jokes. His gait was “still a little weird,” but his tremor was no longer very noticeable. He was able to concentrate on things that he wanted to do around the house and in the yard and stay on task, whereas before coconut oil he was easily distractible and rarely accomplished anything unless he was directly supervised.
Over the next year, the dementia continued to reverse itself: he is able to run again, his reading comprehension has improved dramatically, and his short-term memory is improving—he often brings up events that happened days to weeks earlier and relays telephone conversations with accurate detail. A recent MRI shows that the brain atrophy has been completely halted.
Let’s take a moment to consider what actually happened here. Synthetic (patentable) Alzheimer’s drugs have failed. A drug company reluctantly decides to put a non-patentable natural substance (medium-chain triglycerides derived from coconut or palm) through an FDA trial. It works. But, darn it, a smart doctor figures out that a natural food can be substituted for the super-expensive drug. Not only that, the ketones from natural coconut oil last in the body longer than the drug version—eight hours instead of three hours. This is enough to make a drug company start worrying about its future. What if this natural health idea really catches on? Goodbye to monopoly profits!
Coconut oil can be found in many health food stores and even some grocery stores. One large chain sells a non-hydrogenated (no trans-fat) brand of coconut oil in a one-liter size (nearly 32 ounces) for about $7. It can be purchased in quantities as small as a pint and up to five gallons online. It is important to use coconut oil that is non-hydrogenated and contains no trans-fat. We would also strongly encourage the use of virgin oil (chemicals used to extract non-virgin oil are potentially dangerous, and better still, virgin organic, still quite reasonably priced.)
For more information, see Dr. Newport’s website. Sadly, you will not find any information on ketones, or the use of coconut oil or MCT oil, on the Alzheimer’s Association website.
Coconut oil is not the only natural product that has the potential to turn Alzheimer’s around. We will cover some other ones, and drug industry efforts to steal some of them, in a future issue.
Today, Kevin explains how far the FDA will go to protect the profits of the precious drug companies and why red bull is banned in France and Demark.
Plus, the modern day Nostradamus and founder of The Trends Research Institute, Gerald Celente, stopped by to tell you how he was able to get out of Chile unharmed after the 8.8 earthquake hit the country and to give you his predictions for the next few years.
Take Trudeau on the Go! Click here to download this show to your iPod, mp3 player, or PC through iTunes!
Click below to hear The Kevin Trudeau Show RIGHT NOW!!!
The International Forecaster
Accept that we are now in a depression, Stock Markets still grossly overvalued, poverty rates increase across midwest, a lots opportunity to regulate the banks,Goldman Sachs reports record profits and still bonusing employees richly, mainstream America goes on a financial diet, suburbs now home to American poor.
Few professionals are yet willing to admit we have been in a depression for the last year. You have to understand the position that economists and analysts are in. They work for corporations, insurance, Wall Street, banking and government and if they thought we were in a depression and they publicly announced that all chances for advancement would be lost or they would be squeezed out of the firm or simply fired. Under such circumstances can you ever expect that you get the truth? We don’t think so. Furthermore the depression we are enveloped in is far from over. The recession encompassed a drop in real GDP in the midst of a credit crisis. The crisis was the result of over-extended credit, prohibitively low interest rates, massive speculation by banks, brokerage houses, insurance companies, and corporations worldwide. It just didn’t happen it was planned that way. We saw that recently in testimony before Congress when CEOs of these financial firms admitted they made a mistake in the process of enriching themselves. The worst sin was the criminal securitization of mortgages and the deliberately criminal mislabeling of their ratings. Then making matters worse those who sold this toxic garbage to their clients such as Goldman Sachs, JP Morgan Chase and Citigroup were shorting the product that they had just sold to their best clients. What kind of monsters are these people? Unethical doesn’t go far enough. It was criminal. These are the same characters, along with the Fed, and others, who gave us the dotcom boom and collapse and then foisted the real estate boom on our economy. The result has been deflating assets and contracting credit offset by massive lending, money and credit creation by the Fed and monetization, all temporary expedient measures, which in the context of history has led to failure. This has been in process for seven years. This second major abuse of our system in 14 years has presented a terrible dilemma and that is where we are today. Our monetary policy hasn’t worked and won’t work and there has been and presently is little fiscal control in Washington. This is no normal recession; it is a depression.
We have zero funds rates and up until six months ago M3 expansion of more than 17%. The Fed has monetized trillions of dollars of Treasuries, Agencies and toxic waste and now we are told we are in recovery – the worst is over. We wish we could agree, but we can’t. We are reenacting the same mistakes of the past all over again. Unemployment is close to the depression levels of the “Great Depression” and is still expanding albeit more slowly. Money velocity has fallen even after the massive infusion of aggregates. Liquidity is not flowing into the economy it is pouring into Wall Street to aid and abet more speculation, which has sent the Dow from 6600 to 10,700. This game cannot be played indefinitely. Wall Street cannot continue to prosper as the economy remains stagnant, and unemployment climbs higher.
The market is grossly overpriced and the effect of favorable news will begin to wane. It should be noted that insiders are selling into the never-ending rally, and mutual funds have very little money flow coming into the funds. That, of course, is our government at work manipulating the market. Just last week insiders bought $18 million worth of shares and sold $419 million.
This to us is more proof that the stock market is the most overvalued since September 1987, which brought about the market collapse of 10/19/87 and resulted in August 1988 in the Executive Order, “The President’s Working Group on Financial Markets,” which has led to market manipulation and the end of free markets.
That and the bailout of banks, brokerage firms and insurance companies too big to fail, those same entities carrying two sets of books as authorized by the BIS, FASD and the SEC, government purchase of stock in selective Illuminist controlled companies, and government control of the mortgage and real estate markets. This give you corporate fascism at its finest. We see intervention everywhere and that is not free markets.
How can there be a recovery with 22.5% unemployment, and with the additional threat of further unemployment? Who will buy the new housing and the tremendous inventory overhand? What will happen to the commercial inventory building up? Who has money in America to buy cars and trucks? Credits to buy housing for subprime and ALT-A buyers will end up with a 50% failure rate. Cash for clunkers was a colossal failure. Such exercises in futility only buy time, just as stimulus packages, and monetization do the same thing. The elitists behind the scenes know this just as we know this. That means the colossal deficit increase of $1.4 trillion a year will add 10% yearly to the federal debt to GDP ratio that will be over 100% by 2011. The tax liability to service this debt will be overwhelming. Government debt is rising exponentially and if further stimulus is not added the credit crisis will be renewed. This is why the Fed cannot remove further liquidity from the financial system, especially after having taken M3 from 17 to 18% to 6%. Incidentally, England and the ECB have done the same thing, and they still see rising inflation. If further stimulation is not forthcoming, or war, or default comes, we will see inflation reverse and deflation take over and that could last for ten years or more. This deflation, if allowed to take its course, will cause losses of $12 to $15 trillion from the economy and cause unemployment to rise to 40% to 50%. That would also entail cutting extended benefits. That would give us the scenes we saw in the 1930s. The debt we are facing knows no precedent in modern times, and there is no possible way it can be paid.
Bad debt is piling up again in residential and commercial real estate as well as in personal and business debt. This in part is why lenders are not talking about it if they can help it, but they are not lending. Without further lending increases the economy cannot function efficiently because it is so dependent on credit. That means higher unemployment, fewer buyers and a slower economy. If you think foreclosed inventory is bad now wait until the second wave hits and it is going to hit. If you are under water on your mortgage you do not care anymore. You stop paying your mortgage and you live rent-free for a year or more. There is no longer any stigma to walking away or going bankrupt. All the Mickey Mouse games being played by government to keep people in their homes are not going to work. Subprime and ALT-A loans are not the answer. They start going into default in a big way next year as the taxpayer again foots the bill.
Where does the accumulation of debt end? For the two fiscal years ended 9/30/99, the public increased Treasury debt $5 trillion to $7.5 trillion or by 50%. The Fed has purchased 80% of Treasury debt yoy, increasing the monetary base from $850 billion to $2 trillion, which includes Agencies and MBS. Seeking cover on their announcement, they said on Christmas they would supply unlimited funds for three years to Fannie Mae and Freddie Mac. Government liabilities made in behalf of the American taxpayer since the third quarter of 2007 have jumped 61% to $3.62 trillion. It is our opinion that the inflation caused by funding and monetization over the next decade will be very disruptive and expensive to US dollar users as purchasing power falls. That translates into an additional loss in buying power of some 50%.
If liquidity stays at current levels the stock market will fall as it flourishes on increasing liquidity. In addition, higher inflation rates tend to push stocks lower. If we are correct and there is a second credit crisis ahead of us, M3 will rise again and monetization will be pushed into high gear again.
The banks make their money trading for their own accounts. They won’t have much in the way of earnings if legislation passes, the largest manipulations in history would come to an end.
The President has called for limiting the size and trading activities of financial institutions to prevent risk taking and another financial crisis. He also said there should be no proprietary trading. We are told Goldman Sachs will benefit from the President’s proposal to limit Wall Street risk by forcing deposit-taking banks to unwind trading operations.
Again the commercial paper market fell by $10 billion to $1.092 trillion. Asset-backed commercial paper rose by $3.5 billion to $430.0 billion.
Unsecured issuance fell by $9.9 billion versus rising $12.7 billion in the prior week.
Democrats have completely lost their moorings. They want to allow government to borrow an additional $1.9 trillion to put the national debt at $14.3 trillion. It would need 60 votes to pass.oqHo
Food prices are roaring upward again as the PPI rose 0.2%. That is a 4.4% gain month-on-month.
February 3, 2010
Pharmaceutical giant Pfizer said Wednesday fourth-quarter net income nearly tripled from a year ago to 767 million dollars, boosted by the acquisition of rival drugmaker Wyeth.
Pfizer, the maker of blockbuster cholesterol treatment Lipitor and Viagra for erectile dysfunction, said the results pushed its yearly profit for 2009 up seven percent to 8.6 billion dollars.
Revenues for the world’s biggest drugmaker rose 16 percent in the October-December period to 16.5 billion dollars, and for the year were up four percent to 50 billion dollars.
“During the fourth quarter, we closed the Wyeth acquisition and immediately began the integration of our operations, advancing the transformation of the company,” Pfizer chairman and chief executive Jeff Kindler said in a statement.
“We are pleased with the rapid pace of the integration and our ability to quickly realize the benefits of our combined organization. We remain excited about our more diverse in-line product and pipeline portfolio, which we expect will result in improved opportunities for the company in 2010 and beyond.”
The fourth quarter results amounted to a profit of 49 cents a share excluding special items, a penny below Wall Street forecasts. Revenues meanwhile were better than expected.
The jump in profits in the quarter also reflected the prior year’s charges due to litigation over its pain medications Bextra and Celebrex, and from cost cutting. Another factor was the divestment of biotech unit Vicuron required under the Wyeth tie-up.
The company’s 2010 outlook was below forecasts calling for per-share profit in a range of 2.10 to 2.20 dollars instead of 2.27 dollars expected. But its revenue outlook was better than anticipated, a range of 67 to 69 billion dollars.