Sunday reading

First off is this article, which I think explains everything right now:

BI - In 6 Weeks, A New Dividend Tax Will Smack Rich People Upside The Head. Now, it's probably safe to assume that the rich will get their way and Obama will cancel these moves when he makes his fecal cliff deal. Still, at present, the idea is that capital gains tax goes from 15% to 20%; while, most significantly, dividend tax rate goes from 15%, all the way to 39.6% plus a 3.8% surcharge for the AHA.

It's my working thesis right now that this is what's driving the move; people want to dump their dividend stocks right now. (As opposed to a week or a month from now. Because people are fucking morons and always love rushing for the fucking exits.) That money won't go into other stocks until the effect on the broader indices is completed (i.e., all the selling is done).

So if you're a TA, keep all that in mind. Hell, you don't even have to, if you're the type of TA who dogmatically ignores fundamentals - instead, just explain how the hell utilities can go 4-sigma down. OK? Explain that.

Speaking of which, I don't know how a real bond coupon is taxed in the US; but if most money holds bonds via ETFs, whose payments are treated as dividends, then these fecal cliff tax hikes would also explain the drop we're seeing in junk bonds and EM bonds. People would sell bond ETFs too, and probably any stock or ETF which is owned for the yield rather than the capital gain.

Where's that money going to go? Cash for fuck's sake? OK, that explains USD. But what about US Treasuries? How is a Treasury coupon taxed in the US?

Now, for the rest of the news:

Bonddad - here's NDD's weekly summation. Importantly, re Hurricane Sandy:

Between the NYC and Philly metro areas, about 30 million people, or 10% of the entire US population, had More Important Things To Do in the last few days of October and the first part of November than produce and consume goods and services. Almost all of the data reflects that reality. Since the effects of Hurricane Sandy are overwhelming almost all the other signal in the economic data, it will be impossible for the next month or so for the actual underlying strength or weakness to show up in the monthly numbers. We'll begin to see what is really going on in the weekly numbers, but probably not until next week.

New Deal Democrat is my one single most important go-to source for the pulse of the market: not Tanashian, not Reuters, not the charts. Because he's all about the data.

Speaking of which,

Derek Hernquist - Nate Silver Knows “Nothing”. This means that Nate Silver makes no assumptions, he just looks at the data. Which is why Nate Silver was able to predict the US election results and the pundits couldn't. To wit:

By a) not imposing their own biases, b) accepting new data as information, not a threat, and c) letting the consensus of outcomes dictate their judgment, [Silver et al] simultaneously let go of a need to judge every anecdote(noise) and end up with a more reliable forecast(signal).

This mix of humility towards what we can really know, and confidence that we can lean on the footprints of others, is much closer to the right recipe than anything being cooked up by media pundits. The aggregators have real information in the form of dozens of polls. We have real information in the form of price, why not use it?

And yes, I believe that observing the evolving footprints of active stocks is the closest we can get to measuring the true intent of the crowd…and that Nate Silver and his fellow aggregators would approve of this message.

So don't rely on fundamentals, technicals, or sentiment; look at the sum of all three, with a totally open mind, simply accepting what the market is telling you. With the assumption that you might be wrong and you need a hell of a lot of convincing before you accept any thesis. And any and all convincing must be done entirely with empirical data.

Dragonfly Capital - Gold Looks Great if You Live in Japan. To translate, gold in Yen is in a massive cup-and-handle that's now breaking upward. Of course this could mean that gold in USD crashes, but not as fast as Yen in USD will crash. (That's something people forget about ratios.) Nevertheless, if goldbugs need encouragement, there's some right there.

Hey, speaking of which... remember when it was all the rage to demand that gold miners pay dividends? Well, with the US's (possible, probably unlikely) tripling of income tax on dividends, it no longer looks optimal to put money in dividend-paying miners, eh? People are dumping dividend stocks now, right?

Now tell me which miners pay dividends: the GDX, or the GDXJ? And if people really will be driven to dump dividends in favour of chasing capital appreciation (Cap Gains tax rate only goes to 20% remember), then who benefits: the GDX, or the GDXJ?

I'm only putting that out there as a situation that could possibly develop in the next few months. Might not. Cos of course junior gold miners also suck™.

Next, here's an interesting idea:

BI - The balance sheet recovery? It's a hopeful concept. Here's Weezy:

But for the U.S. there are two reasons to be hopeful.

One is that the bloodshed at the state & local level of government seems to be coming to an end, so that's some regular monthly job losses that should dissipate.

The other big factor is what we'll call The Balance Sheet Recovery.

By now you should know the term Balance Sheet Recession, which was invented by Nomura economist Richard Koo to characterize the long slump in Japan, and which also nicely explains a lot that we've seen in the U.S. Basically, during these periods, the primary motivation of the private sector is balance sheet repair (paying down debt, savings, etc.) and if you want to avoid major pain then the government needs to go deep into debt to offset that (which is exactly what the US has done to pretty good effect).

So if a Balance Sheet Recession is a downturn characterized by aggressive debt paydown, then a Balance Sheet Recovery is one characterized by releveraging, a process that's begun, but which has a ways to go.

Be right or be poor, people. He notes it really is different this time, insofar as the typical recession and recovery don't have the same public and corporate debt profiles.

And now, about trading philosophy:

Joe Fahmy - Just take your bat and ball and go home if you don't like the market. Yeah, he says it differently, but I'm interpreting it from the standpoint of a guy who hasn't yet learned to get the fuck out of the market when it goes sour. But it would have worked fucking wonders for you, wouldn't it? Like, over the past 2 years in the junior miners? Just get the fuck out and play video games for 2 years?

And finally, some politics:

NSFW Corp - Libertarianism Was Created by Big Business Lobbyists. Which is true: "libertarianism" before the 50s was more of an anti-authoritarian, hyper-liberal, anti-law, anarchist movement. ("Libertarian" originally meant "I'm an anarchist but I don't believe in assassinating politicians.") And the Strauss/Rand/Nietzsche/Stirner axis was confined to a dank basement in the Philosophy faculty, as a poorly-reasoned hyper-emotional substrand of the study of Ethics: basically a straw man for real Ethics to use as a punching bag.

The modern "libertarianism" that Americans think about today (which is apparently still foreign to people in Europe) was, truly, invented by big business as a kind of philosophical retconning of America, in a clever attempt to eliminate the State's power over big business.

It's evil, and it's not libertarian.