FW: The Fiscal Cliff Tax Bill

News on the bill that diverted the Fiscal Cliff are starting to come out.  Here are some tidbits:

 

For example, it is good news for taxpayers that the Alternative Minimum Tax (AMT) laws have now been changed, and the law now permanently adjusts the parallel tax exemption amount, effective for the 2012 tax year, to $50,600 for single filers and $78,750 for married taxpayers.  It is also good news that the AMT exemption amounts are then indexed annually for inflation.  Yet, realize that these changes do not get rid of all of the financial pain; it just reduces it. 

 

What is not good news for taxpayers are changes in the Personal Exemption Phaseout (PEP) and the Pease Provision.  The legislation restores and makes permanent two backdoor tax increases for joint filers with income above $300,000 ($250,000 for singles).  When it was last in effect, the PEP reduced or eliminated the value of personal exemptions for taxpayers earning more than the income threshold.  PEP is the personal exemption phaseout of itemized deductions which will reduce that amount for wealthier taxpayers by 2 percent, while Pease is the 3-percent phase out of itemized deductions.

 

Just to rub some salt in the taxpayers’ wounds, the payroll tax rate for individuals in 2013 will increase to 6.2 percent from 4.2 percent, and there will be a hike in the Medicare part of the payroll tax.  The new Medicare law states that for the first $200,000 ($250,000 for married couples), the current rates will remain  (1.45 percent for employees and 1.45 percent for employers), but for incomes above that level, the rates will be 2.35 percent for an employee and 3.8 percent for the self-employed. 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Louisiana: Americas New Frontier For Business Opportunity - Forbes Magazine

Louisiana: Americas New Frontier For Business Opportunity - Forbes Magazine

http://www.forbes.com/sites/adrianalopez/2013/01/03/americas-new-frontier-for-business-opportunity/

PIMCO's Bill Gross on Fed balance sheet expansion: Money For Nothin' Writing Checks for Free

PIMCO’s Bill Gross on Fed balance sheet expansion:  Money For Nothin’ Writing Checks for Free

 

But there is no such thing as a free lunch, economically speaking.  There are consequences to these actions.  And the Fed is not likely to exit QE without someone paying the consequences.  The only questions are who, how, and when.

 

“…ultimately government financing schemes such as today’s QE’s or England’s early 1700s South Sea Bubble end badly.”

 

“The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold.”

 

“Capital vs. labor; bonds/stocks vs. cash; lenders vs. borrowers; surplus vs. deficit nations; rich vs. the poor: these are the secular anomalies and mismatches perpetuated by unlimited check writing that now threaten future stability.“

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

PIMCO's Gross Says Government Financing Schemes Such as QE End Badly

Gross Says Government Financing Schemes Such as QE End Badly
2013-01-03 13:56:38.213 GMT
By Liz Capo McCormick


Jan. 3 (Bloomberg) -- Pacific Investment Management Co.'s Bill Gross, manager of the world's biggest bond fund, said investors should be alert to the longer-term inflationary risks of stimulus programs such as quantitative easing.

"Ultimately, government financing schemes such as today's QE's or England's early 1700s South Seas Bubble end badly,"
Gross wrote in his monthly investment outlook released today on the Newport Beach, California-based company's website.

The risk of the combined $6 trillion expansion of the balance sheets of the world's six largest central banks through debt-buying programs since the beginning of 2009 "comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold," Gross said.

Investors should avoid longer-maturity debt, as inflationary effects of Federal Reserve's actions are likely to be felt many years in the future, and focus on short to intermediate securities that are supported by central bank policies, Gross said. Central banks' debt purchases though initially supportive of higher-risk assets, such as stocks, may ultimately harm them as quantitative easing proves "increasingly ineffective" with regards to bolstering the real economy, he wrote.

The Fed this month added $45 billion of Treasury securities to the $40 billion in mortgage debt it has been buying it its third round of quantitative easing. The central bank also last month for the first time linked the outlook for its main interest rate to unemployment and inflation targets.

Fed Targets

The concern that Fed Chairman Ben S. Bernanke's policies threaten price stability has led some Republicans over the last year to seek a change in the Federal Reserve Act that would restrict the Fed's focus solely to that goal, stripping the central bank of its jobs mandate.

The Fed has kept its benchmark interest rate close to zero since December 2008. The central bank said last month the rate would stay low "at least as long" as unemployment remains above 6.5 percent and inflation projections are for no more than 2.5 percent.

Growth "now is to be measured each and every employment Friday via an unemployment rate thermostat set at 6.5 percent,"
Gross wrote in the note. "We at Pimco would not argue with that objective. Yet we would caution as Bernanke himself has cautioned, that there are negative consequences."

Jobs Report

The benchmark 10-year yield rose less than one basis point, or 0.01 percentage point, to 1.84 percent at 8:55 a.m. New York time, based on Bloomberg Bond Trader data.

The economy gained 150,000 jobs in December, versus 146,000 in November, according to a Bloomberg survey of analysts regarding a Labor Department report scheduled to be released tomorrow. The jobless rate held at 7.7 percent, the least since 2008, according to a separate survey.

The firm's $286 billion Total Return Fund has gained 10.2 percent over one year, beating 94 percent of its peers, according to data compiled by Bloomberg. Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.92 trillion as of Sept. 30.

It's The Economy Stupid: Jobs, And We're NOT Talking About Steve

 

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Initial Jobless Claims	DEC 29	360K	372K	350K	362K
Continuing Claims	DEC 22	3210K	3245K	3206K	3201K
Challenger Job Cuts YoY	DEC		-22.10%	34.40%
ADP Employment Change	DEC	140K	215K	118K	148K

 

Jobless Claims in U.S. Rose More Than Forecast in Holiday Week

But The Labor Department “Estimated” Jobless Claims For 9 States Due To Holidays

 

More Americans than forecast filed claims for unemployment insurance payments last week as the closing of some state agencies during the holidays prompted the government to estimate “some” figures.       Applications for jobless benefits increased 10,000 to 372,000 in the week ended Dec. 29.  Economists had forecast 360,000 claims, according to the median estimate in a Bloomberg survey. Claims in nine states and territories were estimated last week, a Labor Department spokesman said as the data was released.  Claims data typically ebb and flow during this time of year as holiday closures make it more difficult to arrive at timely counts, the government spokesman said. Underneath the changes, the figures indicate firings were little changed heading into 2013 during the stalemate over the government budget.

 

The four-week moving average of claims, a less-volatile measure, rose to 360,000 from 359,750.  That’s not much of a move.

    

 

ADP Says Companies in U.S. Added 215,000 Workers in December

 

Private companies added more workers than projected in December, indicating the U.S. job market finished 2012 with momentum, according to a private report based on payrolls.

The 215,000 increase in employment was the largest since February and followed a revised 148,000 gain the prior month that was larger than initially reported, figures from the Roseland, New Jersey-based ADP Research Institute showed today.  The median forecast of 36 economists surveyed by Bloomberg called for a December advance of 140,000.

 

Sustained growth in hiring would help generate the wage gains needed to spur consumer spending, the biggest part of the economy.

 

Today’s figures showed that goods-producing industries, which include manufacturers and construction companies, increased workers by 28,000 in December. Employment in construction jumped by 39,000, while factories cut 11,000 jobs.  Service providers added 187,000 workers.  Companies employing more than 499 workers added 87,000 jobs. Medium-sized businesses, with 50 to 499 employees, took on 102,000 and small companies increased payrolls by 25,000, ADP said.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Countdown of Favorite Cliffs

DEAD LAST - Fiscal Cliff

What a load! What a crock!

 

#5 - Cliff Robertson

It's hard to dislike Cliff Robertson. John F. Kennedy liked him -- the young president tapped Robertson to play him in the movie version of PT-109, despite the fact that Robertson was far too old for the role and couldn't pull off a Boston accent. The Academy of Motion Picture Arts and Sciences liked him too -- they gave him an Oscar in 1968 for his work in the movie "Charly." And audiences certainly liked him -- he remained a popular character actor until his death in 2011.

 

#4 - Clifford the Big Red Dog

Size aside, it's impossible to dislike Clifford the Big Red Dog. Born the runt of his litter, the 25-foot dog's enthusiasm, energy, and love for his owner, Emily Elizabeth, have made him a favorite of children through both a book series and the television show that it inspired. In May 2012, Illumination Entertainment announced plans to create a movie based on the character, hopefully giving Clifford a brand new group of fans (and obscuring the memory of that terrible Martin Short movie).

 

#3 - Jimmy Cliff

Yes, I have loved Reggae music since I first heard Bob Marley’s “Exudus” album at Steve Rome & Brad Rome’s “Animal House” on Alaska Street while an undergrad at LSU.   Jimmy Cliff is pretty likable, too. The reggae musician's work has crossed political boundaries -- his recording of "You Can Get It If You Really Want" was used as a campaign song by both Nicaragua's leftist Sandinista party and by Great Britain's right-leaning Conservative Party. He's also loved by his fans and by the music industry; he was inducted into the Rock and Roll Hall of Fame in 2010. The people who like him best, however, may be the citizens of Jamaica, who awarded him the Order of Merit -- the highest prize that the country gives to an artist or musician.

 

#2 - Cliff Huxtable

Never mind that he was a sometimes-bumbling father, or that he had appalling taste in sweaters, or that he often found himself on the losing end of various bets with his wife. TV Guide put him at the top of its list of 50 greatest TV dads of all time, and Karl Rove credited him with paving the way for Barack Obama's presidency. According to the Republican strategist, "We've had an African-American first family for many years in different forms. When 'The Cosby Show' was on, that was America's family. It wasn't a black family. It was America's family

 

And #1 Hands Down - Cliff Clavin

At first, postman Cliff Clavin wasn't part of the "Cheers" ensemble. But after unsuccessfully trying out for a role, character actor John Ratzenberger suggested that the producers create a "bar know-it-all" character. Shortly afterward, Cliff Clavin was born. While the trivia-spouting, beer-swilling Clavin often found himself on the receiving end of withering insults, he continually maintained a positive attitude -- a factor that helped make him a fan favorite.

 

Cliff Expounds On His "Buffalo Theory":

 

“Well, you see, Norm, it’s like this. A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it’s the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.

 

In much the same way, the human brain can only operate as fast as the slowest brain cells. Now, as we know, excessive intake of alcohol kills brain cells. But naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine.

 

And that, Norm, is why you always feel smarter after a few beers.”

 

 

FW: Houston, we have Cliftoff!

"In the end, the fiscal cliff will go down in the history books as some laughable combination of Y2K, the end of the Mayan calendar, a Harold Camping video, and a few pages from a Nostradamus book." ~ David Zervos


John Broussard
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury
Ph: 225-342-0013

-----Original Message-----
From: DAVID ZERVOS (JEFFERIES & CO., INC) [mailto:dzervos2@bloomberg.net]
Sent: Wednesday, January 02, 2013 8:45 AM
To: John Broussard
Subject: Houston, we have Cliftoff!

In the last 6 months I have tried to spend as little time as possible discussing the fiscal cliff. It was always a farfetched notion that some static, partial equilibrium analysis of a $600b hit to the US economy was going to be relevant. But the markets love a good Armageddon story; and a 3.6% hit to 2013 GDP provided endless entertainment for those who need to constantly be adding or cutting positions.

In the end, the fiscal cliff will go down in the history books as some laughable combination of Y2K, the end of the Mayan calendar, a Harold Camping video, and a few pages from a Nostradamus book. The idea that a move in top marginal tax rates by 5 percent would send the economy into a tailspin was ludicrous. In the last century, across numerous developed nations, we have seen plenty of strong growth with top marginal income tax rates greater than 39.4 percent. And the academic economic literature has never been able to accurately document strong correlations between top marginal income tax rates and long run growth. So if a bunch of levered traders want to jump on risk assets, and try to push them lower in illiquid year end trading conditions on some faulty set of growth/tax correlation theories, then so be it! They can drive it for a few days, and a few percent, but the whipsaw will be extreme. The reality is that the fiscal cliff was just foundationless noise in the midst of a massive reflationary trend higher for risk assets!

The good news now is that it is time for "cliftoff" – the process of breaking away from cliff drivel and moving towards a focus on the reflationary liftoff from uber-easy global monetary policy! The printers are in the driver's seat and real assets (or as I like to call them, non-printable assets) are set to rip. The market has gotten itself in lather about weak growth, the new normal, fiscal drags and some faulty twist on Armageddon. The reality is that ALL major central banks are going to drive global NOMINAL growth much higher in 2013. In turn, NOMINAL asset prices for REAL assets are headed for "cliftoff". Bad positions, incorrect correlation assumptions and a failure to focus on nominal growth will combine to generate a chase for risk assets. It will be a beautiful start to 2013 for those that did not fall for the fiscal cliff nonsense. Good luck trading!