Information Update 9: It’s April Fool’s Day and the Joke Is On Us All

# 009 April 1, 2009

Today is April Fool’s Day and I’m certain the joke is on us! President Obama campaigned consistantly and persistently that there would be no tax increases on families making under $250,000. In fact on Sept. 12, 2008 in Dover, N.H. he said, “I can make a firm pledge… no family making less than $250,000 a year will see any form of a tax increase.” [bold and italics by me]

Perhaps he should have said, “… any income tax increase.” Our President signed a law in February that triples (3 x) the federal excise tax on cigarettes. Now, I’m not a smoker and I abhor smoking, but I choose not to smoke. Others choose to smoke (including President Obama, a well kept secret). The federal tax will go from 39 cents to $1.01 per pack! This is projected by the Obama administration to bring in up to $38 billion over the next five years.

Excuse me… isn’t that a tax increase? Certainly it is not a tax increase to the majority of the wealthy. Over half of all smokers in the United States are in the low income bracket and one in four are classified as poor. So let’s see how this works, President Obama’s highly touted wage tax cuts will increase the average wage earners take home pay about $8 - $10 per week. If a person smokes one pack a day, they will use up over half of their tax break in cigarette taxes! So much for campaign promises.

Here’s another April Fool’s Day joke on us – “Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose. The S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001. “

http://www.bloomberg.com/apps/news?pid=20601087&sid=azRIYCD3Hqbc&refer=home

Traders are pushing up values without consideration of the profits companies are recording. Instead, they are using any good news to buy stock in companies losing money. Today’s MSN headline states: “DOW up 153 as Hope Trumps Bad News”. Hope may be good, but I can’t buy groceries with hope!

http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-040109.aspx?icid=dispatch_090401

Banks continue to foreclose homes at 100% of the amount owed rather than negotiating a lower price with the owners or investors. Then the banks (in many cases) sit on the homes often times not even paying to keep them up. Lenders are pretending that these foreclosed homes are still an asset worth what they loaned the original owners.

Now the Federal Government has allowed them to continue this ruse. The FED and the SEC has allowed a revision in the Financial Accounting Standards Board Rule FAS 157, allowing companies “more discretion in valuing unsalable assets.”

“The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of write downs they must take on so-called impaired investments, including mortgage-backed securities.”

Wow, how in the world can you define “significant judgment?” It is estimated that this could increase paper profits at Citibank by more than 20%. I guess banks are going to have the same power as the FED – create more money with the stroke of a pen! Basically what this new ruling does is allow companies (banks) to take non-performing assets that they have no chance in selling and re-assign a value to them at whatever they decide it should be. That will certainly make the balance sheet look good.

Read the Bloomberg article here: http://www.bloomberg.com/apps/news?pid=20601109&sid=awSxPMGzDW38&refer=patrick.net

Here’s my question. If you wanted to purchase stock in a bank (or any other company governed by the SEC) and the corporate accountants have juggled the books on the assets by using their “significant judgment” in valuing company assets, then how will you ever be able to estimate the true value of the company?

Here’s my answer? You cannot, and that is the point. Bankrupt companies like Citi can increase the value of non-performing assets at their disgression and BAM! Their values and equity increase dramatically driving up the stock prices…

And one more… in a story completely ignored by the financial press, the New York Stock Exchange decided to break all their pre-2009 contracts to deliver gold on demand by invoking a little known rule that governs traders. The problem is that this rule was for traders, not retail purchasers. Word is that the NYSE is running short of gold due to an increase in investors taking actual gold instead of paper promises… hmmmm.

Yes, it’s April Fool’s Day and yes, the joke is on us!

- "... a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities." --Thomas Jefferson, in his first inaugural address

I thought you might just want to know!

With regards,
Allen

Information contained herein is deemed reliable but not guaranteed.
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