Trillions Going Out... Nothing Coming In

Obama TaxesMarkets bounced back today after yesterday's aggressive sell off. Strong earning reports from retailers helped boost up the market and finish in the green. Once again we are starting to flirt with that 11,000 mark on the Dow, which if broken, could spark another nice little rally. Keep in mind that volume still remains critically low, which can result in some serious intra-day swings.

Just as I discussed in a post a few weeks ago, we should be expecting pretty good earnings numbers, especially from the retailers. Macy's, GAP, and American Express all put out strong earnings numbers, which caused for some pretty good gains for their stocks. I expect most retailers to have relatively strong earnings for this quarter, so it may be wise to buy up some stock about two to three days before these retailers present. The day before usually results in a nice little run as does the actual day of the announcement. However, I like to get out immediately after the announcement, as the following day often sees an exhaust day.

Increasing stock prices for retailers will provide a great shorting opportunity in the future. Sure, these earnings reports are looking good, but they are not based on true consumer spending. Much of the money circulating in the economy right now is government placed money or freed up money from government tax credits. The pains and problems of the recession still exist (which is evident by the still struggling job market). We are just enjoying the numbness of government stimulus for the time being. As many of these retail stocks will inflate for the next quarter or two, I am very much expecting another round of this recession to take effect. The government can't afford to keep paying the bills and here's why.

It's estimated that 50% of Americans will not be paying Federal Taxes for the year of 2009. Due to the massive increase of tax credits and capital losses that has taken place this past year, many consumers will enjoy a tax free year. A family with 2 kids under 17 with a household income of $50,000, will walk away tax free due to all of the new tax credits available. However, not all are enjoying low taxes. For those making $300,000 and more are paying even more. In fact, the top 10% of earners are expected to pay 73% of Federal Taxes for 2009.

My question is, where will the government get their money. We have endured and will continual to endure some of the largest amounts of government spending we have ever seen, while at the same time, we are seeing a record low amount of tax revenue. This is how massive spending can quickly drive the economy into a down spiral. For now, successful Treasury sales are helping to defer this debt to outside nations, but surely this will decline. The Fed, being the #1 buyer of Treasuries, has to begin to think about slowing their purchasing. The government will eventually need to find revenue opportunities and you better be sure they will look to taxes. So don't get too comfortable paying no taxes this year, especially you guys in the higher brackets. It will only get worse. Happy Trading.


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