Jody Eisenman on Finance

Fourth of July 2010

Posted by Jody Eisenman | Filed under Uncategorized

On our nations’ 234th independence day weekend, it is important to take time out and focus on all the wonderful things we have in this great country. In many nations of the world, freedom of religion, freedom of earning a living in any area we choose, and freedom of speech is only a fantasy. In the United States, these freedoms are not only allowed, but guaranteed under the constitution. On this day, I am going to print some of my favorite quotes concerning freedom:

1.”Our greatest happiness does not depend on the condition of life in which chance has placed us, but is always the result of a good conscience, good health, occupation and freedom in all just pursuits.”

Thomas Jefferson
2. “Liberty, taking the word in its concrete sense, consists in the ability to choose.”
Simone Weil
3.”Freedom is the oxygen of the soul.”

Moshe Dayan
4. “Those who won our independence believed liberty to be the secret of happiness and courage to be the secret of liberty.”

Louis Brandeis
5. “You can’t separate peace from freedom because no one can be at peace unless he has his freedom.”

Malcolm X
Remember not to take our freedom for granted!

Happy Independence Day!

A Tough Time for Stocks

Posted by Jody Eisenman | Filed under Uncategorized

On June 21, The Dow Jones closed at 10,583. It had risen over 600 points in the prior two weeks, and looked ready to move higher. However, since then, the market has dropped almost every day to close today at 9732. The reasons for this have been the European Debt Crisis (discussed here several times), and fears of a “double dip” in the economy, but especially in the housing market. Despite the Fed Funds rate at virtually zero, and the hundreds of billions spent bailing out the banks, Fannie and Freddie, the autos, etc, the economy is clearly not recovering very quickly. In addition, the unemployment rate remains close to 10%. Meanwhile, treasury yields fell even further as investors flocked to safe havens. The 10 year US treasury dropped below 3%. The one year is now at 0.32. As tomorrow is the Friday before the July 4th weekend, I do not expect a major move. However, we might see a “dead cat bounce” in an equity market which has been falling rapidly.

The G20 and VAT

Posted by Jody Eisenman | Filed under Uncategorized

Before I get into the markets, I was quoted in an article entitled “Letting Go: The Death of Buy and Hold” by Lauren Tara LaCapra.

As I have discussed in the past, the issue of so many countries running huge deficits has apparently caught the attention of the G20. Of course, cutting the deficit means cutting social services and/or slowing economic growth, so it’s sort of trying to fight a fever and cold at the same time. At the current summit in Canada, the leaders resolved to address these deficits. However, they also left room for each country to move at their own pace. Here’s an example of what’s happening in Europe:

In France, Budget Minister Baroin called cutting the deficit level from 8 to 6 per centan “untouchable goal”. That’s like saying we are returning to profitability because we plan on losing less money this year.
In Spain, a plan to cut civil servants’ pay by 5 per cent was met with a three day strike by underground rail workers.
In Greece, they so desperate for cash that they are putting some of their 6000 islands up for sale to the highest bidder. Most of the investors are either Russian or Chinese, which is indicative of how the wealth is shifting in this world.
In England, they announced that they are raising the VAT (value added tax) to 20%. The VAT is similar to a sales tax, where a tax is placed on products at each stage of manufacture or distribution.

Many economists view this as a regressive tax. The way taxation works, is that a progressive tax will put more of a burden on the rich. So, for example, someone earning $50,000/year might pay 10% of their earnings in taxes, while someone earning $100,000 might pay 15%. This is similar to the tax situation in the United States. A VAT is more like a flat tax, where everyone pays the same amount. However, since a tax of 20% would affect the poor more than the rich, this could be viewed as a regressive tax. It is also generally believed that the higher these VATs get, the more the underground economy grows in order to escape this.

Meanwhile, interest rates remain extremely low. The government average yield for retail money market funds is .02%. That means that someone who places $100,000 in a money market fund would earn the whopping return of $20 for an entire year! Certificate of Deposits (CDs) are only slightly higher. The national average for six month CDS is .36%. In order to get a 1% return, you would need to go out about two and a half years. With banks offering such low yields, they have the ability to make huge spreads on the money they lend. Some banks are still charging 24% on credit card balances.

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