This past year in the market has been a wild one. Certainly, it has tested me, as well as my ability to “predict” the future. True, I don’t actually make “for certain” predictions, but I do suggest probable outcomes. One of those probable outcomes I predicted is that the DIJA would end the year closer to 13,000 than not. As of this moment, that level appears unattainable, given the current global environment and the fear that still resonates around the world. Although December 31 won’t see 13,000 on the Dow, January 2012 could show a rally from the current range. Simply, valuations are cheap.
The global equity market, measured by MSCI, is winding down a volatile 2011 with a year-to-date loss of more than 12 percent, which has lowered valuations across the board.
Now, cheap valuations do not necessarily mean money flows into the market; fear and uncertainty are still out there, but it does mean the big money is watching and, perhaps, slipping a bit in here and there just to remain quietly in the game.
U.S. money managers rebuilt their equity holdings in December to the highest this year on signs of a strengthening U.S. economy. The poll Of 12 fund managers showed firms boosting their equity allocations for the second month in a row to an average of 66.8 percent.
The above tells me that although the market is stuck in the mud, the driver is giving it a little gas and ready to give it more, as soon as the tires bite into some solid earth. Switching gears, I have another response regarding my column discussing my friend’s concern for our economic future.
I agree with your friend, as we have to quit the give-away programs. Isn’t true that if we lowered the maximum tax to all businesses to 25%, we would generate about 1-trillion dollars per year? It would certainly put more jobs back in America. The euro @ a $1.00 would help both our economies, as it would put both on a level playing field with the rest of the world.
As to the “give-away programs” he references …
True, direct subsidies to business and tax breaks to the largest corporations on the planet cost us many, many billions each year, and they don’t provide much return on investment (ROI), so we should stop those. In fact, we get a greater ROI from unemployment compensation, so we should continue that. As to the lowering of the corporate tax rate, well, his tax receipt number of “1–trillion dollars per year” from doing that is fundamentally incorrect. In fact, corporations pay on average a lot less than the 25% rate he would like to see. The excerpt below is from a left-leaning group, but it is highly respected. As well, it matches up with other center-right studies that present similar, if not exact numbers.
Citizens for Tax Justice (CTJ) released an examination that said that a dozen major companies had, between them, an average effective tax rate of roughly -1.5 percent between 2008 and 2010 — well below the top marginal corporate rate of 35 percent.
In 2010, for example, General Electric received a $1.1 billion kickback from the U.S. government, giving it a less-than-zero effective tax rate. As to the euro, it remains to be seen if a lower euro will help the European economy. A weaker U.S. dollar certainly helps the U.S. as an exporter, and under normal circumstances, it would help Europe, but today’s circumstances are not normal, so, as always, we will see …
Trade in the day – Invest in your life …
