Inflation Adjusted Total Tax Rates Paid

Great interactive graphic from the NYTimes showing just how much tax rates have fallen for most Americans despite the high tax narrative.  

Hit the link for the full interactive graphics:

Philippines Update - 7.1% Q3 GDP Growth

A few months ago, I made a post about potential new emerging market plays, focusing specifically on the Philippines.  The case was made that there were a number of positives for the economy as a whole as it moves to modernize and industrialize its still relatively agricultural economy.  Since that post, the Philippines market index has jumped 13% and is up 40% YTD.

Marketwatch.com also picked up on the topic a few months later, making similar points.


Today, Bloomberg reported:

Philippine growth unexpectedly accelerated last quarter to the fastest pace since 2010 as government spending and investment increased, easing pressure on the central bank to cutinterest rates further. Stocks rose.

Gross domestic product increased 7.1 percent in the three months through September from a year earlier, compared with a 6 percent gain in the previous quarter, the National Statistical Coordination Board said in Manila today. The pace exceeded all 22 estimates in a Bloomberg survey, whose median was 5.4 percent.

President Benigno Aquino is increasing spending to a record this year while seeking more than $17 billion of investment in roads and airports. The Southeast Asian nation is forecast to be among the 10 fastest growing economies in 2012, according to a Bloomberg survey, making it less likely that Bangko Sentral ng Pilipinas will cut its benchmark interest rate again in December. 
...

Philippine exports rose 22.8 percent in September from a year earlier, as data signaling a recovery in the U.S. and China boosted the outlook for Asian goods. Inflation eased to a four- month low of 3.1 percent in October, while remittances, which make up the equivalent of about 10 percent of GDP, surged to a record $1.8 billion in September.

The Philippine economy expanded 6.5 percent in the January- September period, today’s report showed. Public construction in the third quarter climbed 23.7 percent from a year earlier, while government spending gained 12 percent and household spending advanced 6.2 percent.

Definitely continued strength in the Philippines as I pointed out a few months ago.

Asia Stock Market Updates

From Bespokeinvest.com, a few interesting charts showing the divergence between the major Asia stock markets.

As they pointed out, the Shanghai composite is the most interesting as its continuing to test its lows.  While there was a minor sideway trend, it has resumed the doldrums that its been at for the past quarter.



Strangely enough, the Hang Seng index, which used to track China and is also considered a good proxy in some ways for the world market, has been on a strong uptrend since August and largely escaped the minor correction that the US market.



The Nikkei has been seesawing dramatically but has been rally recently on the strength (or rather the weakness) of its Yen.



India's Sensex has also been performing extremely well this year, up 22% YTD though the economy is still facing significant challenges and recently signs have pointed toward a slowdown there.

Europe and Greek Whack a Mole - Again

Finally just got back from overseas trip but still jet lagged.  Expect to see regular postings to resume shortly.

However, tonights news is another Euro zone & Greek bailout whack a mole with them finally agreeing to a debt deal after several failed meetings.

From Marketwatch: 

- Euro-zone finance ministers, the European Central Bank and the International Monetary Fund agreed early Tuesday on a plan to cut Greece's government debt to 124% of gross domestic product by 2020 and to less than 110% of GDP by 2022, paving the way for the country to receive its next tranche of financial aid. At a news conference in Brussels, European Commissioner for Monetary Affairs Olli Rehn said that "Greece has shown that it is serious about reform," and has kept to its commitments. The euro moved higher after the news, trading just below $1.2996, up from $1.2961 ahead of the announcement.


Market Reaction?  

Index Future	Future Date	Last	Net Change	Open	High	Low	Time
DJIA INDEX	Dec12	12,957.00	+21.00	N.A.	12,969.00	12,943.00	19:59:18
S&P 500	Dec12	1,405.90	+2.60	1,404.20	1,407.40	1,403.60	19:59:18
NASDAQ 100	Dec12	2,652.00	+6.25	2,652.75	2,655.00	2,651.75	19:59:18

Somewhat mild so far but its still a while to market opens.  However, the market has been on a strong rally since last week (almost exactly after my post about starting to jump back into the market).  Since then, the S&P 500 is up almost 4%, neatly retracing almost half of its drop from its Oct peaks.  However, you'll notice that the Nasdaq 100 ETF (QQQ) which dropped much further is still significantly off its peaks.  QQQ dropped almost 13% from its peak and has only retraced slightly more than 1/3 of it.  Assuming both return to their peak (big assumption to be sure), a switch from over more conservative positions that didn't drop as much into areas such as tech which did may be a profitable endeavor.  One thing going for tech is that its got incredibly low valuations now compared to historical trends and in other industries.     

P/E Ratios:

IBM at 13.9, Intel (INTC) at 8.7, Apple (AAPL) at 13.4, etc.  In comparison, retailers like Walmart (WMT) is at 14.4, GE at 15.6, etc.

Disclosure: I own significant long positions in tech such as INTC, IBM and QQQ in general.  Also hold some long positions in non-tech such as GE.

Market Update - Oversold and positioned for a short term pop

After a pretty run up from June bottoms, the markets hit a strong peak in Sept-Oct.  As everyone is aware, the market then took a pretty quick drop back down since then.  As of friday's close, the S&P 500 is down a relatively mild 7.2%, a surprisingly small drop that is not yet considered a correction (10%).  The Nasdaq on the other hand, had a stronger drop, closing almost 10.8% lower than its peak.  Tech has been incredibly weak this quarter surprisingly.  

The below chart indicates the Q4 performance so far (from Global Macro Monitor) and its clear the big drop in Tech so far this quarter.  Surprisingly, financials have fared the best at only a minus 2% drop.  However, all the sectors are negative for the quarter.

Looking at the below charts of the S&P and Nasdaq Composite, after several temporary plateaus at various support points, the markets have finally arrived at a few oversold indicators.  Granted, just because is there doesn't mean that its going to bounce back from here but its at least a positive indicator that a short term bounce may be coming soon.  This may be a good opportunity to cost average in a few purchases.

Edit: Note that I suggest to begin cost averaging in rather than all in.  Typically where I find the market is that it moves up and down for a short while before committing to either an up or down trend.  As the indicators only begin to show oversold and not that a reversal trend has occurred, its much too early to fully jump in.

Still Light Postings

As I'm still on business trip in Asia, there's unfortunately not much time to post updates to my blog.  I will have to say that Tokyo (and Japan) in general is pretty nice but crazy expensive.  I just paid 3x more than I ever would for a meal that was good but not that good.  Shopping here is crazy.  And Japan has the best product packages you'll ever see.

Before I finish, keep checking over the next couple days as I have a nice surprise to reveal to my readers!

Right on Qualcomm (QCOM) - Profits Beat Estimates

A month ago or so, I wrote an article for Marketwatch Columnist contest on alternative ways to invest in the smartphone and tablet revolution.  Breaking down their components, it was clear what were the big potential benefactors from both iOS and Android.  I named a few of them in my article.  In the last couple weeks, its clear that those projections are ringing true.  Samsung recently posted record profits, as did ASUStek, both largely benefiting from the smartphone and tablet growth.

Next up from my list is Qualcomm, who I pointed out was responsible for the cellular chip (especially with the top of the line LTE chips).  Due to space, I omitted discussion about their own SoC's like the Snapdragon which is powering many of the top Android phones.  Well QCOM just pointed their earnings yesterday after the close, and as expected, they got a huge boost from the new mobile industry.  QCOM stock is up 8% after the report.  

From Bloomberg:

Earnings in the current period will be 90 cents to 98 cents a share on revenue of $5.6 billion to $6.1 billion, San Diego- based Qualcomm said yesterday in a statement. Analysts on average had projected net income of 86 cents on sales of $5.33 billion, according to datacompiled by Bloomberg.

Unlike chipmakers such as Intel Corp., which are being hurt by slack personal-computer sales, Qualcomm is benefiting as consumers in developed nations snap up the newest phones and as those in emerging markets upgrade their devices, Chief Executive Officer Paul Jacobs said. The company also is pulling in more license revenue from its technology standards that provide high- speed data connections in smartphones.

“Qualcomm has absolutely been one of the prime beneficiaries in smartphones and tablets,” said Mike Burton, an analyst at Brean Capital LLC. “This is a very strong report.” 

Net income in the fourth quarter, which ended Sept. 30, was $1.27 billion, or 73 cents a share, compared with $1.06 billion, or 62 cents, a year earlier. Sales rose 18 percent to $4.87 billion. Analysts on average had predicted sales of $4.65 billion.

Profit before certain items in fiscal 2013 will be $4.12 to $4.32 a share on revenue of $23 billion to $24 billion, Qualcomm said in the statement. Analysts on average had projected profit of $4.13 a share and sales of $21.7 billion, according to data compiled by Bloomberg.

The majority of Qualcomm’s revenue comes from baseband chips, which connect phones to cellular networks, sold to wireless device makers such as Samsung Electronics Co., Apple Inc. and HTC Corp. (2498) The bulk of the company’s profit comes from the licensing of so-called code division multiple access technology, a radio-communications standard used in other chips, handsets and phone systems.

Some 711.4 million smartphones will be sold this year, a gain of 44 percent, Canaccord Genuity Inc. analysts projected in a report. The market will grow 35.4 percent next year, the analysts estimated.

QQQ Breaks Below Support Point

As I mentioned in my post the other day, the Nasdaq 100 ETF, QQQ, was stuck at its resistance point for the last 2 weeks.  While it had not dropped below it, it also hasn't rebounced much off of it either.  With the fresh news of Germany economic ills and the spreading Europe slowdown, the market dropped off its own cliff today.

The chart below tells the tale quite nicely as QQQ is sharply below its support now.  The next support line?  Its a bit less clear but a decent argument can be made around the $62 point.  But clearly the downward momentum is still in vogue.

Poor Supply and Demand in Bangkok

After being here in Bangkok, Thailand for a few days for business, I have made an observation of a very poor supply and demand situation here!

For the last 3 days, I have had this huge craving for sticky rice and mango.  If you haven't had, it's delicious.  However, randomly going about my way, I have been unable to find any (aside from the amazingly overpriced ones in the hotel room service).

This completely asymmetric supply and demand situation must be rectified!

Nasdaq 100 (QQQ) - Again at Support Point

Quick technical chart showing the Nasdaq 100.  After a sharp drop out of its trading channel and below its follow, QQQ had found another support line at ~$65.  It held up well to that value for a week, saw a quick bounce, and now is right back testing that line.

Needless to say, it'll be interesting to see if it can hold.

Final Round Article on Marketwatch Column Contest - Software Industry

Regular readers here likely has seen a few of my posts before regarding my entry in the Marketwatch.com Columnist contest.  It is a 3 round setup with the final winner (chosen by Editors) getting a freelance writing contract.  My first article was about the new new Asian emerging markets, specifically focusing on the Philippines.  That article got me past the 1st round.  The second article was about how to invest in the smartphone/tablet industry without investing in the companies everyone already knows, focusing on the various components and suppliers for those electronics.

I was pleasantly surprised by the 2nd round win.  The setup for the 2nd round was 3 voter pickers and 3 editor picks out of 26.  With some obvious campaigning from the top vote getter's, I was out of the voting game.  However, the quality shined through and I made it through via editor pick which is a higher distinction than votes in my opinion.

That sets me up for the 3rd and final round and my article is about the other side of the technology industry.  While everyone talks about the new shiny looking piece of product, few really look at the software side, the part that everyone interacts with.  Below are some excerpts from my article, hit the link for the full article and help vote for me!

See my article on Marketwatch.com here.

For all the stories about declining PC sales, rise of smartphones, Web 2.0, and Cloud computing, an often missed discussion is on the other side of the industry: the computer software business.  It’s an important omission as hardware without software is just an expensive paperweight.  What differentiates a Windows PC from a Linux computer or Android phones vs iOS?  Though there are some differences in design and features, in the end, software is king.

...

Looking through, software can be broken down into three main categories: enterprise (logistics, automation, corporate productivity, etc), infrastructure (OS, databases, cloud, etc), and general consumer software (videogames, media players, apps, etc).

In general, enterprise software has been strong as business productivity needs have only grown as the world, supply chains, and logistics become more and more complicated.  The enterprise software market was expected to hit $267 billion in 2011 and projected to grow 10% for 2012.  Of this market, resource planning is the largest component at $23 billion.  The enterprise software is dominated by SAP AGSAP -0.01%with sales of $10 billion (SAP: +35% YTD) in 2009 followed by Oracle Corp. ORCL -0.67% at $6 billion (ORCL: +21%).  The next two: Sage  UK:SGE +0.26%(SGE: +3.4%), and Infor (privately held), two lesser known players.  For enterprise software, emerging markets are a key source of growth as many foreign companies are looking to catch up to the U.S. in productivity.  IDC predictions peg emerging markets with 14% IT spending growth, three times the developed markets at 4.5%.

Infrastructure software has also been strong, largely driven by cloud computing.  As per IDC, cloud spending is estimated to hit $60 billion in 2012, growing 26%.  Cloud software management is expected to grow 62%, following 91% in 2011 and 109% in 2010.  Infrastructure software is a slightly more crowded market than enterprise with companies such as Microsoft (MSFT: +8.7% YTD), IBM (IBM: +5.1%), Oracle (ORCL: +21%), VMWare (VMW: +2.2%), Google (GOOG: +4.5%) and others all in play.  However, the two most famous names in Cloud are Salesforce.com Inc. CRM (CRM: +44.5%) and Amazon.com Inc.  AMZN -0.30% (AMZN: +37.6%).  However, with cloud revenue figures not publicly available and astronomical PE ratios, assuming it had earnings (see AMZN, CRM), jumping in the cloud today is a much more risky venture than growth figures would indicate.

For many readers, the most visible side to the industry is the consumer software side which you see every time you use a device.  It’s also the most varied, comprising videogames, antiviral security, media and content creation, web activities, apps, and etc.  Interestingly, consumer software is by far the weakest performing.  There are several underlying reasons for this shift in consumer software.  A simplistic way to understand this market is to ask yourself, when’s the last time you paid for a web browser?  DVD or MP3 software?  Email?  

...

While great for consumers, it’s a different story for companies and investors with now outdated business models.  The rise of open source software and the spread of programming is a strong trend that has affected consumer software in the past and potentially enterprise and infrastructure software in the future (see Rackspace).

There are however still several companies and sectors in the consumer side that has not changed.  Videogames are still based on the old model.  However, a quick look at the two software giants there, Electronic Acts Inc. EA -1.36%(EA: -42.2%) and Activision Blizzard Inc. ATVI -0.18%(ATVI: -12.4%) indicates longer term issues.  Casual mobile games, escalating production costs, and slow core market growth are pushing changes in the gaming industry and many incumbents are likely to suffer.  EA as an example has had negative yearly profits since 2008.  Other companies such as Symantec Corp. SYMC +0.06%(SYMC: +17.5%), maker of Norton Antivirus, are still profitable but will suffer the same competitive issues of free alternatives like MicrosoftMSFT -0.07%Security Essentials.  However, some consumer companies are still doing well such as Adobe Systems Inc. ADBE +0.10%(ADBE: +20.3%) and Autodesk Inc. ADSK +0.32%(ADSK: +6.5%) due to their focus and entrenchment in the professionals market.  Long term however, these companies all face the same issues that has pushed other consumer software companies out.

...

Read the rest at and vote here.

Cash Outflows in Equity Markets

Interesting chart from Barron's regarding why hedge fund performance has been so poor this year.  Its rather amazing if you look at the numbers: 12%+ gain in S&P 500 index vs average 4.8% hedge fund return YTD net of fees.  That makes one wonder, what the heck are the hedge funds doing??  Well, interesting comments from the Barron's article:

Managers across all strategies are concerned about another 2008-like market crash, but in the meantime, they've been hurt by central banks' persistence at keeping interest rates low. Add in volatility and a U.S. presidential election where the top three issues are the economy, the economy, and the economy, and it's clear that hedge-fund managers are more concerned about managing risk than gambling on equities. 

But Ken Heinz, president of HFR, says this year's poor performance is more a case of growing fears among hedge-fund managers that a far-reaching economic crisis is coming. More managers are emphasizing less risk, even when playing the broader stock market. Third Point's third-quarter letter to investors said the fund matched the market's gain "with significantly less exposure."

Interesting that fear of an impending crash is leading hedge funds to cash out of the market.  Below, you can see the outflows from equity funds which has been significant with over $4.4 billion in the last 4 weeks alone.  The winners from an inflow standpoint has been bond funds.

Does Higher Income Taxes Lead to Increased Growth?

This post is slightly venturing somewhat into the realm of political arguments but facts are facts.  Here is a link to the results of a congressional research into the impact of top marginal income tax rates on growth.  As many are aware, the GOP has been using the claim that lowering income taxes would cause great growth.  However, that is simply not supported by the numbers and history.  While I would like to have lower taxes (who doesn't?), any plan to lower rates while also stimulating growth and lowering deficits is not quite so simple.

Link to the research report PDF.


Summary taken from the Report 

Income tax rates have been at the center of recent policy debates over taxes. Some policymakers 
have argued that raising tax rates, especially on higher income taxpayers, to increase tax revenues 
is part of the solution for long-term debt reduction. For example, the Senate recently passed the 
Middle Class Tax Cut (S. 3412), which would allow the 2001 and 2003 Bush tax cuts to expire 
for taxpayers with income over $250,000 ($200,000 for single taxpayers). The Senate recently 
considered legislation, the Paying a Fair Share Act of 2012 (S. 2230), that would implement the 
“Buffett rule” by raising the tax rate on millionaires. 

Other recent budget and deficit reduction proposals would reduce tax rates. The President’s 2010 
Fiscal Commission recommended reducing the budget deficit and tax rates by broadening the tax 
base—the additional revenues from broadening the tax base would be used for deficit reduction 
and tax rate reductions. The plan advocated by House Budget Committee Chairman Paul Ryan 
that is embodied in the House Budget Resolution (H.Con.Res. 112), the Path to Prosperity, also 
proposes to reduce income tax rates by broadening the tax base. Both plans would broaden the tax 
base by reducing or eliminating tax expenditures. 

Advocates of lower tax rates argue that reduced rates would increase economic growth, increase 
saving and investment, and boost productivity (increase the economic pie). Proponents of higher 
tax rates argue that higher tax revenues are necessary for debt reduction, that tax rates on the rich 
are too low (i.e., they violate the Buffett rule), and that higher tax rates on the rich would 
moderate increasing income inequality (change how the economic pie is distributed). This report 
attempts to clarify whether or not there is an association between the tax rates of the highest 
income taxpayers and economic growth. Data is analyzed to illustrate the association between the 
tax rates of the highest income taxpayers and measures of economic growth. For an overview of 
the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic 
Growth, by Jane G. Gravelle and Donald J. Marples. 

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it 
is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 
1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP 
increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 
1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive 
evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the 
top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax 
rates have had little association with saving, investment, or productivity growth. However, the top 
tax rate reductions appear to be associated with the increasing concentration of income at the top 
of the income distribution. The share of income accruing to the top 0.1% of U.S. families 
increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 
recession. The evidence does not suggest necessarily a relationship between tax policy with 
regard to the top tax rates and the size of the economic pie, but there may be a relationship to how 
the economic pie is sliced. 

Average Tax Rates of Highest Income Taxpayers From 1945-2010.  Note that today is among the lowest in modern
history.

Top Tax Rates for Various Asset Classes from 1945-2010.

Real GDP Growth as a function of Top Tax Rates - 1945-2010