Tag: finance

America’s Income – Who Has It?

 

America’s tax system and the major social programs (Medicaid and Obamacare) are driven by income. The Social Security Administration has put out a report on income in America. The data covers all wage earners (153.6 million workers and the $6.5 Trillion they earned). The Following is a pic of the report (link), if you’re working, you’re somewhere on this page:

 

#12#3

 

Let’s start at the top of the pile, those that are making the really big bucks. For example, consider the number of people who made $50m in 2012 (the 0.0001%). There are 166 people in this group. Who are these folks? Basketballer Lebron James made the list, so did actors/performers Robert Downey Junior, Beyonce, Cameron Diaz and Christian Bale. From the corporate side we have Disney’s Robert Iger and Apple’s Tim Cooke.

 

celebpic

 

Who are the wealthy in America? Anyone making over a million bucks a year is certainly on the list. The plus $1M set totaled 119,400 people (0.08%). These lucky few earned a total of $170b (3% of all income). How much should these folks be paying in taxes? Let’s go hog wild and nail them with a tax of 90%. The incremental revenue (they already are taxed at 39.6%) would be $85b, but sadly, that only covers five weeks of Social Security benefits.

 

The IRS defines ‘rich’ as an individual with annual income of $200k ($250k per couple). This income level marks the 1%:

 

Screen Shot 2013-11-04 at 7.50.30 AM

 

1.6m workers (1% of total) earned $900b (14% of all income). This is the measure of US income inequality. The 1% earn 14% of the pie. If the federal tax rate were increased to 75% (double current), it would increase revenue for Uncle Sam by about $150B. That does not fill a $1 trillion bucket, and it would be an economic disaster to set tax levels at French rates. Bottom line – the notion that taxing the rich is a solution is all wet.

 

Now consider the bottom. In the case of Medicaid, the cut off for availability is equal to 138% of the Federal Poverty Level (FPL). For a single person the number is $16,600, for a couple it’s $22,000, for a family of four it’s $33,000. The average income for all individuals/families that might qualify for Medicaid is about $25,000. If you look that up on the SS chart you see that a whopping 46% of all income earners can qualify for Medicaid.

 

poverty #3

 

And then there is the Affordable Care Act (AKA Obamacare). To be eligible for Federal subsidies, one must have an income of less than 400% of FPL. Depending on family size, subsides are available up to $90,000 of income, but the average income where the subsidies are significant is closer to $50K. Again, look up that income level on the SS chart. 73% of all workers make less than $50k! 7out of 10 workers are eligible for subsidies? That blows my mind. No wonder the Democrats love ACA so much – freebies have always translated into votes

 

aca

 

So who is left in the middle? There were 41m workers (23% of total) who made more than $50k and less than $250k. This group earned $3.5T (52% of total income). So the middle is where the money is; a quarter of all workers earn half of all income.

 

If Washington needs more revenue, it must come from the folks in the middle. But the reality is that the middle is already taxed from every direction (they also pay state income taxes, Social Security and other payroll taxes, property and sales taxes. So once again, raising taxes as a way of balancing the nation’s ledger seems to be a very difficult task.

 

 

What to make of all these numbers? Something is clearly wrong when 47% of workers earn a poverty level income. Similarly, there is something wrong when 1% of workers earn 14% of all income. The obvious solution is to tax those on the top and transfer it down to the bottom. But that is what we are already doing; more of the same is not going to change the outcome.

 

My conclusion is that America is not the ‘rich’ country that people think it is. And there ain’t a hell of lot that can be done about that.

 

eat-the-rich


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/69EjZGP5-J0/story01.htm Bruce Krasting

Fed's Bullard: Bubbles Are "Blindingly Obvious"

In a stunning series of lies, damned lies, and twisted statistics, the Fed’s Jim Bullard unleashed a torrent of self-agrandizing comfort-speak on CNBC this morning. From his comment that “bubbles, such as housing and dot-com, were blindingly obvious at the time,” despite Bernanke’s (and Greenspan’s) insistence at the time that they were not to his comments about the size of Fed Treasury holdings (and monetization) as being “average” based on some statistic, the Fed president gave himself one more out as he admonished:

  • *BULLARD SAYS FED DOESN’T WANT TO SUPPORT ‘FISCAL RECKLESSNESS’

Oh no, you’d never want to do that… With an administration lying to the American people’s face over Obamacare and now the even more powerful Fed incapable of the truth, what hope is there that anyone gets out of this debacle in tact.

 

On the “blindingly obvious” bubbles of the past:

Bullard today (with his hindsight glasses on): “Bubbles, such as housing, were blindlingly obvious at the time…”

 

Bernanke at the time: “U.S. house prices have risen by nearly 25% over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households. “

But perhaps the most important question is about how much of the debt issued by Jack Lew is monetized by the Fed: The Fed president squirms uncomfortably at around the 1 minute mark when CNBC’s Joe Kiernan asks about just how much of the Treasury’s issuance, the Fed holds (and by implication monetizing) what follows is a very disingenuous bristling, namely that it is no more than during prior episodes.

 

Which is simply a lie because Bullard of all people should know full well, the Fed’s holdings are expressed not in notional amounts but in 10 Year equivalents, and as the chart below shows, the line is now very steeply vertical…

And in percentage terms, is now 33% of the entire bond market!

The Fed has never held so much of the US Treasury issuance – ever – in the only terms that matter, namely 10 Year equivalents, despite Bullard’s claims.

Finally on the most meaningless issue of all, the Taper:

  • *BULLARD SAYS ECONOMY HAS TO DRIVE FED POLICY
  • *BULLARD SAYS `WE DON’T HAVE TO BE IN ANY HURRY’ ON TAPERING
  • *FED’S BULLARD SAYS QE HAS BEEN EFFECTIVE
  • *FED’S BULLARD SAYS UNEMPLOYMENT IS A GOOD MEASURE
  • *FED’S BULLARD SEES `CUMULATIVE PROGRESS’ IN LABOR MARKET
  • *BULLARD: NEXT 2 JOBS REPORTS WILL GIVE AN IDEA OF LABOR MARKET


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qUzn-D0tC2s/story01.htm Tyler Durden

Fed’s Bullard: Bubbles Are “Blindingly Obvious”

In a stunning series of lies, damned lies, and twisted statistics, the Fed’s Jim Bullard unleashed a torrent of self-agrandizing comfort-speak on CNBC this morning. From his comment that “bubbles, such as housing and dot-com, were blindingly obvious at the time,” despite Bernanke’s (and Greenspan’s) insistence at the time that they were not to his comments about the size of Fed Treasury holdings (and monetization) as being “average” based on some statistic, the Fed president gave himself one more out as he admonished:

  • *BULLARD SAYS FED DOESN’T WANT TO SUPPORT ‘FISCAL RECKLESSNESS’

Oh no, you’d never want to do that… With an administration lying to the American people’s face over Obamacare and now the even more powerful Fed incapable of the truth, what hope is there that anyone gets out of this debacle in tact.

 

On the “blindingly obvious” bubbles of the past:

Bullard today (with his hindsight glasses on): “Bubbles, such as housing, were blindlingly obvious at the time…”

 

Bernanke at the time: “U.S. house prices have risen by nearly 25% over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households. “

But perhaps the most important question is about how much of the debt issued by Jack Lew is monetized by the Fed: The Fed president squirms uncomfortably at around the 1 minute mark when CNBC’s Joe Kiernan asks about just how much of the Treasury’s issuance, the Fed holds (and by implication monetizing) what follows is a very disingenuous bristling, namely that it is no more than during prior episodes.

 

Which is simply a lie because Bullard of all people should know full well, the Fed’s holdings are expressed not in notional amounts but in 10 Year equivalents, and as the chart below shows, the line is now very steeply vertical…

And in percentage terms, is now 33% of the entire bond market!

The Fed has never held so much of the US Treasury issuance – ever – in the only terms that matter, namely 10 Year equivalents, despite Bullard’s claims.

Finally on the most meaningless issue of all, the Taper:

  • *BULLARD SAYS ECONOMY HAS TO DRIVE FED POLICY
  • *BULLARD SAYS `WE DON’T HAVE TO BE IN ANY HURRY’ ON TAPERING
  • *FED’S BULLARD SAYS QE HAS BEEN EFFECTIVE
  • *FED’S BULLARD SAYS UNEMPLOYMENT IS A GOOD MEASURE
  • *FED’S BULLARD SEES `CUMULATIVE PROGRESS’ IN LABOR MARKET
  • *BULLARD: NEXT 2 JOBS REPORTS WILL GIVE AN IDEA OF LABOR MARKET


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qUzn-D0tC2s/story01.htm Tyler Durden

Holiday Spending "Hopes" Crumble As Income Gains Stagnate

But this year was supposed to be different… Early-year prospects for a revival in consumer spending quickly faded in the wake of the lagged impact of the $148 billion tax hike that began the year. As Bloomberg’s Joe Brusuelas notes in the following brief interview, combined with a slower pace of hiring and sluggish wage growth, the result will probably be another in a string of disappointing holiday shopping seasons. It is increasingly doubtful that consumers have the wherewithal to meet the ambitious National Retail Federation forecast for a 3.9% increase in holiday spending to $602.1 billion. Brusuelas believes a 2 to 2.5% increases appears closer to the mark given the economic and policy challenges in place this year.

Via Bloomberg Briefs,

First, starting Nov. 1 one-sixth, or about 48 million, of individuals receiving food stamps will see a net loss of almost $16 billion in transfer payments due to cuts in the Supplemental Nutrition Assistance Program (SNAP).

 

Those in the lower two quintile of income earners, which receive the bulk of U.S. SNAP payments, will probably transfer outlays on discretionary items like electronics and apparel to inelastic non-discretionary categories such food and utilities. Accordingly, large retail operations such as Krogers, Target and Wal-Mart have reduced their holiday shopping estimates. These reductions, in part, are being attributed to the reduction in SNAP payments, the impact of the government shutdown and overall tepid job and income growth, according to the retailers.

Second, recent fundamental data on manufacturing activity, durable goods orders and hiring slowed noticeably, even before the government shutdown, during the first three weeks of this quarter. With hiring during the past three months barely sufficient to meet demographic needs, and inflation-adjusted personal disposable income up a scant 0.9 percent on a year-ago basis, it is unsurprising that both topline retail sales and sales excluding autos, building materials and gasoline, which feeds into the calculation of GDP, have slowed since June of this year, reflecting a deceleration in overall economic activity.

 

Third, the inventory buildup among retailers is also somewhat troubling given the macroeconomic slowdown and probable fiscal restraint due to policy shifts and standoffs that have characterized the second half of the year. Retailers have increased their inventories by about 6 percent compared to year-ago levels, in contrast with a 5 percent decline in 2012 versus 2011 levels.

Given the well-recognized problems with the JC Penney inventory overhang from earlier in the year, retailers such as the Gap have already begun aggressive discounting. Many have annoucned plans to open stores on Thanksgiving in order to add another shopping day to the season. While that may help bolster sales, the severe discounting will compress margins and add to bottom line woes in the quarter.

Perhaps more troubling is the likelihood that the large inventory build will spill over into the first quarter next year. There is also likely to be a repeat performance of “fiscal follies” in Washington, creating an even greater drag on overall economic growth.

While firms that employ state-of-the-art inventory optimization, such as Wal-Mart, began pulling back on orders in mid-September to mitigate the slowdown in consumer demand, most firms in the supply chain do not have that ability. Carol Lapidus, the National Consumer Products Industry Leader at McGladrey (see the clip above) noted that middle market companies that sell into retail for 2014 are getting smaller. Given where the U.S. is in the business cycle, the opposite should be occurring, which should provide a sober note heading into what will probably be another difficult holiday shopping season.

Finally, an unusual confluence of calendar quirks will result in a net decline of five selling days compared to 2012 in between Thanksgiving and Christmas. In addition, with Hanukkah starting on Nov. 28, a portion of traditional holiday spending will probably be pulled forward into late November and early December, creating a scenario where retailers may be tempted into even greater discounting.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RBzFKp5igjA/story01.htm Tyler Durden

Holiday Spending “Hopes” Crumble As Income Gains Stagnate

But this year was supposed to be different… Early-year prospects for a revival in consumer spending quickly faded in the wake of the lagged impact of the $148 billion tax hike that began the year. As Bloomberg’s Joe Brusuelas notes in the following brief interview, combined with a slower pace of hiring and sluggish wage growth, the result will probably be another in a string of disappointing holiday shopping seasons. It is increasingly doubtful that consumers have the wherewithal to meet the ambitious National Retail Federation forecast for a 3.9% increase in holiday spending to $602.1 billion. Brusuelas believes a 2 to 2.5% increases appears closer to the mark given the economic and policy challenges in place this year.

Via Bloomberg Briefs,

First, starting Nov. 1 one-sixth, or about 48 million, of individuals receiving food stamps will see a net loss of almost $16 billion in transfer payments due to cuts in the Supplemental Nutrition Assistance Program (SNAP).

 

Those in the lower two quintile of income earners, which receive the bulk of U.S. SNAP payments, will probably transfer outlays on discretionary items like electronics and apparel to inelastic non-discretionary categories such food and utilities. Accordingly, large retail operations such as Krogers, Target and Wal-Mart have reduced their holiday shopping estimates. These reductions, in part, are being attributed to the reduction in SNAP payments, the impact of the government shutdown and overall tepid job and income growth, according to the retailers.

Second, recent fundamental data on manufacturing activity, durable goods orders and hiring slowed noticeably, even before the government shutdown, during the first three weeks of this quarter. With hiring during the past three months barely sufficient to meet demographic needs, and inflation-adjusted personal disposable income up a scant 0.9 percent on a year-ago basis, it is unsurprising that both topline retail sales and sales excluding autos, building materials and gasoline, which feeds into the calculation of GDP, have slowed since June of this year, reflecting a deceleration in overall economic activity.

 

Third, the inventory buildup among retailers is also somewhat troubling given the macroeconomic slowdown and probable fiscal restraint due to policy shifts and standoffs that have characterized the second half of the year. Retailers have increased their inventories by about 6 percent compared to year-ago levels, in contrast with a 5 percent decline in 2012 versus 2011 levels.

Given the well-recognized problems with the JC Penney inventory overhang from earlier in the year, retailers such as the Gap have already begun aggressive discounting. Many have annoucned plans to open stores on Thanksgiving in order to add another shopping day to the season. While that may help bolster sales, the severe discounting will compress margins and add to bottom line woes in the quarter.

Perhaps more troubling is the likelihood that the large inventory build will spill over into the first quarter next year. There is also likely to be a repeat performance of “fiscal follies” in Washington, creating an even greater drag on overall economic growth.

While firms that employ state-of-the-art inventory optimization, such as Wal-Mart, began pulling back on orders in mid-September to mitigate the slowdown in consumer demand, most firms in the supply chain do not have that ability. Carol Lapidus, the National Consumer Products Industry Leader at McGladrey (see the clip above) noted that middle market companies that sell into retail for 2014 are getting smaller. Given where the U.S. is in the business cycle, the opposite should be occurring, which should provide a sober note heading into what will probably be another difficult holiday shopping season.

Finally, an unusual confluence of calendar quirks will result in a net decline of five selling days compared to 2012 in between Thanksgiving and Christmas. In addition, with Hanukkah starting on Nov. 28, a portion of traditional holiday spending will probably be pulled forward into late November and early December, creating a scenario where retailers may be tempted into even greater discounting.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RBzFKp5igjA/story01.htm Tyler Durden

Blackberry Craters After Report Company Abandons Sale, To Replace CEO, To Issue 19.2% Dilutive Convert Instead

Just over a month ago, when we shared our cynical view on the “hopium” inspired LBO of Blackberry, we commented as follows: “In other words an LBO, one which however has not only one but many outs: “There can be no assurance that due diligence will be satisfactory, that financing will be obtained, that a definitive agreement will be entered into or that the transaction will be consummated.” Which means that once the buyers figure out the potential disaster on the books, expect the final price (if any) to be revised lower as one after another MAC clause is triggered.” Not even we were right: as it turns out moments ago, the Globe & Mail reported that having looked at the BBRY, not only will the price be revised lower, but the “purchase” price will be eliminated altogether as any deal is now dead, the company will do a convert offering instead and deadpan CEO Torsten Heins is history.

Instead of selling itself, Blackberry is doing a Hail Mary convert offering, which net of all greenshoes, will amount to 19.2% equity dilution: ” If an additional U.S. $250 million of Debentures is issued and all U.S. $1.25 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 19.2% of the common shares after giving effect to the conversion, based on the number of common shares currently outstanding.”

And here is the reaction…


Via The Globe And Mail,

BlackBerry Ltd. is abandoning a plan to find a buyer and will instead raise $1-billion of new funds and replace its chief executive and some directors, sources said.

 

…

 

The new plan will involve raising roughly $1-billion by selling convertible notes to a group of investors, according to people familiar with the transaction. Chief executive officer Thorsten Heins will depart the company, and the company will announce changes to its board, the people said.

And the official release:

BlackBerry (BBRY)(BB.TO), a world leader in the mobile communications market, today announced that it has entered into an agreement pursuant to which Fairfax Financial Holdings Limited (“Fairfax”) and other institutional investors (collectively, the “Purchasers”) will invest in BlackBerry through a U.S. $1 billion private placement of convertible debentures. Fairfax has agreed to acquire U.S. $250 million principal amount of the Debentures. The transaction is expected to be completed within the next two weeks.

 

Under the terms of the transaction, the Purchasers will subscribe for U.S. $1 billion aggregate principal amount of 6% unsecured subordinated convertible debentures (the “Debentures”) convertible into common shares of BlackBerry at a price of U.S. $10.00 per common share (the “Transaction”), a 28.7% premium to the closing price of BlackBerry common shares on November 1, 2013. The Debentures have a term of seven years. Based on the number of common shares currently outstanding, if all of the U.S. $1 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 16% of the common shares outstanding after giving effect to the conversion.

 

Upon the closing of the transaction, John S. Chen will be appointed Executive Chair of BlackBerry’s Board of Directors and, in that role, will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry. Prem Watsa, Chairman and CEO of Fairfax, will be appointed Lead Director and Chair of the Compensation, Nomination and Governance Committee and Thorsten Heins and David Kerr intend to resign from the Board at closing.

 

In addition, Mr. Heins will step down as Chief Executive Officer at closing and Mr. Chen will serve as Interim Chief Executive Officer pending completion of a search for a new Chief Executive Officer.

 

Today’s announcement marks the conclusion of the review of strategic alternatives previously announced on August 12, 2013.

 

“Today’s announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors,” said Barbara Stymiest, Chair of BlackBerry’s Board. “The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position. Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs.”

 

Ms. Stymiest added, “I am also pleased that John Chen, a distinguished and proven leader in the technology industry, has agreed to serve as BlackBerry’s Executive Chairman. I look forward to continuing to serve BlackBerry as a member of its Board of Directors and chair of the Board’s Audit and Risk Management Committee. On behalf of the Board, I would also like to thank Thorsten for his service to BlackBerry over the past six years. Under his leadership, BlackBerry established a more efficient cost structure, developed new products, saw the adoption of BES 10 and delivered the BlackBerry 10 platform. These are all significant accomplishments. We are grateful for his contributions and wish him well in his future endeavors.”

 

“Fairfax is a long-time supporter, investor and partner to BlackBerry and, with this investment, reinforces its deep commitment to the future success of this company,” said Prem Watsa, Chairman and CEO of Fairfax. “I look forward to rejoining the BlackBerry Board and to working with the other directors and management team, under John Chen’s leadership, to shape the next stage of BlackBerry’s strategy and growth.”

 

“I am pleased to join a company with as much potential as BlackBerry,” said Mr. Chen. “BlackBerry is an iconic brand with enormous potential – but it’s going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees.”

 

Pursuant to the Transaction agreement, the investors have an option to purchase up to an add
itional U.S. $250 million principal amount of Debentures within 30 days following closing. If an additional U.S. $250 million of Debentures is issued and all U.S. $1.25 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 19.2% of the common shares after giving effect to the conversion, based on the number of common shares currently outstanding.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-3B2jLGoB8Q/story01.htm Tyler Durden