Month: July 2014

As the topic of "unpatriotic" 'tax inversions' becomes a political issue, we thought it interesting to examine how big an economic issue it really is. How much income tax do U.S. companies actually pay every year to the Federal government? As ConvergEx's Nick Colas notes, the simple answer is “Not much”, at least as compared to any other major source of revenue. In Fiscal 2013, Colas adds, the total was $274 billion, or just 9.9% of all tax and withholding receipts. Your political leanings will inform your opinion about whether that number is too high or too low, of course; but we point out that, as Reuters reports, a former  international tax counsel at Treasury explains Obama could "slam dunk" dictate an end to 'tax inversions' without Congressional approval (by invoking a little known 1969 tax law).

We already know – since we have been told – that corporations who shift their tax domiciles aborad are unpatriotic.

But just how big an economic deal is this (via ConvergEx's Nick Colas)…

Back in 1971, the Rolling Stones were in a bit of bind. While commercially successful, their onerous contracts with various managers left them with little in the way of actual cash flow. Their financial manager at the time, a savvy Bavarian prince named Rupert, cooked up a plan to remove them from the United Kingdom. Taxes on their income in the U.K. were over 80%, a rate that would not allow them to ever cover their sizable expenses and pay off their previous managers.  So the Stones decamped to the south of France, where tax rates were much lower for residents.

 

The outcome of the move was twofold. First, the Stones recorded large chunks of their classic album “Exile on Main Street”.  The title was a nod to their awkward financial situation – tax exiles from their homeland.  The second was that the Rolling Stones finally got on sound financial footing for the first time in their careers, since the royalties from that album escaped the UK tax authorities’ high marginal rates. The rest, as they say, is music history.

 

If the same thing happened today, the Stones would be accused of “Tax inversion” – moving domiciles to reduce taxes.  This topic is much in the news of late, with various U.S. companies considering the move to lower tax rate countries and away from official “American company” status.  At a headline level, the move makes sense. Corporate tax rates in the U.S. are 35% on annual income over $18.3 million, a level most public companies certainly earn. The “Main Rate” on corporate income in the U.K., by contrast, is 21% on the same amount. A far cry from the days of “Exile”, to be sure, but a large enough difference versus American rates to make a difference.

 

Lost in the debate, however, is a more central question: just how important are corporate tax revenues to the finances of the United States?  You’d think that with reported corporate pretax profits in the U.S. of $2 trillion annually (according to the Federal Reserve’s Distribution of Annual Income Data), we’re talking about some big numbers here.  Not so much, as the Office of Management and Budget (OMB) data clearly shows:

• For the most recent fiscal year 2013, which ended in September, Federal corporate tax receipts were $274 billion. This amounts to 9.9% of the total tax and withholding proceeds that Uncle Sam received in that year, or 1.6% of Gross Domestic Product. One geeky note: corporate payments for Social Security and other social programs are not included in this number. Rather, this is the tax burden tied to reported corporate income.
• By way of contrast, individual income taxes represented 47% of last year’s total Federal tax receipts. The rest of the payments “Pie” came from withholding for Social Security and Retirement Receipts (34%), Excise Taxes (3%) and Other (6%).
• These numbers aren’t unusual in terms of historical norms. The average percentage of Federal revenues that come from corporate income taxes has been 10% since 2000 and 9.9% since 1980. You have to go pretty far back in the records – the 1960s, actually – to find numbers over 20% and World War II to see corporations funding more than a third of the national budget.
• Since the Federal budget is a leviathan of almost unimaginable proportions, let’s put corporate tax revenues in some context.  Looking at annual government expenses through the lens of the Daily Treasury Statement (the nation’s checkbook), we can see just how far $274 billion goes. For example, it pays for all of Medicaid, the health program for low income Americans, which cost $260 billion in Fiscal 2013. Corporate income taxes also comfortably cover the salaries of all Federal workers ($171 billion), with enough left over for NASA ($16 billion), and taking care of the nation’s veterans ($46 billion).
• How are corporate tax receipts doing for year-to-date 2014? The Daily Treasury Statement shows gross deposits of $265 billion through July 24, or pretty close to last year’s $274 billion for the whole of Fiscal 2013. Last year at this time, corporations had paid $243 billion, so this year shows a 9% increase over 2013. Not bad, considering GDP growth is so sluggish in the U.S. through the first half of calendar 2014.
• At the same time, the OMB had much higher hopes for this year, as their budgeting spreadsheets (available on the White House website) show.  They had expected 2014FY corporate tax revenue of $333 billion – a 22% improvement from prior year receipts.  How did they get this so wrong? GDP growth has been below expectations, so that is certainly part of the problem. At the same time, the OMB also budgeted corporate tax revenues to rise to 1.9% of GDP from 1.6% last fiscal year. The long run average since 1980 is 1.7%, which would likely be a more realistic estimate for 2014FY.
• The OMB is also much more optimistic in its estimates for corporate tax receipts through the balance of its forecast window. For example, it has $540 billion in expected proceeds for the 2018FY, or just about double last year’s receipts. That would amount to 2.5% of GDP, a level that we’ve only seen in 2 years since 1980 – 2006 and 2007.

With such a small part of total U.S. tax and withholding proceeds originating from corporations, several questions pop to the foreground. Three fall easily to hand:

Should America even bother taxing corporate income? There is, by most estimates, trillions of dollars of corporate cash locked up overseas because U.S. companies would prefer not to pay the taxes on repatriating those funds.  Eliminating corporate taxes would allow them to bring that money onshore and use it to reduce debt and return capital to the financial system. Buying back stock inherently carries an 8-15% return on capital for companies that pursue that route, depending on their cost of capital; cash currently returns zero.

• Yes, this is where politics and economics intersect on the Venn diagram of social policy, and it’s an uncomfortable locus.  Corporate profits have come back much more quickly than employment since the Financial Crisis.  Eliminating corporate taxes would be a boon to the capital-owning class – including senior managements – but a less certain fillip to labor markets. Perhaps
  tying tax rates to additional headcounts is one logical incentive structure, giving both political parties something to crow about at the next election.
• Do corporations really even “Pay” taxes?  Companies take capital, pursue their business strategies, and sell the result to end consumers. Taxes are simply one cost of doing business, and that expense gets passed along to the end purchaser just as employee and raw materials costs do.  Lowering corporate taxes might be deflationary in the short term, but would make U.S. corporates more much competitive than their international peers in the medium and long run by reducing a fixed cost. 
•  How much of the “Tax inversion” game is really about accrual accounting versus cash flow? Ask any stock analyst who covers individual companies what line on their income statement model is the most opaque, and you’ll get a common answer: tax accruals, the piece between pretax profits and net income.  Yes, they will typically display a neat percentage number of 30-40%, but how much of that is an actual cash expense?  Companies tend to be pretty mum on that point, simply because the math gets quite difficult to explain, especially if there are tax loss carry forwards from prior year losses. And what company doesn’t have those, after the last several years?

In summary, U.S. corporate tax regulation is a potential area for meaningful and value-added reform. Its contribution to national finances is small enough that a well-constructed revamp could improve both prospects for economic growth and kick-start a still-underwhelming recovery in labor markets, boosting national finances in the process.  It is, therefore, the lowest hanging fruit for policymakers to grab. All they need to do is stand up and grasp it.

Nevertheless, it's a lightning rod for "fairness" that Obama has grabbed onto and – as we explain below – he can bring more tyrannical control to make the decision (via Reuters):

A recent sharp upswing in inversion deals is causing alarm in Washington, with Obama last week urging lawmakers to act soon on anti-inversion proposals from him and other Democrats. But Republican opposition has blocked Congress from moving ahead.

 

By invoking a 1969 tax law, Obama could bypass congressional gridlock and restrict foreign tax-domiciled U.S companies from using inter-company loans and interest deductions to cut their U.S. tax bills, said Stephen Shay, former deputy assistant Treasury secretary for international tax affairs in the Obama administration. He also served as international tax counsel at Treasury from 1982 to 1987 in the Reagan administration.

 

In an article being published on Monday in Tax Notes, a journal for tax lawyers and accountants, Shay said the federal government needs to move quickly to respond to a recent surge in inversion deals that threatens the U.S. corporate tax base.

 

"People should not dawdle," said Shay, now a professor at Harvard Law School, in an interview on Friday about his article.

 

If the administration were to take the steps he discusses, Shay said, some of the many inversion deals that are said to be in the works might be halted in their tracks.

 

The regulatory power conferred by the tax code section he has in mind, known as Section 385, is "extraordinarily broad" and would be a "slam dunk" for the Treasury Department, he said.

 

…

 

Section 385 empowers the Treasury secretary to set standards for when a financial instrument should be treated as debt, eligible for interest deductibility, and when it should be treated as ineligible equity.

 

If a corporation has loaded debt into a U.S. unit beyond a certain level, Section 385 could be used by the government to declare the excess as equity and ineligible for deductions.

 

"The stuff I'm describing should be putting a crimp in tax-motivated deals," Shay said.

*  *  *
The Democrats are going to try it… (enabling them to blame Republicans then do it anyway)

Democrats in Congress trying to prevent government from awarding contracts to cos. that save taxes by moving legal address outside U.S.

 

Bill would bar federal contracts from going to businesses “that incorporate overseas, are at least 50 percent owned by American shareholders, and do not have substantial business opportunities in the foreign country in which they are incorporating,” according to statement

*  *  *
So while big numbers are being thrown around and "fairness", "inequality", and "patriotism" are all great slogans for the coming election, but the numbers just don't make it a big economic deal.

via Zero Hedge http://ift.tt/1nOSc27 Tyler Durden

As the topic of "unpatriotic" 'tax inversions' becomes a political issue, we thought it interesting to examine how big an economic issue it really is. How much income tax do U.S. companies actually pay every year to the Federal government? As ConvergEx's Nick Colas notes, the simple answer is “Not much”, at least as compared to any other major source of revenue. In Fiscal 2013, Colas adds, the total was $274 billion, or just 9.9% of all tax and withholding receipts. Your political leanings will inform your opinion about whether that number is too high or too low, of course; but we point out that, as Reuters reports, a former  international tax counsel at Treasury explains Obama could "slam dunk" dictate an end to 'tax inversions' without Congressional approval (by invoking a little known 1969 tax law).

We already know – since we have been told – that corporations who shift their tax domiciles aborad are unpatriotic.

But just how big an economic deal is this (via ConvergEx's Nick Colas)…

Back in 1971, the Rolling Stones were in a bit of bind. While commercially successful, their onerous contracts with various managers left them with little in the way of actual cash flow. Their financial manager at the time, a savvy Bavarian prince named Rupert, cooked up a plan to remove them from the United Kingdom. Taxes on their income in the U.K. were over 80%, a rate that would not allow them to ever cover their sizable expenses and pay off their previous managers.  So the Stones decamped to the south of France, where tax rates were much lower for residents.

 

The outcome of the move was twofold. First, the Stones recorded large chunks of their classic album “Exile on Main Street”.  The title was a nod to their awkward financial situation – tax exiles from their homeland.  The second was that the Rolling Stones finally got on sound financial footing for the first time in their careers, since the royalties from that album escaped the UK tax authorities’ high marginal rates. The rest, as they say, is music history.

 

If the same thing happened today, the Stones would be accused of “Tax inversion” – moving domiciles to reduce taxes.  This topic is much in the news of late, with various U.S. companies considering the move to lower tax rate countries and away from official “American company” status.  At a headline level, the move makes sense. Corporate tax rates in the U.S. are 35% on annual income over $18.3 million, a level most public companies certainly earn. The “Main Rate” on corporate income in the U.K., by contrast, is 21% on the same amount. A far cry from the days of “Exile”, to be sure, but a large enough difference versus American rates to make a difference.

 

Lost in the debate, however, is a more central question: just how important are corporate tax revenues to the finances of the United States?  You’d think that with reported corporate pretax profits in the U.S. of $2 trillion annually (according to the Federal Reserve’s Distribution of Annual Income Data), we’re talking about some big numbers here.  Not so much, as the Office of Management and Budget (OMB) data clearly shows:

• For the most recent fiscal year 2013, which ended in September, Federal corporate tax receipts were $274 billion. This amounts to 9.9% of the total tax and withholding proceeds that Uncle Sam received in that year, or 1.6% of Gross Domestic Product. One geeky note: corporate payments for Social Security and other social programs are not included in this number. Rather, this is the tax burden tied to reported corporate income.
• By way of contrast, individual income taxes represented 47% of last year’s total Federal tax receipts. The rest of the payments “Pie” came from withholding for Social Security and Retirement Receipts (34%), Excise Taxes (3%) and Other (6%).
• These numbers aren’t unusual in terms of historical norms. The average percentage of Federal revenues that come from corporate income taxes has been 10% since 2000 and 9.9% since 1980. You have to go pretty far back in the records – the 1960s, actually – to find numbers over 20% and World War II to see corporations funding more than a third of the national budget.
• Since the Federal budget is a leviathan of almost unimaginable proportions, let’s put corporate tax revenues in some context.  Looking at annual government expenses through the lens of the Daily Treasury Statement (the nation’s checkbook), we can see just how far $274 billion goes. For example, it pays for all of Medicaid, the health program for low income Americans, which cost $260 billion in Fiscal 2013. Corporate income taxes also comfortably cover the salaries of all Federal workers ($171 billion), with enough left over for NASA ($16 billion), and taking care of the nation’s veterans ($46 billion).
• How are corporate tax receipts doing for year-to-date 2014? The Daily Treasury Statement shows gross deposits of $265 billion through July 24, or pretty close to last year’s $274 billion for the whole of Fiscal 2013. Last year at this time, corporations had paid $243 billion, so this year shows a 9% increase over 2013. Not bad, considering GDP growth is so sluggish in the U.S. through the first half of calendar 2014.
• At the same time, the OMB had much higher hopes for this year, as their budgeting spreadsheets (available on the White House website) show.  They had expected 2014FY corporate tax revenue of $333 billion – a 22% improvement from prior year receipts.  How did they get this so wrong? GDP growth has been below expectations, so that is certainly part of the problem. At the same time, the OMB also budgeted corporate tax revenues to rise to 1.9% of GDP from 1.6% last fiscal year. The long run average since 1980 is 1.7%, which would likely be a more realistic estimate for 2014FY.
• The OMB is also much more optimistic in its estimates for corporate tax receipts through the balance of its forecast window. For example, it has $540 billion in expected proceeds for the 2018FY, or just about double last year’s receipts. That would amount to 2.5% of GDP, a level that we’ve only seen in 2 years since 1980 – 2006 and 2007.

With such a small part of total U.S. tax and withholding proceeds originating from corporations, several questions pop to the foreground. Three fall easily to hand:

Should America even bother taxing corporate income? There is, by most estimates, trillions of dollars of corporate cash locked up overseas because U.S. companies would prefer not to pay the taxes on repatriating those funds.  Eliminating corporate taxes would allow them to bring that money onshore and use it to reduce debt and return capital to the financial system. Buying back stock inherently carries an 8-15% return on capital for companies that pursue that route, depending on their cost of capital; cash currently returns zero.

• Yes, this is where politics and economics intersect on the Venn diagram of social policy, and it’s an uncomfortable locus.  Corporate profits have come back much more quickly than employment since the Financial Crisis.  Eliminating corporate taxes would be a boon to the capital-owning class – including senior managements – but a less certain fillip to labor markets. Perhaps tying tax rates to additional headcounts is one logical incentive structure, giving both political parties something to crow about at the next election.
• Do corporations really even “Pay” taxes?  Companies take capital, pursue their business strategies, and sell the result to end consumers. Taxes are simply one cost of doing business, and that expense gets passed along to the end purchaser just as employee and raw materials costs do.  Lowering corporate taxes might be deflationary in the short term, but would make U.S. corporates more much competitive than their international peers in the medium and long run by reducing a fixed cost. 
•  How much of the “Tax inversion” game is really about accrual accounting versus cash flow? Ask any stock analyst who covers individual companies what line on their income statement model is the most opaque, and you’ll get a common answer: tax accruals, the piece between pretax profits and net income.  Yes, they will typically display a neat percentage number of 30-40%, but how much of that is an actual cash expense?  Companies tend to be pretty mum on that point, simply because the math gets quite difficult to explain, especially if there are tax loss carry forwards from prior year losses. And what company doesn’t have those, after the last several years?

In summary, U.S. corporate tax regulation is a potential area for meaningful and value-added reform. Its contribution to national finances is small enough that a well-constructed revamp could improve both prospects for economic growth and kick-start a still-underwhelming recovery in labor markets, boosting national finances in the process.  It is, therefore, the lowest hanging fruit for policymakers to grab. All they need to do is stand up and grasp it.

Nevertheless, it's a lightning rod for "fairness" that Obama has grabbed onto and – as we explain below – he can bring more tyrannical control to make the decision (via Reuters):

A recent sharp upswing in inversion deals is causing alarm in Washington, with Obama last week urging lawmakers to act soon on anti-inversion proposals from him and other Democrats. But Republican opposition has blocked Congress from moving ahead.

 

By invoking a 1969 tax law, Obama could bypass congressional gridlock and restrict foreign tax-domiciled U.S companies from using inter-company loans and interest deductions to cut their U.S. tax bills, said Stephen Shay, former deputy assistant Treasury secretary for international tax affairs in the Obama administration. He also served as international tax counsel at Treasury from 1982 to 1987 in the Reagan administration.

 

In an article being published on Monday in Tax Notes, a journal for tax lawyers and accountants, Shay said the federal government needs to move quickly to respond to a recent surge in inversion deals that threatens the U.S. corporate tax base.

 

"People should not dawdle," said Shay, now a professor at Harvard Law School, in an interview on Friday about his article.

 

If the administration were to take the steps he discusses, Shay said, some of the many inversion deals that are said to be in the works might be halted in their tracks.

 

The regulatory power conferred by the tax code section he has in mind, known as Section 385, is "extraordinarily broad" and would be a "slam dunk" for the Treasury Department, he said.

 

…

 

Section 385 empowers the Treasury secretary to set standards for when a financial instrument should be treated as debt, eligible for interest deductibility, and when it should be treated as ineligible equity.

 

If a corporation has loaded debt into a U.S. unit beyond a certain level, Section 385 could be used by the government to declare the excess as equity and ineligible for deductions.

 

"The stuff I'm describing should be putting a crimp in tax-motivated deals," Shay said.

*  *  *
The Democrats are going to try it… (enabling them to blame Republicans then do it anyway)

Democrats in Congress trying to prevent government from awarding contracts to cos. that save taxes by moving legal address outside U.S.

 

Bill would bar federal contracts from going to businesses “that incorporate overseas, are at least 50 percent owned by American shareholders, and do not have substantial business opportunities in the foreign country in which they are incorporating,” according to statement

*  *  *
So while big numbers are being thrown around and "fairness", "inequality", and "patriotism" are all great slogans for the coming election, but the numbers just don't make it a big economic deal.

via Zero Hedge http://ift.tt/1nOSc27 Tyler Durden

Having provided his clarifying perspective on why the markets are extremely fragile and due for a 20-30% correction, Marc Faber was assaulted by CNBC’s Scott Wapner reading off a litany of recent calls that have not worked out as planned. His response was notable: “I started to work in 1970, and over that career, somehow, somewhere, I must have made some right calls; otherwise I wouldn’t be in business.” What CNBC then edited out of the transcript was Faber pointing out his 22% annualized return in his publicly-viewable funds since then and asking – sounding somewhat frustrated at the anchor’s mockery (and background snickers) – “I wonder what the CNBC portfolio would look like since 1999?” The response: silence.

 

Here are some recent thought summing up his view of the Fed:

It’s pointless to talk to Fed members about economics because they are academics who believe in money printing. Some of them believe they didn’t print enough, and so with these kinds of people, it is like running to the pope.

 

What do you want to tell them? It’s pointless to spend time with these people trying to convince them that their monetary policies have been very destructive.

 

They bailed out Mexico in 1994, and there was an EM bubble until 1997. They then bailed out LTCM (Long-Term Capital Management), which gave a signal to leverage up…then they had the Nasdaq bubble, then they printed again and had the housing bubble.

 

David Hume and Irving Fisher said bubbles are very destructive to the majority of market participants. They lose money, the minority makes money. The Fed doesn’t see it that way so it is pointless to talk to these people.

Faber on the health of the market, money-printing, and his recommendations…

At around 1:00, the tension rises… (before the hit phrase that incriminates CNBC in the bubble blowing falls to the cutting room floor).

*  *  *
It doesn’t take long to remember various CNBC calls from the past that have not worked out too well … or the treatment of Peter Schiff before the last crash to feel a sense of permabullish support for whatever cheerleader is advertising next.

via Zero Hedge http://ift.tt/1znMwyX Tyler Durden

Having provided his clarifying perspective on why the markets are extremely fragile and due for a 20-30% correction, Marc Faber was assaulted by CNBC’s Scott Wapner reading off a litany of recent calls that have not worked out as planned. His response was notable: “I started to work in 1970, and over that career, somehow, somewhere, I must have made some right calls; otherwise I wouldn’t be in business.” What CNBC then edited out of the transcript was Faber pointing out his 22% annualized return in his publicly-viewable funds since then and asking – sounding somewhat frustrated at the anchor’s mockery (and background snickers) – “I wonder what the CNBC portfolio would look like since 1999?” The response: silence.

 

Here are some recent thought summing up his view of the Fed:

It’s pointless to talk to Fed members about economics because they are academics who believe in money printing. Some of them believe they didn’t print enough, and so with these kinds of people, it is like running to the pope.

 

What do you want to tell them? It’s pointless to spend time with these people trying to convince them that their monetary policies have been very destructive.

 

They bailed out Mexico in 1994, and there was an EM bubble until 1997. They then bailed out LTCM (Long-Term Capital Management), which gave a signal to leverage up…then they had the Nasdaq bubble, then they printed again and had the housing bubble.

 

David Hume and Irving Fisher said bubbles are very destructive to the majority of market participants. They lose money, the minority makes money. The Fed doesn’t see it that way so it is pointless to talk to these people.

Faber on the health of the market, money-printing, and his recommendations…

At around 1:00, the tension rises… (before the hit phrase that incriminates CNBC in the bubble blowing falls to the cutting room floor).

*  *  *
It doesn’t take long to remember various CNBC calls from the past that have not worked out too well … or the treatment of Peter Schiff before the last crash to feel a sense of permabullish support for whatever cheerleader is advertising next.

via Zero Hedge http://ift.tt/1znMwyX Tyler Durden

While one can relish the recent record surge in Herbalife stock on the day in which Bill Ackman was supposed to bury the stock, instead sending it up by the highest intraday gain in history, the reality is that Herbalife – just as we warned last quarter – continues to send out flashing red alerts, and nowhere more so than in the numbers which were just reported.

No, it wasn’t the Q2 revenue or the EPS which mattered: those are so doctored they are completely irrelevant to the cash burn/stock buyback story at hand story. The only thing that matters is what we noted last quarter: how much cash does the company generate organically, how much it generates through debt issuance, and how much is spent on stock buybacks.

The answers:

• in Q2 HLF reported $157 million in cash from operations. This was the lowest cash creation by Herbalife since Q2 2013, and is the third consecutive quarter of decline.
• In Q2 HLF did not raise any new debt but it more than made up for that with the $1.15 billion convertible offering in Q1, virtually all of whose net proceeds were used to buyback stock.
• In Q2 HLF repurchased $581 million in stock. This brings the total amount repurchased in 2014 to a record $1.3 billion (compared to a paltry $166 million in the 2013 comparable period). And the year is only half way done!

And here are the two most important charts which explain why the stock is crashing over 11% after hours. 

 

First, Herbalife cash from operations and stock buybacks. The party may be ending:

 

And the real reason why the party may be ending is that HFL’s net debt has exploded in the past year by over $1 billion. In other words, all the company’s cash creation and all of its debt issuance in 2014 has gone exclusively toward buying back its stock.

At this rate quite soon HLF will have no additional debt capacity for futher buybacks. Worse, even if its were to use all its organic cash to repurchase stock it will be nowhere near enough to match what buybacks have been in the past year, which some may argue is the only reason why the stock has stay afloat at its current levels.

So, is Ackman going to have the last laugh? Or will Ichan end up LBOing the company – even if at a huge ultimate loss – just to spite the fellow hedge fund manager with whom he has supposedly kissed and made up? We will find out soon, because if Herbalife is to be LBOed, Icahn knows that the window in which bond investors are willing to take a gamble on this melting icecube is closing fast.

via Zero Hedge http://ift.tt/1tjFmv5 Tyler Durden

“Do as we say, not as we do,” appears the modus operandi of the current administration’s increasingly totalitarian regime. Today’s edition of ‘wait, what?’ comes from The WSJ who report that The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the SEC (regarding the long-running insider-trading investigation) because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency. Arguing “sovereign immunity” and responding in a rather snarky (almost “do you know who we are?” manner), House attorneys blasted the SEC’s “fool’s errand.”

 

As WSJ reports,

The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the Securities and Exchange Commission because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency.

 

“Rather than acknowledge the fool’s errand on which it has embarked, the SEC instead invites this court to join it by disregarding fundamental limitations on judicial authority,” wrote House attorneys in a new court filing.

 

The SEC filed a lawsuit last month in the U.S. District Court for the Southern District of New York seeking to force House lawyers to turn over documents sought by the agency in a long running insider-trading investigation.

 

…

 

House lawyers largely repeated arguments they made in an earlier motion asking the court to dismiss the SEC case.

 

They say neither Mr. Sutter nor the committee have done anything improper and argued they are not required to comply with the subpoenas under provisions in the Constitution that shield legislative activity from outside scrutiny.

 

They also argue “sovereign immunity,” which protects the government from legal liability without an explicit waiver, also shields it from a suit filed by a government agency.

*  *  *

And summing it all up

 

 

Source: Investors.com

via Zero Hedge http://ift.tt/1pxFMHD Tyler Durden

Earlier today, countless investors who still foolishly believe that in the new normal “fundamentals” matter, screamed out in terror when Zillow announced that it would acquire Trulia for $3.5 billion, a 20% premium to the Friday close, and were suddenly silenced. The reason: with 38% of its float short (making it the 30th most shorted stock in the Russell 2000), this was one of the most dramatic confirmations of what we said was the best trading strategy under the Fed’s artificial capital misallocation regime, namely “buying the most hated names to generate the most alpha.”

In fact, for the benefit of our readers who also wanted to think like a central planner, criminal or five year old (or all of the above combined) we started compiling the list of most shorted stocks some time back in 2012. It was then that we said:

By now it should be no secret that under the New Centrally-Planned Normal, good is great, but worst is far greater. It is therefore no surprise that in the past year, some of the highest returning stocks have been the companies which have seen wave after wave of shorts come in, attempting to ride the underlying equity value to zero, only to see themselves scrambling to cover short squeezes, generated either due to the pull of borrow by an overeager shareholder, or due to bad news not being horrible enough, leading to short covering ramps.

Since then the most shorted stock category continues to make fools out of all those who still believe that under ZIRP things like cash flow, earnings growth, covenant, leverage, or going concern matter (as they experienced most recently today with TRLA), and have outperformed the broader market by several orders of magnitude.

So for all those who still believe that the market has quite a ways to go under the yoke of the Fed’s centrally-planning before it all crashes into a house of rigged cards, here is the list of the most shorted stocks in the S&P 500 and Russell 2000, sorted by descending short interest as a % of float.

First, the S&P 500:

 

And the Russell 2000:

Source: CapitalIQ

via Zero Hedge http://ift.tt/1pxFMr6 Tyler Durden