Click chart to enlarge

The chart above is a chart of SPY, which tracks the S&P.  It is in the same place as it was 6 months ago, which we predicted in our last post.  We didn't know what path it would take to get back here, but we did know that it had no upside.  Why?  The Obama tax code is designed to support the lazy and hurt the ambitious.

Here's the math...

For the average New York family making less than $217k, the taxes are as follows:

Federal income tax: 28%

Social Security tax: 10.4% + 2% at maturity = 12.4%

Medicare tax: 2.9% + .6% at maturity = 3.5%

NYS income tax: 6.9%

NYS sales tax: 8.63%

Real estate tax: 5%

Total tax: 64.43%

With 2/3rd's of their income going to taxes, and nearly all the rest going to health insurance, the average self-employed New Yorker earning $200k a year gets to keep about $17,000 of their earnings.

In contrast, the average New Yorker making $17,000 a year gets to keep 100%, or $17,000 of their earnings.

When you consider that the lifeblood of America's economy is its small business owners, it hardly seems efficient to take their incentive away.





Dangerous Territory

Click image to enlarge

Sorry for the brief hiatus, hope everyone checked in at least 3 times a day in our absence!

Back when Merrill, Lehman and Bear Stearns collapsed, we spoke to the CEO of a company which was hired to figure out what went wrong. We ask many people where they think the market "should" be. For some reason, his answer stood out... "on both sides of 11,000, but it will keep coming back to that number for years to come."

We've felt the same way for a long time now. There's no reason for the market to be as high as it was before the crash. Sentiment is nowhere near that level of euphoria. Nor is the economy. So that rules out us being able to sustain anything in the 13,000 to 14,000 range. Nor should we be at 8,000. We belong at 11,000. Maybe 11,500.

For anyone that's followed the basic teachings of this blog, the chart above shows three reasons why one would be lightening up on shares in the near future. The market is

1.) At the top of a trend channel, far from its moving average

2.) Near a very significant resistance level

3.) Blowing off at the top of an S-curve

Sure, it could go higher, and it probably will. But now would be a good time to be 80% in cash.

If someone were to buy into any one of the indexes on Monday, it's extremely likely that they will be back to break even in a few months time.

Without knowing what path the market will take to get back to Dow 12,700 in 3 months, we just take the easy route and let it tell us. We're 86% in cash. If it goes higher, it's a no-brainer short and hold. If it drops, we scale in. There's no need to predict anything. Well, anything other than that we're in dangerous territory now.