Steve Moore-On

At 6 minutes into the video below, you can see Steve Moore of the Wall Street Journal claim that offshoring is driven by the USA’s tax rates. And that is a bald-face lie. Tax rates are a drop in the bucket compared to labor costs.

Imagine a factory with 1,000 union workers making $50 per hour.

50 * 1000 = $50,000 per hour
50,000 * 8 = $400,000 per day
400,000 * 5 = $2,000,000 per week
2,000,000 * 52 = $104,000,000 per year

Now move the plant to Mexico where you pay your new workers $2 per hour. That’s 1/25th of your former payroll, and comes to $4,160,000.

You save almost $100 million dollars.

Now, do you think that Mexico’s 30% corporate tax rate, at 5% lower than the USA’s 35% rate, had anything to do with the decision to offshore so many industries?

Don’t be ridiculous. On top of that, US companies get away with much lower rates. Google only paid 2.4% for its overseas rate and weaseled its total rate down to 22.2%. And federal taxes are near an historical low as a percentage of GDP.

The idea that tax rates are material to offshoring is moore-onic.

Note to Steve Moore: Go ahead an cheer the de-industrialization of your country. If things go badly here, I’m sure there will always be a place for you in Beijing.

Obama’s Tax-the-Poor Policy

The IRS “early release” tax tables for 2011 can be found here. If you run through your numbers, you should find that the amount to be withheld has gone up, rather than down. That’s because the “Making Work Pay” (MWP) tax credit got axed in the tax deal. So, you should find a $400 increase. (The 2010 tax tables are here.)

Once you have that number, then you go on to calculate the amounts to be withheld for Social Security and Medicare. The Medicare rate is unchanged at 1.45%. Social Security is what has been cut. Instead of 6.2%, you now pay 4.2%.

Which is nice – unless you are poor. Because in order to get an Obama-style tax cut, you need to make enough money so that the 2% reduction in the Social Security tax comes to more than $400 to make up for the loss of the MWP credit. If you are good at algebra, you should be able to calculate the cut-off level right quick. If not, I will spoon-feed you:

Two percent of what will get you $400?

x * .02 = 400
x = 400/.02
x = 20,000

So, if your taxable salary is more than $20,000, you should see less withheld from your paychecks in 2011. But if you make less than $20,000 ($9.62 per hour), more will be withheld. How many people is that? Millions. Many millions. Most of which probably vote Democratic.

Of course, there are other miscellaneous tax credits, mostly for people with children. But I should think that a sizable percentage of the Democratic voting base will see a tax hike in 2011. Is Obama planning to run as a Republican in 2012, or what?

Note: As of this writing, the MWP isn’t even mentioned in the Wikipedia article on the tax bill. I find it very odd that the MWP is hardly even being noticed since it has a large impact upon withholding for so many people.

Bring Me the Head of Ethan Allen!

Note to idiots: Do not bring me the head of Ethan Allen. That is only a joke. Besides, he’s been dead for over 200 years.

But seriously…Remember CNBC’s “Town Hall” meeting with President Obama on September 20, 2010? One of the CEO’s they had on pontificating about the economy that day was Farooq Kathwari of the furniture company, Ethan Allen. He said that sales were up, and he was slowly hiring back workers that had been laid off during the recession.

I’m just wondering…was he talking about American or Mexican workers? Because when the chips were down during the Great Recession and the nation was suffering, Ehan Allen responded by sending jobs to Mexico.

Here is an excerpt from an official report that I found poking around in a Department of Labor database:

Of course, it is sort of pointless to criticize American CEO’s for offshoring. I mean they all do it. Recession or no recession. But this guy was being consulted for his “economic wisdom” and it just irked me.

Interesting note: Ethan Allen was the guy who led the invasion of Canada during the Revolutionary War. He tried to capture Montreal, but was defeated and taken prisoner by the British in 1775.

Note to Canada: Sorry about that.

How I Saved America

Back in 2009, I began a relentless campaign against this country’s moronic libertarian trade policies. My memes spread far and wide, and even Satan’s ambassador himself, Larry Kudlow, felt the need to refute them on CNBC. But not even the forces of Hell can stop a good meme, and victory is mine.

On October 2, 2010, the Wall Street Journal reported on a poll showing that the American people have turned against free trade. But that’s not all; we have actual, concrete improvements. The multinationals are (finally!) letting up on offshoring. Here is a monthly chart of jobs lost to offshoring. It begins in May 2009, when a record 97,152 jobs were exported (click to enlarge):

This data shows that in recent months, jobs lost to offshoring have dropped below 10,000 per month. And I am taking credit for 2010’s improving jobs picture. I believe that the multinationals are restraining themselves for publicity reasons. Not only do companies like General Electric want to look less sinister to consumers, but they are also trying to prevent political blowback that would spoil their global sweatshop paradise.

But as welcome as these improvements are, if you look at the long-term offshoring charts, you will see that the trend is still up due to the 2009 offshoring orgy. So, the pressure must be kept on until President Trump can renegotiate our trade deals in 2012.

And let the record show that during the Great Recession, the multinationals betrayed America by turbo-charging their offshoring operations. How do you describe 337,056 jobs offshored in 2009? Revolting. Disgusting.

You probably haven’t heard about this data before. That’s because the government doesn’t publicize it, and the mainstream media won’t tell you about it. You will never see charts of this data on CNBC. But the NAFTA bill contained provisions to help displaced workers, and diligent federal bureaucrats do indeed count them.

Note to bloggers: You have permission to post these charts as long as you link to Also, I will send you a copy of my spreadsheet if you promise to link to that page. Send me an email at the address on the About page.

China’s Christmas Gift to the Bears

I thought that it was odd when China didn’t raise interest rates, as expected, a few weeks ago when they announced their worse-than-expected inflation numbers. But now I get it. They were saving it for Christmas just to spite the USA for putting the squeeze on in Korea. The last PBOC rate hike lopped 25 points off of the SPX on October 19th. So, unless there is a Christmas miracle, the market will gap down hard on Monday.

But will it stay down? It didn’t last time, and the SPX made its low before the market closed on October 19th as you can see on this 60-minute SPX chart (click to enlarge):

The dip-buyers will almost certainly attempt to buy this dip. But do they have any cash left? If they are “all in” long, then they won’t be able to buy the dip even if they want to.


Everybody is saying how the market is overbought, and they are not wrong about that. However, technical indicators are logical, not emotional. And when the herd is stampeding, you have to throw the indicators out the window. What are you going to do? Stand in front of the charging cows and say: “According to my calculations, you will get tired right…about…now.”

That’s a good way to get flattened. And just try telling the margin clerk about your overbought indicators while he is selling out your positions.

“Overbought” and “Oversold” are only valid concepts in a range-bound market. They will bankrupt you in a trending market.

So, is the market done trending? Was Wednesday the last day when the NDX tagged its 2007 top? I have no idea, but I wouldn’t bet on it until I saw a blatant reversal pattern.

Like a horse that pins its ears back, the market is usually focused upon something specific when it is stampeding. The Russel 2000 index might be hell-bent on testing its all-time highs. On the weekly chart below, I have drawn a Fibonacci grid in red. Notice how the small caps have blasted through the final 78.6% level (click chart to enlarge):

The 2007 top is only 7% away, and that is very do-able. I have also drawn a blue line on the chart at 799.57, which was a sort-of a “right shoulder” level in December 2007 (blue arrow). The R2K might find some resistance there, but my guess is that it would only be a short-term stalling point with the stampede objective at 856.48.

That’s the bad news for the bears. The good news is that the chances of the R2K just knifing right through 856.48 on the first approach are very low. It would likely involve an extensive struggle, if it were to get through at all. So, if you insist on shorting this monster, wait for 856.48 where you will have much better odds.

Will the EU Cave to Beijing?

Since Tiananmen Square, the European Union has had an export ban on military gear to China. But in the ensuing 35 years, the euros have miss-managed their economy so badly that they are now in need of foreign aid from China. You may have heard about this before with the Chinese helping the Greeks, etc. But now it looks like the Chinese want to attach a few strings.

Vice Premier Wang Qishan said today that “China hopes Europe can lift restrictions on hi-tech exports to China.”

What exports is he talking about? Take a look at the vague Reuters story here. The Chinese are trying to do some sort of deal, and since they won’t come right out and say what it is, it must be something nefarious.

If the EU caves, then we will have witnessed a significant reduction in its power on the global stage.

Stuxnet Slams Iranian Bootleggers

You have probably heard about how the Stuxnet worm has been wrecking Iran’s nuclear industry. But did you know that Iran is vulnerable because they run bootleg software? Guess what happens when you run a bootleg operating system…It doesn’t phone home for the latest security patches, that’s what.

The Iranians run a Siemans industrial-control app on Windows. Siemans says that they can remove the worm; just call customer support. But when Ahmadinejad called, the support rep couldn’t find him in the customer database and told him to get lost. Ha! Take that Ahmadinejad!

Is Siemans making a lot of software-license sales in Iran now? I don’t know, but that might be good for earnings.

Guess what other scofflaw government runs bootleg software. China. If the Chinese government upgrades all of their systems with legit copies of Windows, that could be quite a sale for Microsoft. And the Chinese better get cracking too. Brazil and South Africa were forced by the international community to give up their nuclear weapons programs, but the Iranians are still going strong mostly because the Chinese are helping them (along with their North Korean protege).

A while ago, I read on DebkaFile somewhere that in order to stop the Iranians, Beijing might have to be “dealt with”. Is there a Mossad team working on the Chinese version of Stuxnet as we speak?

Inflation = 0.0%

In May of 2006, I bought a chair mat from OfficeMax for $58.84. (That’s the plastic thing you put on your carpet so that you can roll around in your office chair.) That mat wore out, and I just bought another one from OfficeMax. Price? You guessed it: $58.84. Not a single penny of inflation in 4.5 years. And it sez “Made in USA”, so they didn’t keep costs down by off-shoring production. Maybe OfficeMax is suffering a lower profit margin on the product now, but that isn’t my problem.

Last week, Jimmy Rodgers went berserk when he was debating Barry Ritholtz on CNBC. Barry was talking about the low “core CPI” (I think) and Rodgers jumped in shouting something like: “Inflation is out of control! Good god, man! When was the last time that you bought a shipload of rubber from Brazil!!!??? Everybody knows it’s through the roof!!!”

Well, maybe it is. But that doesn’t mean that it will be passed through to consumers. Consumers don’t actually buy shiploads of rubber. They buy tires from Goodyear, which is a completely different transaction. And like Barry was saying, commodities such as wheat are effected by weather and natural disasters like the fires in Russia during the summer. The price of oil is set by a cartel, and speculators have been known to effect commodity prices.

People like to scoff at the core CPI because it doesn’t contain food and energy. But if you are trying to gauge monetary inflation, you have to control for non-monetary variables. Core CPI came in at 0.1% yesterday. (See the chart here.) Take that Mr. Bowtie Man!