Narrowing the debate on the National debt and whether to tax the wealthiest.

I sent an email to friends yesterday showing an article on Executive compensation vs. Average workers pay and decided to post it here.The article is titled, WHO RULES AMERICA by Prof. G. William Domhoff, Sociology Dept. Univ. of California, Santa Cruz. It is very worth reading and educating yourself.

For the complete article click this.

"Income Ratios and Power: Executives vs. Laborers

Another way that income can be used as a power indicator is by comparing average CEO annual pay to average factory worker pay, something that has been done for many years byBusiness Week and, later, the Associated Press. The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options. It was at 411:1 in 2005 and 344:1 in 2007, according to research by United for a Fair Economy. By way of comparison, the same ratio is about 25:1 in Europe. The changes in the American ratio from 1960 to 2007 are displayed in Figure 8, which is based on data from several hundred of the largest corporations.

Figure 8: CEOs' pay as a multiple of the average worker's pay, 1960-2007

Source: Executive Excess 2008, the 15th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

It's even more revealing to compare the actual rates of increase of the salaries of CEOs and ordinary workers; from 1990 to 2005, CEOs' pay increased almost 300% (adjusted for inflation), while production workers gained a scant 4.3%. The purchasing power of the federal minimum wage actually declined by 9.3%, when inflation is taken into account. These startling results are illustrated in Figure 9.

Figure 9: CEOs' average pay, production workers' average pay, the S&P 500 Index,corporate profits, and the federal minimum wage, 1990-2005(all figures adjusted for inflation)


Source: Executive Excess 2006, the 13th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

Although some of the information I've relied upon to create this section on executives' vs. workers' pay is a few years old now, the AFL/CIO provides up-to-date information on CEO salaries at their Web site. There, you can learn that the median compensation for CEO's in allindustries as of early 2010 is $3.9 million; it's $10.6 million for the companies listed in Standard and Poor's 500, and $19.8 million for the companies listed in the Dow-Jones Industrial Average. Since the median worker's pay is about $36,000, then you can quickly calculate that CEOs in general make 100 times as much as the workers, that CEO's of S&P 500 firms make almost 300 times as much, and that CEOs at the Dow-Jones companies make 550 times as much. (For a more recent update on CEOs' pay, see "The Drought Is Over (At Least for CEOs)" at NYTimes.com; the article reports that the median compensation for CEOs at 200 major companies was $9.6 million in 2010 -- up by about 12% over 2009 and generally equal to or surpassing pre-recession levels. For specific information about some of the top CEOs, see http://projects.nytimes.com/executive_compensation.

If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want. The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability.

The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull." As to the claim that CEOs deserve ever higher salaries because they "create wealth," he describes that rationale as a "joke," says the New York Times."

Overall Stock Market outlook, analysis and commentary.

I have 4 charts to present to you today. The first is the closing Intraday Dow chart of yesterday's market action and the second is a 30 year chart of the Dow. The 3rd is a 30 year chart of the Nasdaq. These time extremes are fascinating to compare, as they truly do show the similarity of chart patterns and can be predictive of the future direction of the market. The last chart is of our National Debt and I will save that for the end.


So starting with yesterday's chart above, you can clearly see we did not close at the lows of the day, but not by much. In fact, one half hour before the closing bell yesterday, I said it would be important for those of us on the Short size of this market, to see the Dow close between 35 and 50 points above the close. If it closed at the lows I said, we would have created a Hammer candlestick pattern and the market would reverse next week and rise again. But the market closed up 42.09 points above the low for the day which was 9,889.88, closing at 9,931.97 which is between 35 and 50 points.


The "W" patterns I have drawn with Red lines in previous posts these past few weeks should have given you confidence that you can draw these as well as I can and that they are truly predictors of future direction in the short term. The same is true when looking at charts over very long time frames. Turn your attention above, to the 30 year Dow chart now and look at the developing large "W" pattern which is in the process of finishing its last leg. The "W" is clearly slanted down and you know what that means, we are headed lower than the lowest leg of the "W". So yesterday's action, coupled with the drop the past month or so, do point to a turn of significant importance.

Many don't believe in reading charts. They think it is a waste of time. They say they like the Fundamentals. But what they don't factor in is Investor Mood. Investor mood has been sour for the past 10 years since the Dot.com bust. That's at least true of my generation. We have been investing in the stock market since the 60's and 70's and got a real shake when the bubble burst. It affected us like the Great Depression affected our folks but not to the same extent. Well, we may still have the same affect as this market continues to go down over the next several years. This is why I have been warning many readers and friends now for almost a year. During the year 2000, I remember warning many in a Newsletter I was writing weekly. Friends said I was crazy to get out of the market when the Nasdaq was at 4,200 range climbing that steep wall towards 5,000 when I sounded the alarm to go to 100% cash. They said "Good money was still to be made and I should get some of it. I was busy selling into repeated rallies until I was 100% cash and then only buying Put Options and waiting. Then it came and many were wiped out of their life savings. Very sad, as greed had won over fear until the crash.


As you can see from the 30 year chart of the Nasdaq above, we have never recovered from it. You can see that there is a "W" pattern, which I have underlined in Red. You can also see that this "W" pattern is almost flat. When the "W" pattern is flat it means that we will eventually stay flat and go back to that flat line which will be the new support level. That indicates that when the Dow does drop and retest the lows and goes below them, the Nasdaq should return to about 1,100-1,200 and not go below that level. We closed at 2,219 yesterday; that's a 50% decline from here. The Nasdaq did go as low as 1,300 or so in 2008 and that is its low to retrace to. So it is not impossible to wipe out all the recent gains of the past year on the Nasdaq as easily as the Dow.

So what to do? Again, as I have said before, there is nothing wrong with taking profits off the table. I did this week on my TZA Put Options on Thursday, perfectly timing the gains before the big drop. You can do the same. This is not Rocket science. It is not as difficult as plugging the hole in the floor of the Gulf. If you have the time, you can learn how to do this and save and protect your assets. Even Jim Cramer on CNBC's Mad Money show yesterday, has said the markets are going down next week and to take some profit as a strategy for protecting your nest egg. It is time now not to delay as hard times are coming.

Now let me dispel one notion. I do not want the markets to go down any more than you do. All I am trying to do is not to stand in the stream and try to fight the current. My strategy is to move with the current and flow. I try to ascertain when the current is changing direction, so I can move with it. I AM NOT TRYING TO INFLUENCE THE COURSE OF THE RIVER! It is the world leadership, which has set in place the conditions which will precipitate this calamity.


I know I may offend some here with this view, but, In my view, it started during the Reagan presidency when we had massive tax cuts for the wealthy and built a debt which has gotten way out of control. We can agree that for the most part, no one Party or President has really lowered the debt since Ronald Reagan and maybe even Carter, if you look at the chart above. Some of it was from deregulation for sure. It's our fault as citizens for not holding our elected officials' feet to the fire and for not paying for things we should be paying for or not having them in the first place. The war in Iraq comes to mind here.

But I will let historians argue over the causes of this impending setback to our easy way of life. Although many are now suffering because of unemployment, lost savings for retirement, or some major health issue which made them bankrupt. The suffering is out of view and we don't want to look at it any more like we are not wanting to look at those birds covered in Oil from the Gulf.

To get grounded back into the market conversation, I just ask you to contemplate this question: Would you agree that things don't look that promising out there for any stock market rally? Then what are you waiting for, another kick on the side of your head (pocketbook)? If you need more convincing, go back a few days and read my post on the Positives and Negatives in the World today and make up your own mind. I am only trying to help you face reality so you don't suffer any more. You can't blame me for trying.

One last word, this decline may play out over a number of years as nothing. Even the year 2000 drop of the Nasdaq took some time to bottom out, as it was in late 2002 when that interim bottom was hit. This will take a comparable amount of time. There will be short rallies to play if you have the time to devote to the market, but it will be trading, not investing. The overall long term trend is down! Just keep that in mind, as you trade. It will be for survival.

Concerns about the National Debt versus Healthcare reform: Are the Republicans right screaming about Democrats making the Country broke?

As you can see from the above chart, the data has the actual debt incurred by year and by President from Ronald Reagan's Presidency to 2006 year end of George W. Bush's Presidency. In adding up the debt incurred by Republican Presidents during that time, I get a total of 6.135 Trillion dollars were added to the National Debt by Republicans as compared to 1.820 Trillion dollars added by Democratic Presidents. This data does not include the debt added by George W. Bush for the years 2007 and 2008 of his presidency which amounted to about $2 Trillion dollars more, as the stimulus package of about $800 Billion was added during his last year, plus more because of the unfunded debt from both the war in Iraq and the one in Afghanistan.

So this morning to hear all the Republicans screaming that it is such a burden on the National Debt and for our children and grandchildren for generations to come, who must pay this eventually off, is morally abhorring as an argument given that over 82% of our National Debt has been incurred by Republican Presidents term in office. Don't let them get away with such disingenuous claims. It's a disgrace and morally reprehensible as well. Oh, and don't go trying to blame the Democratic controlled Congress during some of George W. Bush's years. Bush had the lowest number of Vetoes as President with 12 Vetoes during his 8 years as President, It wasn't since before Hoover,all the way to President Warren Harding, that a President had cast less vetoes, so he must have endorsed the spending. Where was the outrage by the Republican Senators then about what President Bush was doing. Where were the filibusters then to grind government to a halt when Senator Frist was Senate Majority leader? Where was Sen. John McCain back then? Where were the other Republican Senators like DeMint, Shelby, Grassley, Chambliss, McConnell, Cornyn etc., etc., etc.?

Where's the media calling them on this. Our media is part of the problem as well. I'm outraged! Aren't you? According to the non-partisan Congressional Budget Office, this healthcare Legislation will REDUCE the National Debt!

Concerns about the National Debt

It seems that the Republicans have gotten the public attention in ensuring the National Debt does not grow under President Obama. The outrage has manifested itself in "Town Hall" meetings this past August and continues in any public gatherings with politicians in well organized attacks on proposed healthcare reform or should I say health insurance reform. I thought I would once again set the record straight by posting today's chart. You will need to click to enlarge it, but it is clear which Presidents have increased the National Debt over the past. Oh, and the chart does not show all the debt under George W. Bush. He actually added over $4 Trillion to the national debt so make sure you extend the chart up to $10 Trillion, as the chart only goes to $7 Trillion for President George Bush (source). Under President Clinton, you will notice he turned the trajectory of the curve only to have it turn up again under Bush. I ask you, where were the Republicans worrying about the National Debt under Reagan or under the past 8 years of George W. Bush when the Republican controlled Congress passed huge tax cuts for the wealthiest Americans? Or spent money on the Iraq war "off budget" never accounting for the hit on our debt as we borrowed money we didn't have for a war we should never have fought.

Dick Armey's FreedomWorks wants freedom. Where were they during the Bush years?

I watched Dick Armey on Meet the Press yesterday and his defense of his aims to get government out of healthcare. His belief is that we shouldn't even have Medicare as he is against it, as well. He believes in "Freedom" from government intervention of any kind. So where was he when President Bush was spying on Americans using wiretaps? Where was he when President Bush was wanting to go into Iraq? Where was he when President Bush was spending like crazy and raising the debt of this country to historic proportions under a Republican Congress? I'll tell you he and his group were no where to be found nor heard from during the debate.

Is Obama unreasonable taxing the wealthiest? Look at tax rate data from 1920 and you decide

Much has been said about the tax rate and proposed taxing of the wealthy by the Obama Administration. Republicans believe the answer is always to lower taxes and that they are paying too much. I find it useful to look at the actual data so here is a Table by year and the highest tax rate for the top earners.

1920 73% 1921 73% 1922 58% 1923 43% 1924 46% 1925 25% 1926 25% 1927 25% 1928 25% 1929 24%
1930 25% 1931 25% 1932 63% 1933 63% 1934 63% 1935 63% 1936 79% 1937 79% 1938 79% 1939 79%
1940 81% 1941 81% 1942 88% 1943 88% 1944 94% 1945 94% 1946 86% 1947 86% 1948 82% 1949 82%
1950 84% 1951 91% 1952 92% 1953 92% 1954 91% 1955 91% 1956 91% 1957 91% 1958 91% 1959 91%
1960 91% 1961 91% 1962 91% 1963 91% 1964 77% 1965 70% 1966 70% 1967 70% 1968 75% 1969 77%
1970 72% 1971 70% 1972 70% 1973 70% 1974 70% 1975 70% 1976 70% 1977 70% 1978 70% 1979 70%
1980 70% 1981 69% 1982 50% 1983 50% 1984 50% 1985 50% 1986 50% 1987 39% 1988 28% 1989 28%
1990 28% 1991 31% 1992 31% 1993 40% 1994 40% 1995 40% 1996 40% 1997 40% 1998 40% 1999 40%
2000 40% 2001 39% 2002 39% 2003 35% 2004 35% 2005 35% 2006 35% 2007 35% 2008 35%

The data below looks at who was President during the year and the highest tax rate at the beginning of their Administration and what it was at the end of their Administration.

• Herbert Hoover 1929-1933 (Year of Stock market crash and Great Depression) Republican, 24%-63%
• Franklin Roosevelt 1933-1945 Democrat 63%-94%
• Harry Truman 1945-1953 Democrat 94%-92%
• President Eisenhower 1953 to 1961 Republican 92%-91%
• John Kennedy 1961-1963 Democrat 91%-91%
• Lyndon Johnson 1963-1969 Democrat 91%-77%
• Richard Nixon 1969-1974 Republican 77%-70%
• Gerald Ford 1974-1977 Republican 70%-70%
• Jimmy Carter 1977-1981 Democrat 70%-69%
• Ronald Reagan 1981-1989 Republican 69%-28%
• George H. Bush 1989-1993 (Gulf War 1) Republican 28%-40%
• Bill Clinton 1993-2001 Democrat 40%-39%
• George W. Bush 2001-2009 (9/11 then attack on Afghanistan & Iraq invasion) Republican 39%-35%
• Barack Obama 2009- Democrat

So as we listen to the screams and hysteria of Republicans complaining President Obama is asking the highest earners to pay more taxes as they did during Reagan's term, the Republicans are worrying the tax rate for them will go from 35% to 69%. But if you look back during the years of the 1929 stock market crash and Great Depression it went from 29% to 63% as it was necessary to pay for FDR's New Deal and the World War ll. You can see from the National Debt Graph above that it started moving under Reagan and then took off again under Bush. Click on the Graph to enlarge it. I don't know about you but the mid 40's to the 60's were good years for me and my family. Many could support a family with only 1 family member working. Now it takes 2 and many still can't make it.

So when the Republicans complain about their taxes, point them here to the data and tell them their game is over. President Obama is trying to restore the Middle Class to America and jobs and that is what made America strong. It wasn't from the tax cuts on the wealthiest among us. When the Middle Class rises all other boats do too. Oh, and one last point, you have heard of Ponzi schemes referenced recently in the Madoff scandal. Well Charles Ponzi, was arrested for using this scheme back in 1910. He was an Italian immigrant who was notorious for using other people's money. By the way the tax rate back then was only 7%. So you see no matter how much money these guys make through legal or other means they always want more. Greed has been in the air a very long time. That is why government regulation is so important.

The true "State of the Union": What you won't be told.

President Bush is about to give his "State of the Union" speech tonight. He most likely will start his speech in the first 2 minutes with the following familiar line, "The State of our Union is strong!" He will not be telling us the truth. He will have to lie to us, because the real truth would panic the American people. In turn this would panic world markets unlike anything in our history or the history of the world.

Here are some truths that will scare you and will test your knowledge:

Q. What do you think is the size of our national Debt?
A. Our Official National Debt is $9 Trillion dollars?

Q. Do you believe that number is a true number and represents the total debt of our country?
A. It doesn't!

Q. What would you guess our real National Debt is?
A. At the precise moment of recording this here it is $55,203,538,766,087.00. However by the time I hit the Publish button at the bottom of this entry it will have increased by $1 million dollar for each 15 seconds.

Q. How long would it take to pay this amount off?
A. If we paid it off at a rate of $1 Million per day, it would take us 3,000 years to pay it off.

If you would like to check these facts out for yourself, go to the Institute for Truth in Accounting web site by clicking on the words:
Truth in 2008.Org and check the facts out for yourself. It will give you an education on the one hand and scare you on the other. It is one of the most informative web sites on the real financial health (or should I say sickness), of our country. We should ask all the Presidential candidates what they plan to do about the real debt.

Oh, and one last thing:

Q. Do you know your share of paying off this debt?
A. $182,000.00 per person for every man woman and child in this country.

Feel like you're holding your own? Think again!