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Tuesday, January 31, 2012

Governor "Moonbeam" is at it again!

To increase taxes or not to increase taxes? The question was posed to Californians in a recent poll by the Public Policy Institute of California.

"Strong majorities of Californians favor Gov. Jerry Brown's proposed tax initiative and oppose the automatic cuts that public schools will face if voters fail to approve the measure in November," according to the PPIC summary. The Brown tax increase was favored by 72 percent of Californians and 68 percent of likely voters because people are worried about budget cuts, especially to education.

In this Jan. 18, 2012, file photo, Gov. Jerry Brown leaves the Assembly after he delivered his State of the State address before a joint session of the Legislature at the Capitol in Sacramento. While most other governors are proposing tax cuts and letting temporary tax increase expire, Brown is trying make the case for boosting taxes on the wealthy and the state sales tax.
ASSOCIATED PRESS FILE PHOTOADVERTISEMENT But not so fast. For one thing, polls this far away from an election are highly volatile. As was pointed out by Joel Fox of the Small Business Action Committee, just look at the polls in the Republican primaries. One day Mitt Romney's poll numbers make him look invincible. The next day he's losing in South Carolina to Newt Gingrich. And who knows what will happen in Florida on Jan. 31.

A major factor is that people are not focusing on the November election. It's still more than nine months away. No one has seen the ads, pro and con, for the Brown initiative. Other tax-increase initiatives also may be on the ballot.

Gov. Brown's "temporary," five-year tax increase includes two components: an increase of 1 or 2 percentage points in the state income tax for those making $250,000 or more per year. And a half-cent sales tax increase.

But when the poll broke down the two taxes, Californians became schizophrenic. The income-tax boost on the "rich" was favored by 68 percent of likely voters. But 64 percent opposed raising sales taxes, which everybody pays. That brings to mind the old saying, "Don't tax you, don't tax me, tax that man behind the tree."

We also don't know what condition the economy will be in later this year. The major economic surveys, such as those by Chapman University, anticipate continued moderate growth. But nobody knows what lies ahead. A sudden shock, like the September 2008 financial meltdown, could strike the country. War in the Persian Gulf could send oil prices into the stratosphere. And the European debt crisis could crash. People in a renewed recession would be less likely to increase their own tax burdens.

Then there's the finding that 55 percent of likely voters, in the PPIC summary, "believe state government could cut spending and still provide the same level of services." So people still are skeptical that government has done enough to save on current spending.

"Raising taxes at this point is just so beyond the pale," Lew Uhler told us; he's the president of the Roseville-based National Tax-Limitation Committee. "I just don't see people buying into the class-warfare stuff. They're not only trying to increase taxes on high-income families, but also the sales tax."

He pointed out that the governor remains an enthusiast for the California High-Speed Rail Authority and its spending plan of at least $99 billion on a project widely considered a boondoggle. "He's re-establishing his Gov. Moonbeam name by this craziness," Mr. Uhler said.

The last time Californians passed a tax-increase initiative was in 2004 with Proposition 63. It increased state income taxes on millionaires by 1 percentage point to fund mental-health programs. Yet it passed with just 54 percent of the vote even though opponents spent just $13,000 compared with proponents' approximately $4.7 million. And that was during the height of the real estate boom, when it seemed the good times never would end.

Times are different now. The economy still is hobbled. Any tax increases will face solid opposition. Bring it on.

Lew Uhler

President, National Tax-Limitation Committee

Monday, January 30, 2012

Market Update for Jan 30, 2012

Monday, January 30, 2012

The rally in the bond and mortgage markets is continuing this morning, Europe stock markets weaker and US equity markets set to open lower at 9:30. Dec personal income and spending at 8:30 was in line with estimates; income up 0.5% against estimates of +0.4%. Dec spending unchanged against estimates of +0.1%; more evidence that holiday shopping didn’t meet those early lofty estimates. Spending stalled in December as Americans used a jump in incomes to restore depleted savings, indicating the biggest part of the economy will not be a driver of the expansion.

Last week Greek officials were “confident” that they could make a deal with creditors to fend off another debt default cliff. Nothing happened, not necessarily a surprise as we have been subjected to the continual uncertainty and lack of progress for two+ years now. Greece signaled opposition to economic oversight in exchange for aid, taking Italian interest rates higher this morning and driving equity markets lower. European Union leaders gather in Brussels today for their first summit of 2012 to put the finishing touches on a German-led deficit-control treaty and endorse a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Saturday they expect to complete a deal in coming days after bondholders signaled they would accept a bigger cut in their debt holdings----it never ends.

The DJIA opened -100; 10 yr note +17/32 1.83% -7 bp and MBS 30 yr prices +6/32 (.18 bp).

This week’s elephant is the Jan employment report on Friday; current estimates are an increase of 160K non-farm jobs and private non-farm jobs +170K, the unemployment rate at 8.5%. The actual unemployment rate is closer to 16% however, that the “official” rate is at 8.5% is evidence that many have simply dropped out of looking for jobs. Until the Fed revised estimates for growth downward for 2012 and 2013 last week and Q4 GDP advance report was weaker than forecasts (+2.8% against +3.1% expected) there was an increasing belief the economy was gaining a little momentum. Now economic bulls are re-thinking that idea.

The bellwether 10 yr note is working on a key resistance level at 1.80% this morning. In early trade it dropped to 1.82% and at 10:00 sitting at 1.83%. The MBSs are pushing into new highs in prices not seen in over a year. The Fed’s decision to leave the FF rate at 0.0% for the next three years and with no inflation now or on the horizon, the long end of the curve is seeing buying as investors seek yield. The safety trade over Europe’s debt crisis has ebbed recently but still plays a role in the decline in rates.

Sunday, January 29, 2012

Chairman and CEO of Valero Energy.

Subject: Keystone XL Pipeline
Below is an email message to Valero employees from the Subject: Keystone XL Pipeline Statement
Chairman and CEO of Valero Energy. They have a large refinery in Port Arthur and Lake Charles. We MUST vote Obama out in November.
Date: January 24, 2012
To: Valero Employees
From: Bill Klesse
Subject: Keystone XL Pipeline Statement

As you know, the Obama administration decided last week to deny TransCanada’s application to ship crude oil via the Keystone XL pipeline from Canada to the Gulf Coast. Valero has planned to be a shipper and purchaser of that oil since 2008, and obviously we were disappointed in the decision. We issued a statement in response to questions from the media, and I wanted to share it with you in case you get questions from friends or business partners, and so that you would know why Valero supports the Keystone XL pipeline. This is the statement:

Despite the uncertainty and political fighting over the Keystone XL pipeline, Valero has continued to invest in its U.S. refining operation. In 2011 we spent nearly $3 billion on projects, and for 2012 our capital expenditure budget is over $3 billion. These expenditures are keeping our employees on the job and putting additional people to work. To reference two of our refineries, at Port Arthur, Texas, we have 1,600 contractors working on an expansion project, and at St. Charles Parish, Louisiana, we have another 1,000 contractors working on a separate project. We need this kind of economic activity to accelerate to help all Americans.

This illustrates why the federal government’s rejection of the Keystone XL pipeline is so absurd. There are pipelines in every neighborhood all across America. The administration’s decision was not about pipelines, it was about the misguided beliefs that Canadian oil sands development should be stopped and that fossil fuel prices should increase to make alternative energy more attractive. Instead, we should be impressed with how well the oil sands engineering and recovery technology has advanced, and the economic benefits this development brings. Having more oil available in the marketplace has the potential to lower prices for consumers. As an independent refiner, Valero buys all of the oil we process. Due to the administration’s misguided policies, refiners like Valero will have to buy more oil from other sources outside the U.S. and Canada. Consumers will bear the additional shipping cost, not to mention the additional greenhouse gas emissions and political risks.
With all the issues facing our country, it is absolutely unbelievable our federal government says no to a company like TransCanada that is willing to spend over $7 billion and put Americans to work on a pipeline. The administration’s decision throws dirt into the face of our closest ally and largest trading partner.

The point above is that it is not about pipelines as many pipelines cross the Ogallala Aquifer, in the Great Plains region, and, in fact, there is already significant oil and gas production in the area covered by the aquifer. This is politics at its worst.

Thanks for your support.