Prepare for an Economic Collapse on 1 January

The famed economist Arthur Laffer penned an explosive article for the Wall Street Journal, Tax Hikes and the 2011 Economic Collapse. The article not only predicts a major downturn for the economy on 1 January 2011, but also explains in depth the fiscal policy decisions which will force this to happen.

The entire article is very much worth reading, but the gist of it is that corporations and high-income earners have been pulling as much possible earnings into the 2010 tax year as possible, because of the numerous tax increases that are coming in 2011.  The inflates the apparent strength of corporate earnings, which artificially boosts the stock market to unreasonable and unsustainable levels.

In 2011, this will naturally lead to decreased corporate earnings and a plunge in the valuations of most stocks.  It will also lead to decreased tax revenue, due to all of the tax revenue that was pulled ahead into 2010.

On 1 January, the top federal personal income tax rate will rise from 35% to 39.6%, the top federal dividend tax rate will rise from 15% to 39.6%, the capital gains tax rate will rise from 15% to 20%, and the estate tax will rise from 0% to 55%.  If you’re going to die soon, be certain to do it before 1 January.

Many Americans are also taking this last opportunity to convert their 401k, IRA, and Keogh plans to Roth IRA’s. This means expanded tax revenue for the government in 2010, but it also means shrinking tax revenues for the government in the future.

The effect of these tax change will no doubt start the “double dip” recession that economists have been predicting, if it has not already started by 1 January. You have almost six months to get your tax planning finalized and your investments prepared for the big plunge. Get to work!

One Million Americans Not Looking for Work

Over a million Americans are unemployed and having given up hope of finding a job. 1.08 million Americans are officially listed as “discouraged workers”, which means that they have not looked for work in more than four weeks. They have simply given up on finding jobs until the economy recovers.

46% of those without jobs have been unemployed for more than 27 weeks — more than half a year. That length of unemployment can damage a person’s self esteem and make it very difficult for them to find employment even in a good economy.

Unfortunately, that good economy is a long way off. Richard Hastings, macro and consumer strategist at Global Hunter Securities, forecasts “”We don’t expect any substantial improvement to the labor situation at all.”

Peter Morici, professor at the University of Maryland’s Smith School of Business and former chief economist at the US International Trade Commission explains “The fact that people are sitting down indicates just how bad the market is for some categories of people.” He blames economic mismanagement on the part of the Obama administration. “By and large they don’t have a grasp of the scope of the problems, and we’re not creating that much demand for labor. They’re not putting the stimulus in the right places. This administration is really being run like a Junior Achievement project.”

Almost paradoxically, the increase in discouraged workers actually helps the official unemployment numbers. People who stop looking for work are not counted as unemployed and that allowed the Obama administration to publish an improvement from 9.9% to 9.7% unemployment in Friday’s jobs report.

David Rosenberg, chief economist for Gluskin Sheff explains, “If it weren’t for the plunge in the labor force, the US unemployment rate would have climbed to 10% in May. The household survey actually flagged a 35,000 outright decline in employment last month.”

Even with these dropouts, we will most likely see the official unemployment rate rise above 10% again once the temporary census workers are finished.

Palestinian Authority Opposes Lifting the Gaza Blockade

Azzam al-Ahmed, a member of the Palestinian Legislative Council, was quoted over the weekend telling the German News Agency (DPA) that he was opposed to the lifting of the blockade on the Gaza Strip until Hamas agrees to end their coup against Fatah-led government.

al-Ahmed also explained that there was no humanitarian crisis in the Gaza Strip “I confidently say that Gaza does not need humanitarian or food supplies because the PA (Palestinian Authority) is securing all of this. The PA sends 200 trucks into Gaza, not through Rafah but through other crossings.” The othe crossings al-Ahmed referred to are on the border between Israel and the Gaza Strip.

The Palestinian Authority is also concerned by Turkey’s increasing support for Hamas, the terrorist group which staged a coup against the PA and successfully holds the West Bank territory. Officials from the Palestinian Authority are afraid to enter the Gaza Strip, as many have been murdered by Hamas — some along with their families.

On Monday, a PA official in Ramallah explained that the Palestinian Authority was unhappy with Turkey’s coddling of Hamas, saying “Turkey’s policy is emboldening Hamas and undermining the Palestinian Authority.”

Palestinian Authority President Mahmoud Abbas visited Turkish Prime Minister Recep Tayyip Erdogan in Istanbul on Monday to warn him against supporting Hamas. Erdrogan instead offered to help negotiate a peace settlement between Fatah and Hamas. Playing from a weak hand, Abbas was forced to accept Erdogan’s offer.

Market Plunges on No News – the Bear Market is Here

The DJIA (Dow Jones Industrial Average) dropped 115.48 points to end the day at 9816.49. The Nasdaq Composite dropped 45.27 points to 2173.90. This represents a drop of 1.35% for the Dow and 2.04% for the Nasdaq.

The plunge occurred in the absence of any major market news. This is a strong indicator that we have entered a bear market.

This latest drop piled on top of Friday’s 324 point plunge and created new 2010 lows for the DJIA. If this is indeed the start of a new bear market these won’t be record lows for very long.

Investors are simply unwilling to put money into a market that remains overshadowed with fear of new government regulations.

The biggest news of the day was Apple’s launch of the next generation iPhone 4, but Apple stock fell 2% on the news.

Even news of improved fiscal governance from the Hungarian and German governments couldn’t buoy investor sentiment.

Keith Bliss of Cuttone & Co told FOX Business “We still think we’re short-term oversold. We’re not going to get back to the highs of October 2007 any time soon.” When a market that fell over 3% in two days is still considered oversold, you are in a bear market.

In other words, the party is over. The market has entered a “corrective” phase and stock valuations are going to come down until they reach levels more in line with expected corporate earnings.

If you are an individual investor, this could be an excellent time to exit the market near it’s recent peak and wait to buy back in after the coming bloodbath.

Egypt to Revoke Citizenship of Men Who Marry Jews

Judge Mohammed al-Husseini of the Supreme Administrative Court ruled Saturday that Egyptian men who marry Israeli women may be stripped of their Egyptian citizenship.

Husseini specifically stated that the ruling was based upon race, not nationality. He stated, “The case for (Egyptian) men married to Israeli Arab women is different to those married to Israeli women of Jewish origin because (Israeli Arabs) have lived under Israeli occupation.”

This is, of course, not true. Israeli Arabs are not living under occupation. Israeli Arabs are full citizens of Israel and are an important part of the Israeli nation — including serving in the Knesset and the Cabinet.

The ruling forces the Interior Ministry to request the Cabinet to initiate the necessary steps to take away Egyptian citizenship from men married to Israeli women. It also take away the citizenship of the couples children. The Interior Ministry had been resisting this action.

Without citizenship, these men will not be able to work or obtain a passport to travel. These revocations of citizenship cannot be appealed.

Approximately 30,000 Egyptian men are believed to be married to Israeli women — 90% of those to Jewish women. Israeli women are preferred by some Egyptian men as being more equal life partners.

This ruling is shocking to Westerners, who are unaccustomed to overtly racist acts on the part of government officials. It once again highlights the vast distances Egypt has to go before it can be considered a civilized nation.

Ohio Couple Arrested on Terrorism Charges

Hor and Amera Akl of Toledo Ohio have been arrested and are being held on charges of attempting to funnel money to the Hezbollah terror group in Lebanon. Both Hor amd Amera hold dual Lebanese and American citizenship.

The couple is accused of conspiring to hide up to $1M dollars from unknown U.S.-based Muslim donors in an automobile and then ship the vehicle into Lebanon using a local car dealership as a cover. The Hezbollah group in Lebanon is seeking funds to purchase Scud missiles from Syria.

The arrest was made based upon information provided by an FBI informant and telephone calls recorded during the course of an eight month investigation. The FBI apparently thought this case was important enough to blow their informants cover. The couple is being charged with money laundering and conspiring to provide material support to a foreign terrorist organization. Both Hor and Amera face maximum sentences of more than forty years in American prison.

Most likely the couple will plead to much smaller charges and be released quietly. The fact that they had not succeeded in delivering the funds to Hezbollah makes the case against them very hard to sell to a jury, especially in the left-leaning city of Toledo.