Yeah, it's going to do you a lot of good....

President Obama’s budget, to be released next week, will limit how much wealthy individuals – like Mitt Romney – can keep in IRAs and other retirement accounts.

...

Under the plan, a taxpayer’s tax-preferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement – or right around $3 million this year.

You can bet this won't be indexed to anything approaching an actual cost-of-living adjustment.

This sounds like it will only attack the "rich" today, but don't bet on it.  Note that "other retirement accounts" is likely to mean aggregation of all retirement assets, including the actuarial value of pensions and similar.

Oh, all those people who thought they had done so well by screwing the taxpayer (like, for instance, Superintendents in Chicago area schools with massively-bloated pensions)?

"Your" funds will be stolen for the federal government's use too.

As with all such views, you may need professional tax advice on any of these moves.  Your situation is unique -- everyone's is.  With that said, here are some things to consider in the closing days of 2012:

• Take taxable gains now.  Capital gains taxes may remain where they are, but if Congress does not act they will rise -- a lot.  If you intend to take the gain sometime in the next year or so doing it now will lock your capital gains rate.  Note that even if you like the position this is not necessarily a lose; the "wash sale" rule only applies to losses!  What this means is that you can sell a position that is profitable, book the gain and the tax liability, then immediately buy it back (less the amount you will have to send to the IRS.)  This does not trigger the wash-sale rule since there is no loss being carried back.  This can turn into a double-win if the stock declines in value in 2013 and you later book a loss, since losses are direct offsets against gains (and can be carried forward indefinitely for those who have not declared mark-to-market status.)  Normally you'd be nuts to book a gain, crystallizing tax liability and then re-buy a position, but this is a special circumstance where it may make sense.
  
  
• Be very careful with hedging strategies or crystallizing losses that are sometimes smart across a year-end boundary in taxable accounts.  Legally avoiding the wash sale rules is not all that hard; the trick is not to re-buy a losing position in "like kind" within 30 days.  This is only of actual impact on tax liability across a year-end boundary (but the record-keeping is a bitch all the time.)  If you trade short-term you either pull your hair out or you use something like Gainskeeper, and know exactly what I'm talking about.  The exact definition of what fits as "like for like" is a matter of some debate but out-of-the-money options usually are not going to qualify as a like-for-like (deeply ITM options probably will!)  In addition crystallizing losses to offset gains is sometimes smart and rather common but if you think the gains rate is going higher next year the offset is worth more in legally-avoided taxes next year than it is this year.   If you have a $100,000 gain in a security next year and the capital gains rate is 25% but this year it's 15% then having a loser that offsets that $100,000 is worth $10,000 more in lawfully-avoided taxes next year than it is now!  As such you may wish to consider not selling that loser until after January 1st this time around if you have taxable gains you can offset.  The other side of this is that if you don't have taxable gains you can offset then booking the loss now gets you a $3,000 offset against ordinary income and carries the rest forward and it's unlikely to be worth less next year than it is now and may be worth more.  Carefully consider the likely impact both ways before making your choice -- this gets complex when you have both gains and losses you can book and much depends on what you think your P&L will look like next year.  Yeah, I know, it's a guessing game.  Welcome to our wonderful government's idiocy.
  
  
• If you own a business and need capital equipment next year, and have the money, buy it now.  There are Section 179 and related deductions that are due to expire on December 31st; if not extended they will revert to standard depreciation rules.  Forcing things onto depreciation schedules doesn't matter in many cases but in high-tech businesses it hurts bad, as many things become economically worthless far before the IRS schedules say they do.  Cash flow is not only King, it's God in a small business and forcing you to dribble out the capital impact of something beyond when it earns you money just plain sucks. Anyone who's ever run a technology-based business big enough to run into this problem knows all about it and has sworn up a blue streak as a consequence.  Take advantage of these opportunities.
  
  
• If you are expecting an early refund, better make alternative plans.  This is the 900lb gorilla in the room; if there is no immediate resolution the IRS will not be able to process returns, especially if the AMT remains unpatched.  Oh, speaking of which, that's the real nasty in this deal -- the AMT.  This is a Tax Year 2012 problem, not next year. It has the potential to screw tens of millions of middle-income taxpayers and the worst impact is in high state tax locations like New Jersey, California and New York.  Those of you who live in those states and put Obama back in office get to thank him for this one if the AMT is not patched by December 31st as the cornholing may extend down to $40,000 AGI!  Effectively what happens is that if you get hit by the AMT all your deductions off AGI go away -- for those who have high state income and property taxes you will get rammed.  As someone who has had to pay this damnable tax in the past I'm chuckling at all of you who think that "taxing the rich" is an answer -- Mr. Firefighter and Ms. Teacher, you are going to get hammered on this one.  How bad is this?  It will turn your $2,000 refund into a zero, or worse, turn your $1,000 refund into a $1,500 bill!  Thanks Barry.

In short the year is almost over but the considerations just got very real for most Americans, especially those in high-tax states.  Once January 1st rolls it's too late to do any of the things you can do that will help, so consider them now, once the eggnog wears off. 

The incessant pumping by CNBC claiming "Rise Above" as a mantra along with other foolishness reminds me of what happened in 2008, and prompts me to issue a stern caution to anyone in the markets -- it can happen again.

Let's remember 2008, shall we?

The original TARP vote failed and the DOW plunged ~770 points.  That much "everyone" knows.

What is not talked about is that just a couple of days later it was passed, as Congress "interpreted" the collapse in the market as a demand to pass the bill, helped along by Hank Paulson, CNBC and everyone else in the "punditry."  The Senate passed the bill on October 1st overnight, with the House following on the 3rd.

But the market did not want TARP passed.  It wanted an actual solution to the problem, and TARP was not that solution -- it was a SCAM.

When TARP passed the DOW initiated a 3,000 point collapse over a bit more than a week's time.

The market, in fact, was not done going down until the spring of 2009, when balance sheet fraud via mark-to-fantasy was officially made legal through the bludgeoning FASB took in a Congressional hearing room.

The issue today is that the actual problem is a roughly 8% intentional overstatement of economic demand in the form of GDP financed with government deficit spending.  A "half-ass solution" that makes a $100 billion annual dent in a $1,200 billion deficit will probably be looked at exactly as was TARP by the markets -- that is, it will not be greeted with a big rally, but rather with a collapse as the market will (correctly) read this move by Congress as an unsuccessful can-kick and not a solution!

The government has backed itself into a corner over the last four years.  The time available to actually resolve the deficit spending problems along with forcing the insolvent into the open and reorganizing them has been squandered.

Now the market is once again stomping its feet.  But unlike the spring of 2009 there is no fraud game that can be played this time around.  Deficit spending and false economic demand is the problem and the only solution is to take it on.  The bad news is that where we had to take a roughly 10% adjustment in the amount of federal spending in 2000, and 20% in 2008, it is now approximately 40%. 

There is nobody in Washington seriously talking about even 1/4 of that amount in spending reductions -- even going off the "fiscal cliff" full-bore would only impose about 1/2 of the necessary correction between spending cuts and tax increases.

And let's not forget that the sequester and tax increases, half of what would be required to simply stop the deficit spending this next year (not doing anything about the debt or acceleration in medical spending over time), is being called "Armageddon" by virtually everyone.

I expect the market will give the politicians a couple of weeks -- maybe -- before it starts to demand an actual answer.  And, as in 2008, I also expect that what Congress will cough up will not be an answer, but rather, as it was in 2008, another attempt to run a scam and will be far less than the sequester and tax increases would be.

We shall soon see if the market again pukes up 3,000 DOW points in response.

Last Thursday I recorded a video (available to gold-level donors on Tickerforum) in which I pointed out the analog between the 2008 declines in the stock market and what we were seeing since the election.

There was a large difference in amplitude, but the timing and similarity in terms of where the market was, with a substantial level of congruence, striking.

My warning was quite simple -- the decline wasn't over in 2008 on Thanksgiving, of course, but you were playing with fire getting short in size coming into that expiration for the same reason you were last Friday -- the option skew was well into silly territory and the market itself was pretty-seriously oversold.

Those two ingredients don't always produce a rip-your-face-off move northbound, but they do frequently enough that it's unwise to bet against it with money you can't afford to lose.

Friday the market bottomed at 1343.35 with the /ES at 1340.25. 

This morning we find the futures 30 handles, or approaching 3%, higher, and the futures are over +10 which is often a threshold for a "gap-and-go" rip.

I don't see a solution to the so-called "fiscal cliff", and everyone on CNBC is talking about "money on the sidelines."  As in "buy buy buy" Cramer nonsense.

I love how everyone talks about how the market is "spring-loaded" when the move has already, to a significant degree, happened!

There is no actual solution to the fiscal cliff folks.  As I have repeatedly pointed out what we keep screwing with are half-solutions and lies rather than anything that can actually solve the problem.  The reason for this is quite simple in the main: We have lied for more than a decade about economic progress -- there has been none.  It has all been borrowed and bought forward, and the ability to do that has now ended.

Paradigm shifts, when they happen, just are.  The folks who recognized the housing bubble blowing up -- when I started yelling about Washington Mutual paying dividends with earnings that didn't really exist but rather were capitalized interest on houses that had already started to decline in value and were underwater the bell had rung.  Yes, it took more than a year for the depths of the destruction that was to come to be recognized from that point, but the paradigm shift had already happened and in fact the shift occurred about a year prior to that when those home values peaked.

We're in the same situation now with fiscal reality.  The driver of alleged "economic growth" over the last two decades was unbridled credit creation that presented a view of growth that was factually not happening.  In point of fact were sliding slowly backward and accumulating debt instead of making progress.  This exponential process is what set off the collapse in housing and the markets, and instead of addressing it we tried what was done in 2000 to shift and expand that leverage once again.

That experiment has failed; we now have enough data to know this is a fact, not an expectation.

What is the fair value of a market that has no exponential debt expansion in it?  I don't know with certainty, but I know it's much lower than that for a market featuring that expansion.  Is it half of a market with that expansion?  Probably -- and likely more, because a "level" system is not what you get when things mean-revert -- you undershoot just as you overshot.

In short this is a nice Turkey week and those who piled in last week short are now staring at big red numbers this morning.  But this was one of the best-telegraphed bounces with a hard analogue that wasn't that hard to recognize.

If you got caught by it step back and re-think both strategy and money management, and look for the corner when recognition returns.  If not -- if you were on the ball, then enjoy the bright green numbers you woke up to this morning -- but don't fall in love with it for more than the next few weeks.

And if you're reading this and not a Tickerforum gold donor, consider joining us at the gold level of donorship and enjoy the trading videos along with much-enhanced access of the system.

A nasty set of facts you're probably not paying attention to:

• From 1990-2000 GDP advanced by an average of 4.80% annually. Debt advanced by 7.51% annually.
  
  
• From 2000-2010 GDP advanced by an average of 4.13% annually.  Debt advanced by 6.56% annually.
  
  
• From 2010 onward GDP advanced by 3.93% annually.  Debt advanced by 0.93% annually.

Despite the Federal Government and Federal Reserve's best efforts to "re-ignite animal spirits" the expansion of leverage -- that is, debt -- in the economy has factually failed and is factually contracting against GDP.

The S&P went from about 100 to 1500 and the Dow from 1,000 to 14,000 predicated on this leverage expansion over the space of 30 years.  That leverage expansion has ceased despite the stated intent and policy of Ben Bernanke to force Seniors and others into the market -- and to make them acquire more leverage.

Likewise, so-called "earnings expansion" was actually predicated on business leverage, and that underlay most of this "gain."

Finally, and most-ominously, tax receipts went up at a dramatic rate due to the same expansion of leverage.  This is the "secret" of the so-called "Laffer Curve" (and is about to be exposed as the "driving force" as it reverses and renders people like Larry Kudlow, one of the curve's loudest apologists, disgraced fools.)

When the paradigm shifts so do the results.

The market is at least 50% overvalued, and may be overvalued by 80%.

So is land and so are houses.

Beware.