US Middle Class 1 Speculators 0

The energy bubble for both petroleum and natural gas showed signs of weakness this week as.Nymex intermediate oil futures declined 5% and Nymex natural gas September futures contracts prices fell 12.4%.

As always Joe Six Pack shows he can "make do" and do without that extra trip in his car and shut off his pool heater. When there's no money, well, there's no money. That means nobody has the means or willingness to pay skyrocketing prices for costs that CAN be controlled. Nobody's boss is resisting workable work at home propositions from their employees, and there is technology out there that can cut down substantially on trips to the office.

With all this in mind the scarcity in energy supply is in the final determination all of our own doing or Nancy Pelosi's doing. But who elected Nancy Pelosi? People who are given money stolen from the taxpayer that's who. You don't think Nancy Pelosi gives a flying bleep about Joe Six Pack do you? Joe has to actually get his money the old fashioned way. He has to EARN it.

Again the speculators and the Nancy Pelosi's of the world get outsmarted. Remember, necessity is the mother of invention or something like that.

Double the Pleasure Double the Fun

The ol’ one-two punch of a doubling of inflation from June last year to this June along with skyrocketing commodities futures prices has hit the nail into the forehead of poor ol’ Joe Six Pack. He’s stayin’ home and workin’ three jobs.

A person resembling an evil chipmunk that you and I may personally know has made over 20% a year for several years now in commodities returns because of a simple tried and true correlation between commodity and equity prices. It doesn’t hurt that this geek Ron Jaworski is best buddies with the guys who drive the commodity prices, e.g. those rough and tumble white people in southern Africa that know which mines will “hit”. Hedge the Tsx Venture Exchange penny stocks with convertible warrants on those self same companies, whose owners you get shattered with when you’re in Toronto and voila! It’s rainin’ money, honey! By the way Harvard has to list the evil chipmunk’s little basket of assets as a “speculative investments.”

So what does this mean to poor ol’ Joe Six Pack, e.g. you and me who make over $50,000 and not much more after taxes if you manage to hit the magical $110,000 in personal income mark, which includes everyone that owns a house on the East or West Coast. It means that we all pay ALL of the taxes for the other half of the country, who are basically supported by government transfer programs of some type such as government pensions, social security, SSI, SSDI, the earned income credit, and government health care, food , and Section 8 and other housing and energy assistance.

Poor ol’ Joe Six Pack’s paycheck is now worth another 2.5% less than it was last June. Joe Six Pack’s bank doesn’t wanna lend to him even for new business ventures because the inflation rate went from 2.6% to 5.2% in one year. Joe Six Pack’s bank wants Joe Six Pack’s money now! They want to buy commodities, and they have a lot of bad loans. Joe Six Pack has to help them get cash flow to make up for bad loans, so they squeeze Joe for payment and up his interest rate.

So Joe Six Pack has no money to spend. China is in trouble. Harvard’s doing just fine thank you.

If You’re Rich, You Have an Alternative

If you wish to invest $5 million or more and have liquid assets of $1 million or more or are an eleemosynary institution under IRC 501-(c)-3 you may also qualify to invest in “alternative investments”

“Alternative investments” run the gamut from funds investing in commodity based penny stocks traded on the Toronto Venture Exchange hedged by convertible warrants on the self same companies to long/short arbitrage, venture capital, and an assortment of global private equity investments.

If you do not meet the requirements of the Securities and Exchange Acts of 1940 you can’t invest. But if you’re a poor “not for profit charitable and educational” institution such as Harvard University you qualify.

According to recent 990 tax returns Harvard’s net worth is somewhere north of 200 billion dollars. For those of us not paying attention that’s almost A QUARTER OF A TRILLION DOLLARS.

The amount of riches amassed by this supposedly “not for profit” organization is a poke in the eye to the IRS code. Harvard’s hubris is so obscene in this respect that it routinely agrees to “payment in lieu of taxes” as far as property taxes to primarily the City of Cambridge and the City of Boston, where according to the “letter of the law” they are entitled by way of their tax exemption to hundreds of thousands to millions of dollars a year in municipal services such as road maintenance, policing, and fire and emergency services without paying for them.

In addition to this the other “rich” who manage Harvard’s investments (many of whom are Harvard graduates) charge Harvard management fees typically amounting to 2% on net assets managed in addition to incentive fees based on returns over an agreed upon hurdle rate. This means that if I manage $10 million of Harvard’s assets I am due $200,000 per annum before I deduct my expenses. So let’s say I make $150,000 in net management fees. Again there is another poke in the eye to the IRS code in that this is classified as “carried interest” and taxed at a FIFTEEN PERCENT TAX RATE. Some money managers are embarrassed to admit that their tax rate is LOWER THAN THE PERSON THAT CLEANS THEIR OFFICE:

Overall hedge fund returns declined 0.73 percent from April 1, 2008 to June 30, 2008 to 2.07 percent. The estimated inflation rate for this period of time was 7.08 percent or an astounding 5.0 percent annualized, which is more than twice as much as was common for the past decade. This means the “rich” LOST almost 3 percent real even with their advantage in what they can invest in over the average person. This is NOT good news for the rest of us.

The Elimination of The Middle Class Continues But There's Bumps In the Road

The assault of the banks and the government on people making more than $50,000 per year continues unabated in the US. Local, state, and federal tax rates and collections efforts are at an all time high as entitlements and the costs of corrupt local governments continue to expand at a double digit rate.

Because property taxes do not depend upon income, those whose incomes have declined have had to borrow to pay them. In addition inflation in food and energy prices, that are one in the same anyway, has eroded the value of net income after all taxes have been accounted for.

The erosion on productivity of the US, still the most productive country in the world on a per capita basis, caused by the stresses on the survival income of the middle class bodes ill for the solution to a 155 trillion dollar federal deficit and the estimated 100 trillion in bad loans hiding like a caldera before it explodes deep within the banking system. Both crises are sucking the lifeblood out of the middle class through job loss because of the lack of liquidity in lending to new business ventures, and the higher cost of commodities such as energy and food created by an exponential growth in worldwide demand particularly in both southwestern and far east Asia.

To the surprise of the doom and gloomers such as Warren Buffet, who again makes some boneheaded prediction that gasoline will go to six dollars a gallon and result in the complete paralysis of civilization. the price went down. To look at Warren's "recent era" performance you can safely ignore his misguided view of capital markets as a zero sum game.

What really happened is that people stayed home and gave a big howdy doo to the oil companies and the price went DOWN! Hello? Who woulda thunk it?