Congratulations to President Obama and all of his supporters! It appears that already the market is reacting on the belief that President Obama will follow through on some of his economic promises. His supporters should not only be happy about that but if the market is right you are going to get even more than you bargained for.

After getting over the stimulus of the sugar high, the reality of the fiscal cliff began to set in. The markets got hit harder when Senate Major Leader Harry Reid said that he believed the election was a mandate to tax American’s the Obama way. What made things even worse it seems that if Mr. Reid is to be believed  it seems that the senator has plans to break the Obama promise of no middle-class tax increase by looking to impose a carbon tax. While proponents of a carbon tax claim that the tax would only add a couple cents per gallon , remember that is the same thing that they said about cleaner burning summertime blends of gasoline and ultra low sulfer-diesl. Of course the mandate would also mean that the so called tax breaks for energy companies would be removed. Am I thinking 5 or 6 or 7 dollar gas in the future?

Coal stocks got hammered despite the once bright future for US export. A fear that new regulation will put some of these firms out of business is a reason and of course the overall market is pricing the lost jobs that will go with it.

Higher taxes of course means that people with Money will hang onto their wallets which means that Christmas may not be so merry. A boost in consumer confidence might be erased with a plunging stock-market and dividend paying stocks. The Wall Street says that dividend tax rates, capped at 15% in a series of tax cuts launched by former President George W. Bush in 2003, could rise to a top rate of 43.4% for the wealthy. You know that darn wealthy. Like those pension funds and all of the people with their 401-k whose net worth will fall as the stocks get hammered. Of course those greedy retire can always get out of stock and earn interest on their money! Oh wait. With QE and inflation that would be a net loss resulting in even more deterioration of all of the money that they spent their lives saving up.

That’s what the surging bond market is saying as yields tank on the dreams of everlasting printed money! Now let’s talk about taxes!  The GOP is in a no win situation. If theory allow the Democrat tax proposals to go through we will be in recession. If they do not we go over the Fiscal cliff and go into a recession. Or do they stand and fight for a reasonable rewriting of the Tax code and save hundreds of thousands of American Jobs. According to the Investor’s Business Daily come January 1st a series of tax hikes totaling $400 billion dollars through the end of fiscal 2013.

The expiration of the Bush tax cuts would see household that earn 250,000 dollars or more see their tax rates go up to 39.6% up from 35%.

Tax on long-term capital gain investment would rise from 15% to 20%. Yes that is the ticket! Just what you want to see when entrepreneurs are already reluctant to make investments!

In the near term oil is focused on demand destruction. Not the long term demand destruction caused by higher taxes and the coming Obama recession. No the short term demand destruction caused by Mother Nature. Yesterday we got a snapshot of the demand destruction in the weekly Energy Information Administration supply report.  We saw a drop in gasoline demand a whopping 8% weak over week drop in gas and 15% plus year over year in distillate. Now with a nor’easter bearing down demand will get worse. Now add a US recession and demand will be bad.

But maybe not in China, more QE might mean hot money going to China and Bloomberg News that the economic slowdown that’s cut Brent prices 16 percent since March.  Consumption will jump at least 400,000 barrels a day in the three months ending Dec. 31 from the previous quarter, according to the International Energy Agency and Sanford C. Bernstein & Co. The increase would be the biggest since the final quarter of 2010 and compares with estimated net global growth of 290,000, IEA data show. Refiners, including China Petroleum & Chemical Corp. and PetroChina Co., processed record crude volumes in September and imports rebounded from three months of declines.  China, which buys more than half its crude overseas, has boosted fuel output amid speculation that gains in industrial production and retail sales in September continued into last month. Refiners are boosting supplies for factories and vehicles after cutting inventories to the lowest level in almost a year in August, according to analysts from Barclays Plc to Bank of America Corp. 

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Phil Flynn

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