Forced Wealth Redistribution Cheers Markets

Muammar Monday – Forced Wealth Redistribution Cheers Markets
By Phil of Phil’s Stock World 

Libyan Rebels seem to have taken over the country.  

In this morning’s chat, I pointed out that Ghadafi has/had a $40Bn fortune in a country whose GDP was less than $80Bn and the per-capita income outside of oil money is just $5,000 a year.  With the oil money redistributed to it’s 6M people, that per-capita income jumps to $11,300 a year but let’s not hold our breath for such an egalitarian system popping up overnight. 

Of course, it was Ghadafi himself who first proposed that oil profits be shared equally by all Libyans, a ploy that bought him two more years in power, until people got fed up of waiting for their promised cut this spring.  “Libyans, this is your historic opportunity to take over your oil wealth, power and full freedom. Why do you want to let the chance slip away from you?” – Ghadafi said to his people in February of 2009.  


Here we are in August of 2011 and the Libyan people have risen up an forced their politicians to come through on their empty promises by force – something that is making other Dictators very nervous and something that should make all of the top 1% all over the World a bit concerned – especially in countries like America, where 1% of the people control 45% of the wealth.  Throughout history, imbalances like this have not ended very well for the top 1%, have they?  

Note the chart on the left which shows the wealth distribution in the US vs Sweden and vs and equal model.  Sweden top 20% “only” have 40% of the Nation’s wealth but the bottom 20% have 11% of the wealth – over 100 TIMES the amount the bottom 20% have in America and over 50 TIMES more than our next 20% have as well!  

We discussed the idea of a more peaceful systems of redistributing wealth through taxation this weekend in “Problem Solving 102 – Taxes (Not Enough of Them!)” and it’s funny to read the commentary by Conservative readers, who resist even the idea of having the top 1% pay a little more in taxes than the the rest – which is funny because, as we see from Sweden’s model and Libya’s Revolution – no one has even gotten to the core issue in America which is – should the top 20% make 84% of the money in the first place?  

You don’t need to redistribute wealth if income is fairly distributed right from the start, do you?  In the US, the bottom 60% make just 4.3% of the income yet I spent the weekend listening to Conservatives spouting off in the MSM about how the bottom 50% are the ones that need to pay more taxes.  If you don’t think the bottom 180M people in this country are every bit as pissed off as the bottom 5M in Libya were – you are simply not paying attention!  

What happens next in Libya will be critical. The WORST thing that can happen, from a global top 1% point of view, is for the new Libyan Government to ACTUALLY redistribute the wealth and make the Libyan people richer and happier.  

That will be very likely to inspire other downtrodden people (maybe even in this country!) to rise up and do the same, so things are going to get very interesting – especially considering how inflexible the position of the top 1% in the US has been as far as giving back even something so small as the Bush tax cuts in this time of dire fiscal emergency.  

Is wealth redistribution a bad thing?  Not for the markets it isn’t.  Give the bottom 90% more money to spend and it will get pumped back into the local economy and create those jobs the “job creators” have failed to provide.  Of course the “job creators” won’t like the way the money is spent as the bottom 90% are far less likely to buy F-35 Fighter planes when given a real choice and they may (gasp!) spend their money at local, businesses that actually hire people and create jobs – as well as creating competition for the entrenched business interests and we certainly can’t have that in a Capitalist society, can we?  


Anyway, it’s going to be a very exciting week as we eagerly anticipate Bernanke’s Friday morning speech from Jackson Hole. On Friday I declared the market oversold but we won’t get sucked into over-playing a weak bounce although that EWG trade idea from the morning post is looking good already as Germany pops 1.5% this morning.  I imagine our short VXX play should play well also and, if XOM cheers up, that will be 3 for 3 on Friday morning’s post and our week is off to a good start!  

In Member Chat on Friday, we added an aggressive long play for HPQ in the $25KP and they are looking good this morning and I really like that long play on TIE and that TNA Sept $35/39 bull call spread (with the short $26 puts) at net .40 should be off to a rockin’ start as well.  I guess we were playing it pretty bullish but let’s not forget we correctly aborted those safety puts because we expected this bounce but, if we begin to lose momentum, those are very attractive plays for a big downturn so keep the list handy!  

As noted in this week’s excellent Stock World Weekly, (FREE trial here) we are simply following the “W” pattern I had predicted two weeks ago, when we were bottoming so let’s not go cuckoo over anything under those Must Hold levels.  We had 4 violent up and down days on the left leg of this pattern so let’s not be surprised if we have the same as we fill in the other side.  Jim Cramer is on TV right now (9:10) saying he can’t find a single analyst who is bullish at this point and that’s kind of funny considering how much of my stuff he steals and he’s had all weekend to catch up on my posts.  

As usual, I am neither bullish nor bearish – I am simply rangeish and we are at the bottom of our range so we play it a little more bullish until and unless the range breaks. It’s not complicated – even Cramericans should be able to follow this logic, right? Let’s continue to be careful out there and we’ll continue to look for fun places to put a little bullish cash to work – there’s plenty of time to get in if we’re going to have a real rally! 

(Cartoon by Barry Ritholtz)