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Yesterday was the fourth day of my transatlantic crossing to Europe. A Nor'easter has been chasing us, following our departure from the Brooklyn Cruise Terminal, which is right across the East River from Wall Street.
The storm is hot on our tail and due to catch up with us today. The skies have been dark, the seas choppy and threatening. But the big storm is yet to come. No doubt the Queen Mary 2, a fortress of a ship designed especially for crossing the stormy seas of the North Atlantic, will handle the big waves just fine – as she always does. She's built for this kind of thing.
Have you built a fortress ship to prepare for the stormy seas ahead for your portfolio? I hope so! You know how bearish I have been over the past year. If you have followed my advice you've gone mostly to cash.
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Meanwhile, there's more news from Federal Tax data published this week that will help you decide how you want to weather the storm ahead.
Lower Tax Collections Are a Red Flag
I looked at the Oct. 31 Daily U.S. Treasury Statement earlier this month in The Wall Street Examiner. Withholding taxes for October were down. I updated that data on Tuesday, and there was more deterioration. The tax cut has not, and is not, stimulating growth. This is bad news for the U.S. economy.
Now, the data on excise taxes from the Monthly Treasury Statement for October, released this week, gives us more bad news. It's news that hasn't shown up yet in government economic data, but it will. Unlike economic data, tax data isn't statistically massaged. It doesn't lie. Knowing what the tax data shows now gives you a heads-up before the facts are recognized in the market.
The news was that both gas taxes and aviation taxes were down in October, turning what had been a slowdown over several months into outright contraction.
The withholding and excise tax data are signs that the Fed is tightening policy into a recession. Past periods of policy tightening have led to bear markets in stocks. Businesses and consumers take their cues from stock prices, and the economy thus enters a recession. Eventually the Fed reverses policy, usually after the recession has already been around for a couple of quarters. But by then, it's too late for investors. The bear has done its damage. Big damage.
Total Excise Tax Booms, but Drill Down and You'll Dig Up the Bad News
The United States collects excise taxes on a broad cross section of goods and services. They are based on the unit volume of sales, not the dollar value. They are therefore an excellent means of seeing the trend of the economy without the need to make haphazard inflation adjustments. That is, until the tax law changed. The tax on alcohol was cut, but a new tax was added on excess executive compensation for tax-exempt organizations. There were no changes to highway gas taxes or aviation taxes.
Total excise tax collections have surged wildly in the past two months. I have searched for and found no information about any significant increase in any excise taxes under the new tax law. But obviously there's something weird going on.
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.