CommStock Israel Investor Insights Newsletter
Monday, January 26th, 2009

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 1) Tax cut plans: Sizing them up Senate Democrats' tax-related proposals track many of those in the House economic recovery package but sometimes differ in scope.

By Jeanne Sahadi, CNNMoney.com

Last Updated: January 23, 2009: 7:30 PM ET

NEW YORK (CNNMoney.com) -- The Democratic leadership of the Senate Finance Committee on Friday released a $275 billion proposal of tax cuts aimed at reviving the economy.

The Senate Finance legislation, which will be debated and amended by the committee on Jan. 27, will be part of the Senate Democrats' overall economic recovery package.

The Senate tax plan shares many elements of a bill approved by the House Ways and Means committee earlier this week. But there are differences.

Make Work Pay credit: Both bills provide for a Make Work Pay credit worth $500 per worker ($1,000 per joint filers). The income limits to receive the full credit are the same in both bills ($75,000 or less for individuals, or $150,000 or less for couples filing jointly), but the two bills phase out the credit at different rates.

Under the House bill, those who make more than $75,000 but less than $100,000 (or $200,000 for couples) would get a partial credit. But under the Senate proposal, only those making less than $87,500 ($175,000 for joint filers) would be eligible for a partial credit.

This Senate provision would cost the Treasury $3 billion less over 10 years than the House bill.

Child tax credit: Both bills also allow a temporary increase in the amount of the child tax credit that would be refundable, but the Senate's increase is smaller, costing $8 billion less than the House version.

Help for the unemployed: Both bills call for the government to subsidize health care coverage for workers who lose a job.

In a departure from the House bill, the Senate Finance proposal also includes a $4.7 billion measure that would temporarily suspend the taxation of unemployment benefits.

Business loss tax break: Both the House and Senate bills broaden businesses' ability to write off their losses by expanding the so-called net-operating loss carryback provision.

But the Senate's expansion is larger, costing $2 billion more than the House's version.

Energy tax break: The Senate proposal includes an $11 billion measure to make it easier for businesses to claim valuable tax credits for investing in energy. The House bill does not include this proposal.

It would extend the number of years companies may apply an energy credit to their prior years' income, and it would allow them to apply the credit to 100% of their income, up from 25% currently, said Clint Stretch, Deloitte's managing principal of tax policy. The provision would be in effect for tax years 2008 and 2009.

When a company isn't making a lot of money, taking a income-based tax credit becomes much less valuable to them than taking it in years when they make a lot of money. The Senate provision will provide incentives for those companies to make energy investments this year, even if their income statement is dismal, because they know they can get cash back from the government because the credit can be used against income from prior years.

"It's a big pump of money [to companies] right away," Stretch said.

Negotiations on tap

The Senate Finance bill released Friday is far from the end in the Democrats' quest to have legislation ready for President Obama's signature by mid-February.

The Senate Appropriations Committee late Friday put forth its $365 billion piece of the economic recovery package.

Next week, the Finance Committee may make changes to the proposal before sending it to the Senate floor for a vote. Ranking Member Charles Grassley, R-Iowa, put out a statement Friday noting that he will push hard for revisions.

"The more that the provisions of the bill stimulate activity in the private sector and the less that they run up the deficit with slap-dash government spending and a big entitlement expansion, the better," Grassley said. "Job creation has to be the top goal, along with other help for families who are hurting, and I'll be supporting amendments to move this massive bill in that direction."

Republicans presented Obama with their alternate stimulus package on Friday, which is much more heavily weighted toward tax cuts than spending.

The next stage after the House and Senate vote on their respective bills the two chambers will need to reconcile the differences between their proposals.

2) Commentary by David Zwebner, CEO of CommStock Trading 

U.S. Economy
Several commodities are trading higher today, influenced by various weather problems, pests, and a growing appetite of investors for gold. The December eurodollars closed down .06 at 98.665.

U.S. Treasury Secretary nominee, Timothy Geithner, said that he believes that China is manipulating its currency, but that now might not be a good time to take action against them. His comment signaled a possibility that President Obama may be trying to pressure China to allow its currency to rise. China denies that it is manipulating its currency. The March U.S. dollar index ended up .03 at 86.16.

Grains and Cotton
The USDA said that, as of last week, 2008-2009 exports of:
Corn fell from down 39% to down 40% from a year ago.
Soybeans remained up 11% from a year ago.
Wheat fell from down 17% to down 18% from a year ago.
Cotton remained down 1% from a year ago.

Last week's net sales of cotton were especially high, at 470,000 bales. March cotton jumped up 1.71 cents to 50.64, the highest close in over two months.

The USDA reported export sales today of 145,000 tons of soybeans to China and 102,616 tons of corn to Japan. Also, a previous sale of 356,000 tons of hard red winter wheat to Nigeria was cancelled. March wheat closed up 16 cents at $5.827.

Rain is in the forecast for Argentina this weekend, but the real question is: will it be enough to help the crops? March soybeans were higher most of the day, but ended down 3 cents at $10.09.

After the close, the USDA estimated this week's beef production at 494.1 million pounds, up .4% from a year ago. Pork production was estimated at 455.4 million pounds, down 2.8% from a year ago.

Orange juice
Central Florida got another shot of cold this morning - some areas in the 20's, but it is hard to tell yet how much of the orange crop has been damaged. March orange juice ended down .90 at 74.90.

Cocoa
Yesterday, the United Nations said that an infestation of caterpillars were eating crops in northern Liberia and they may spread to the Ivory Coast. March cocoa jumped up $81 to $2,661, the highest close in three weeks.

Energies
The U.S. Department of Energy said that underground supplies of natural gas were down 176 billion cubic feet last week to 2.560 trillion cubic feet. Supplies are now down slightly from a year ago. March natural gas fell 16.9 cents to a new contract low of $4.493 with yesterday's 6 to 10 day forecast from the National Weather Service expecting above average temperatures for the eastern half of the U.S.

Metals
Gold may be the new currency of choice in these difficult times. According to Bloomberg news, SPDR Gold Trust, the world’s largest exchange-traded fund for gold is experiencing record volume. April gold closed up $37.20 at $897.70, the highest close in over three months, and March silver closed up 57.5 cents at $11.933, also the highest close in over three months.

Currencies
The U.K.'s Office for National Statistics said that real GDP was down 1.5% in the fourth quarter, weaker than expected and the first official recession since 1991. For all of 2008, GDP was up .7%. Oddly, retail sales volume in the U.K. was up 1.8% in December from a year ago. The March British pound was down 1.12 cents at $1.3753.

Statistics Canada said that consumer prices were up 1.2% in December from a year ago, down from a 2.0% gain in November. The core index was up 2.4% over the same time period. The March Canadian dollar closed up 1.24 cents at 81.00, helped by today's boost in the price of gold.

A former Governor of the Reserve Bank of Australia said that the interest rate may have to come down from 4.25% to less than 2% to help the economy endure an expected recession. The March Australian dollar finished down .30 at 65.31.

 Mona Liss
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