Wednesday, October 31, 2007

More Tax Blather From the Sage

Apparently Warren Buffett was on with Brokaw last night lamenting the fact that he doesn't pay enough in taxes relative to his secretary. This little trick of his, using his secretary, is an oversimplification at best and dishonest at worst. I've riffed on this before, so I'll just point you, dear reader, to my previous thoughts.

The Tax Foundation questions Buffett's math here.

Tuesday, October 30, 2007

Destroying Shareholder Equity While Black

Look at this and don't even attempt to hide your shame. If this isn't evidence of the deep-seated racism that still prevades American society, I don't know what is. If a black man can't destroy billions of dollars of capital and keep his top Wall Street job, are we really the nation dedicated to the principles of equality that we proclaim to be?

Ken Chenault be forewarned, a black man can't get away with the things a white man can. Don't go destroyin' shareholder equity while black, my brother!

Friday, October 26, 2007

Modern Chinese Secret

Check out this report by Becky Quick from CNBC. She's touring Asia with Warren Buffett and she's at a factory that Buffett's Iscar put up in six months. THIS is why China is kicking our ass (or will kick our ass) economically. Not the yuan peg, not sweatshop wages, not subpar labor standards - none of this is the secret to China's economic vitality. The secret is that China moves fast and gets things done. You want to build a factory? Boom. Six months. Done. Try doing that in America. Some companies can't get things built in six years in the good 'ole USA. Thank you radical environmentalists, NIMBYs, trial lawyers and inept local officials of America. You make China the business hotspot that it is.

Calling John Edwards: 18% of Poor Lack AC

Cafe Hayek adds to the disturbing picture of the poor in America. On top of being forced to watch too much TV and eat too much fatty foods, 18% of our poor here in this evil, exploitative country are denied climate control.

Thursday, October 25, 2007

Endangered Species, Bushmeat and Capitalism

I'd be skeptical of this, but let's assume it is correct and certain species of apes and monkeys are coming dangerously close to extinction. If you listened to the media and all manner of anti-economic development types, you could be forgiven for thinking that this regretable situation was the result of man encroaching on animal's habitats; but, you would be wrong. Ever heard of "bushmeat"? No, then go here. And note the following:

"Though habitat loss is often cited as the primary threat to wildlife, commercial hunting for the meat of wild animals has become the most significant immediate threat to the future of wildlife in Africa and around the world; it has already resulted in widespread local extinctions in Asia and West Africa."

It this case, it ain't man's expanding footprint that is doing the primates in. Not our sub-divisions, not our strip malls, not our golf courses nor our big box stores. Extreme poverty is the culprit. Africans are so poor that they have to hunt apes, monkeys and other wild animals for food. In short, what is endangering these primates is the absence of modern global capitalism. If African societies had modern economies that generated the standard of living known in developed countries, Africans could get their protein intake the same way that we do, by cultivating sources of protein like beef, pork and chicken without having to endanger any species. It is the lack of a functioning free market and the lack of free trade that create the conditions where people have to hunt threatened species. Next time you hear someone decry that Wal-Mart superstore that sells untold tons of chicken for a pittance per pound, ask them if they'd prefer some bushmeat.

All Aboard the A380!

One has to put aside the affront to economics and capitalism that this project represents and see this event as the tribute to human ingenuity that it is. Congratulations to all who made this thing fly (which means every taxpayer in France, Germany, the UK and Spain).

One thing is telling however is this: "The A380 can seat more than 800 passengers although Singapore Airlines, the first airline to take delivery of the plane, has configured the aircraft to seat 470 over two decks, hoping to attract more top-paying passengers."

The strategic logic behind the A380 was the belief that air travel in the future would be characterized by large numbers of people flying between global hubs. Perhaps it is early days and SIA's approach is unique and/or temporary, but I doubt this plane can survive as a hyper-luxury option for less than 500 passengers. Those masses better start appearing soon.

Wednesday, October 24, 2007


Head Taxwurst Maker Charles Rangel has put out the outlines of his plan to pay for Alternative Minimum Tax Relief on the backs of folks like me (video here if you can stand it).

This is terrible policy and it will have severe unintended consequences. Let's just begin to look at what the implications might be using a simplified hedge fund example, with two parties and one investment. You, the Limited Partner, give me, the General Partner, $1 million to invest at the beginning of the year. I setup 'Fund I' and I go out and purchase 20,000 shares of XYZ stock at $50 a share. Now imagine that XYZ's share price doubles (by virtue of my intense lobbying of XYZ's CEO to adopt a new, brilliant business strategy) by the end of the year. I have earned you $1 million on top of your original investment and thus, you owe me 20% of that amount in incentive fees, or $200,000. But I don't get that in cash. I get 20% of our little fund's "interests" assigned over to me from you. So now you own 80% of Fund I and I own 20%, which, based on the underlying assets of 20,000 shares of XYZ priced at $100 a share, means you own 18,000 shares and I own 2,000. My 2,000 shares have a cost basis of $100,000 and I am sitting on $100,000 of unrealized capital gains. The way it works now is that I am not taxed on that unrealized gain until I sell the stock and realize the gain. After all, the stock could tank just as readily as it rose and my gains could evaporate. Not just the gain could evaporate, but the stock could go to zero and my $100,000 cost basis could vanish too. According to Rangelnomics, however, I am exploiting a loophole by avoiding a tax - I've earned $200,000 and am keeping from the government what it is owed, which would be 37.9%, or $75,800. I don't have that kinda cash lying around, so I have to sell some stock to pay the tax, but let's ignore that for now. So I pay my Rangelnomics tax, but now if that stock goes down, my effective tax rate zooms higher. If the stock declines to $75 a share, I've paid a tax rate of 51% ($75,800 on assets now worth $150,000). If the stock goes back to $50, where I bought it, my tax rate is 76% ($75,800 paid on assets now worth $100,000). If the stock does a Worldcom and goes to zero, my tax rate is, well, infinite. So what the hell do you think I am gonna do? I'm not insane, I'm going to sell my damn 2,000 shares, which I actually can't do; technically I have to liquidate my interests in Fund I, which completely severes the link between your interests and my interests. You, as my investor, probably want me to have skin in the game, to eat my own cooking, so that our interests are completely aligned so I'll do a better job for you. Well, under Rangelnomics I have to expose myself to exorbitant, even infinite, rates of taxation to maintain that alignment of interests. I might not go for it in which case you might not want to invest with me. One of us has to take a big risk, either you accepting a degraded investment vehicle, without that tight link between your interests and my interests, or me having to except exposure to exorbitant tax rates. Now multiply this example by hundreds of billions of dollars and thousands of mes and yous. Barring a clever workaround, which will come at the price of enormous legal bills, a highly popular and effective asset management arrangement will be all but destroyed. In addition, many talented managers will simply leave the business and manage their own personal wealth. If you've got $10 or $50 or $500 million you don't need to work, you especially don't need to work in order to potentially give Charlie Rangel 75% of the fruits of your toil. The impact is going to be enormous. Capital markets' efficiency will decline by orders of magnitude. In the annals of dumb tax policy moves, Rangelnomics could just take the prize of dumbest.

Tuesday, October 23, 2007

Auto Big Wig Joins the Club!

Former Toyota big dog, Jim Press, who made waves by leaving Toyota to go to newly privatized Chrysler says we should all go diesel to combat CO2 emissions. Wow, this deserves a Mankiwesque "So-and-so Joins the Club" title!

Wait for the Next 'Boeing vs Airbus' Book

I'm fifty pages into this book, which I got so excited about when I learned of it. I regret to say that I am going to give it fifty more pages and if it doesn't pick up, I'll put it down unfinished. The book doesn't demonstrate a level of depth of understanding much greater than a typical business section newspaper article. The writing is an afterthought and there is little in the way of business analysis. This is not a businessman's book or a commercial aviation enthusiast's book, it is a glorified gossip column written by a political insider. So far at least, I'm holding out hope.

Maybe I should have known better. I guess, in theory, a card-carrying member of the Clintonite diplomatic corps and a dime-a-dozen, second inning historian attack dog, could write a great book on this exciting business rivalry, but it should have been a warning sign.

UPDATE: 84 pages in I've decided life is too short and my reading list too long. I've put it down.

Monday, October 22, 2007

Last Days of the UAW ?

It appears that the UAW is having trouble getting its members to support the labor agreement that it struck with Chrysler LLC (more here). A conventional interpretation might view this as bad for Chrysler - if the union rank and file demands more, the way to get a deal is to satisfy them. I wouldn't jump to this conclusion, however, because anytime the link between leadership and rank and file is weakened in a major negotiation, it doesn't usually work out well for labor. It appears that Chrysler has created an opportunity to divide and conquer, to play off fiefdoms within the UAW and exploit the UAW leadership's need to save face. With GM's workers on the job and getting paid under the terms of their new deal, it would be hard for Chrysler's rank and file to strike because they'd only be hurting Chrysler and themselves without the prospect of securing gains for UAW workers across the auto industry. As for Ford, they have to be liking the impotency of a strike threat as well as a UAW leadership team that needs a deal or will likely be out of a cushy job.

Gettelfinger & Co. will have to play some serious chess to keep the UAW from fracturing along manufacturer or facility lines. I predicted (and here) that private equity could be the end for the UAW. We still aren't there by a long shot, but we are closer now than we ever have been. This is unfolding fast, also as I predicted.

Thursday, October 18, 2007


Unemployment stands at 4.7%, and at last count, the economy is still adding jobs. Inflation is running at 2.8%. At last count GDP grew at 3.8%. Industrial production, rising. Consumer incomes, rising. Retail sales, rising. Yet, nearly half of all Americans think the US economy is in recession. I must conclude one of the following:
a) nearly half of all Americans are completely stupid
b) the poll is deeply flawed, having drawn respondents disproportionately from either a Code Pink conclave, an insane asylum or the state of Michigan
c) nearly every statistic collected by government and accepted by mainstream economic analysis is wrong
d) the media has told people over and over for so long that the economy stinks, by focusing on narrow and sometimes meaningless aspects, that they now believe it.

Running Out of Oil, Huh?

How Would Normal People React to the Redistributionists?

Today, Prof. Mankiw gives former Clinton Labor Secretary Robert Reich's redistributionist preferences the spotlight. Mankiw, naturally, gives us some thoughts on optimality, but what would be the rational response from those who might be affected to a tax regime such as Reich proposes? Given the dual factors, income and wealth, there would be many "buckets" of likely reactions based on the relative mix of wealth versus income, but the two largest groups are likely to be older folks with asset bases over the $5 million threshold and younger folks approaching or over the $500,000 income threshold. Most of the former would likely have total assets still small enough to be broken up via bequests, charitable contributions and other estate planning tactics into chunks below the threshold. They would have every incentive to do this before the wealth levy went into effect. The latter group, high income earners, would have every incentive to cap their own income just below the $500,000 threshold. One way to achieve this would be to simply stop working. Imagine someone age 42 who has accumulated $4,999,000 million in assets and currently makes $499,000 and whose career/business trajectory will place them over the thresholds in short order. That person could decide that they have enough money to live a cushy life playing alot of golf, skiing and/or taking frequent, splendid vacations abroad (or just staying home with the kids). If you think such people are few in number, you're fooling yourself. There are thousands of people who, with a tidy few million in the bank, would gladly exit the work force and pursue hobbies or other personal, non-career goals. (Speaking for myself, rather than give half my money to Charlie Rangel and Chuck Grassley, I would sure as hell content myself with $4.99 million in the bank while I attempted to become a scratch golfer, Cordon-Bleu-trained chef, and renowned art historian.) The question then becomes, is this what we want for our economy - thousands of talented people on the slopes, links, or in the cafes of Europe, avoiding that higher tax rate, rather than hard at work creating jobs and tax revenue at a lower rate of taxation? Do we want to create a new leisure class out of our most productive and talented citizens?

Wednesday, October 17, 2007

Reading Putin in Tehran

Someone might oughta remind Vlad Putin that his anti-aircraft systems don't work and that we crap bigger than him.

Also, further evidence in support of Donny Baseball's Rule #12.

Know When to Hold 'Em Lads

Country Western fans have always appreciated the home spun philosophy of Kenny Rogers's song lyrics. Alas it was not as obvious that Kenny's ballads could inspire prowess on the rugby pitch. Team England has drawn inspiration from the Rogers's "The Gambler" in their recent campaign to regain the World Cup title. Alas, the pommies will need every bit of inspiration they can muster this Saturday against a torrid Sprinbok squad.

New Jersey & You: Perfect Together No More

Not a shocking poll result. Apparently, 49% of adults in New Jersey want to leave, and half of those are probably making plans to do so. High and increasing taxes, crappy schools,
over-burdensome regulations on business, and a political class that is strenuously trying to unseat Louisiana as the most corrupt state in the Union. Oh yeah, and it was revealed yesterday that the Garden State is crawling with terrorists. What is amazing is that people would resort to leaving the state rather than vote out the bums, from both parties, that give them the same old policies that have destroyed the quality of life in the state. This is a troubling indication that representative democracy has lost its effectiveness at the hands of machine politics.

Alas the country continues to move south and west. Here's how to profit from it.

Friday, October 12, 2007

Calling All Drag Queens With a Passion for Credit Swaps

Just got this email from the folks at Columbia University's Business School:

"For the first time, Columbia Business School will join Stanford, Harvard, and Kellogg, in a series of events targeting the Lesbian, Gay, Bisexual, and Transgender communities. We would like to have a strong alumni presence in all of the target cities and we are looking for alumni to participate in the New York and Chicago events."

Pesek Pines to Pen On Pink Print

Bloomberg columnist William Pesek is clearly gunning for a job at that pink foreign newspaper, otherwise known as the Official Overseas Journal of Rubinomics, with a silly column today going after Hong Kong's plan to reduce taxes. The first tip that Pesek doesn't know what the hell he is talking about comes from the title of the column, "A Tax Cut Even Milton Friedman Might Not Like." Nevermind that one of Friedman's most well-known quotes is "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible." No big deal that though, an inadvertant face-mask, only five yards. Read on and it is clear that Pesek pines to be printed on that lovely pink newsprint for his true complaint is - wait for it - income inequality! How could Hong Kong be considering cutting taxes when something called the Gini coefficient reflects Hong Kong's shamefully unequal distribution of income throughout society? (0.5 on the Gini versus the 'correct' level of 0.4...Egads!) Could it be perhaps to maintain competitiveness as a business center against formidable competitor cities like Singapore, Sydney, and Shanghai? Well yes, and Pesek even says so, but that is no excuse to him. Hong Kong needs to be plowing dough into environmental protection (gotta get the Al Gore angle in to fit with the news of the day), schools and hospitals and doing something for all those poor people (the poor that moved to HK from the mainland to get jobs and live in relative freedom). Furthermore says Pesek, tax cuts are only for a slowing economy, not for good times. It is easy to see how Pesek could come to believe this - tax cuts have historically been applied to slowing economies because they work and it is only in desperate times that most politicians, with their proclivities to desire greater resources at their disposal, turn to them - but it doesn't speak well of his grasp of the economic theory.

Among the other head-scratchers is "Hong Kong can't thrive without upping spending on education to create that talent." Fine, education can seed a society with talent, but you can also secure talent by importing it, by making life attractive in your city, like maybe with...low taxes. In fact that has been Hong Kong's strategy throughout its history, it has been a talent magnet, taking all comers and letting their talent rip.

Most of the rest is standard income inequality golden oldies - generous minimum wages and retirement benefits. Can't you just hear those Chinese peasants in their impoverished villages, "I think I'll move to Hong Kong because it is such an egalitarian place and they're spending big dough to clean up the air." Ah yes, forget about food to eat and shelter over my head, give me clean air and a fat pension!

As for Pesek making it to the FT? This was a very solid showing for him, a fine effort indeed. It is just that he lacks the star power of a Larry Summers or a Steve Rattner. Still there is hope for young William yet.

Thursday, October 11, 2007

Even Terrorists Are Smarter than to Target Hockey Fans in Newark, NJ

Apparently, Newark, NJ's spanking new sports arena, the Prudential Center (or "The Rock" as it will be known in sports-talk parlance) was built too close to the street, which is a no-no in a post 9-11 world. Consider this another planning blunder right behind the strange idea of building an arena for a hockey team in Newark. For those of you not in the know, Newark, with its overwhelmingly black and portugese-speaking populations, is not a hotbed of hockey enthusiasts. Devils' fans are mostly white people from the suburbs. Question is, do they love their Devils and want their hockey bad enough to drive into Newark, the unofficial car theft capital of the world? Perhaps the Devils faithful will take public transport, and pack the 25 NJ Transit trains that would be required to haul enough folks to bring the rock to full capacity (fans would have to leave mighty early since only a handful trains run that could get you there on time). We'll see. If the Devil's only draw a handful of their faithful to beautiful downtown Newark, I think terrorists might leave the Pru Center off their target list for lack of infidels to slaughter.

Forensic Accountant's Dream, Taxpayer's Nightmare

As we as plunge headlong further down the road to the all-but-certain disaster of national healthcare, let's stop to take a brief account one of the largest cases of mismanagement/fraud in history and the audit that is trying to sort it all out, a project that will take eight years and $274 million at its current pace. Of course, it's all brought to you by the federal government. Enjoy.

A Dream(liner) Deferred

An embarassing slip-up for Boeing. Failure to kick Airbus while they are down will have major implications many years down the road.

Wednesday, October 10, 2007

Today's Youth Thankfully not "Born in the 50s"

Thomas Friedman laments that the younger generation isn't as radical as his generation was. I guess that inexplicable preachy arrogance that his generation displayed in the 1960s hasn't mellowed with age. I for one am thankful that 20 year olds these days are more humble, perhaps because they understand just how little experience and knowledge of the world they have. This to me is preferable to Friedman’s arrogant and presumptuous generation that thought they knew better than their elders and blindly sought to wreck institutions that had grown up over decades of thoughtful trial and error. Friedman's generation were just like any other generation in their 20s, essentially ignorant and blind to world, just a bunch of curious minds on the cusp of participation in society. What was different about Friedman's generation is that they took their greenness in stride and assumed a level of importance and entitlement anyway. Their mentality is captured in the song by The Police, "Born in the 50s":

We were the class they couldn't teach
'Cos we knew better...

You don't understand us
So don't reprimand us
We're taking the future
We don't need no teacher

Sting had it pretty right, that generation felt it didn't need to learn, didn't need to observe and cultivate some seasoned understanding, they just knew. So, based on the evidence of Friedman's collegiate tours and his assessment, I am thoroughly relieved, elated even, at the political posture of today's youth.

Aside: I feel bad for Friedman's daughter. Apparently nobody taught her not to believe everything she reads in the paper.

Friday, October 05, 2007

OK, I Am a Bit of a Showoff...

Check out the last bullet here. I never thought I was flaunting my intellect, but I guess I was!

If Poverty Is Noble, Latins Say "Noblesse Oblige"

Chavez. Correa. Morales. Kirchner. And then there is Daniel Ortega. On the evidence I can only conclude that Latin Americans like being poor and want to be poor.

Labor Department: "Economy Not Actually In the Tank, Sorry for the Confusion"

The Labor Department's August jobs report, released a few weeks back, was the long sought after reed that pessimists, always and ever longing to discredit our current economic environment, so desperately wanted and needed to grasp. The MSM's pathological desire to bash the economy was drowning in a consistent flow of good news; they needed something to show it was all just the sham they knew (just knew) it really was. They had been forced to harp on the meaningless, flawed (and ultimately flat out wrong) savings rate, which was getting a little embarassing. Anyway the August jobs report came down like manna from heaven, and Boy-O did they relish it (and not just the media). I could almost hear the screams of exaltation from the NY Times newsroom 16 blocks to the north, "Aha! We got you now Chimpy the Tax Cutter. Fraud! Radical Supply-Side Charlatan! You have been exposed!"

Whoops. It was all wrong. That 6,000 job decline in August, um, er, was actually an 89,000 job increase. Sorry for the confusion old chap.

Alberta's Pols Try To Change the Rules Mid-Game

Tales of politicians making the dumb decision to raise taxes are legion, but typically the motivation for the decision is to balance a budget with large forecasted deficits generated by profligate government spending. The resistance to reigning in wasteful, unncessary, or unconstitutional spending, while regretable, is at least understandable. It is always harder to undo something that has been done than to not do something that has yet to be done. In Alberta however, an unlikely place to boot, politicians are parading the single most detestable motivation for raising taxes - jealousy. The oil sector in Alberta is booming, driving unemployment down to the stunningly low level of 3.6%, but the government there feels that it is not sufficiently in on the party. They don't think their grab is big enough. There is no talk about closing a budget gap; there are no urgent priorities the government is trying to fund. They just aren't getting their due and proper. There is a word for this - extortion.

Thursday, October 04, 2007

Go Green, Put An Ohioan Out of Work!

Just imagine the cognitive dissonance in the typical leftist's brain when they learn of this. Going green puts people out of work. Actually I bet there isn't any cognitive dissonance. Your typical leftist is probably thinking, "we should mandate people use fluorescent bulbs, and mandate that GE not fire those 1,400 workers."

Bernie Sanders (I., VT)...the I is for Ignoramus

Senator Bernie Sanders vomits a protectionist rant onto the pages of the WSJ today here (scroll). His main goal is to defend his opposition to CAFTA and he defends his position with a stunning display of willful blindness and an emotional whirligig of economic falsehoods and distortions.

He claims that the WSJ persists in its belief in free markets and trade despite all the evidence. Mr. Sanders is a world away from correct on this point. The overwhelming consensus among accepted economic thought is that free trade yields gains and raises living standards. Free trading nations across the globe are by far the richest in terms of the living standards of their citizens. He mentions that here in the US, free trade policies "have caused so much pain." Pain? Historically low unemployment, the highest degree of household wealth we've ever known, shortages of workers in numerous jobs categories, and the most manufacturing output we ever managed to produce - this is pain?

Mr. Sanders goes on to attempt to discredit CAFTA by disparaging NAFTA, saying that we essentially duped the Mexicans into NAFTA and it is a failure because they continue to stream across our borders ("dying in the desert" as he emotionally phrases it). Mexicans have been streaming across our borders for decades, well before NAFTA, for the most part because a century of the leftist, capitalism-rejecting policies of the PRI relegated most Mexicans to crushing poverty. Decades of one party rule have handicapped Mexico with the third highest foreign debt and a reputation as one of the most corrupt and least friendly places to invest and do business. Progress has been encouraging since NAFTA and since Vicente Fox broke the stranglehold of the PRI, but Mexico is starting from such a low base. More Mexicans are experiencing better standards of living but the level of poverty historically was just too high. Mexico has a long road of development ahead of it to deliver rising standards of living to the majority of it citizens. That they continue to come here is because of this tragic legacy and because the getting in free market, capitalist America is so good.

Mr. Sanders claims the Mexican agricultural sector has been decimated by cheap imports from US agribusiness. Really? Mexican agricultural output has grown over 50% since 1980, with a sharp increase in growth since, notably, NAFTA was enacted. Did you know that the 10th largest poultry company in the world is a Mexican company that employees 25,000 people, that exports to China and Russia, and is building a plant and creating jobs in Hermosillo to export chicken to the US? Can you imagine anything worse for these poor struggling Mexicans than new jobs created by export markets?

Sander's fact-challenged missive continues on with the standard tropes of protectionism - income inequality, out-sourcing, growing poverty and the demonstrably false rallying cry of "race to the bottom." These inaccuracies are too large a subject to address here, but if you want the facts and the data that demonstrate we are actually racing to the top, you can find it all here. The real situation is that in the US we have a dynamic economy that creates millions of jobs per year, grows the wealth of people from all economic strata, attracts the poor from around the world seeking economic opportunity.

Incidentally, the richest country in Latin America is one that long ago embraced trade, Chile. The Chileans are among the world's most ardent free traders and their living standards are unprecedently high for the region. Although they have a nominally socialist government, no body in Chile wants to trade in their prosperity for the anti-capitalist misery of the kind that the Venezuelans are sliding back into with food shortages and declining wages.

Latin America, broadly, has been crushingly poor for decades mainly because of its antipathy to free trade and deep embrace of socialist and populist idealogy of the ilk personified by Bernie Sanders. Who knows which way the Costa Ricans will vote, but you'd think they'd want to try something new after being so poor for so long.

Tuesday, October 02, 2007

Army of Oppression

Monday, October 01, 2007

The New New York Sack Exchange

Forget Klecko and's Osi and Mike.