Americans Don't Save, They Invest

Americans continue to invest heavily in America and the global economy. Simultaneously, the press is hot to report that the savings rate is at a multi-decade low. I have pointed out before the pure absurdity of claiming that the wealthiest nation that ever existed does not save adequately. It is a logical disconnect of massive proportions. Nonetheless the theme persists throughout the MSM (check out that incredibly stupid headline in the link) and in the minds of idealogical-driven curmudgeons like Morgan Stanley's Stephen Roach, who have the cover of a respectable job as an impartial analyst. So let's say it again all together now, "savings rate statistics do not account for investment gains!" We are not a nation that puts cash under the mattress and that is what the savings rate essentially measures, how much cash is under the mattress. We are ravenous investors in stocks, bonds and real estate. In addition we are aggressive investors in ourselves, pouring hundreds of millions of dollars into higher and technical education, all of which is treated as 'spending' in the savings statistics even though it is clear to us that there is a high financial return on education in our modern economy.

Bottom line, in terms of meaningfulness, the savings rate is pure garbage. Ponder how today's savings rate, which accompanies an all-time high in for the stock market, can be similar to that of the Depression Era. Immediately that should tell any halfway intelligent person that something else must be going on and to look elsewhere for relevant factors.

A Penny Not Saved...

Last week I was pondering some new data about mutual fund inflows that were truly remarkable (but did not blog on it as I was in a NyQuil-induced haze). The tsunami of money going into mutual funds these days would seem to contradict the conventional line that we repeatedly hear in our mainstream media that Americans are terrible savers. Indeed, the national savings rate seems to be the most popular economic metric in the MSM these days precisely because it tells a negative story - the actual rate is, in fact, negative - beautifully aligning with the theory that Americans are profligate spenders, spending our way to economic catastrophe. There are ample criticisms of statistical methodology that goes into the National Savings Rate. (Here is just one.) But beyond such nitty gritty, you can suss out the silliness of this profligacy meme by asking yourself just some simple, intuitive questions, like, 'How did we get to be the richest nation in all of human history if no one saves any money?' Which leads me back to the mutual fund inflows. Dr. Ed Yardeni looks at the numbers...

1) Net inflows into equity mutual funds totaled $201 billion. (2) Net inflows into bond mutual funds totaled $76 billion. (3) Savings deposits rose $117 billion. (4) Time deposits rose $432 billion. (5) At the end of 2004, Individual Retirement Accounts totaled $3.5 trillion, up from $3.1 trillion in 2003 and $2.5 trillion in 2002

...and rightly concludes that "something doesn't add up." Where the hell is all this money coming from if Americans don't save? Let me break it to you folks, Arab sheiks don't plow their oil riches into the Fidelity Small Cap Growth Fund. This money is coming from Americans. Americans don't save, they invest. Americans are not interested in hording cash, they are interested in building wealth by owning things. Yet, to the government statistics mandarins, none of this counts, investments and investment gains are not savings in their world.

So the savings rate is both intuitively hokey and, upon further analysis, methodologically dubious, and yet it is widely cited in the mainstream press, probably because it is one of the few metrics left that can even remotely support ominous reporting on the economy. Well actually that's not true - on the very day, yesterday, that the ISM reported increasing US manufacturing, CNN had a headline story that slowing manufacturing activity could hurt the economy. So it is not beyond the MSM to talk about bad things that aren't happening but that COULD happen in order to spread glumness about the economy. Nonetheless there are MSM outfits that restrict themselves to statistics that actually are not blindingly positive, thus the popularity of the savings rate.

Awesome! The Government Wants to Help Me Retire in Comfort!

The AP, via Zero Hedge, reports that the Pen-and-Phone Guy in Chief wants to setup a retirement plan for low income people consisting of US Treasuries.

Eager not to be limited by legislative gridlock, Obama is also expected to announce executive actions on job training, retirement security and help for the long-term unemployed in finding work.

Among those actions is a new retirement savings plan geared toward workers whose employers don't currently offer such plans.

The program would allow first-time savers to start building up savings in Treasury bonds that eventually could be converted into a traditional IRAs, according to two people who have discussed the proposal with the administration. Those people weren't authorized to discuss it ahead of the announcement and insisted on anonymity.

A couple thoughts come to mind.

1)  Selling Treasuries today, given that rates are artificially suppressed and the creditworthiness of the federal government is seriously degraded, might just qualify as an investment scam worthy of SEC investigation.

2)  As ZH points out, how conveeeeeeen-ient that the federal government would seek to become a new, major buyer of Treasuries just as the Federal Reserve is getting out of the Treasury-supporting business via this whole tapering thing.

3)  We have 401ks, IRAs (Roth, Traditional, Rollover, and Spousal), SEPs, Keoghs, and that good ole' fashion thing known as 'individual savings' that go into everything from CDs to munis to the stock market to home equity (primary residence and rental property).  What gives Dear Leader the idea that there just ain't enough vehicles out there for people to save for retirement???  Must be thinking the same thing they did with ObamaCare: who cares if the uninsured are uninsured by choice, we'll just take control of the system and jam it on people.

4)  We know that the Obama administration has sought to develop the intellectual and policy case for commandeering private retirement savings in favor of government-provided retirement plans.  Is this a pilot program for their ultimate vision, a camel's nose in the tent??

5) Argentina.  Poland.

Savings Rate Shocker!

This ought to be an earthquake news event in the narrow subset of financial/economics news, but, as Luskin states, it ain't gonna be. It is one thing for pessimists to tout the savings rate, which is meaningless (more here), as evidence of impending economic doom. It is entirely another thing to tout a savings rate that was totally wrong, indicating a negative when in fact it was positive. Now the argument is not a theoretical one over the merits of the savings rate, but one of degree as the pessimists will surely continue to complain that Americans don't save enough. Of course this puts them in the role of arbiter of what is "enough". How do they know? Good question. Probably that same vaunted expertise that led them to make the silly argument that the richest people on the planet don't save money.

180 Degrees: Economists Now Dislike Savings

Well, we've come full circle.  Not so long ago (five, six years ago?) most academic economists (ergo, mostly lefty economists) lamented the low savings rate in America as both economically dangerous and culturally deplorable (such commentaries normally dripped with sneering contempt of American consumerism, i.e. loathing of the average rube).

Well, saving is back and the economists don't like it one bit.

The personal saving rate, which measures savings as a percentage of disposable income, jumped to 4.4% in June from 4% a month earlier and a recent low of 3.2% in November, the government said Tuesday, as consumers squirreled away cash amid the weak economy.

Spending on everything from vacations to clothes was largely flat in June. Spending fell less than 0.1%, after easing 0.1% in May, even though Americans’ income after taxes rose 0.4%, the most since March. Consumer spending is the biggest single driver of the U.S. economy, accounting for roughly two-thirds of demand.

Let me guess, would it perhaps have something to do with the state of the economy being essentially the only potential obstacle to four more years of the Smartest President-Lightworker-Some Sort of a God fellow occupying the oval office???

Flirting With Disaster?

In general, Americans aren't very good at civil disobediance. A few prominent examples notwithstanding, in general we like our rules and/or we believe we have a say in changing the rules that we don't like, so by and large we are a people that play by the rules. (Also, we still have a deep national scar left behind from a massive experiment in civial disobendiance.) But this is not to say that we are people prone to submissiveness - the American character is defined by both the ability to put up with alot but only so much. We are a "tipping point" nation. We blow things off until they become intolerable, but when they do, watch out. I have always speculated as to what sort of actions, taken by our government, would cross that line and go beyond the tipping point and send Americans into full-scale, civil disobebiance-type revolt. Despite the multiple depredations and abominations embodied in ObamaCare, I actually never considered something like the individual mandate to even go that far, although it certainly has gotten alot us (me included) highly exercised. In modern life I can only think of one maybe two things that would breach the tipping point - and, as it happens, the Obama administration has dabbled around with both of them. The first, and I am not even totally convinced that this would even get us past the tipping point, is outright expropriation of citizens' retirement savings. I'm talking the taking of actual hard, real money savings, not the abrogation of lofty promises or the ham-handed collateral destruction of economic value (the government does that all the time). I'm talking banana republic-style theft of money that Americans have set aside for their retirements. Well, the Obama administration has aggressively noodled the idea. The other thing, and this one I'm pretty sure is a tipper, is government imposed restrictions on movement. I consider a tax on movement a restriction, albeit a less draconion flavor of the larger noxious concept. Well, the idea has been out there for awhile, cooked up by radical environmentalists and even proposed at the state level; but, now for the first time the idea is being floated trial balloon style by the White House. Just imagine it - going on vacation? visiting family far away? taking that cross-country drive to see America? kids on a travelling team, moving for work? etc. - get out your wallet. I doubt that either of these proposals will get much political traction, but they are worth highlighting as a gauge of disconnectedness between a policy agenda and the fabric of American life . Of course I could be totally off on my assessment of the national view of such things, but I doubt it.

Don't Say I Didn't Warn You...They Will Steal Your Money

Let me continue to beat this horse - there is a plan behind the exploding debts of the federal government.  No responsible government that has even an iota of concern for the health of the nation would allow the debt accumulation that the Lightworker administration has allowed.

The plan is to confiscate wealth.  And the plan will be much easier after years of demonizing the 1% and after someone else does it first - namely Europe.  So, sit right back and listen to the daily news, yet again, report on "income inequality" and watch as Europe prepares to steal its citizens' property.

Zero Hedge is on it.  Granted they are a little bombastic from time to time, but here they are just reporting what we can all read on Reuters.  Read it and weep - every weaselly, euphemistic, Orwellian bullshit formulation you could think of to describe private property confiscation is there.  Just a taste...

"The Commission will ask the bloc's insurance watchdog in the second half of this year for advice on a possible draft law to mobilize more personal pension savings for long-term financing" 

 Yeah, mobilize that savings, you authoritarian dickheads.  Because...

"the economic and financial crisis has impaired the ability of the financial sector to channel funds to the real economy, in particular long-term investment."

Ah, nope.  Try - nobody will lend you profligate mediocre schmucks any more money to pursue your laughable utopian bullshit scams anymore.

It's coming.  A few more years of railing on the 1% and after the EU does it, it'll be easy to pull off here.

Bloomberg News Slimes Tea Partiers

Theresa Ghilarducci is a whacko lefty professor who wants the government to take over your retirement savings because...well...you're too stupid and Social Security works to damn well.

But Bloomberg News wants you to know that Tea Partiers are crazy...they sent Prof. Ghilarducci death threats.

Retirement policy wonks don't usually get hate mail. But in 2008, Teresa Ghilarducci, an economics professor at the New School for Social Research, proposed replacing 401(k) plans and their income tax break with a mandated government savings plan for all workers. The blowback from some Tea Partyers was so intense that the school's chief of security gave her his cell phone number.

That early mention is all we know, there is no specific info on the death threats and we don't know why they attribute the threats to Tea Partiers.  Did someone call up and say "Hi, I'm a Tea Partier and I want to kill you"?  Or perhaps reporter Carla Fried is just showcasing her biases.  Maybe Fried will reveal her sources so as to put to rest any doubt that a bonafide, self-identifying Tea Partier threatened Prof. Ghilarducci. 

Or perhaps not, this Al Hunt's Bloomberg News after all.

Don't Tread On Me (or My HSA)

There is a general feeling in this country that we are slowly becoming a socialist nation. From the highly redistributive economic policies, to the governmental antipathy toward private property, to the government ownership of large sectors of the economy, to emerging signs of the government co-opting non-political organizations to advance its agenda, and, well, to the presence of avowed socialists within the highest reaches of the government and creepy cult of personality indoctrination. This may be quite troubling for those who love their liberty, as it is to me, but the accusation still gets dismissed by the MSM and the political left because of the greyness of the policy drift - it is hard to delineate the shift in black and white. Students of history, however, know that you don't get to socialism via the express train passing well-delineated signposts, you creep toward socialism. So it is important to mark the journey at each small sad, albeit grey, increment and fight losing but one inch; and, thankfully, Americans seem to be coming to this realization and waking up. Still it is helpful to be aware of signposts along the way that ought to transform our vigilance into something more urgent. We have these grey signposts all around us, but what of something more black and white, more starkly and clearly a sign that we have crossed a dangerous line from a free, constitutional republic to a bona fide statist or social system? To me that black and white signpost is en masse confiscation of property. I don't mean taxation, I mean outright usurpation. The best example I can cite is Argentina's recent takeover of private pensions. The best way to describe it is if the government seized everyone's 401K or IRA or similar plan, just took the assets - the stocks and bonds and cash - and gave them over the Social Security Administration to pay your social security checks (actually, get ready, b/c the usurpers already have ideas). We aren't there yet and I hope there will be bloody hell to pay if such a proposal was ever so much as whispered in the halls of government here; but, we may be approaching a smaller version of that signpost with Health Savings Accounts.

As you may know, HSAs allow Americans to buy low cost-high deductible health insurance and stick pre-tax money into a special savings account for out of pocket healthcare expenses. The justification for this vehicle is that 1) the tax break provides incentive for people to save for their medical costs and 2) the individual control of the account gives people the incentive and the opportunity to spend more wisely and make their healthcare dollars go farther. HSAs are a major component of the free market approach and policy menu for healthcare reform. Expanded by President Bush, HSAs are getting more popular. But HSAs are not on the table in the Democrats' healthcare reform plans, and you know what they say about you if you are not at the table. HSAs are set to be devoured in ObamaCare or BaucusCare or PelosiCare or whatever we get from the Dems. But what does that mean? Will they lower or simply take away the tax deductibility of future contributions to HSAs? Or will they do something more, like tax your HSA's current balance to zero, or simply take it via some other coercive method? I don't know and not even the experts know (probably because the bills are being hidden from not just the public but from most members of congress). One healthcare policy expert told me today, "congress hasn't said they'll tax legacy HSA balances, but if that makes you feel safe, you will soon be parted with your money."

What happens to HSAs could be our next (first?) black/white signpost on where this country is on the road to serfdom. Many Americans have hundreds if not thousands of dollars sitting in their HSAs, put there under the good faith assumption of no taxation and full control. If the government confiscates those legacy balances via taxation or other method we will have crossed an unmistakable signpost. Argentinian-style confiscation of other assets won't be far behind. In WWII-buff parlance, HSAs are Munich. We should heed Clemenza's history lesson. Watch what is proposed to HSAs very carefully, America.

Election Year = Total Lameness from Bloomberg News

I haven't gone after one of Al Hunt's liberal minions over at Bloomberg News in awhile, so why not give it a whirl on this lazy Friday. Up today is one of my favorite columnists actually, Caroline Baum. (I generally like her columns, but I really became a fan when I saw her, at a panel discussion, refer to a bunch of economists using the names of the seven dwarfs, specifically referring to Stephen Roach as Grumpy. The scowl he shot back was priceless.) Unfortunately, this otherwise good columnist can't resist a tawdry, elitist New York sneer at Bristol Palin (Note to non-New Yorkers: we have no teenage pregnancy here, none. No teen drug use either. We wrote the book on involved parenting.) More galling however is that Ms. Baum lumps herself into the legions of commentating ignorami who still talk about the "savings rate" as if it were meaningful or indicative of anything. I know that here in the backwater of New York City, people still have cash in the mattress or their little passbook savings accounts, but in most of America people invest is homes, businesses and stocks and bonds. And the labor participation rate too? How lame. C'mon Caroline, this is soooooo done. Why do putatively knowledgable people take the two thinnest reeds of all the data out there to bash supply-side tax cutting? Don't talk about how much tax revenue is actually collected. Don't talk about whether people are getting richer because they've kept more of their money. Talk about how discouraged people feel.

Not the first time that Bloomberg pimps the anti-tax-cut meme during an election season. On the bright side however, Al Hunt, who was the WSJ's token liberal columnist for so many years, knows the value of having a token around, so he does give us an actual economist to read every so often.

Train Wreck, That Everyone Except Venezuelans Saw Coming, Is Here

Well, it only took 13 years, but Hugo Chavez and Chavismo has thoroughly destroyed the Venezuean currency, the bolivar.  Since 1999, the bolivar has lost 91% of its value and yet still remains 42% overvalued based on The Economist's Big Mac Index.  This despite some of the largest reserves of petroleum in the world.  IBD has a rundown of the destruction.

Venezuela's monster 47% devaluation from 4.3 to 6.3 bolivars to the dollar, reportedly ordered by President Hugo Chavez from his hospital bed in Cuba, marks the reckoning for his regime's big-spending ways in Venezuela's low-growth economy.

It was about as predictable as a crash from a runaway train, given his mad-lunatic war on economics — his lethal combination of welfare spending, destruction of the private sector and capital controls to cover up the disaster. And as in any train wreck, it wasn't something he could control.

Venezuelan banker Miguel Octavio noted on his blog "The Devil's Excrement," that "in the end devaluation is not a policy, it is the result of bad policy."

This devaluation is characteristic of all tyrannies, which benefit by effectively expropriating the savings of the private sector through monetary means rather than the more common thuggery.

Yes, as predictable as the sun rising.  But the age old question is why do people choose this type of destruction again and again.  Chavismo is likely to survive the death of Chavez himself and Argentinians consistently choose this form of destruction for themselves, this time in the person of Christina Kirchner.  People allow their meager savings to be plunder again and again.  Why?

What Sarbanes-Oxley has Wrought

I have blogged on Sarbanes-Oxley before, here and here.

Well, here it is in black and white and on file at the SEC - exactly what SARBOX has achieved:

"Collins Industries, Inc. (OTC: COLL)announced today that its Board of Directors has approved a plan to terminate theCompany's obligation to file reports with the Securities and Exchange Commission(the "SEC"). This would be accomplished through a 1-for-300 reverse stock splitof the Company's outstanding common stock to be followed immediately by a300-for-1 forward stock split (the "Reverse/Forward Stock Split"). If thetransaction is completed, the Company expects to have fewer than 300shareholders of record. As a result, the Company would no longer be required tofile periodic reports and other information with the SEC, although the Companyanticipates that its stock will continue to be quoted on the Pink Sheets."

Translation: "We buy out small shareholders. We no longer have to file financials. Our stock will cease to be traded on the most transparent, fair and investor-friendly exchange to one that is notoriously much less so."

"In addition to significantanticipated cost savings resulting from the elimination of these reportingrequirements, we expect that the reduced burden on management will allow ourofficers to focus more attention on improving our operating performance andserving our customers and the communities where we operate. Further, the Companywill be able to avoid significant costs associated with Sarbanes-Oxley Section404 compliance."

Translation: "Sarbanes-Oxley has tipped the scales, it no longer is worth being a public company if you are small."

So, let's review. The law that was supposed to ensure greater transparency and make the stock market safe for all of us, especially the little guy, is driving companies to purge the little guy, become less transparent, and shun our world-class public capital markets.

Score another beaut for the Great Sausage Factory!

UPDATE: Here's more direct from the proxt statement:

Q: What are some of the advantages of the Reverse/Forward Stock Split?
A: The Special Committee and the Board of Directors believe that theReverse/Forward Stock Split will have, among others, the following advantages:
• The Company will terminate the registration of its Common Stock under the Exchange Act, which will eliminate the significant tangible and intangible costs of being a public reporting company, including the initial costs of compliance with Section 404 of Sarbanes-Oxley of $1,500,000, and the annual costs of compliance with Sarbanes-Oxley and related regulations (with estimated tangible costs savings/cost avoidance of approximately $845,000 before taxes annually, consisting of (i) $200,000 in annual costs historically incurred, (ii) $550,000 in annual costs that would otherwise be expected to be incurred in order to comply with Section 404 of Sarbanes-Oxley, and (iii) $95,000 in annual costs that would otherwise be expected to be incurred in order to comply with other provisions of Sarbanes-Oxley).

Future of Healthcare: Cash Is King

In this post I talked about how BaucusCare would incentivize me to dump my insurance, pay the fine, and take the substantial cash savings out shopping for healthcare. Big question though: will I be able to walk in, put cash on the barrel and get the care that I need? I have every confidence that I will based on substantial evidence that many providers will totally opt out of the government system of payment and be cash only, private providers of healthcare. Via Carpe Diem today, I see that my confidence is well placed. If you multiply my reaction on the demand side and this surgery center's reaction on the supply side many times over, what you see emerging is a two-tiered system of readily available care for those with cash and uncertain care for those with government insurance. Is that what reform is supposed to achieve?

Green Losers Get Shock When They Go To Sell Their Homes

Here is another example of the "Rubes Don't Get It/What's the Matter with Kansas" mentality from the elitist media clerisy.  Solar panels on the roof of your home drive down the value of your home...because, well, people are stupid and they can't recognize a good thing when they see it...

“Homeowners don’t understand what they’re signing when they get into this,” said Sandy Adomatis, a home appraiser in Punta Gorda,Florida, who created the industry’s standard tool for valuing the systems. “You’ve got another layer to add on top of finding a buyer for the house. It’s not a plus.”

and in case you didn't get the point...

“They’re essentially moving into a home with a lower cost of ownership, a lower cost of energy,” so a solar lease shouldn’t make it harder to sell a house, said Jonathan Bass, a spokesman for SolarCity in San Mateo, California. “It becomes a selling point instead of a point of misunderstanding.”

Stupid homebuyers, it's a selling point, despite what you might think...

Scott Vineberg, a SolarCity customer, received multiple offers for the Scottsdale, Arizona, home he sold in January. The lease made the deal more complicated because the buyers were reluctant to take over the contract and asked him to pay off the balance in advance, about 10 years of payments.

“I don’t think they understood it,” said Vineberg. He refused to pay off the lease, and instead provided years of documentation to verify the monthly energy savings. After the sale closed, the buyers opted to pay off the lease, and Vineberg installed another SolarCity system at his new home.

Rubes...

Malkiel Underwhelms...Again

Since the very day I finished reading "A Random Walk Down Wall Street" I have had an ever decreasing interest in anything that Prof. Burton Malkiel writes. Today's column in the WSJ continues that trend. Malkiel harkens to President Harry Truman's desire for a one-handed economist and then proceeds to demonstrate why Turman felt as he did.

First Malkiel advises, via the addition of today's dividend yield and a likely earnings growth pulled from the ether, that stocks can't reasonably be expected to return more than 7.5% per annum. By the end of the article though, he advises not to bet against the US economy. Second, he cautions about the state of the world, citing such second order threats as Hezbollah, while also noting the remarkable, decades long development of faith in free markets that has transpired around the globe. Thirdly, Malkiel trots out the standard pantheon of Rubinomics bugaboos - the trade deficit, income inequality, the 'low' savings rate as cause for pessimism, but blithely washes these away as something the economy will adjust to. As a final flourish, the good professor warns of the large destabilizing effect of leveraged hedge funds, like Amaranth Advisors, which as we all know was a large, leveraged hedge fund, that didn't actually have a large destabilizing effect.

Malkiel, however, is no Ivory Tower economist, he brands himself as steeped in capital markets reality. So what is his advice as someone who represents the intersection of academic economics and capital markets? Something that the most bare bones financial advisory service would tell you (and that the self-help financial media beat into us), rebalance your portfolio annually.

How You and Me Are Going to Outfox Max Baucus

Greg Mankiw has a post today rebutting Robert Frank's dismissal of marginal tax rate reductions. I am not going to wade into that technical discussion except to say that it is fun to watch academic economists dress up in jargon and debate, again, whether incentives matter. This post did however prompt me to post about a dinner I had the other night (where coincidentally Ned Phelps was sitting at the next table over from me...reducing his, or his companions', savings in lieu of a little consumption, namely of expensive wine, Williams-Selyem Pinot Noir to be precise). Anyway, at the dinner I was chatting with a large shareholder of a small company about recapitalization options. The company in question has a large amount of cash, very little debt and not much of an appetite for acquisitions. So how should we go about returning that cash to shareholders? Buy in shares? Maybe but that increases the equity holders' stakes increasing their reliance on a liquidity event someday, which may or may not be doable, depending on economic conditions, before 2010 when the 15% capital gains tax rate goes up. Why tee up a potentially much higher tax bill? Pay a dividend? Fine. Regular or one-time special? Well, if you commit to a regular dividend, you expose investors to the increased dividend tax rates when the 15% rate also goes up in 2010. A special dividend looks like the way to go. You can determine the precise amount of excess cash and control the timing, so shareholders can get a hefty payout at the 15% rate. OK, done, the big shareholder will discuss it with the Board of Directors.

That's when it hit me. I probably knew in a vague sense the consequences, but at that moment it crystalized for me. It is so obvious. Hundreds if not thousands of company's will be recapitalizing in 2009, paying out huge special dividends just before the dividend tax rate goes up. Many will lever up and many will cease dividends altogether post 2010 and use the cash flow to reduce the debt, in essence pulling profits forward in time to give their shareholders cash at the 15% rate and reduce the level of future profits that would be subject to higher rates of taxation. Imagine that, receiving your little slice of US corporate profitability for years 2011-2015 in 2010, cash money! The implications for the Treasury are that there will be a surge of revenue in 2010 and a cratering of revenue beyond. Private equity types are doing this already. When the outlook for capital gains is cloudy (or even when it is not) they sell bonds to pay themselves a fat dividend. As 2010 approaches, everybody will be getting in on this game. You've got to own stocks to get your share of the cash tsunami but massive capital losses would be in the offing. Start learning now about buying long dated puts on the market indices and/or selling calls.

Furthermore, congress will interpret the revenue surge as a permanent increase in the tax base, and they will rapidly increase spending. The post 2010 federal budget deficits could be huge when the tax receipts dry up. With guys like Max Baucus at the wheel, I say it's a safe bet. Won't be good for treasuries.

With treasuries and stocks looking bad, usually what happens is capital flows to real estate (think 2002). I think it is fair to say that 2011 is far enough away for the collective memory of where we are today with real estate to have faded by then. I predict another real estate boom circa 2012.

Tea Party Budgeting

Via Instapundit:

“Scrap the Department of Education, a failed Carter-era experiment that had its roots in president Dwight Eisenhower’s desire to imbue the education system with Cold War thinking, and out goes a US$77-billion annual expense. Likewise, scrap all or parts of the Department of Energy, the Small Business Administration, the Federal Transit Authority, Federal Highway Administration, Housing and Urban Development and other federal areas that intrude on state and local responsibilities. Apart from the dollar savings from eliminating duplication and cancelling perverse projects, the quality of public services is likely to rise when the former federal functions move closer to home in state or local government, or become privatized and are delivered in the private sector.”

Great, but who was saying exactly this, oh, like, five years ago...?? Ahead of my time, again, as usual.

BaucusCare Would Incent Me to Dump My Plan

I've been thinking about the Baucus plan and maybe I'm missing something, but it could work out pretty good for me and many others like me. Let me walk you through this. Because we essentially already have ObamaCare here in New York state, I pay through the nose for my insurance, on the order of $20,000 (actually, I got a notice today that it is going up 20% in 2010). Unless someone in the Baseball household has a major procedure, the cumulative Baseball family healthcare spending comes nowhere near that, so we lose money, but we get the insurance value (which, of course, Anthony Weiner doesn't understand). So, Baucus (he who either lies or doesn't understand basic finance) is going to slap me with a penalty if I don't buy a government-dictated insurance policy that will almost certainly not be to my specific needs. That penalty ranges but let's say I get hit with the maximum that I've read, $3,800. Why would I not dump my insurance, pay the penalty, and have roughly $20,000 left over for out of pockets and "self-insurance"? I'm still pretty young, so aside from getting hit by the proverbial bus, statistically I've got several years of decent health in which to pay Baucus's silly fine and bank some reserves. Assuming I don't spend all the savings on getting drunk, I could bank $250,000 by the time I hit 50. In the meantime, I can take my cash horde to all the doctors that will opt out of BaucusCare, the same way they have opted out of Medicare, and negotiate privately. Medicine will be more expensive and innovation will suffer, which I am not happy about, but at least I won't be competing with and waiting in line behind all the rubes with their BaucusCare plan cards!

UPDATE: Now I read that the fine will max out at $1900. All the better for me to purchase healthcare services with cash on the barrel.

Is Venezuela About to Boil Over For Good This Time?

There has been a shortage of news coverage in the US media regarding the goings-on in Venezuela. Things are getting dicey and on the current trajectory Hugo Chavez's days could be numbered. At the least he is going to have to survive another intense period of danger for his regime. Bolivarian Socialism is caput, finito. It's all over but the crying for this doomed experiment, and all that remains is for the final act to be written (does our protagonist join his buddy Manny Zelaya on the beach in the DR or does he get Ceausescu'd?). Oil revenues, the life-blood of the regime, are declining because he destroyed the country's oil infrastructure through neglect and he's driven away all the international oil service companies by stiffing them on their bills and stealing their capital assets. Food shortages are escalating because he's nationalized farmland and food processing businesses. Imports are difficult to get because he got his country put on the maritime insurance industry's black list. Crime has soared. All old news. But now things are coming to a head. There are rolling blackouts because he's neglected the power grid and generation capacity. He's closing the last of the unfriendly media outlets, RCTV. He's devalued the bolivar, robbing citizens of their private savings and driven most of the country's private capital stock overseas. Finally, he is on the verge of calling out his goons to crush a newly-revived opposition movement, but both the police and the army are thought to be less inclined to put down the protests as willingly as they have in the past. Chavez is warning the police of a major restructuring of their ranks and warning citizens not to urge soldiers to join a rebellion. It's snowballing. Stay tuned. Hugo may not see year end.

A key variable will be the behavior of the Obama administration. Unfortunately, given their terrible performance in the Honduras crisis, there is a good chance that Obama will come to Chavez's aid. I pray that I am wrong for if he does, it will be a second mark of indelible shame upon the United States after our abandonment of the courageous Iranian people. I am sad to say that we could wipe out two centuries of leadership in the cause of liberty in just two years time. Two centuries of standing tall, two centuries of being a beacon, two centuries of growing into who we are as a nation...gone in two years, just like that. That'll be change alright...profound, regretable change.

UPDATE: Mary O'Grady weighs in. I think she is saying that a "boil over" is not yet clearly in the cards, but that it's going to get ugly starting...now.

For Illini Readers

With all this new traffic we've been getting, maybe we have some new readers from Illinois. Sorry about those slimmest of slim lame duck votes that just raised your taxes. Here at NBfPB we strive to provide you with both the inspiration and tools to avoid taxes, although most of this is relevant to federal taxes. Still forewarned is forearmed...oops...can I still say that and not get blamed if some psychotic loser shoots up some joint? Anyway, whether you're moving to Indiana or just openning up a 529 college savings plan...happy tax avoidance!