Whenever Warren Buffett gives us insight on how he invests, we listen. One point Buffett made recently was to look at the total stock market capitalization compared to GDP. In recent years, the market has done better when this ratio is in the 80% range than when stocks are valued above GDP. This showed itself to be true most prominently during the dot com bubble.

One point I would make is that whatever the correlation there, we also need to factor in government’s percentage of GDP.

Newspapers in the UK are littered with reports of companies moving from the UK to Ireland to take advantage of the lower corporate tax rate. In the UK, the corporate tax rate is 30%, while it’s only 12.5% in Ireland. Many companies that are able to move to take advantage of the lower rate have moved, including Shire (SHPGY) and advertising giant WPP (WPPGY).

In the United States, we currently have the second highest statutory corporate income tax in the world (after Japan). Everyone knows that the effective rate is currently much lower due to corporate loopholes, the largest of which is that companies are not taxed on income from their foreign operations that is not repatriated.

I’m one of the newest members of the ‘we are the next Japan’ community. The similarities are just too striking. A real estate bubble, followed by a financial crisis with no clear solution. Wasteful government spending, ballooning the countries' debt/GDP ratio (Japan is at 170%, we’re projected to be at least 120% and our ’stimulus’ plans have just started). We share the highest corporate tax rates in the developed world. Midway through this mess, both countries raise taxes. Japan raised a consumption tax, and the Democrats are projected to let the Bush tax cuts expire for those making $250k or more (if any of those people are left).

My Democrat friends will quickly point out that Japan raised a consumption tax, whereas we will just raise income taxes on rich people (who just burn their money lighting their Cuban cigars while making an evil laugh). After all, it’s not like people making $250k or more would ever actually spend their money or put it towards expanding their own businesses (since that group is disproportianatly composed of successful small business owners).

Restaurant stocks have been pummeled this year, so it’s to be expected that Luby’s (LUB), a Texas-based cafeteria chain, would be down considerably . However, unlike most restaurants, Luby’s owns rather than leases most of the land/buildings for its restaurants. Furthermore, the book value doesn’t reflect this since many of sites are 20-30 years old. Trading at around $4 a share, the company is likely being valued at less than the land that it owns (not the land and buildings, just the land).

The Pappas brothers, which pretty much run Luby’s, are by far Luby’s largest stockholders, owning a bit above 30% of the company. Their interests are certainly aligned with the company long-term. However, it’s clear that management does not care about the share price. This may be due to a long-term view of the company, basically viewing the share price as something they do not need to be concerned about. Others are a bit more paranoid and think a lower price just gives them the opportunity to gobble up more of the company, perhaps even buy it out completely at a low valuation.

With the November election around the corner, all eyes will start to be glued on the polls and the likely winner. Many bears fear an Obama victory, coupled with continued democratic gains in the House and Senate, signals increased taxes, especially capital gains taxes, and doom and gloom for the market.

With Obama, Reid, and Pelosi running the country, I couldn’t help but feel bearish too. However, I highly doubt this will happen. While most think this race will be a toss-up, I think it will be a McCain blowout. As much as people may blame the economic slowdown on Bush, I just don’t think voters are going to vote for some wimpy-looking, inexperienced, snobbish guy named Barack Hussein Obama over a war hero and proven centrist.

Why am I so enthralled with this perpetual laggard? For starters, I find the stock to be a compelling value right now. The stock is trading around its book value and I think its book value is grossly understated. The vast majority of Luby’s cafeterias are at least ten to fifteen years old, and Luby’s owns the land and buildings on 84 of its restaurants. Luby’s quotes its land values at the price it acquired it on its book, so unless you think Texas land prices are the same now as they were in 1985, that value is understated.