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  • Sirius XM and Liberty Media: If Not Now, When? [View article]
    ¨If Not Now, When? ¨

    Aug 8, 2011. 12:08 PM | Likes Like |Link to Comment
  • Why Warren Buffett Is Wrong About the U.S. Credit Rating Downgrade [View article]
    Some members voted against the final deal, which was equivalent to voting against a raise in the debt ceiling, which effectively meant that the US would be at risk of default or of a constitutional crisis.

    Try Connie Mack of Florida, if you want a name.
    Aug 8, 2011. 10:32 AM | Likes Like |Link to Comment
  • Why Warren Buffett Is Wrong About the U.S. Credit Rating Downgrade [View article]
    This is all quite right.

    There is also the question of currency exchange value. Any kind of rating has to take into account comparative safety, how safe an investment is relative to what else is available.

    Let´s say the US remains at AAA, the same as the UK, but the UK is bringing its deficit problems under control and the US is not.

    Does this not mean that the UK pound is likely to appreciate in value relative to the dollar? If that is the case, then the UK deserves a higher rating than the US, and there is nothing higher than AAA, then it makes sense to downgrade the US so that sovereign debt denominated in other currencies has the potential for higher rating (if it is deserved).

    Certainly as it has stood over the last year, just holding ANY kind of investment denominated in US dollars has not been the safest thing to do, and there is little evidence that the US dollar is about to become the safest currency on earth.

    Certainly the US has the ability to pay its bills, because it can print its own money, but if it only pays them in devalued dollars, then that is a kind of default, at least it would be if you saw it from the point of view of a holder of US debt.

    We also have the Balanced Budget Amendment now on the table. While I believe it is unlikely to pass, if it did, it could lead to a situation where the US might be faced with default or else massive civil unrest over goverment cutbacks. This is a country where one in seven of the population is already on food stamps.

    S&P is right, and this should be a massive wake up call to the US.
    Aug 8, 2011. 08:00 AM | 4 Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    Dog food is generally cheaper than food deemed fit for human consumption on a calorie per calorie basis, so it doesn´t make economic sense to give the dog fresh meat for human consumption.

    However, you can´t use food stamps to pay for dog food, so you have to pay cash.

    Arguably it would be even more cost efficient just to let the dog eat scraps and garbage, but Americans are quite insane about feeding their pets. In my local Walmart there is one (short) aisle devoted exclusively to dog food and another for cat food, even though the stuff is basically the same.

    Not a good idea, though, to confront food stamp using pet owners to discuss the economics of domestic animal husbandry, otherwise you may spend the rest of the day contemplating the economics of health care.
    Aug 7, 2011. 11:01 AM | Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    This morning Jeff Miller said this in another SA article:

    ¨For starters, this should not have been on the agenda. Those in Congress who want to challenge the budget deficit should do so via the appropriations process, the taxation process, or the budget process. Doing it at a time when it can raise apparent questions about US creditworthiness was irresponsible.¨

    This is the point I am trying to get across.

    I can certainly find common ground with the Tea Party in agreeing that deficit spending cannot be allowed to continue to increase for ever, and that we may need to look at how entitlement programs are funded, how much we spend on discretionary programs, how much goes on defense, how we raise revenue, and so on, but that attempting to derail the debt ceiling process only days before bills fall due is not the way to solve vast systemic problems.

    Reduce the deficit, yes, but it has to be done in a way that takes into account the short and long term interests of the United States and its people, and without resorting to silly gimmicks like a balanced budget amendment vote, which, if adopted (unlikely), would cripple the ability of the US government to respond to unpredictable conditions with sophisticated economic tools, taxation policy, etc.
    Aug 7, 2011. 09:24 AM | 1 Like Like |Link to Comment
  • Coming Week's Market Movers: U.S. Credit Downgrade vs. Accelerating EU Contagion [View article]
    ¨There are few assets liquid enough for big players like China or other large sovereign wealth funds to park their money.¨

    So maybe they will move to equities. By buying large caps and then setting up a structure of selling put spreads and covered calls, it is possible to park very large amounts of money with virtually zero risk, assuming that equity and option markets are not obliterated.

    Even AAA is relative. For example UK government debt is AAA rated, but would it survive a nuclear weapon detonated over London, Birmingham, and Manchester? I doubt it.

    As Keynes famously said, in the long run we are all dead, but meanwhile whatever is the safest available strategy is AAA by default. Probably no investment strategy of any kind would survive a worldwide nuclear war and the death of governments. Land, maybe, but even that assumes that you have a private army to defend it.
    Aug 7, 2011. 06:05 AM | Likes Like |Link to Comment
  • 3 Longs and 1 Short That Are Fearing Market Fear [View article]
    ¨John F. Kennedy once said in a speech, “The only thing we have to fear is fear itself.” ´´

    Wasn´t that Franklin D. Roosevelt, although perhaps Kennedy repeated it? The phrase has always been associated with that Wizard of Oz era thinking and the Tin Man getting a heart.
    Aug 7, 2011. 05:52 AM | 2 Likes Like |Link to Comment
  • Should You Invest in 2011 Like It's October 2008? [View article]
    Good analysis.
    Aug 6, 2011. 11:26 PM | 1 Like Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    I do not have any political affiliations or party membership and am very critical of both parties, or all three parties.

    The programs that need money via deficit funding, such as Medicare and the Wars in Iraq and Afghanistan were already preapproved by Congress and enacted into law, so refusing to vote to raise the debt limit when funds were on the point of running out would, if the vote had been won, have precipitated a constitutional crisis in which the President may have had to call on the 14th Amendment and then refer the matter to the Supreme Court for review.

    This is why voting against raising the debt limit is equivalent to voting to default.

    Also note that this is pretty much what Standard and Poor´s said in their preamble to their downgrade of US debt.
    Aug 6, 2011. 10:48 PM | Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    The way it works right now is that distributions from IRAs, except Roth IRAs, are 100% taxed as regular income. Can you be more specific about your proposed tax change?
    Aug 6, 2011. 12:26 PM | 5 Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    ´´Who voted for default?

    The tea party Republicans voted to live within our means. They voted for 41% spending cuts and balancing the budget this year.´´

    In the final House vote on the Sunday many Republicans voted against the bipartisan bill. Had their vote carried, the US would have defaulted, so they were effectively voting for default.
    Aug 6, 2011. 10:49 AM | 6 Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    ¨Finally, do you really believe there are 47 million people who should be receiving free food from the government? ´´

    It seems hard to believe that one out of 6 people in the US needs food stamps, however, it is quite difficult to qualify for food stamps if you have any kind of money, so I guess these people really are indigent.

    If you have financial assets exceeding $2000, or $3000 if there is a member of the household over 60 years of age, then you are not eligible, which would probably exclude most SA readers.

    If they really are indigent, then the next part of the question is whether there ought to be food stamps at all.

    I am currently in the Dominican Republic where there are no food stamps and a great deal of poverty. I am not seeing people who appear to be clinically undernourished such as you might seen in Haiti, but on the other hand there is a great deal of prostitution, robbery, and alll kinds of scams and petty crime in general. Every one who has a job steals from their employer.

    Turning 40 milliion hungry people onto the streets to hustle for a living might be more than the US can handle.

    On the other hand, I do believe that the food stamps allowance could be cut without causing nutritional insufficiency if people made the effort to pool their resources and labor so as to eat well cheaply. Remember that prisons still feed inmates on about $1 a day and that while the food is not very tasty, it meeets legal nutritional standards.

    If the money spent on food stamps went into communal kitchens, I believe people on food stamps could eat better for less money.
    Aug 6, 2011. 10:38 AM | 8 Likes Like |Link to Comment
  • 5 Things You Should Know About the S&P Downgrade [View article]
    Good post.

    Well, it requires a national leader who has the capacity to lead to make a successful call for shared sacrifice among his followers.

    Winston Churchill said: I have nothing to offer but blood, toil, tears and sweat and even though the phrase was not entirely original, it struck a chord and was successful in lowering expectations.

    Tom, what kind of investment strategies can best exploit instability? Would we be wise to invest in companies that provide catering services for large crowds, or portable toilets? Or should we be looking more at manufacturers of barbed wire, tents, or fittings for prison cells?
    Aug 6, 2011. 09:07 AM | Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    Good point about the inequity in incomes in the US and the need for reform of the federal tax system.

    The bottom 50% of wage earners who pay no income taxes pay Social Security tax, Medicare tax, gasoline tax, sales taxes, telephone taxes, state income taxes, automobile taxes, property taxes, garbage collection taxes, school taxes, student loans, and have little left over beyond what is needed for basic survival, medical copayments, etc.

    Add to them a large tranche of people in retirement living off Social Security payments, and the disabled and handicapped, and you are left with relativley few able bodied working taxpayers to actually pay the federal income taxes.

    Compare this to Australia, where much more workers pay income taxes, albeit with the catch that the minimum wage is Oz is about $13 per hour. The first $6000 of income is free and then starts at 15 cents on the dollar up to $37000 when it changes to 30 cents.

    Incomes over $185000 pay a marginal rate of 45%. The same rate of tax is paid on business income.

    The US needs to look at revising the tax code and eliminating deductions. Why everyone should get a standard deduction even when they have nothing to deduct defies belief. The mortgage interest deduction probably needs to go to, then you can get rid of the standard deduction.

    The US might also look at introducing a national Internet sales tax, which would have the dual benefits of raising revenue and leveling the playing field for local businesses competing with mail order.

    Another possibility is a Value Added Tax as in Europe. Although similar to sales taxes already in place, it also taxes service transactions.

    A further consideration is to tighten up on companies using tax haven dodges. If the major manufacturing nations (G10) entered into a treaty forbidding companies that trade in their territories to incorporate in tax havens with embargo provisions on violators and host jurisdictions, they could enforce this in the same way that the US enforces bans on its citizens playing offshore poker and arrest executives any time they come to the US.

    No matter what state a corporation chooses to register in, there should be a national profit tax equal to the personal tax rate. Remember that the Supreme Court has already rules that Corporations have the same rights as people. They should also have the same responsibilities.
    Aug 6, 2011. 08:40 AM | 18 Likes Like |Link to Comment
  • S&P Downgrades U.S. to AA+ - We're Tied With Belgium! [View article]
    One of the main differences betweeen Colgate Palmolive and USA Inc. is that the Colgate Palmolive board of directors does not have a significant faction who effectively voted for default last week.

    Although the downgrade is partly about the numbers, the most shocking part of the S&P preamble is the fact that it no longer regards the USA as sufficiently politically stable to merit AAA status, no doubt as a result of the amazing shenanigans over the last couple of weeks in which the Republican majority in the House was forced to form a coalition with Democrats in order to defeat a significant tranche of nominal Republicans who had rabidly attacked their own party and effectively voted for default.

    The US media and the Congress have tried very hard to suppress news of this attack on Harper´s Ferry with bipartisan claims that ¨the process is working¨. This is a bit like saying that your dog is a good guard dog and would not have bitten the mailman save for the rabies.

    Clearly this has not passed by the keen observers at S&P.

    On the other hand, on the face of it, it seems unlikely that the US is about to stop accepting Federal Reserve Bills, which have ¨In God We Trust¨ written on them as a kind of backup authority in case of terrestrial failure.

    Clearly while the US will continue to try to purchase immunity from Acts of God, it is going to have to pay Mammon his fare share also.

    So this could all be a ¨good cop/bad cop´´ routine in which S&P has been set up to intimidate the rebel members of the board of directors into accepting higher taxes. One should not forget that politics is utterly corrupt and that what is presented for public consumption is probably just a Punch and Judy show that in no way reflects the true decision making process.

    On the positive side, we are now equal with Belgium, so we should be getting an overdue upgrade to our beer and chocolate.
    Aug 6, 2011. 04:47 AM | 11 Likes Like |Link to Comment