Tuesday, January 31, 2012

Jim Rogers: Not buying the Facebook IPO

Some highlights:

Facebook will be a very expensive stock. He believes it will IPO at 25 times next year's SALES!

In the states the election this fall means money pumping is coming this year. What we need to worry about is 2013.

He believes a zero-percent interest rate policy is a terrible mistake as it destroys the motivation for people to save--- and destroys the saving-class that is need to fuel future economic growth.

Grouch: I will not be buying the Facebook IPO either. I dislike Facebook for many different reasons and it will be a shooting star.

Couldn't agree more with Roger's comments about zero-rate interest policy destroying the saving class and hurting seniors and retirees.

Monday, January 30, 2012

Yahoo Finance: Freddie Mac Gambles Against the Housing Market

Grouch: Let's hope whoever wins the next Presidential election has the good sense to wind down these companies and let them assume their proper place on the dustbin of history.

Update: The Treasury Department is investigating this report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so.

The report came just as the Obama administration had been escalating its efforts to push Fannie Mae and Freddie Mac to ease conditions for homeowners, including those who owe more on their mortgages than their homes are worth.

Last Friday, the Treasury announced that it would offer increased incentives to lenders to forgive portions of homeowner debt, saying pointedly that for the first time the incentives would be offered on loans held by Fannie and Freddie.

But Fannie and Freddie, which said they would review the increased incentives, have long declined to allow debt reduction on the loans it holds or guarantees, saying that it would create unnecessary losses for taxpayers. The companies, which are financed by taxpayers, have also maintained barriers to refinancing, like risk-based fees for homeowners, even as mortgage interest rates have dropped below 4 percent.

Arlo Guthrie: I’m Changing My Name to Fannie Mae

"When they hand a million grand out,
I’ll be standing with my hand out….
If you’re a corporate titanic
And your failure is gigantic,
Down in Congress there’s a safety net for you."

The Transparent Factory: Modern Automotive Manufacturing

This impressive video of a state-of-the-art VW car factory in Dresden, Germany was made in 2009.

Friday, January 27, 2012

What is a Territorial Tax System?

How Vote-Buying Really Works

Higher Education Costs: The Graph that Says It All

Is it any wonder that higher education costs are rising faster than inflation with staffing levels like this?

HT: Carpe Diem

Thursday, January 26, 2012

Calling BS Again on the Warren Buffett Secretary Tax Rate

video platform video management video solutions video player

Now that this issue has been demagoged on no less a stage than the President's State of the Union address, it's time to make the returns public because the numbers still don't add up. That's right, I'm calling BS again. What is shocking about the above puff piece from ABC "News" is the lack of pressing for details to prove the claims. As the interview goes on, you'll notice the conversation shifts from marginal tax rates to marginal tax rates + payroll taxes to come up with the 35.8% rate. I know in my case if you added up marginal tax rates + payroll taxes + property taxes + sales taxes + gasoline taxes, my effective tax rate would be somewhere around 50% (not exactly what I'd call fair). The national conversation we should be having is how to shrink government at all levels, not how to grow it through increased tax receipts.

So, just how does Buffett's secretary end up paying 35.8% in taxes. Let's review the taxes rates:

Payroll tax rate taken directly from people's checks was 7.65% in 2010.

The marginal income tax rate for married filing jointly in 2010 was:

10% on the income between $0 and $16,750
15% on the income between $16,750 and $68,000; plus $1,675
25% on the income between $68,000 and $137,300; plus $9,362.50
28% on the income between $137,300 and $209,250; plus $26,687.50
33% on the income between $209,250 and $373,650; plus $46,833.50
35% on the income over $373,650; plus $101,085.50

So keeping the calculation simple, what income level is required to arrive at an effective tax rate of 35.8%?

It is mathematically impossible to arrive at this number based solely on the marginal income tax rate so payroll taxes must be included.

Let's start simple and ballpark a number. If she earned $373,650, her effective tax rate would be 34.7% ((101085.50+(7.65*373650))/373650))---- a little more than a percent shy of the figure claimed.

Applying different income levels to the tax formulas, my calculations show her income would need to be in the neighborhood of $433,150 to have a combined marginal tax rate + payroll tax rate of 35.8%

This means Warren Buffett's secretary and her husband made north of $433K in income in 2010, putting them in the top 1% of earners throughout the country. What is most slimy and deceptive about this entire episode is that the majority of people will think this is he average corporate secretary earning 40-50K a year. Nothing could be further from the truth. ABC does a disgraceful job of by not asking penetrating enough questions to validate the claim in this interview.

Warren, please step up and prove me wrong....... release the returns.

Addendum: To get to the 35.8% rate for his secretary, I bet Buffett is including the part of FICA paid by the employer into his secretary's tax rate. Certainly, a bit deceptive and misleading, and to me means we should be having a conversation about the current structure of Social Security and Medicaid rather than income tax rates. But starting out the with misleading assumption that 15.3% comes out of his secretary's paycheck in FICA taxes each year, the calculations show his secretary earns roughly $90-95K, slightly less than the 100K Buffett pays himself, and a more believable number than above. The bottom line is Buffett's argument lacks transparency, the numbers have not been explained or laid out in detail, and allowing it to be used in a deceptive manner for political demagoguery is highly distasteful.

As I've said before, write a check to the Treasury, Warren, to make up for your under taxation and lead by example in encouraging, cajoling and brow-beating your millionaire and billionaire friends to do the same. But somehow I think the green investments you make through your subsidiary, Mid-America Energy, are going to be much more profitable than the next Solyndra that Stephen Chu throws taxpayer money at from DOE. So maybe, just maybe, the country is better off if you keep more of your own money and invest it in projects that make economic sense.

Wednesday, January 25, 2012

Abundance: The Future is Brighter than You Think

As a teenager back in the 1970s I read apocryphal books such as The Population Bomb by Paul Ehrlich which prophesied doom for the human race due to resource scarcity. I must admit I bought into the argument for a while, but as I grew older and it became increasingly evident that the predictions were not going to come true I began to realize that this was more an argument about why people needed to cede individual choice and self-determination over to an enlightened set of intellectuals appointed to make wise choices for society as a whole. Abundance is the exact opposite: the democratization of choice, creativity and intelligence. Thank God we seem to be moving more toward a world of abundance and less toward the apocalypse of Ehrlich and other prophets of doom.

In the upcoming book "Abundance: The Future is Better Than You Think" (to be released February 21) space entrepreneur turned innovation pioneer Peter H. Diamandis (featured in the video above) and award-winning science writer Steven Kotler document how progress in artificial intelligence, robotics, infinite computing, ubiquitous broadband networks, digital manufacturing, nanomaterials, synthetic biology, and many other exponentially growing technologies will enable us to make greater gains in the next two decades than we have in the previous two hundred years.

Some factoids from the book's website:

1. A Masai warrior in Africa with a smartphone on Google has access to more information than the President of the United States did just 15 years ago.

2. The number of people living in absolute poverty has fallen since the 1950s has dropped by more than half. At the current rate of decline, it would hit zero around 2035.

3. From the very beginning of time until 2003, humankind created five billion gigabytes of digital information. In 2010, the same amount of information is created every two days; by 2013, every 10 minutes.

4. In 15 years, the average $1000 laptop should be computing at the rate of the human brain.

Quote the of Day: Mitch Daniels

Decades ago, for instance, we could afford to send millionaires pension checks and pay medical bills for even the wealthiest among us. Now, we can’t, so the dollars we have should be devoted to those who need them most.

The mortal enemies of Social Security and Medicare are those who, in contempt of the plain arithmetic, continue to mislead Americans that we should change nothing. Listening to them much longer will mean that these proud programs implode, and take the American economy with them. It will mean that coming generations are denied the jobs they need in their youth and the protection they deserve in their later years.

~ Mitch Daniels

Grouch: One of the less delusional moments in last night's SOTU address is this passage from Mitch Daniels' response. It at least recognizes we cannot afford the status quo to continue. Personally, I would prefer to see the slow death of Social Security and Medicaid, and the country return to a society that takes care of itself and its neighbors without laundering money through Washington to redistribute as bureaucrats see fit. Why should my kids be taxed to support my retirement when I should be paying for that retirement myself? The main fault I find with Daniels' statement is that it doesn't go far enough. It is a rare breed of politician who will decrease their power while doing what is right for the country. We have close to zero of these types in Washington at the moment. The government has perpetrated the Social Security deception on the American public for years convincing them they have a personal account and are saving for their own retirement when in reality their money went to pay for their parents' retirement. Demographics have finally brought us to the point where we must acknowledge the deception and begin to cut benefits whether through means testing or some other mechanism. The Daniels' proposal is a start, but doesn't go nearly far enough, and will surely be met by the usual objections: "I paid into the system and I deserve my benefits no matter what."

Amazing YouTube Stats

Uploads to YouTube:

One hour of video every second.

9 months of video every two hours.

A decade of video every day.

A century of video every 10 days.

YouTube Views per day:

4 billion.

Can you imagine the computing power and bandwidth it takes to run YouTube?

Monday, January 23, 2012

Shakespeare: Original Pronunciation

David Stockman On Crony Capitalism

Moyers & Company Show 102: On Crony Capitalism from BillMoyers.com on Vimeo.

Please make it through the lengthy prelude by the windy and sometimes insufferable Bill Moyers to get to this great interview with David Stockman. Amazingly enough, Moyers actually restrains himself during the interview and let's Stockman do most of the talking.

"True free market capitalists never go to Washington with their hand out. True free market capitalists running a bank do not expect that every time they make a foolish mistake or they get themselves too leveraged or they end up with too many risky assets that don't work out... they don't expect to go to the Federal Reserve to get some cheap or free money to go on as before. They expect consequences, maybe even the failure of their firm. Certainly loss of their bonuses, and maybe even loss of their jobs."

Sunday, January 22, 2012

More Congressional Quackery: H.R. 3784, The Gas Price Spike Act

H.R.3784 begins: "To amend the Internal Revenue Code of 1986 to impose a windfall profit tax on oil and natural gas (and products thereof) and to allow an income tax credit for purchases of fuel-efficient passenger vehicles, and to allow grants for mass transit."

Six members of the House, led by non-free market champion Denis Kucinich (D-OH), want to set up a "Reasonable Profits Board" to control gas profits. The Congressmen, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit, but would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms.

Grouch: This is yet more quackery from Congress disguised as consumer advocacy, but whose real purpose is to artificially manipulate markets and ultimately punish consumers with less supply and higher prices. One can see in the chart below just how the price of natural gas has skyrocketed without proper government supervision:

Right now there is an oversupply of natural gas in the marketplace and declining prices (those greedy capitalist pigs!). But our enlightened Congressmen are working overtime to correct this situation.

Just as a point of reference, the average industry in the US according to Yahoo Finance has a profit margin or 7.8%. The oil and gas industry profit margin comes in at an eye-popping 7.9%. What an outrage! How can this stand, when other industries have more reasonable profit margins: publishing (53%), silver (41%), gold (25%), cigarettes (22.5%)? Not to mention Apple, the favorite company of the politically correct crowd, coming in slightly north of 23%, or the much hated Microsoft at 31%. Comrades, we can not continue to let the marketplace operate freely at such obscene profits levels. This bill is clearly not expansive enough. We need a Commissar of Reasonable Profits for every industry in the country.

As George Will noted at the start of the year:
In 2011, for the first time in 62 years, America was a net exporter of petroleum products. For the foreseeable future, a specter is haunting progressivism, the specter of abundance. Because progressivism exists to justify a few people bossing around most people and because progressives believe that only government’s energy should flow unimpeded, they crave energy scarcities as an excuse for rationing — by them — that produces ever-more-minute government supervision of Americans’ behavior.

Wednesday, January 18, 2012

The Grouch's Dividend Picks for 2012

I'm an invest-for-the-long-term kinda guy so I'm looking for stocks that I think have good long-term prospects, a solid business in a stable industry that won't become obsolete next year and where there are barriers to entry. I don't want to invest in industries that every kid who graduates from MIT is dreaming of revolutionizing. This naturally leads me away from technology, though I am a technologist by profession. I also tend to be a bit of a contrarian and have a natural tendency to look for turn around plays.

My picks for 2012 are:

Brookfield Infrastructure Partners (BIP) yield 4.80% - what could be more boring than owning timberlands, electric transmissions lines, natural gas pipelines, port operations, toll roads, coal terminals, and railroad tracks all over the world? And profitable. With inflation based increases built into most of their contracts, these assets are poise to generate mucho deniro. This is also a potential play on cash-strapped governments in Europe and around the world selling off state-own assets cheap to pay their bills. As long as Brookfield is smart about financing, they will do very well.

BHP Billiton (BBL) yield 3.35% - the investment theme for BHP is the continued need of China for raw materials to fuel their economic growth as well as the natural gas revolution in America. BHP Billiton is one of the world's leading miners of aluminum, copper, lead, iron ore, manganese, energy coal, metallurgical coal, uranium, etc. Their acquisition of Petrohawk gives them a strong position in the North American Oil and Natural Gas business.

Conoco Phillips (COP) yield 3.70% - diversified oil and gas company that is slated to split into two companies in 2012 to unlock shareholder value. This is a bet that two companies are worth more than one and will pay higher total dividends to investors that keep both stocks.

Abbott Labs (ABT) yield 3.50% - diversified healthcare company that is slated to split into two companies in 2012. This is a bet that the split will unlock hidden value, result in an increased overall dividend and perhaps position the new companies to be acquired by larger players.

Cedar Realty Trust (CDR) yield 7.75% - Primarily a shopping center REIT that specializes in grocery store anchored properties. Turnaround play. Previous management constantly diworsified the portfolio and ran up debt. New management has been brought in and put together a plan to rationalize the portfolio, divest non-core assets, reduce debt and return the company to steady FFO growth and dividend. The dividend was reduced in 2011 to free up more cash to reduce debt and the stock price fell significantly, creating this opportunity. For those who think CDR is too risky, try Washington Real Estate Investment Trust (WRE) yielding 6%.

Johnson and Johnson (JNJ) yield 3.50% - is a diversified health care company. Its high growth days are over, but it just keeps pumping out the dividends and generating free cash flow for share buy-backs. This steady eddie company belongs in every dividend investor's portfolio at the right price.

Nestle (NSRGY) yield 3.61% - is a diversified food company. Its growth rate may be limited, but everyone has heard of brands like Carnation, Libby's, Nestle Toll House, Stouffers, Baby Ruth, Butterfingers, DiGiorno Pizza, Hot Pockets, Lean Cuisine, Nescafe, Coffeemate, Häagen-Dazs, ect. It is another steady eddie company that just keeps pumping out the dividends and generating free cash flow for share buy-backs.

Phillip Morris (PM) yield 4.20% - What can be better than legally selling a product that is adictive? Aside from some of the moral issues with tobacco that individual investors will have to grapple with, it is a tremendously profitable business. I believe the international exposure of Phillip Morris will result in a greater growth profile when compared to its domestic counterpart, Altria.

TEVA Pharmaceuticals (TEVA) yield 2.00% - Teva is an Israeli pharmacological company known for its aggressive acquisition streak and its legal shenanigans ti turn patented drugs into generic drugs. Future acquisition possibilities look to be few and far between so I believe Teva will concentrate its energies on running the core business and use its excess cash flow to increase its dividend payout.

Darden Restaurants (DRI) yield 3.78% - Darden is an owner of restaurant chains and the parent company of Olive Garden and Red Lobster. Currently, it is more attractively priced than some fast food restaurants such as McDonalds. It has little international exposure and has room to expand in the area. It has run into some short-term turbulence with sales at it Olive Garden franchise, which has temporarily beaten down the price, but management is focused on turning this situation around.

For those who feel they need tech exposure, please do your own research on Intel (INTC), Microsoft (MSFT) and IBM. They have attractive yields and decent intermediate to long-term prospects.

For the ultimate turnaround play, I'd look at the much hated Bank of America (BAC). Previous management constantly overpaid for acquisitions, and made of number of strategic blunders with the prices they paid for severely damaged companies like Merrill Lynch and Countrywide during the financial crisis. I don't think value investors like Bruce Berkowitz and Warren Buffett would be putting money at risk if they didn't see light at the end of the tunnel.

As always, do your own research before committing capital.

"Down with capitalist pigs! Buy my merchandise!"

How Not to Advertise a Luxury Car to Cuban-Americans

Mercedes-Benz ends up apologizing to Cuban-Americans after using an image of Che Guevara to promote its "revolutionary" new cars at the International Consumer Electronics Show in Las Vegas (somebody had to get fired for this idiotic marketing campaign that embarrassed CEO Zetsche). For those who think Che is just a neat looking guy on a t-shirt do some research into the historical Che. Please go in with eyes wide open; he is not a romantic revolutionary, but a sadistic killer.

From Marky Mark to Mark Wahlberg: Character Counts

Tuesday, January 17, 2012

Paving the Road to Hell


Just look at all the jobs that have been abolished by the minimum wage—good and worthwhile jobs for those who are taking their first step on the economic ladder. Movie ushers, gas station attendants, caddies, fruit pickers, dishwashers, fast food help, and a wide variety of other entry-level job opportunities have been either cut back or eliminated because the minimum wage has rendered them unaffordable. How tragic this is, when you consider the true value of these low-level jobs to young and unskilled workers.

~ Roger Koopman

Or Walter Williams on his early years in a Philly slum:

None of these jobs paid much, but then I wasn’t worth much. But the real value of early work experiences is much more important than the little change a kid can earn. You learn how to keep a job. You learn how to be prompt, respect and obey superiors, and develop good work habits and attitudes that can pay off in the future. Additionally, there is the self-respect and pride that comes from being financially semi-independent.

~ Walter Williams

Or Williams again:

It is important to note that most people acquire work skills by working at “subnormal wages” which amounts to the same thing as paying to learn. For example, inexperienced doctors (interns), during their training, work at wages which are a tiny fraction of that of trained doctors. College students forego considerable amounts of money in the form of tuition and foregone income so that they may develop marketable skills. It is ironic, if not tragic, that low skilled youths from poor families are denied an opportunity to get a start in life. This is exactly what happens when a high minimum wage forbids low skilled workers to pay for job training in the form of a lower beginning wage.

~ Walter Williams

Sunday, January 15, 2012

The Government as Venture Capitalist (or How to Be Stupid With Other Peoples' Money)

The dismal record of the government's venture capital investments speaks for itself. Regardless of which party is in power the results have been dismal and costly to the taxpayers with little, if any, benefit. The Green Energy program is another shining example of why bureaucrats should not be allowed to pick winners and losers in the market place. This report is only a surface treatment of the problem and doesn't even delve into how these loans are used to reward and enrich political donors and provide seed money for future political donations. The taxpayers need to rise up and demand an end to all government venture capital programs. With a government $15T+ in debt why are we guaranteeing loans to anyone? Let the marketplace do its job.

Saturday, January 14, 2012

Louie Schwartzberg: The hidden beauty of pollination

Byron Wien's Top Ten Surprises for 2012

Prognosticators are notoriously wrong in the stock market and economics. Nevertheless, it's interesting to read their predictions at the start of each year. Byron Wein offers up a few this year that go against the grain of conventional wisdom. We'll see how things pan out.

Top Ten Surprises for 2012

Friday, January 13, 2012

A Civics Lesson from Chuck Woolery on Democracy

Markets in Everything - Smart Contact Lenses

PITTSBURGH (CBS) — "Forty-million Americans wear contact lenses. In the not so distant future, contacts may do a lot more than just help you see. What if the lenses could look inside of you to diagnose, monitor and even treat disease? Sound far-fetched? Well, it may not be too far away.

The new generation of contact lenses is being called “smart lenses,” and they are packed with circuits, sensors and wireless technology – all designed to keep an eye on your health.“There’s a possibility to develop a really, really important new tool for medicine,” said Babak Parviz, PH.D., the developer of the Smart Lens."

Quote of the Day: John Cochrane

The world's largest hedge fund paid $79.3 billion dollars to its main investor last year, as announced to the press and reported by the Wall Street Journal this morning.

It followed classic hedge-fund strategies. It's leveraged about 55 to 1, meaning that for every dollar of capital it borrows 55 dollars to fund 56 dollars of investments. Its borrowing is mainly overnight debt. It used that money to make aggressive bets in long-run government bonds, as well as strong speculative positions in mortgage-backed securities and direct distressed lending. Lately it's been putting bigger bets on loans to Europe and currency swaps. (Balance sheet here.)

The payout was actually conservative, as it reflected only the greater interest payments earned on its portfolio of assets and realized gains, not the substantial unrealized capital gains it made over the last year as long-term bond prices rose.

Who is this miraculous fund? Why our own Federal Reserve of course!

~ John Cochrane, from The World's Biggest Hedge Fund

The Man With the Golden Voice A Year Later

Tuesday, January 10, 2012

2011 Highly Diversified ETF Portfolio Performance

2011 ended the year with an uptick in the equity markets. Our sample highly diversified balanced portfolio returned a mildly disappointing -2.20% for the year, underperforming the S&P 500 with a positive 2.11% return. Readers might recall the Meredith Whitney prediction of doom for Municipal Bonds. Ironically enough, Municipal Bonds have turned in the best performance of the year in this portfolio. Bonds in general carried the year as International markets got creamed and were the biggest drag on performance.