Warren Buffett: Stop Coddling the Super-Rich

Noble fellow that I am, I volunteer to have Warren Buffett pay my tax bill. Anyone else want to sign up?

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office.

…Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

via Stop Coddling the Super-Rich – NYTimes.com.




Policy vs Luck in the Financial Crisis

Weathering the financial crisis: good policy or good luck?


The macroeconomic performance of individual countries varied markedly during the 2007-09 global financial crisis. While China’s growth never dipped below 6% and Australia’s worst quarter was no growth, the economies of Japan, Mexico and the United Kingdom suffered annualised GDP contractions of 5-10% per quarter for five to seven quarters in a row. We exploit this cross-country variation to examine whether a country’s macroeconomic performance over this period was the result of pre-crisis policy decisions or just good luck. The answer is a bit of both. Better-performing economies featured a better-capitalised banking sector, lower loan-to-deposit ratios, a current account surplus, high foreign exchange reserves and low levels and growth rates of private sector credit-to-GDP. In other words, sound policy decisions and institutions reduced their vulnerability to the financial crisis. But these economies also featured a low level of financial openness and less exposure to US creditors, suggesting that good luck played a part.

via Weathering the financial crisis: good policy or good luck?.

Multiples and Markets: What’s in the Price?

A handy price/multiple graphic of the S&P 500. In the spirit of full disclosure, I’m deep in the camp that says markets are still over-optimistic about this year’s and next year’s earnings.

MS Year end spx

Morgan Stanley via Zero Hedge,


Conspiracy is Optimistic

Steve Jobs quote:

“When you’re young, you look at television and think, There’s a conspiracy. The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want. It’s the truth.”
— Steve Jobs

The Japanification of the West

The Japanification of the West continues — high debt, low growth, and low yields — as treasuries plumbed record lows this week. Felix Zulauf weighs in on same in Barron’s, saying the following:

Providing liquidity isn’t the solution, but if we don’t do it the system will break down. Providing growth is a difficult task. I don’t know how to do that. Long-term, we have begun the Japanification of the Western World. If we are unable to bite the bullet, our problems will grow bigger. Eventually, after many years, some central banks and governments might lose their nerve and go completely in the wrong direction, ending up like Zimbabwe.

As circumstances would have it, Richard Koo of Nomura has out a new report on Japanification. Here is a residential real estate graph from Koo’s report:


Interview with Ed Thorp

Thoughtful new interview with gambler, professor, investor and quant godfather Ed Thorp. There are many nuggets in this interview, so this is just an excerpt:

Edward Thorp: I think that the opportunities for quantitative investing are likely to get better, simply because markets are becoming larger and more interconnected and the tools the quants have continue to improve. So that’s one side of it. The other side is there there can be a disconnect between the models that the quants build and the real world, and that disconnect can lead to serious trouble, for example the mortgage pool models or the Long Term Capital Management approach to doing things with super-high leverage, assuming the world is Mediocristan rather than something else.

Lots more here, all of which is worth reading.

Friday Videos: Ob-la-di, Ob-la-da Cover

This is all kinds of a wonderful for a Friday:

NYT Profiles Jeremy Grantham

Long new profile of GMO investor Jeremy Grantham in the weekend NYT Magazine. His views are well known here — limits, resources, etc. — and so this is mostly to provide background and context. He is smart, a nuanced thinker, and a graceful writer, all of which come through in the piece.

Some will immediately say, of course, that this marks the end of the current commodities cycle. Others will simply nod in agreement. Either way, it’s worth a read.

Grantham’s quarterly letters often do make predictions about how the market will perform in the near future and recommend moves investors can make right now, but there are plenty of other authoritative voices telling us whether the recovery will continue or how the S&P will do this year. What sets him apart is what Ritholtz calls “the view from 40,000 feet up.” Grantham, the public face of a company that manages more than $100 billion in assets, the very embodiment of a high-finance insider in blue blazer and yellow tie, has serious doubts about capitalism’s ability to address the biggest problems facing humanity. When he reminds us that modern capitalism isn’t equipped to handle long-range problems or tragedies of the commons (situations like overfishing or global warming, in which acting rationally in your own self-interest only deepens the harm to all), when he urges us to outgrow our touching faith in the efficiency of markets and boundless human ingenuity, and especially when he says that a wise investor can prosper in the coming hard times, his bad news and its silver lining come with a built-in answer to the skeptical question that Americans traditionally pose to egghead Cassandras: If you’re so smart, how come you’re not rich?

via Can Jeremy Grantham Profit From Ecological Mayhem? – NYTimes.com.

The Perils of Paulson

Good look at the pressures faced by hedge fund manager John Paulson as he raises assets in the face of outflows:

Maybe no one single trade has come to symbolize Paulsons bullishness on the U.S. economy more than Bank of America. By August 9, the troubled lenders shares were down 43 percent this year, reducing the value of the 124 million shares Paulson owned as of March 31 by $784 million. Paulson is believed to have sold some of his Bank of America shares as the stock has plunged toward the $7 mark, but the firm has refused to comment on its current position.

The picture isnt much prettier for Paulsons large share holdings in Citigroup, Popular formerly Banco Popular and SunTrust Banks. The value of Paulsons equity stake in those three banks, assuming the funds havent sold any shares since March 31, would have declined by more than $800 million over the past four months.

And then there is Sino-Forest, the troubled Chinese forestry company. Paulson absorbed a $500 million loss on the stock in June after allegations of accounting irregularities at the Hong Kong-based company surfaced earlier in the month.

The series of missteps is tarnishing the near god-like status the former Bear Stearns trader has earned over the past few years.

via Special report: The perils of Paulson | Reuters.

Euthanasia of the Rentier, Continued

Handy and thought-provoking chart from JPMorgan making the case that quantitative easing has had roughly the same effect on income as raising effective taxes by one-third for the average upper-middle-class family with $300k in savings. The euthanasia of the rentier continues.