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Investing and Economics Blog

Buffett on Taxes

Buffett blasts system that lets him pay less tax than secretary:

Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.

The comments are among the most [significant] yet in a debate raging on both sides of the Atlantic about growing income inequality and how the super-wealthy are taxed. They echo those made this month by Nicholas Ferguson, one of the leading figures in Britain’s private equity industry, when he criticised tax rates that left its multimillionaire venture capitalists “paying less tax than a cleaning lady”.

Last week senior members of the US Senate proposed to increase the rate of tax that private equity and hedge fund staff pay on their share of the profits, known as carried interest, from the 15 per cent capital gains rate to about 35 per cent.

Related: Estate Tax Repeal – USA Federal Debt Now $516,348 Per Household – Income Inequality in the USA – General Air Travel Taxes Subsidizing Private Plane Airports – Warren Buffett bio

July 4th, 2007 by John Hunter | 2 Comments | Tags: Economics, Taxes

Microfinancing Entrepreneurs

Business Week has an article on Microfinance Draws Mega Players on how investment banks are getting into microfinance. I must admit that while I certainly am happy if the market can get involved in making microfinance aid development I think it might be better suited to non-profit, foundations and charities. I am happy to continue to fund organizations like Trickle Up to help people help themselves.

Kiva is another interesting organization that lets you loan directly to an entrepreneur of your choice. If fact, I have just placed $350 in loans to 5 business entrepreneurs (in Kenya, Mexico, Cameroon and Azerbaijan) – and a $50 donation to Kiva. Kiva provides loans through partners (operating in the countries) to the entrepreneurs. Those partners do charge the entrepreneurs interest (to fund the operations of the lending partner). Kiva pays the principle back to you but does not pay interest. And if the entrepreneur defaults then you do not get your interest paid back (in other words you lose the money you loaned). I plan to just recycle repaid loans to other entrepreneurs.

Add a comment with a link to your Kiva page and I will add a page to this site with links to all Curious Cat blog readers with a link to Kiva pages.

Related: Microfinance article from the New Yorker – Kiva: Microfinance Loans (posted on Christmas day 2006) – helping people succeed economically
Read more

July 2nd, 2007 by John Hunter | 16 Comments | Tags: Cool, Economics, Investing, Personal finance

Who Will Benefit From Fixed Pricing Ruling?

The USA supreme court has ruled, 5-4, that manufacturer price fixing is ok (technically setting a minimum price would be ok). An interesting question is who will benefit from this. The right answer might also provide valuable investment ideas. My first thought is this will help those that provide customers added value. Without price to be a factor in the decision that leaves convenience and service. I would think Amazon.com could benefit (though they would likely rather provide discount prices to gain more market share I think they will retain and even grow market share due to convenience). Also retailers like Crutchfield that provide excellent after market support should benefit. Places that people go to only due to cheap prices will probably suffer. And of course the consumer that have to pay the higher prices will suffer. Basically retailers will win due to higher prices then there is just the matter of whether they lose enough business to offset that gain (customers moving from poor service but cheap retailers to good service retailers since there is no price difference).

I also think the idea of using fixed prices as a business strategy will not be as easy as it may seem. Competitors don’t have to institute such a policy and therefore discounters could offer lower prices on their products which might then mean they don’t sell many of yours (and the retailer may just choose not to carry yours). The biggest winners might even turn out to be manufacturers that take advantage of competitors that set minimum prices (by not setting minimum prices themselves) and gaining market share.

Related: High court eases ban on minimum prices – Supreme Court OKs retail price fixing by manufacturers

June 28th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Investing

USA Federal Debt Now $516,348 Per Household

The federal debt is not officially calculated the way that other accounting is done. Future obligations are not included, thus promising ever larger payments for health and retirement programs are not accurately reflected in government official debt totals. There are some legitimate arguments for why using exactly the same standards as others does not make sense for the federal government accounting. However the current methods make it too easy for politicians to claim they are not spending our grandchildren’s money for promises they make today. Rules ‘hiding’ trillions in debt:

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later. The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

Foisting debts on our grandchildren because we elect politicians that refuse to either cut spending (and promised spending) or raise taxes is a sad legacy of the last 30 years for the USA.

Related: Washington Paying Out Money it Doesn’t Have – Is the USA Broke – The Fallacy of Estate Tax Repeal – Social Security Trust Fund

June 23rd, 2007 by John Hunter | 14 Comments | Tags: Economics, Personal finance, Taxes, quote

Why Investing is Safer Overseas

Jim Jubak makes a good case for why investing is safer overseas now.

To which I say: Wake up and smell the new world order. The U.S. financial markets are relatively riskier now than they were five years ago, and (many) emerging country financial markets are relatively less risky. If you haven’t updated your view of what’s called country risk in the last five years, you’re costing yourself money.
…
And as I look ahead, I see few signs that the United States will put its financial ship into better trim and lower the country risk that comes with owning U.S. equities and bonds.
…
I think you need to compare markets one by one to look for those where investors, who tend to stick with the conventional wisdom until something whacks them over the head, have mispriced risk. The countries that I find particularly interesting as investment targets are those that have made the biggest strides in getting their houses in order.

He makes a good point. I have long advocated the benefits of international investing. And looking forward the potential for economic development (and investment gains) outside the USA are strong. As he says this does not mean abandoning the USA stock market but does mean thinking about increasing ownership of foreign stocks (probably using mutual funds though in our 10 stocks for 10 year portfolio we have 3 individual stocks: Toyota, Tesco (added in the December 2006 update), PetroChina and Templeton Dragon Fund [closed end mutual fund]).

Related: State of the nation? Broke – Our Only Hope: Retiring Later

June 14th, 2007 by John Hunter | 1 Comment | Tags: Economics, Financial Literacy, Investing, Stocks

Farming Without Subsidies in New Zealand

Unfortunately the developed world created policies of huge farm subsidies. We have commented on the bad economic practices before: Washington Paying Out Money it Doesn’t Have – More Government Waste – Pork Sugar – USA Sugar Industry Tax on Consumers. Here is an interesting article on the benefits New Zealand has enjoyed by eliminated that bad practice. Farming without subsidies? Some lessons from New Zealand:

Removing subsidies, on the other hand, forces farmers and farm-related industries to become more efficient, to diversify, to follow and anticipate the market. It gives farmers more independence, and gains them more respect. It leaves more government money to pay for other types of social services, like education and health care.

Related: New Zealand’s hardy farm spirit

May 25th, 2007 by John Hunter | 3 Comments | Tags: Economics

The Widening “Marriage Gap” is Breeding Income Inequality

The frayed knot

And the divorce rate among college-educated women has plummeted. Of those who first tied the knot between 1975 and 1979, 29% were divorced within ten years. Among those who first married between 1990 and 1994, only 16.5% were.

At the bottom of the education scale, the picture is reversed. Among high-school dropouts, the divorce rate rose from 38% for those who first married in 1975-79 to 46% for those who first married in 1990-94. Among those with a high school diploma but no college, it rose from 35% to 38%. And these figures are only part of the story. Many mothers avoid divorce by never marrying in the first place. The out-of-wedlock birth rate among women who drop out of high school is 15%. Among African-Americans, it is a staggering 67%.

Does this matter? Kay Hymowitz of the Manhattan Institute, a conservative think-tank, says it does. In her book “Marriage and Caste in America”, she argues that the “marriage gap” is the chief source of the country’s notorious and widening inequality. Middle-class kids growing up with two biological parents are “socialised for success”. They do better in school, get better jobs and go on to create intact families of their own. Children of single parents or broken families do worse in school, get worse jobs and go on to have children out of wedlock.

May 24th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Personal finance

Greenspan Warns of China Stock Drop

Greenspan Says China Stocks May Post `Dramatic’ Drop:

Former Federal Reserve Chairman Alan Greenspan said he was concerned Chinese stocks might undergo a “dramatic contraction” after its main stock index jumped more than 90 percent this year.
…
“It is clearly unsustainable,” Greenspan told a conference in Madrid today by satellite. “There is going to be a dramatic contraction at some point.”

Sure seems like a fair point. Over the long term China has great potential but a dramatic decline in stock prices seems a reasonable thing to fear.

May 23rd, 2007 by John Hunter | Leave a Comment | Tags: Economics, Investing, Stocks

Financial Illiteracy Credit Trap

The article is definitely worth reading, read the “related items” also – The Poverty Business from Business Week:

“Having access to credit should be helping low-income individuals,” says Nouriel Roubini, an economics professor at New York University’s Stern School of Business. “But instead of becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up.”

Why? Mainly due to financial illiteracy. Except in the most extreme circumstance (and then for a short time only) it does not make sense to borrow (given the current interest rates) at an interest rate above 15% (and other than large purchases – car, house… borrowing is normally unhealthy for your financial well being). If you want a new computer, new TV… “rent to own” effective interest rates are horrendous. Just save the money needed and then buy what you want. Borrowing worsens your financial position and since most making such bad financial choices already have a very weak financial position the impact is even more negative. One goal of this blog is to help people become financially literate, so they can improve their economic position by making intelligent financial choices.

One very simple but powerful personal finance tip: save money to buy what you want, don’t borrow to buy what you want. And a related tip, save money to act as an emergency fund. If you don’t create an emergency fund it is far too easy to find yourself in need of emergency funds and then being forced to borrow and getting yourself trapped in a downward spiral.

May 20th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Personal finance, Tips

Broken Health Care System: Self-Employed Insurance

Many of the Self-Employed Are Simply on Their Own:

In 11 states, self-employed people have some of the same legal rights as small companies when it comes to dealing with insurers: Colorado, Connecticut, Delaware, Florida, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island and Vermont.

But elsewhere, in dealing with insurance companies, the nation’s estimated 20 million self-employed are on their own. In Virginia, a state with relatively few controls on insurance rates, Clay Williams, a 59-year-old self-employed real estate agent in Falls Church, said the cost of health insurance for himself, his wife and two sons, had tripled in six years. After it ballooned last year to $1,956 a month, he angrily refused to renew.

Fixing the health care system is not easy. But it is broken and doing serious harm to the economy and individuals and needs to be fixed. Post on our management improvement blog on fixing the health care system. In addition to the obvious harms the broken system discourages many people from taking on the challenge of self employment. It also greatly increases the friction in the economy for moving between jobs.

May 8th, 2007 by John Hunter | 1 Comment | Tags: Economics, Financial Literacy, Personal finance

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