The Stingy News Weekly (10/09/2011)
King of the mountain
"What about the future? In the next six months, the deflation from late 2008 will shortly drop out of our three-year rates. CPI is up by 7% over the past 30 months, which works out to 2.3% per year. If we add our 2% adjustment to create more of an applesto- apples comparison with history, “true” inflation is above 4% and the “true” real interest rate is very low, around –2%. At these levels, the normal Shiller P/E ratio would be 13 times our 10-year average earnings, which takes us below 800 on the S&P 500 Index."
A Short History of the Income Tax
"The other pernicious consequence of the separate corporate and personal income taxes has been a field day for demagogues and the misguided to claim that the rich are not paying their 'fair share.' Warren Buffett recently claimed that he had paid only $6.9 million in taxes last year. But Berkshire Hathaway, of which Mr. Buffett owns 30%, paid $5.6 billion in corporate income taxes. Were Berkshire Hathaway a Subchapter S corporation and exempt from corporate income taxes, Mr. Buffett's personal tax bill would have been 231 times higher, at $1.6 billion. Just as in the late 19th century, the tax code is now hopelessly arbitrary and unfair. It requires a complete overhaul."
The half-a-trillion hole
"However US local government funds continue to use the assumed rate of return to discount their liabilities, even as 8% looks more and more chimerical. I have struggled to convince readers of the madness of this approach, so I will try to channel Warren Buffett (in spite of having one-tenth of his brains and one-thousandth of his intellectual credibility). If a promise to make a series of future payments isn't a debt, what is it? If a debt shouldn't be recorded on the balance sheet at cost, how should it be recorded?"
"Last week my 83-year old mother almost became a victim of the “grandparent scam.” She picked up the phone and the caller said he was her grandson. When she asked if it was Charles, my son, the caller said yes. Mom sometimes has trouble hearing on the telephone, but she said it sounded just like him. As we later found out, he gave her the classic story. He said he had an accident with a rental car in Montreal and was in jail. He said needed $4,000 wired via Western Union to his court-appointed lawyer to be released and provided a name. The caller asked my mother not to call either my husband or I as we would be too upset. ..."
Why envy dominates greed
"Economists agree that no reasonable risk metric predicts returns within or between any asset class, but always suggest that just implies risk, like fine wine, is very subtle. This is because we know there is a risk premium, because given our conception of utility (increasing at a decreasing rate), there must be a risk premium. Like telling the Journal of Marxist Studies that 'class' is not the best lens to view behavior, telling economists that self interest is primarily envy, not consumption, is simply too dismissive of the foundations they find so compelling to their calling all that human capital is tied to mastery of work that may not work, but at least currently there's hope that another tweak might turn these highly rigorous models into seminal, important work."
Want lower fund fees? Vote with your wallet.
"Finance Minister Jim Flaherty has asked the Senate National Finance Committee to examine why prices of many retail goods continue to be higher than in the U.S. while the Canadian dollar has been at (or near) par with the U.S. dollar for a year or more. Just over a week ago, FAIR Canada called on Flaherty to add mutual fund management expense ratios to that list of retail goods. I have a great deal of respect for FAIR. Given that investor advocacy isn’t a high-paying job - it pays nothing, sometimes less - FAIR is a much-needed organization. But I think their request and fee comparison miss the mark."
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