A place for me to save a few thoughts

We know how this ends. Part 1.

Early in July Marieta and I attended Freedom Fest in Las Vegas. Mark Skousen, who writes a financial newsletter I like to read, puts on the conference. He teaches economics (Columbia University), writes a lot of books, and loves free markets. His non-partisan, libertarian conference brings together all sorts of people. I was there for investment advice. Marieta came to keep me company.

We had a great time listening to all sorts of opinions. Here are a few:

“China has grown 8.2% per year over the last 40 years. Look to China.”

“China’s growth bubble is about to burst. Get out of China.”

“If government grows faster than GDP, you can’t get out of the [recession] box.”

“When your outflow exceeds your inflow, your upkeep becomes your downfall.”

“A water crisis is coming. Buy companies with water rights.”

“Stocks are having a 90% off sale. What’s not to like?”

“Ten times book value is as much risk as you want.”

“The Dow should be at 3000.” (Right now it is at 10,400.)

“A killer wave is coming.” (Recession is the first wave. Then the bargain hunters come in hoping for an upturn. The Government continues to tax and spend, resulting in a killer wave, even bigger than the first wave, which takes everyone out. This theory came with a chart of what happened to the stock market in the Great Depression.)

“Something for nothing societies eat everything, including next year’s seeds.”

“When it is dark, you can see the stars.”

“All paper currencies will fail.”

“You can’t hedge against a complete collapse, so we don’t think about it.”

My favorite quote was, “If you prepare for the end too soon, you could miss a lot of good trades.”

There were a few political presenters. One debate was about Israel. George Gilder, an author I like a lot, was very pro-Israel. The other guy represented a group of Jews against Israel. He argued that the Jews should leave Israel to the poor, victimized Palestinians. He also hated Christians because they believed all Muslims would go to hell. Marieta and I were stunned at the very emotional comments, pro and con, from the audience.

A trade show was part of the conference. You could buy gold (8 booths), invest in oil drilling (5 booths), become a Libertarian (3 booths), buy investment newsletters (6 booths), buy investment books (12 booths), move your money to an offshore bank before the US government starts taxing your transfers in 2013 (3 booths), invest in foreign currencies (4 booths), find a broker or money manager (5 booths), and buy DVDs of all the conference presentations. (My booth numbers are approximate.) There were a few more unmemorable booths.

To and from the show Marieta and I listened to Gerald Lund’s book about the Willie and Martin pioneer handcart companies. My 2nd great-grandfather Jens O Peterson and his wife Anne went in the Willie company.  Marieta also had a ancestors in the Willie company, of which one died at Rock Creek Hollow and another died at South Pass. The wonderful book was a weird accompaniment to the investment conference. The conference was all about protecting your savings in times of trouble, and the book was all about people with no savings and no resources just trying to survive and remain faithful.

I have a few thoughts on investing, which I will share in the next post. Pete

It is hard to be nice.

I try to be nice, but being nice is getting to be harder and harder.

If I disagree with liberal or progressing thinking, I am branded as disagreeable. If I disagree with President Obama, I am a racist for not giving him a chance. If I watch Fox News, I am a bigot. If I listen to Glenn Beck, I must be endorsing all hate speech. If I do not support same-sex marriage, I must hate all gay people. If I am against raising taxes, I am a tea-bagging, hate-filled, non-charitable excuse for a human being. If I am against killing babies about to be born, I hate all women. If I am against the new health care laws, then I support every conservative crack-pot who says or does the wrong thing. If I believe President Obama is a Socialist, I must be too angry, too partisan, too vocal, and too disrespectful of the Office of the President. If I do not support cap and tax legislation, I must want to ruin the earth and all the animals and people who live upon it. If I don’t support generous pensions to teachers, then I hate all children. If I want lower taxes and a balanced budget, then I must be a heartless, unfeeling, hateful rich guy who wants the rich to get richer and the poor to get poorer.

Only if I say what is politically correct and support social justice for all can I be redeemed from my un-nice, unenlightened state. Only if I make my money with a green job, drive a GM hybrid car, shower in a trickle of water, give all my money to the government, rid myself of all fur and leather, stop using plastic bags, and never wash my driveway with water from a hose, may I call myself a good-hearted, kind, non-hateful person. Only if I rid myself of every non-liberal opinion may I call myself nice.

Am I ever allowed to disagree in a nice, non-disagreeable way? I guess I better keep that answer to myself. Pete

Independence Day and Hamburger Buns

My daughter Julie called this morning and asked if we could bring 3 dozen hamburger buns to our family 4th of July celebration. Right then I wondered if we could find that many buns at the last minute. With millions of people purchasing hamburger buns today, I worried there might be a shortage.

After lunch Marieta and I went to Costco expecting and finding a very crowded store. I started to panic when I saw no buns in the bakery department, but Marieta suggested we would find some bakery items in another part of the store. She was right (of course). Near the freezer cases there were racks and racks of bread and buns. The hamburger buns were fresh, inexpensive, and plentiful. Because Costco sold the buns in bags of 2 dozen each, we bought four dozen. I was impressed. This whole capitalism thing is amazing.

I thought about how different it would be with a “planned” economy. A government commission would start meeting months in advance of the holiday. Studies would be commissioned and data collected. Resources would be allocated to produce exactly 1 hamburger bun for all persons over the age of 3 (who needs 2; we’re all too fat). Literally hundreds of laws would be passed to insure that all buns were produced by union workers, that all ingredients were properly approved and inspected, that buns contain only organic, whole grain flour, that each bun had exactly 17 sesame seeds (some people don’t like sesame seeds, so the seeds would be kept to a minimum), that each bun would conform to a certain texture, freshness, and size (forget the idea of an extra large, high calorie bun), and that all packaging would be biodegradable and recyclable. Millions of dollars in advertising would be spent to encourage us to line up early for our buns and to remind us how lucky we are to have the government protecting our right to have only non-trans fat oils in our buns. Prices would be fixed, profits would be limited, and special bun taxes would be added to provide buns for those people who could not afford them.

Many congressional leaders would be taken by surprise when they learned of the hamburger bun disaster. Shortages in organic flour and union bakeries would significantly slow the production process. Allocation problems would leave some areas of the country, notably Washington, D.C. and Chicago, with way too many buns, and other parts of the country with way too few. Protesters in support of birds and insects would stop a last-minute attempt to use non-organic flour. The average police person, used to spending most of the Independence Day weekend with his or her family, would have to work overtime to keep the bun lines orderly. Many people would spend hours in line only to learn that there were only enough buns for children and seniors.

The government commission would eventually apologize for the shortages, but it would not accept responsibility for forgetting to provide buns for hot dogs or for the arrests of those mothers and fathers who attempted to make homemade buns. Eventually the Supreme Court in a 5-4 decision would reaffirm our right to eat high-fat hot dogs and to bake our own buns, but that would not happen for almost a decade. The President would interrupt all fireworks displays to tell us that President Bush was responsible for all the bun problems (he had not thought to create a government bun commission sooner) and to announce a new bun stimulus program which would guarantee Independence Day buns to every American for years to come. He would also notify us of an executive order which would rename the 4th of July holiday to Government Appreciation Day.

Fox News would probably be the only network critical of the name change. The Tea Party movement would likely rename itself to the Kiss My Buns Party. Al Gore, completely misunderstanding the meaning, would likely try to join the party. A few friends of President Obama would lobby for a law requiring green food coloring in every Government Appreciation Day bun. The only company approved by Congress to make the GAD bun food coloring would be located in Chicago.

Happy Independence Day. Pete

This Doesn’t End Well

I was helping one of my kids with a tax return and noticed an amazing refund. The husband and wife had approximately $1,500 withheld from their paychecks for federal income tax. Back when I was their age, getting back half of that amount would have been great. Getting the full amount back would have been incredible. So, how big was their “refund” this year? Would you believe $4,500?

As you might guess, they are not complaining, but I was shocked. Days later I am still in shock. The additional money came from tax credits (credits, not deductions) for having a child, for having jobs (making work pay), and for paying college tuition.

While I agree these are worthy, deserving, well-intentioned credits, I couldn’t help but think about where the government gets the money to be so generous. A quick calculation would suggest that $1,500 came from my kids’ withholding, $2,000 from the 50% of us who pay income tax, and $1,000 from China and others who have enough bad financial sense to loan money to the USA.

How can our government afford to be so generous when it has to borrow $2 for every $5 it spends? The standard answer to our debt is to say we will raise taxes on the rich. Unfortunately, raising taxes does not increase revenues.

An article entitled “Maryland’s Mobile Millionaires” appeared in the March 12, 2010 issue of the Wall Street Journal. The article explained how a tax increase on millionaires designed to increase tax collections had actually lowered the monies collected. For 2008, the year the tax increase was enacted, the number of millionaires in Maryland fell sharply to 5,529 from 7,898. So even though the tax rate went from 4.75% to 6.25%, revenues from millionaires fell by $257 million. Part of the decrease likely came because of the recession, but part of the decrease was due to rich people moving to states with lower tax burdens. Of the millionaires who filed Maryland tax returns in 2007, one in eight did not file a return in 2008.

This is just one example of how raising taxes on the very rich does not increase revenues. As taxes go up, a few rich people will move to another country, but most will make changes to their investment strategies. They just lower their income by moving more of their money to tax-free or tax-deferred investments. Then they wait for the government to learn again that higher tax rates produce lower revenues.

This doesn’t end well. The government will borrow more money in the short term and print more money in the long term. Taxes will go up for everyone. Eventually our lenders will quit lending. Our currency will be significantly devalued. Government services and entitlements will be cut. The pain will be enormous. We will learn again that good intentions may pave a road we do not want to travel. Pete

What We are NOT Getting

I can’t stop myself from writing a few words about the current health care debate.

A little Internet research suggests that the US spends about 16% of our GDP on health care (GDP or Gross Domestic Product is the total of all goods and services produced in a country), while other modern countries with government-run health care systems spend closer to 10% of their GDP. These percentages are used as a strong argument for passing health-care reform.

What gets me writing is how little these numbers have to do with the bills before the US Senate and House. We are not choosing between a free-market system and a government-run system. We are choosing between a bad system and a very bad system.

Our system today includes private hospitals, health-care professionals, insurance companies, lawyers, government taxes, regulations and reimbursements, and lots and lots of paperwork. Obamacare simply adds more regulations, more taxes, more reimbursements, special deals for unions and certain states, and payoffs for drug companies, insurance companies and lobbyists (like the AARP) to get them to sign on to the changes. Obamacare is not a government-run health care system that will suddenly bring our costs down to 10% of GDP. It is our current system made worse.

Those in favor of the bills before Congress repeat a mantra that goes something like this: “Our health care system is broken, so we have to try something else.” The problem with this argument is that the change may not be for the better. If my hand hurts, for example, and if I have tried to stop the hurt using traditional methods, then I could decide to try amputation. It’s an alternative. It’s a change. It even might stop the pain. But it is also ridiculous. And it is also ridiculous to think that more taxes, more regulations, more paperwork, and more mandates will save any money at all.

I understand that we have problems with our health care system, but I don’t understand how Obamacare will solve anything.