April 15

So last week my favorite instructor from the University of Yellow Kiosk sent me a link to a story about AIG in the NYT — OMG! Turns out our favorite corporate scofflaw, not content with the $200 billionish it’s received from the U.S. of A., is actually suing the feds in an effort to lower its tax bill by $300 million. The article is crisp and direct and points out the many ironies here, notably that “A.I.G. is effectively suing its majority owner, the government,” and that the company is using taxpayer funds to pursue the case. Think about that when you’re filling out your 1040, right?

The moral outrage is so thick you could cut it with your high dudgeon. Normally I’d be right there with you, fighting the good fight — and any fight that has capitalist pigs on the receiving end almost has to be a good fight. But as time goes by and I see more and more stories like this one, I’m increasingly seduced by the suggestion floated by the Economist a while back as to what the U.S. tax rate on corporations should be.

0%. That’d be your zilch right there.

I swear I haven’t been kidnapped by Steve Forbes, nor have I been watching too much (i.e. any) Larry Kudlow. I still think the supply-siders were practicing voodoo economics, which you could maybe tell from the fact that Reagan never did put a dent in that federal debt, despite the rosy talk about gold coins trickling down from the skies. (That was actually nuclear fallout raining all over the U.S.S.R. when we — for God’s sake Rush quit touching yourself!) The Laffer curve doesn’t do it for me — I’d like to see the top personal income tax rate back up around 90%, where Eisenhower had it, the commie. Why did he hate America?

No, Grover Norquist and the gang are kidding around when they say that that everyone benefits from a tax cut on the wealthy; doesn’t do a thing for the economy other than widen the deficit and put upward pressure on interest rates. But on the corporate side, I can see how a lower tax rate might actually deliver a wider payoff. Suppose Apple’s tax bill for fiscal 2008 wasn’t $2 billion but zero; that’s $2 billion more Apple has to spend on R&D, right? More jobs for geeks, more iPods for the stores, more sales tax revenue for the states when more geeks buy more iPods? You feel me? It’s no different from pimping single-payer health insurance as a way to reduce the burden on businesses, shaving $1500 off the cost of that Chevy and giving GM a fighting chance to compete with Toyota. Or just throw $25 billion in the general direction of Detroit and hope for the best, whatever.

The other notion in that Economist article that got me rocking was that corporate taxes are so difficult to enforce, they’re almost not worth pursuing. If the war pigs at Halliburton are looking at a tax liability of $500 million, how much will they pay their lawyers and accountants to dodge it? Maybe $499 million? That just goes against the German in me, the one who’s always striving for a dirndl that fits efficiency. Instead of seeing the illegitimi move their headquarters to the Bahamas, just let them keep what they earn. I hope that’s not just my world-famous defeatism talking.

But Simons, how are we going to pay for this $370 billion giveaway, my imaginary liberal friend asks. I won’t pretend it will “pay for itself,” but I do think we’d see some benefits that its true cost would be, say, $200 billion. Then I get rid of the capital gains tax — I mean, get rid of the capital gains tax rate. Screw this 15% nonsense — if you made $500,000 selling your Lehman last year, you still owe us 39%.

The same as if you had actually earned it.

-
-

Worth exactly what you paid for it

People always ask me, they say “Simmons, what do you think of the way the markets have been acting, what do you think I should do here.” And I always tell them, “Knucklehead, I think you should learn to pronounce my name first, that’s my advice.” I mean, seriously, how hard can it be? S-I-M-O-N-S. You got a single vowel “I” followed by a single consonant “M.” Last time I was trolling the grade schools they told me that combination adds up to a long vowel sound. (They also told me to stay away from the playground.) Just look over there at Mr. Edie Brickell, nobody’s calling him Paul “Simmon.” Although maybe they would if he were at a Renaissance Festival because it kind of sounds like “Persimmon.” He could be pouncing around the woods with a floppy hat and some love beads, busting out ‘Greensleeves’ on the Autoharp…

Maybe not. Anyway, yeah, money… and how to get invest it. It’s funny, I can remember the first time somebody acted on the financial advice I’d given them. Ages ago I told my mother-in-law she couldn’t get hurt buying some Chevron; she bought just a bit of it and within a year or two it had doubled. Then she complained because it went down 20%. She was kind of that way. During 2002 I pitched her a bond fund and she had me run it by her accountant, who billed me $150 for the meeting and told her it was too dangerous — something I was too young to understand. Over the subsequent five years it returned a cumulative 50% tax free. More important, she’s dead.

I had a lot of people telling me that year I didn’t know what I was talking about. Well that’s always been the case, but I’m talking about the markets. I was a broker, sorry, financial advisor for Morgan Stanley, and my second day in telemarketing, sorry, production was, wait for it, 9/11/01.* You may recall stocks didn’t do so hot that year or next, so I tried to focus on bonds, sorry, fixed income. I tended to “focus” on them with such obsessive analysis that by the end of the day I would have a 100% ideal portfolio, sorry, ladder, but I wouldn’t have made any calls letting prospects know it existed. Oops.

It’s just as well though, because invariably, when I would finally meet the customer, sorry, decision maker in person, he or she would react in disgust at my appearance. No, it wasn’t because I was too homely — I was too young. On the phone I could rattle off info about duration, yield-to-worst, tax-equivalent anything, but when my baby face walked in their door it was “What does this kid know about bonds? Rates are low these days –and in the 70s and 80s they were really high! How could this youngster possibly know or understand that?” Um, by reading a book maybe? and by putting Paul Volcker’s stand against inflation into its proper historical context while pointing out that globalization has created international competition so fierce that producing nations should probably be more worried about a deflationary lost decade than anything else? You feelin’ lucky punk?

They never felt lucky, and they never got lucky, either. They passed up the tax-free bonds yielding 5%, waiting for rates to go higher, and unless they sunk their money into those wacky muni mousetraps called ARPS, they must still be waiting. Bitterly obnoxious kid 1, old dudes 0.

So you should really take my advice seriously when it comes to everything money. And my advice for where to put money today? Not a fuckin’ clue.

But thanks for listening.

-
-
-
*That was also five days after I had finished my three-week sales training course, conducted in WTC1.
-
-

-

Getting a bit tiresome now…

Okay, okay. The U.S. financial system is in a total DEFCON 1 meltdown, with the Fed cutting rates to, what, 0.0%, and the Treasury nuking the piggy bank and giving a heads up to Obama that he won’t be able to afford to fund, um, anything. So, stocks go down, sharply, momentum picks up, panic selling, fine. Seen it all before.

And I accept that commodities are getting spanked too. Slower economies worldwide, less demand, all making sense. It’s sad to see my paper profit in DBC burning like an Iraqi oilfield, but what can you do. No reward, no risk, no crying over spilt blood, no big deal in the long run, right?

But this, this is just getting obnoxious. Humble, reliable bond funds getting clocked like they’re some dot-com pretender on the wrong side of 2000 ? Not fair, not fair! These are my safe havens, man, they’re where I’m parked when I throw in the towel on this whole equities racket. These are the boring investments, the ones that just sit there. They’re supposed to earn a paltry 4% a year, not go down 4% in a day. Criminy!

All right, all right, they’re closed-end funds, so people who are just getting their September statements are finally liquidating their accounts indiscriminantly. So yeah, if they have NUV or NIM or MIN or CXH they’re not going to listen to a broker tell them “You know these are trading at an 11% discount to their true value, you might want to hold on for a week and see if you can get a better price.” Nope. Sell yesterday for whatever you can get.

The crazy thing is I actually switched a couple of these funds around earlier this week for some tax-loss harvesting. (That phrase is becoming too common for my tastes any more, I could do with harvesting a fucking gain once in a while.) Already the newer funds I bought are down so sharply they look like they’re candidates for a tax-loss swap themselves.  Like Michael Jackson said, these stories are crazy!
-

Punchy kicker, punchy kicker, God I know there’s one in here somewhere… Damn it!

Big Bottom

Great news, America! The financial crisis is officially ovah! No, not because Bernanke’s cutting interest rates to a level low enough to stimulate the economy. (I’m guessing that would be around -3.0% at this point.) And it’s not because the Treasury found a trillion under the sofa cushions. No, it’s because of a change-up at the real focal point of the U.S. economy.

Me.

That’s right, I sold the last of my equities this week. This can only mean that stocks are poised for a furious rally starting, oh, an hour from now, or as soon as word gets out that I got out. Seriously, this happens all the time. Why do you think stocks finally put in a bottom in late 2002? Because of talk they were going to slash the capital gains tax rate? Nah. Because I dumped all my ETFs and put it all in munis.

My preferred method of forcing the market back up is to sell some naked calls against the S & P 500 Index. I could show you some evidence, some instances where I went short at noon and the market went wild right around 12.30, ending a weeks-long plunge. But to do that I would have to invest a lot of time looking through all my old statements, and that would just bore the two of us. Also I’d probably need a Bloomberg terminal.

Just take my word for it folks. I mean, who would brag about constantly mis-timing the markets? Who would telegraph that he keeps forgetting the maxim “If you’re going to panic, panic early?” Bottom line, when I bail out, things start to look up. Trust me.

Oh and I dumped my commodities fund too, so the price of gas is probably going back up too. Sorry.
-

I have no business mocking anybody’s appearance, but

I am a very small man.

Ladies and Gentlemen — Count Bankula!

I vann to suck your riyals

That’s right, some unemployed trust-fund punk is making fun of the head of the biggest bank in Qatar. Like I would have any idea how to dress in the Middle East. (My Andy Warhol shoes would be right out.)

I’m a terrible person. Guess I’ll go watch t.v. and cheer on Dexter.
-

In fairness, commodities are down sharply; the DME is probably checking under the sofa cushions

From:
“DIVINE NKHOSI”
Add sender to Contacts

To:
dme@mighty.co.za
From: Mr.DIVINE NKHOSI
Department of Minerals&energy(DME)
South Africa.

First I must solicit your confidence in this transaction, this is by virtue of it’s nature as being utterly Confidential and top secret. Though I know that a transaction of this magnitude will make any one apprehensive and worried, but I am assuring you that this is real, genuine and 100% risk free.

I am a member and the Director of the Project Implementation committee, Department of Minerals and Energy, Republic of South Africa.We have An overdue Sum of fourteen Million five hundred thousand United State Dollars, I am in search of a foreign agent to assist us in the transfer of US$14.5m and subsequent investment in properties in your country. You will be required to: -

(1) Assist in the transfer of the said sum
(2) Advise on lucrative areas for investment
(3) Assist us in purchase of properties.

If you are willing to assist us in the transaction, your share of the sum will be 40% of the US$14.5M, 50% for us and 10% for miscellaneous expenses. I will be pleased as soon as you indicate your interest by including your confidential phone and fax numbers in your positive response to me.

This will enable us furnish you with further information on the procedures and modalities on how funds will be transferred or made available to you.

I await your immediate response.

Sincerely,
Dr. Divine Nkhosi.

Note; reply to my confidentail email by [edited -- saving this one for myself]

Madcap

Somehow my first day in the hospital, the day of which I have no memory (What do you mean it’s Sunday, today is Saturday! What seizure, I’ve never had a seizure in my life!) I managed to make a fairly savvy trade. Let’s walk through it, shall we?

Couple years back I bought this closed-end fund called Adams Express. You familiar with CEFs? Your ‘normal’ mutual fund is open-ended – if you mail Vanguard a check for $5000, they take it and buy $5000 of stocks or whatever, so the size of the fund grows: Open ended. A closed-end fund is capped in size with a set number of shares that trade on an exchange, so you just place an order to buy 100 shares of ADX through your broker and you’re done. Often these shares trade at a discount, so you’re getting like $50,000 worth of equity for perhaps $46,000 or so.

Anyhow, ADX, good fund, low turnover, quality stocks, you get a little boost on the dividend yield because it trades at a 15% discount or thereabouts. The hope with these guys is that someday the managers will convert the thing into a proper open-ended fund or otherwise liquidate the thing, which would give you a 15% bump in a day. Nice. But considering that ADX has been around since Jesse James – they were even mentioned in the Coward Robert Ford movie, no joke – you just have to be content with the yield goose. The goose yield? You know, it yields 1.7% instead of, ah, 1.5%. Oh wow that’s huge.

But evidently we’re in a bear market, or something, and I noticed I actually had a pretty big loss in it. So I dumped it to harvest the tax benefit and put the money in MDY, the exchange-traded fund tracking the S & P MidCap 400 Index. I could have looked around for another CEF trading at a discount, but working on a Chocolate from a hospital bed in the middle of a morphine fog, it’s a wonder I made the trade at all and didn’t wind up placing an order to buy $8 million worth of Merrill Lynch July $70 call options.

This is what counts as interesting when you’re sick, man. Sue me.