Some random thoughts and observations

Warren Buffoon

This morning I had the misfortune of reading Warren Buffett’s op-ed in the New York Times.  As has become his regular mantra, he once again bemoaned the fact that he and his chums aren’t being taxed enough.

Is it possible that the tax code is NOT the reason for his remarkably low tax rate (~17.4%)?  Or is it more probable that he and his peers take their income in a tax-favored manner (i.e. long-term capital gains and qualified dividends) with the conscious effort of increasing their after-tax ROR and avoiding the payment of payroll taxes?  I mean, this is the guy who, when asked about the holding period for companies owned by Berkshire Hathaway replied, “Our favorite holding period is forever.”  Perhaps Warren is advocating a tax on unrealized gains…  which is the only way taxes can be extracted from a holding period of forever.  I somehow doubt he’d back that proposal in Congress.

His op-ed then went from merely disingenuous to pure pandering with this dilly:   “While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.”  Nothing says “humble” like invoking our country’s service men and women in the same sentence as “we mega-rich.”

Warren then added, “I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.”

Well if any of you are email pals with Mr. Buffett  or his mega-rich, decent, friends ( I don’t think he (nor they) reads our blog), you can tell him he’s in luck.  Just direct him to click on the attached link:

From TreasuryDirect Website, the link brings you to “Gift Contributions to Reduce Debt Held by the Public, ” and reads:

The Bureau of the Public Debt may accept gifts donated to the United States Government to reduce debt held by the public. Acting for the Secretary of the Treasury, Public Debt may accept a gift of:

  • Money, made only on the condition that it be used to reduce debt held by the public.

He can just fill out the form, attach a check for a couple of $ Billion, and feel better about his efforts to reduce our nation’s debt.

I have to assume he just didn’t know what to Google to find the link on his own, since in 2010 voluntary contributions to reduce the Federal Debt only totaled $2.8 million.  It certainly couldn’t have anything to do with hypocrisy.

Money Market Funds Update

Last week, Citi downgraded Federated Investors on fears that the Fed’s Zero Interest Rate Policy for the next two years would hurt Federated’s earnings.  45% of Federated’s revenue comes from its money market mutual funds.

Then today, this from a Federated communication:

“Due to current market conditions, Federated is reducing certain fees and/or payments on several money market funds in an attempt to help the funds maintain a zero or positive net yield.  The current unsteady and volatile market environment has created an overall flight to quality in the marketplace, with investors seeking liquidity and safety in money market mutual funds.  This significantly heightened the demand for liquidity of principal and short-term securities lowered yield of money market funds throughout the industry as well as at Federated.”

So, it appears that savers are confronting two problems:  1) European bank paper exposure in domestic money market funds (although this exposure has been reduced significantly in recent weeks), and 2) zero or negative net yields.  This dovetails with BONY/Mellon’s decision last week to charge 0.13% on large cash deposits.

The push to force savers into risk assets seems to be continuing unabated.

Mutual Fund Redemptions

A lot of mutual funds were redeemed post-Lehman in 2008.  Something along the order of $9.2 Billion.  Last week’s “interesting” market action sent more retail investors to the sidelines than even during that horrible week in 2008.  Last week, $9.4 Billion was redeemed.  You have to go back to the bursting of the tech bubble to find an historical equivalent.  Billions of dollars flowing into zero or negative yielding securities.  I guess the old adage that “a return of capital is more important than a return on capital” was definitely in play last week.

Richard Nixon and the Gold Standard

Today marks the 40th Anniversary of the United States coming off the gold standard in exchange for fiat currency.  Nixon announced this on Sunday night — needing to get the news out before the markets opened on Monday.  His announcement did, however, preempt the day’s most popular show, Bonanza, bringing him grief from a whole bunch of people who knew all about the Cartwright family even if they didn’t know how to spell Bretton Woods!

Nixon made the decision, “to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands.”

At the time of the announcement, a dollar could buy 1/35 an ounce of gold.  Today, that same buck will get you 1/1764 an ounce.  Feel free to draw your own conclusions.