Tuesday, December 31, 2013

Some European countries worse tax situation than USA

I oppose higher taxes under any circumstances because higher taxes allow the government to expand and, in the process of expanding, to retard economic growth and curtail individual freedom. We are all aware of how dysfunctional and wasteful the US government is. 

In some European countries, the situation is not much better or is even worse. Does anyone really want to give the government more money with which to wage additional senseless and extremely costly wars, and to distribute even more food stamps, and to allow even more people to receive disability benefits?

Monday, December 30, 2013

Hong Kong, Singapore income inequality explained

The high wealth and income inequality in Hong Kong and Singapore is undesirable but needs to be understood in the following context. 

Because of their low taxes and high degree of freedom, both cities have attracted wealthy people from all over the world, which explains the high number of millionaires in these cities.

Friday, December 27, 2013

Selling US stocks on rallies

Go into Cash, not everyone owns Facebook, Twitter stocks: Interview on CNBC

Thursday, December 26, 2013

Sell Facebook, Twitter stocks

Bold predictions made in an interview on CNBC TV. Click play to watch the video.

Tuesday, December 24, 2013

African & East European Immigrants are likely to change Nordic countries

I would always be in favor of lower taxes and lower government spending. However, I have sympathy with the economic and social system in Nordic countries, where people contribute to the government a large portion of their income but also get in return first- class schools, healthcare facilities, and other social benefits.

What may work in terms of state involvement in small societies such as the Nordic countries, which are in nature more like country clubs where the members share a common interest and pride themselves on maintaining the club in perfect condition, is unlikely to work in population-rich countries where different interest groups are eager to benefit at the expense of someone else. 

I should add that these “Country Club Nordic Societies” are likely to change in the years ahead as immigrants from Eastern Europe and Africa settle there in order to take advantage of the generous social benefits and high educational standards.

Monday, December 23, 2013

Year 2014 we could see a correction of more than 20 percent

Watch the Faber interview with Jackie of CNBC. In this video, Dr Faber admits he was wrong to predict a 20 percent correction in year 2013. However he believes that for year 2014, the markets will go up until its over and then we could have a correction of more than 20 percent.

Friday, December 20, 2013

Opportunities in individual smaller cap stocks in India

We are down in India from the early 2008 high by 40 percent in US dollar terms, in other words adjusted for the currency movements. We are not down 40 percent in rupee terms, but in dollar terms. I think that people pay too much attention to GDP growth figure etc and should rather focus more on individual companies. 

The problem in Emerging economies is that a lot of money has flowed in and it has boosted the valuation of essentially very liquid stocks or big market cap stocks whereas smaller cap stocks are reasonably priced. 

So I think there is an opportunity in India, whether the index will go up a lot or not that I do not know, but for the active investor that does not buy the index, I see an opportunity.

Thursday, December 19, 2013

American income tax, Healthcare website

If every American had only to pay income taxes and the government collected no revenues from indirect taxes, which are less visible to people, there would likely be a revolution. 

Because Americans would suddenly realise how much tax they were paying (my guess is around 25% of their income) for a government that is incapable of achieving any meaningful military successes abroad, that is failing to successfully implement a healthcare website for which it has already paid US$600 million, and which cannot provide a school system to which people are happy to entrust their children’s education.

Wednesday, December 18, 2013

Money flowing from Indonesia, Philippines, Thailand into India stocks

We had an under-performance of India compared to other emerging economies until recently. 

And we have this pool of international liquidity that is driven by asset allocators, so they look at India - they see a relative poor performance and they see some marginal improvement in the macroeconomic environment of India. 

So money is flowing out of countries like Indonesia, Philippines, Thailand into India.

Tuesday, December 17, 2013

A Must Watch interview Faber on Kings World

Click on the above play to listen to the full interview.

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Monday, December 16, 2013

Bill Gross vs Marc Faber on Taxation

The November 2013 Investment Outlook published by PIMCO caught my attention with an essay by Bill Gross. Gross wrote remorsefully,
“Having benefited enormously via the leveraging of capital since the beginning of my career and having shared a decreasing percentage of my income thanks to Presidents Reagan and Bush 43 via lower government taxes, I now find my intellectual leanings shifting to the plight of labor........... .... ... .. .”
I suppose that, by “the plight of labor”, Gross is referring both to the decline of median household income in real terms over the last ten years or so, and to the collapse of labor’s share of US national income since 2000. Personally, I am also concerned about the slump in the labor force participation rate.

Having written about rising wealth and income inequality for the last ten years or so, I have a lot of sympathy with Bill Gross’s views. However, I am far from certain that the inequality was caused by lower tax rates on carried interest and capital gains.

As an example, it is not only the “1%” who have increased their share of national income considerably over the last 30 years, but also the top 10% of income recipients. Moreover even if capital gains are excluded, the top income recipients have increased their share of national income meaningfully. I simply cannot believe that the top decile of income earners would all have benefited from low taxes on carried interest. (This may be different for the “0.01%”.)

Therefore, other — possibly more important — factors than favorable taxes on carried interest and on capital gains may have led to the growing income inequality, such as education (rising cost), outsourcing of production to low labor-cost countries, low interest rates (substitution of labor with machines), rising debts, increasing entitlements, immigration of low-skilled workers, etc. I shall return to Gross’s essay further below. However, I should first like to address some of the problems associated with taxation.

Therefore, other — possibly more important — factors than favorable taxes on carried interest and on capital gains may have led to the growing income inequality, such as education (rising cost), outsourcing of production to low labor-cost countries, low interest rates (substitution of labor with machines), rising debts, increasing entitlements, immigration of low-skilled workers, etc. I shall return to Gross’s essay further below. However, I should first like to address some of the problems associated with taxation.

Everyone will agree that taxes should be fair, but what is fair is hard to determine. Your friend inherits a high income-producing property that allows him a lifestyle of leisure and pleasure, whereas you earn your living on the factory floor through hard work. Assuming your incomes are equal, is it fair that your fortunate friend’s tax rate is the same as yours, or should it be higher or lower?

On the surface, someone could argue that, since you work for your income, you should be taxed at a lower rate than your friend, who does not work for his income. Someone else might argue that, on the contrary, your friend should be taxed at a lower rate since his parents have already paid taxes on the income that allowed them to purchase the property. (This question also relates to taxes on dividends.)

In my humble opinion, the probably fairest tax is a flat tax on incomes (no deductibles such as the interest payments on debts, children allowances, or investment tax credits, and no subsidies for any interest groups) which is levied on all income earners and corporations, churches, missions, charities, pension funds, government officials (and governmental organisations), etc. at a maximum rate of between 10% and 15% per annum (no exceptions).

Naturally, the approximately 49% of taxpayers who pay no federal income tax, as well as the entire industry of lawyers, accountants, and auditors who make a living from a complex tax regime, would object to a flat tax. In terms of indirect taxes, the fairest tax is a value added tax levied on all transactions at a maximum rate of 5%. Regarding property and capital gain taxes, the fairest taxes are most likely no taxes.

I am aware that some readers will consider such a system of taxation to be radical. But I can assure them that, while not perfect, this system would be far fairer and more equitable than the tax system we currently have in most Western democracies, which is so complex and incomprehensible for ordinary people that it requires an army of costly and time-consuming lawyers, accountants, and auditors to calculate the taxes that are owed.

This simplified tax system would also eliminate more than 90% of the IRS’s more than 100,000 employees who have the power to arbitrarily harass people and small business owners, since most of these agents themselves do not have a full understanding of all the tax laws and regulations. Complex tax laws also hurt small business owners far more than large corporations.

It is easy to see that the more tax laws there are, the more corruption there will be.

Friday, December 13, 2013

Market has adjusted to Taper

The market has already adjusted, because they introduced QE3, QE4 in the summer of 2012. At the time the 10-year Treasury note yield was 1.43 percent. We are now at 2.8 percent on the 10-year. 

In other words, they have both assets at the end of November over a trillion dollars already this year and yet interest rates have gone up; in other words it seems that the Federal Reserve has lost control of the bond market. They can keep short-term rates indefinitely at essentially very low rate, but there will be of course some economic damages arising from zero interest rate policies.

Thursday, December 12, 2013

Cosmetic taper is possible

Now there has been talk about tapering for the last 6-8 months, but in my view if they taper, it will be a very cosmetic gesture and on any sign of further economic weakness, or if asset markets decline again like the stock market drops 10-20 percent they will actually increase the asset purchases. 

My sense is that the Federal Reserve will continue to buy assets in order to try to support the asset markets. 

Wednesday, December 11, 2013

People hate to hold cash right now

I think what people hate today is essentially to hold cash and my sense is that the return from equities will be very muted in the next few years. 

Maybe you will make something like 5-10 percent per annum, but even that would be a very high return considering that in the western world - in eurozone, in America and in Japan you have essentially zero interest rates. 

So if equity investors make 5 percent per annum, it is actually a very higher return.

Tuesday, December 10, 2013

Too late to buy US Stocks, too early to buy Emerging markets

Now we have a very large valuation discrepancy between the US and the emerging markets. So what you buy today - Do you continue to buy the US that may still rise or do you gradually move to emerging economies? 

I think it is too late to buy the US and it is probably too early to make a major commitment into emerging economy stock markets, because the growth in emerging economies will be slower in the next 3 to 5 years than it has been in the past 3 to 5 years, so I think that there will be still be some disappointment.

Monday, December 9, 2013

Central Banks will destroy & bankrupt the world- Video Interview

World Central Banks to destroy the world - Watch the video interview above by clicking on Play.

Friday, December 6, 2013

No idea what Bitcoin is worth

I have no idea whether a bitcoin is worth $10,000, a million dollars, or $50. Its a symptom of excess liquidity goes into bitcoins, it can go into paintings, farmland, diamonds, all at different times.

It shows that there is a lot of liquidity that just flushes into one speculative sector of the market to another one.

Farmland is up 10 times over the last 10 years. And Bitcoins are up now and who knows what next will go up.

Thursday, December 5, 2013

After excesses what follows is a financial crisis

As a distant but interested observer of history and investment markets I am fascinated how major events that arose from longer-term trends are often explained by short-term causes. The First World War is explained as a consequence of the assassination of Archduke Franz Ferdinand, heir to the Austrian-Hungarian throne; the Depression in the 1930s as a result of the tight monetary policies of the Fed; the Second World War as having been caused by Hitler; and the Vietnam War as a result of the communist threat.

Similarly, the disinflation that followed after 1980 is attributed to Paul Volcker’s tight monetary policies. The 1987 stock market crash is blamed on portfolio insurance. And the Asian Crisis and the stock market crash of 1997 are attributed to foreigners attacking the Thai Baht (Thailand’s currency). A closer analysis of all these events, however, shows that their causes were far more complex and that there was always some “inevitability” at play.

Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses…

Wednesday, December 4, 2013

Marc Faber warns of gigantic asset bubbles and more

Watch above video of Marc Faber interview on CNBC where he talks about Massive asset bubbles, market rally, Asian markets, Expected returns in equities and that he is not short any stocks yet.

Monday, December 2, 2013

December 2013 Market Commentary

Many investment professionals complain that the investment environment has become extremely difficult. However, I am showing that with a disciplined approach and integrity, and by avoiding chasing short-term performance through speculative investments in momentum stocks, a successful fund management business can be built. In particular, I am focusing on Selling Disciplines. If there is great value in buying distressed assets, there must be value in selling highly priced assets as well.

According to Mark Hulbert, “The current Shiller P/E is 24.4, which puts the [US] market in the 9th decile. On the assumption that the future is like the past, the market’s expected real return over the next decade is just 0.9% annualized.” Hulbert then explains that the stock market bulls argue that the “alternatives” such as bonds are hardly any better because it would take only a small increase in interest rates to produce losses in real terms over the next decade. But, according to Hulbert, “this argument doesn’t really support the conclusion the bulls draw. Just because the alternatives are awful doesn’t mean the stock market is a good place in which to invest your money. T-Bills are not an unattractive option...”

High valuations, excessive debts, and extremely bullish sentiment do not necessary imply that a US stock market collapse is imminent. This especially not in an environment of unlimited money printing but if we believe in Selling Disciplines then the combination of high valuations and extremely positive sentiment strongly argues for reducing one’s exposure to US equities. As Tennessee Williams said, “there is a time for departure even when there’s no certain place to go.”

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