Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

GE Sizes Up Gains From Being Green; Investors Hope It Works

by wchurchill Sun May 27th, 2007 at 09:15:21 PM EST

Venture capital has been investing heavily in developing new forms of energy over the last several years.  Now GE discusses their programs, but investors are looking for the results on the bottom line.  (Requires subscription, I think.)

The Fairfield, Conn. conglomerate says it's already reaping the benefits from a two-year push into energy-efficient equipment and technology. It reeled in $12 billion in sales last year of what it calls its ecomagination products, which include wind turbines, super-efficient jet engines and long-lasting light bulbs.

"Green is green," GE (GE) Chief Executive Jeff Immelt told an audience in Los Angeles. "This is about a hard-nosed business initiative," not a soft-touch to mollify critics chiding the company for its environmental policies, he added.

 Faster-growing units, such as GE's energy infrastructure practice, are hiring thousands of engineers and rolling out hundreds of new products, including the recent debut of a hybrid freight-train locomotive. Power-hungry China and India beckon.

The company's stock price has been a laggard over the last 5 years, and has still not hit it's pre-recession highs of 2000, in fact being 33% off of those highs, while other large companies in the Dow Jones have, on average, surpassed those marks.  As a result the company and its new CEO, successor to Jack Welch, are under some pressure to produce results, and one of their bets is on "green" and energy conservation.

Meanwhile, GE is intent on flagging its recent success in business lines that combine GE's established presence in heavy industry -- it ranks among the world's three biggest makers of commercial jet engines -- and the demands of energy conservation.

On Thursday it said sales of products that cut carbon emissions and energy generated $12 billion in revenue last year, about 7% of last year's total sales, up 20% from 2005.

Revenues from GE's ecomagination products could amount to 10% by the end of this year, McGarr predicts.

<snip>

The company, which has its hands in industries ranging from TV shows to credit cards, has focused a chunk of its research, hiring plans and executive talking points for the last two years on the belief there will be long-lasting demand for products that cut down on fossil fuel use and its harmful byproducts.

 "This is a game where the bets we're making are in the billions," John Krenicki, chief executive of GE Energy, said in an interview.

 By 2010, GE wants to make $20 billion in sales of energy-efficient, environmentally-friendly products and funnel $1.5 billion a year into related research.

<snip>

Krenicki's division has seen one market -- wind energy -- blossom since GE carved out a piece of it five years ago. Wind turbine sales will likely top $4 billion this year, and Krenicki said he expects those sales to increase about $1 billion a year for the next 10 years.

"We're very bullish on the capability of technology," he said in an interview.

GE is hiring thousands of engineers for Krenicki's 35,000-strong division. He said he hasn't seen the division running so hot since the late 1990's, when GE tapped into surging turbine demand at new natural gas-fired power plants.

<snip>

Continued success in the burgeoning clean-energy field hinges on whether public concern over climate change and soaring oil prices translate into public policy that rewards companies that cut down on fossil fuels and harmful emissions.

Building more wind farms, Krenicki noted, has long been tied to tax breaks and subsidies. But coal-fired power plants have been slow to install gasification technology to reduce emissions because it costs more and there is no national restriction on carbon dioxide emissions.

There are currently only two such plants, with seven in planning stages -- compared with more than 1,000 traditional coal-fired plants in the United States.

"Governments will have to step in and support the development of new technology," Krenicki said.

Not surprisingly, GE supports a national standard on carbon dioxide emissions.

Among other ventures, GE Thursday unveiled investments in hydroelectric power, wind farms and sale of light-emitting diode light bulbs that use much less energy than the incandescent bulb created by GE founder Thomas Edison.

Wal-Mart Stores Inc. said more than 500 of its U.S. stores will be using LEDs from GE to illuminate their refrigerated display cases.

Comments >> (4 comments)

Constant Fretting Doesn't Pay Off

by wchurchill Sun May 27th, 2007 at 01:38:40 PM EST

I thought of Jerome and others on this site when I read this:

Waiting for the end of the world as we know it hasn't worked well as an investment strategy the last few years.
But the article goes on to present, in a humorous way, opposing investment strategies.
Things have been positively wondrous for global stock markets in recent months, but Wall Street has been echoing with warnings of trouble ahead.

Former Federal Reserve Chairman Alan Greenspan last week helped trigger the latest flutter in share prices after he said of the wild rally in Chinese stocks, "There is going to be a dramatic contraction at some point."

Sure, describe the event, but leave it open-ended. Someday you're bound to be right.

Warnings about hot markets do serve a purpose, of course. They may keep people from becoming, well, irrationally exuberant and dumping all of their money into one asset just before it collapses.

But there's a danger that investors who listen to constant fretting about how bad things might get in the economy and markets can end up paralyzed with fear and unwilling to take even minimal risks. That may cost them dearly in terms of their long-term financial health.

There's always something to worry about. Yet look at what the world's stock markets have overcome in recent years: record oil prices, rising short-term interest rates, devastating terrorist attacks in Madrid (2004) and London (2005) and, most recently, a serious U.S. housing slump.

And this of course is a fundamental tenet of my view, maybe the optimistic view:

There should be a fundamental reason stocks have forged ahead, and here it is: The global economy has continued to expand, lifting corporate earnings.

Only to be debunked by those who believe in a money supply out of control everywhere and resulting global bubbles;

To be sure, easy money also is driving markets. Lenders around the planet remain eager to lend and borrowers remain eager to borrow.

Some Wall Street veterans say easy money has led to rank speculation and dangerous bubbles in assets everywhere.

"From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!" Jeremy Grantham, chairman of Boston money manager GMO LLC, wrote in a letter to clients last month.

We are living, he said, in "the first truly global bubble."

But bubble, or bull market?

What a pessimistic investor calls a bubble, an optimist might say is just a fantastic, and justifiable, bull market. That's the view of Edward Yardeni, who heads his own investment and economic research firm in New York.

Yardeni believes the world has not seen a global economic boom on the current scale, with China, India and other developing nations now full-on capitalists and with money flowing so easily and quickly into investment opportunities worldwide.

"If this is the greatest global boom of all times, then why wouldn't we have the greatest global bull markets in stocks and commodities of all times?" Yardeni asked.

And though experienced investors are conditioned to run the other way when someone declares a "new era" for the economy or markets, sometimes it is a new era. Case in point: What else would you call the 20 years after 1980, a period in which U.S. inflation and interest rates were in a sustained decline and stocks mostly marched higher.

To be a buyer of stocks in general now, you pretty much have to believe we're in a new era of global growth -- and that we're somewhere near the start or in the middle of it, not approaching a calamitous end.

Even if Yardeni is right about an ongoing boom, however, there are going to be serious disruptions along the way. At the moment, the deepening trade disputes between the U.S. and China pose one significant risk. So do rising bond yields.

So it's one of life's choices,

A year ago, jitters over frenzied gains in stocks and fear of inflation pressures triggered a five-week pullback in share prices around the globe. The declines were much worse in many foreign markets than in the U.S., exposing the soft underbelly of overseas investing: a lack of liquidity when you need it most.

The next market disruption, whatever the trigger, may play out the same. That's why many Wall Street pros continue to warn clients away from emerging markets for now, despite their longer-term economic promise.

If stocks scare you at these levels, then the prudent decision is to put off buying, and perhaps to start pruning. Nobody ever went broke taking a profit.

But as the last four years have shown, you also have to allow for the possibility, or perhaps probability, that the world as we know it isn't ending -- and that the global economy will keep expanding, other bullish trends will stay in place, and stock market pullbacks will be opportunities to pick up some appealing long-term investments for less.

What do you think?  A poll follows (I hope).

Comments >> (7 comments)

82% of small business owners voted for Sarko

by wchurchill Mon May 7th, 2007 at 05:35:21 PM EST

We have had an off and on discussion of the difficulties of small business in France for 1 1/2 years.  I related my experience in starting a small joint venture in France, and the difficulties we had with the bureaucracy and with letting go employees who were not performing.  

Arguments have been made that France has an incredible number of small businesses started every year; people who are not performing can be fired rather easily, you just have to treat them fairly, follow the paper work, and they can be fired.  There has also been an admission that the burearucracy for small business needs to be improved.  

I have interpretted the argument that I've presented, and that has been supported by some others, is that there is a real problem for small business in France.  (Particularly in comparison to the US where you only have to look at the stock pages to see an abundance of successful start-ups--big names being companies like Apple, Microsoft, Google, Intel, Guidant, Boston Scientific).  I've interpretted the other side to be, while bureaucracy can indeed be improved for small business in France, it's really not that big of a problem.

Well I would say that 82% of small business owners would seem to agree there is a problem, and are looking for the improvements that Sarko seems to offer, as opposed to the continuation of labor and union policies Royal seemed to offer.    From an article by JAMEY KEATEN
© 2007 The Associated Press in the Houston Chronicle
:

Sarkozy cruised in his traditional electoral base: 82 percent of small business owners, and 67 percent of farmers voted for him, according to Ipsos. Befitting a conservative, he won 61 percent of votes by those over age 61, and 68 percent among voters 70 or older.

I guess the question is will Sarko really have a mandate to do this, because I would imagine there are some very strong opponents to the changes that would be required.

Comments >> (11 comments)

Dow hits new record of 13000, as US & world economies continue to grow

by wchurchill Sat Apr 28th, 2007 at 04:37:47 AM EST

A new high on the Dow Jones Index reminds us that economic growth continues in the US, and around the world.  IMO there exists a bias amongst us here at ET, a bias leads to continuing predictions that the world economies, and in particular the US economy, is about to fall apart.  My first diary at ET, October 15, 2005, Significant growth over the next 5 years was written to argue against scenarios that were being presented at ET, that argued that growth in the US and the world as a whole would be negative.  I argued against that view, and argued that the world economies would in fact grow nicely.

It's likely that all economies can benefit from this growth.  The US is best positioned in healthcare and technology, and should benefit significantly, and has been showing good growth the last several years.  Asian growth will likely be the most explosive, due to their tremendous potential growth as a result of an underutilized population.  Europe should certainly benefit, but growth numbers over the past several years place them third behind the US and Asia.  European employees and industries may have to be flexible as Asia challenges entrenched European business positions.  IMO, heavier percentage allocations to the US and Asia in terms of funds invested, may lead to better overall returns.
Not to pick on the ever gracious Jerome, but he did argue at that time for a no growth scenario, and even back then highlighted the housing market.
thanks for making a decent and argued case for bullishness.
I voted "no growth", but if you want a really pessismistic outlook dissinulated under savvy investment advice, have a look at:
http://www.hoisingtonmgt.com/HIM2005Q3_NP.pdf

I don't know them, but the kossack that pointed me to this doc+. wrote that they had an exceptional macro track record in the past. They are basically saying that interest rates will not increase because the recession will come before inflation makes it necessary.

So much for the kossack, as there has been no recession over the last 18 months and of course interest rates did continue to climb.  However I imagine this "investment advice" column is continuing to be published and collecting fees from investors.

The Dow was 10287 when I wrote that diary on Oct 15, 2005.  Almost a year later, Oct 7, 2006 I wrote a follow up diary as the Dow approached 12000, Dow Jones sets new all time high last week.  Clearly the achievement of 12000 showed that the economy had not nose dived as predicted by Jerome and others.  But, the economy was expected to slow from the rapid growth that it was one, as shown by the following comment:

-The American economy is slowing down this quarter, and likely next.  That was necessary as inflation had been edging up, and the Fed responded with 17 straight interest rate hikes.  There is some concern that they overdid it,,,,continuing with a couple of hike even after seeing data of the slowing economy.  But concensus view seems to be there will be a soft landing, not a recession, and then return to strong growth.  Good news for Europe and the world economy as well.

We should note that the economy has in fact slowed in the US, as predicted, in the 4th and 1rst quarter of '07--slowed, but to 1.3%, not negative, growth.  We should note that the 13000 Dow shows an increase of 26.4% over the Dow of October 15, 2005-clearly different than the negative growth predictions of some.  We should note that while I had projected that the major stock markets would all grow (US, Europe, and Asia-non Japan) that was in fact true, but while I predicted the order would be Asia, US, Europe,,,,the order has actually been Asia, Europe, US.  We should further acknowledge that stock markets don't necessarily reflect the results of various economies around the world, but each of these economies grew nicely--with the order of growth being Asia-non-Japan, US, and Europe.

It's also worth noting that less developed economies have benefited dramatically over the last few decades, and that millions around the world are being pulled out of poverty.  This was shown in a dramatic and very exciting manner by DEBUNKING MYTHS ABOUT THE THIRD WORLD-Hans Roslong in a very exciting presentation.

I certainly do not believe that one should plan one's life entirely around our financial rewards.  satisfaction in fact comes from more spiritually and family grounded pursuits, imo.  Yet meeting the basic economic needs of life is helpful for most of us.  so I would just point out that on that economic dimension, those of us who have planned their lives around positive economic growth (as opposed to no growth) have done much better over the last several years, and acutally the last century, than those who have based their financial planning on the "no growth", "doom and gloom" scenarios that we sometimes see.

Comments >> (130 comments)

Battle Over the Banlieues

by wchurchill Sun Apr 15th, 2007 at 04:17:00 AM EST

The New York Times, normally considered slightly left of center in its opinion and coverage, presents a rather stark view of the racial situation in France in its Sunday coverage of the French Presidential Election:

Unwelcome Mat One of the many housing projects, or cités, that fill the suburbs throughout France, alienate their working-class residents and fuel the debate over French egalité. This one, the Pablo Picasso, is in Nanterre, west of Paris.
I'm surprised at the choice of photos shown to lead the story, because the picture of the Pablo Picasso in Nanterre is so reminiscent of US housing projects of the '60's, now considered failures and most of which are being changed.  IMO the picture attempts to give the American reader an unfairly negative picture of the banlieu by comparing it to those discredited American housing projects.

While the article points the finger of blame at the conservative party, and Sarkozy in particular

"If I could get my hands on Sarkozy, I'd kill him." I had asked Mamadou, a wiry young man wearing gray camouflage pants and a tank top, what he thought of France's former minister of the interior, who is also the right's standard-bearer in this spring's presidential elections.
, it paints an unfairly racist view of France in general:
Many residents of the cités, even those who condemned the violence, insisted that given the conditions that existed there and the brutality and racism of the police, an explosion was inevitable. And even the political establishment in France, up to and including Sarkozy, concedes that racism in employment is endemic in the country. There are data that seem to demonstrate that if your name is Mohammed or Fatima, you have less than 50 percent of the chance of being hired than you do if your name is Jean or Marie. The French Republic may proclaim its commitment to equal opportunity, but few French people believe it to be genuine.
I would not have been surprised to see this presentation in the Washington Times, for example, but this slant was a little surprising in the NY Times.

As I read, or try to read, the French news on the election, I don't see this emphasis on the issue of racism.  I'm imagining there is a disconnect between the french electorate, and the way this is being presented in the Anglo-American press.  But looking forward to any clarification from those that really understand the French election.

Comments >> (17 comments)

Narrow views gaining broad appeal in French election

by wchurchill Sat Apr 14th, 2007 at 01:22:48 PM EST

It would be interesting to hear some ET views on aspects of the upcoming election.  Like many of you, I'm sceptical of the presentation of MSM, and would value some insight and discussion here.  

We are seeing articles in English, for example, describing the need for the larger parties to addresss some of the issues raised by Le Pen, that have resonated with some of the French electorate.

"One is the breakdown of social order and crime, and the other is the lack of jobs. And they have become problems that I believe began with immigration. In 1954, when I came here, you could leave a package on the doorstep of the jeweller's shop three hours before it opened. Now you couldn't think of that -- these guys from Africa would steal it in a minute."

<snip>

This message, often described as fascist, has always appealed to the 15 to 20 per cent of French voters who have cast their ballots for the National Front. What is new this year, as more than 40 per cent of voters remain undecided, is that similar words and ideas are suddenly being heard on the lips of respectable presidential candidates from France's mainstream political parties.<snip>

This message, often described as fascist, has always appealed to the 15 to 20 per cent of French voters who have cast their ballots for the National Front. What is new this year, as more than 40 per cent of voters remain undecided, is that similar words and ideas are suddenly being heard on the lips of respectable presidential candidates from France's mainstream political parties.

It's certainly understandable that the mainstream parties would need to somehow address this issue, given Le Pen's surprising success in the 2002 election, where he finished in the top two, and moved to the next round.  The article goes on to describe an example of the response of the Socialist Party

Ms. Royal has shocked the Socialist rank-and-file by introducing National Front-style ideas: Boot camp for immigrant youth, mandatory singing of the Marseillaise and a focus on crime as a cultural problem.
and then an example of a response from the UMP:
Nicolas Sarkozy, the presidential candidate from the moderate right-wing UMP (Union for a Popular Movement) party and the man favoured by most polls to win the election, has in many ways changed his course even more dramatically.

In a break from the strict French unity of his colleague, current President Jacques Chirac, he had declared that France is a racist country and vowed to introduce affirmative-action laws for employers, a suggestion that had previously been unthinkable in France.

It would be interesting to hear some perspective from those in France and others watching the election closely.  To what extent are the points raised real issues among the French electorate--the article seems to focus on crime, racism and maybe the need for more patriotism (?) (I'm thinking of the "mandatory singing of the Marseillaise and a focus on crime as a cultural problem." and "France is a racist country and vowed to introduce affirmative-action laws for employers" comments from the two leading candidates.)

Comments >> (5 comments)

How US Tax dollars are spent.

by wchurchill Thu Apr 12th, 2007 at 03:47:04 PM EST

This is an interesting overview of how US tax dollars are spent--taxes collected at the Federal, not state, level, such as income tax, capital gains, social security, medicare, etc.

Most of the spending is for commitments that are already made:

About 70 percent of the annual budget pays for commitments already incurred -- everything from Social Security benefits to interest on the national debt. Neither President Bush nor Congress has much say over that.

The social safety net portion of the budget has grown over the years.

In fact, all government payments to individuals amount to about 58 percent of the budget. That's twice the share of the budget such payments claimed 40 years ago. And the percentage continues to climb -- giving those pushing reform of such entitlement programs a powerful argument.

Interest of the national debt has increased over the Bush presidency, surprise, surprise,

Interest on the debt claims about 10 percent of the budget. When President Bush took office, the national debt was $5.6 trillion, but deficits have pushed that number closer to $9 trillion today.

The military spending is the largest portion of what's left after commited spending.

The military gets the biggest piece of what's left -- the 30 percent of the budget called discretionary spending because it's the part of the budget that Congress and the White House can control from year to year.

<snip>

You might think a fifth of the federal government's total spending is a lot to put into defense. But in comparison to some earlier periods in our country's history, it's actually a smaller share. During President Ronald Reagan's defense buildup, the military claimed 26 percent of the budget. And at the height of the Vietnam War in 1968, 46 cents of every tax dollar Americans paid was for defense.

The US will spend more than it collects

This year, the federal government will spend about $200 billion more than it will take in.  Next year, the deficit will run about $300 billion. Coincidentally, that's just about the same amount that the government figures it's being stiffed by individuals and companies who don't pay all the taxes they owe, either by intent or by error.
 Assuming roughly a $12 trillion US economy, these deficits represent 1.7% and 2.5%, both under the 3% maximum used by the EU as a goal.

Comments >> (10 comments)

now the Bible is all you need-in golf?

by wchurchill Tue Apr 10th, 2007 at 03:20:18 AM EST

There is a majority of America that I think is very difficult for Europe to understand.  It's very visible in America, and was highlighted on our TV screens in of all places, one of golf's shrines, the Masters.  Forget the coaching manuals -- now the Bible is all you need, as reported by an obviously sceptical London Times (sorry, I don't know how to do that pink Murdoch alert thing):

Back at home, in an increasingly secular nation, there were probably groans aplenty. Another American winner, another sermon. "He was with me every step of the way," Zach Johnson told the CBS reporter within minutes of becoming Masters champion. And then a little later: "Being Easter Sunday, I felt like there was certainly another power that was walking with me and guiding me." Johnson would also talk about the ball-markers that his wife, Kim, had specially made for him. On one is inscribed two verses from Matthew vi, on the other is a passage from Proverbs about the Lord "making your paths straight". There is no advice about how to keep your drives straight.

"Regardless of what happened today," Johnson said later, "my responsibility was to glorify God and hopefully He thinks I did." For many, such benediction is exhausting and an almighty turn-off. For others it is an inspiration. Here in the United States, though, it is so commonplace, it barely merits a reaction. Christianity has a huge influence within professional sport, and possibly none more so than on the American golf tour.

My sense is that most Europeans can't understand or relate to this at all.  IMO, it is one of the great cultural divides between the US and Europe.  Not a cultural divide that we see on this website, btw, as this side of America is barely represented here.

Comments >> (6 comments)

Housing Affordability

by wchurchill Thu Apr 5th, 2007 at 09:29:27 PM EST

I've been doing some analysis in this area over the past several months, and have found some reports and internet sites that have been very interesting to me.  Since we discuss issues around housing, housing crashes from time to time, I thought one report I found might be interesting to some of you.  It didn't surprise me to find that there has been a sharp change in housing affordability over the last several decades.

Affordability is defined as developing a ratio of the median housing price to the median income.  This affordability ratio shows that the most impacted place by this trend is Australia, where the median housing price is an incredible 6.6 times the median income.  As you'll see in the report, going back several decades this ratio was normally for these countries more like 3 to 1.  (One drawback to this study is that it only includes the English speaking countries.  I'm continuing to look for a broader study, but with the same level of detail as this report.  I would appreciate it if anyone could refer me to other reports you may have seen.)

EXECUTIVE SUMMARY- The 3rd Annual Demographia International Housing Affordability Survey expands coverage to 159 major markets in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs the "MedianHouse Price to Median Household Income Multiple," ("Median Multiple") to rate housing affordability (Table ES-1).

Table ES-1
Demographia Housing Affordability Ratings
Rating Median Multiple
Severely Unaffordable 5.1 & Over
Seriously Unaffordable 4.1 to 5.0
Moderately Unaffordable 3.1 to 4.0
Affordable 3.0 or Less

In recent decades, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices being generally 3.0 or less times median household incomes. This historic affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in Australia, Ireland, New Zealand and the United Kingdom and in some markets of Canada and the United States.

The report verifies an intuitive feeling that I had, that the US has comparatively very affordable housing.  However, it is a nation of extremes, as some of the California housing markets, for example, rank at the top in terms of unaffordability.

2006 Housing Affordability Ratings

The most pervasive housing affordability crisis is in Australia, with an overall Median Multiple of 6.6. Affordability is only marginally better in New Zealand (6.0) Ireland (5.7), and the United Kingdom (5.5). On the other hand, the national Median Multiple in Canada is 3.2, indicating that housing is one-half as expensive relative to incomes as in Australia. The national Median Multiple in the United States is 3.7.

Least Affordable Markets: The least affordable markets are generally in California, Hawaii, the US East Coast, Australia, the United Kingdom, New Zealand and Vancouver. The least affordable market is Los Angeles & Orange County, with a Median Multiple of 11.4, far above the "severely unaffordable" threshold of 5.1 and approaching four times the 3.0 "affordability" standard. The Median Multiple is 8.5 in Sydney, 8.3 in London, 7.7 in Vancouver, and 6.9 in Auckland. All of the 25 least affordable markets are rated "severely unaffordable" (Table ES-2). Ireland's only surveyed market, Dublin is also rated severely unaffordable, at 5.7.

Affordable Markets Remain: At the same time, 42 markets remain "affordable." Seven of the "affordable" markets are in Canada and 35 are in the United States. The most affordable markets are Regina, Fort Wayne and Youngstown. Some of the fastest growing markets in the survey remain "affordable," such as Dallas-Fort Worth, Houston, Atlanta and Oshawa (Table ES-3).

The US can be an incredibly expensive place to live, or an incredibly inexpensive place to live--all depending on choices.  As this report shows, there are nice cities in the US (not like New York, Paris, London of course) where the median housing price is only 2 times the median annual income.  This is just one of the factors that leads to such diversity in the US on so many levels--including political, social, and economic levels.

I thought some of you might find this an interesting report, or at least reference.

Comments >> (27 comments)

Sometimes sorry to be an American.

by wchurchill Wed Mar 28th, 2007 at 06:56:02 AM EST

Maybe this is to personal to post, but here it goes.  I came to ET, recruited by Jerome, from Daily Koz (under a different posting name--I like the wchurchill name and had not thought of it when I signed up for Daily Koz).  But the vitriol at Daily Koz was something I wasn't ready for.  I had just lost a close member of my family to cancer, very close, and i found the tone of DK difficult.  I seem to go back to DK every 6 months or so, and did again tonight, and found this comment in a diary  (and maybe I should preface this that Tony Snow is Bush's press secretary, formerly a Fox TV news anchor, who seemingly had fought off cancer of the kidney, is a 50ish year old guy that I think was a respected member of the press prior to accepting the press secretary job--and also just a person with a family):

I don't care about Tony Snow.  At all.  And I'm not going to pretend I do just so I can prove a larger point to the wingnut base of racists and hate-mongers.  

So no, I'm not going to pray for Tony Snow.  I'm sorry to hear he has cancer, and that's about it.  Other than that, I'm not going to give that lying scumbag another thought.

There are lots of people in this world with cancer.  There are people dying in Iraq right now because Tony Snow has helped enable this ridiculous "surge" and spends every day lying to people that we need to give this plan "more time."

This doesn't mean I'm happy Tony Snow has cancer.  I'm not.  I'm just not praying for him.

I know the lack of compassion may hit me harder than others.  But it was a reminder for me as to how wonderful it was to find ET, thanks jerome, and find a different, more thoughtful, logical format.  And I know that many of you have great respect for DK.  But for me this is a sad reminder of where we are as Americans, or certainly where Daily Koz is.

those of you who have read my comments must know how hard it is to write the title, "sometimes sorry to be an American".  But obviously we are having our troubles. And anger spills over in some horrible ways, where the compassion for individuals,,,,,,.

(And it reminds me that my comments at times have shown too much acrimony, I think, hope, nothing like this, but--sorry about that.)

Comments >> (70 comments)

Jim Cramer may be investigated by SEC

by wchurchill Mon Mar 26th, 2007 at 01:48:10 PM EST

(These comments are a follow up to Alexander's excellent diary of last week.)  First I did receive a response from the SEC regarding my complaint and request for an investigation--I'm sure it's a form letter, but I must admit it's at least a form letter that makes sense:

Dear Mr. ___:

Thank you for your email and for taking the time to alert us to your concerns.

Please note the SEC generally conducts its investigations on a confidential basis and neither confirms nor denies the existence of an investigation until we bring charges against someone involved.  We cannot provide you with updates on the status of your complaint or of any pending SEC investigation.  We know this policy can be frustrating, but it protects the integrity and effectiveness of our investigative process and preserves the privacy of the individuals and entities involved.  Our policy is more fully described below.  

Once again, thank you for writing to us.

Sincerely,

RINELL RANDOLPH JR
U.S. Securities and Exchange Commission
(202)551-6321

The US legal system does require this kind of an approach, but they are right that it can be frustrating.  

There has been a fair amount of news coverage, such as the following:

Hedge fund lawyer Ron Geffner of Sadis & Goldberg called the interview a "somewhat surprising confession to make publicly, which definitely invites suspicion by regulators."

"Whether he violated the law is unclear," Geffner said. "That is dependent on his trading records. But it's clear that he seems to be challenging regulators to come and examine him." A spokesman for the SEC declined to comment on whether the agency is looking at Cramer's comments. A decade ago Cramer faced an SEC investigation over a column he wrote for SmartMoney magazine that touted four stocks without disclosing his holdings in them. He was eventually cleared of wrongdoing, according to news reports.

Other legal experts criticized Cramer's comments for suggesting that stock manipulation is widespread among the growing legions of hedge funds, which are investment vehicles that typically trade much more actively and use more complex strategies than mutual funds.

I hope they do investigate this, and extend it into a broader investigation of the industry.  Hedge Funds are relatively new to the financial world, not well understood by most, and comments by Cramer are not only moronic, but bound to undermine confidence in the markets,,,which in general are open and transparent in the US.  I acknowledge there were a lot of very good comments on the diary on this last week and the comments.  In particular I have thought about, I believe it was HiD's comments, that this manipulation doesn't effect investors who invest for the long term, which is the vast majority.  And furthermore that small time day traders, and we're now talking about the speculating/gambling section of market activity, should realize their playing with the "big boys" who have tremendous access to real time data and organizations that go after this 24X7,,,and they are likely to lose.  They are also able to play the game globally, "carry trade" and other types of arbitrage, in a way that smaller speculators generally can not.

But still the objective needs to be fair and open markets, and Cramer's comments says they are not today--so imho that needs to be fixed, and if Cramer committed a crime, to the slammer with him.

Comments >> (46 comments)

France Cuts Taxes for Small Businesses to Shrink Unemployment

by wchurchill Mon Mar 19th, 2007 at 04:02:51 PM EST

I was not aware of some of the regulations in France regarding small businesses, so I found some of these changes very interesting, and positive.  This likely requires a subscription.  It is more than tax cuts, and it sounds like changes in regulations are making a big difference.  The government claims that a million small businesses have been created since 2002, 30% more than the previous 5 years.

I hate the way reporters take a good news story, and write it in a way that is at least slightly negative,,,,,like always stressing there is more to do.  Is it something in the genes?  But here goes:

The climate is still far from ideal, said Raymond Torres, head of employment analysis at the Organization for Economic Cooperation and Development.

``It's more the taxes and the regulations rather than a lack of entrepreneurship that hold France down,'' he said. While France jumped 12 spots in the World Bank's 2007 ``Doing Business'' rankings, it is still ranked as the 35th-best place in the world to start a company.

``The charges for small, new entrepreneurs are much higher in France than in Singapore, the U.S., more than in the U.K.,'' Torres said.

Tax Bite

A French company must pay about 40 percent of an employee's salary in labor taxes, one of the highest rates among OECD countries, he said. In the U.K. it's about 20 percent, and in the U.S., 10 percent.

``That makes it difficult for entrepreneurs to hire,'' Torres said.

While France is working on making things more conducive to business creation, it needs to do more, he said.

``It's true that it may be easier to set up your own business in the U.S., but it isn't that difficult in France anymore -- it has changed,'' Andre Marcon, who heads the French Trade Chambers' business support network, said in January.

IMHO it's important to recognize that small businesses often fail
Almost 40 percent of new businesses in France fail in their first three years, figures provided by the Ministry for Small Businesses show.
, so one can't put severe penalties into place that make the failure even harder than it already is--such as jeopardising the home of the owner of a failed small business, or putting laws in place making it hard to get rid of people, because when you just start, it's very easy to make the mistake of over-hiring.
Minister for Small Businesses Renaud Dutreil said a 2005 labor law that eased firing rules for companies with fewer than 20 employees created about 720,000 jobs. Companies were more disposed to hire without the fear of legal battles if they had to reduce staff, he said.

<snip>

An individual's home no longer can be seized if his business fails. Documents needed to start a new business can be scanned and posted on an Internet portal instead of being sent to three different agencies.

There seems to be a lot of entrepreneurial zeal, and a very dynamic market--not surprising to me.
Marc Rochet, 56, who was chief executive officer of defunct AOM-Air Liberte, started a new airline called L'Avion, which offers business-class-only trips between Paris and New York. He collected 25 million euros from investors and hired 50 employees.

``I could have based my airline in the U.K., where it would have been so much easier,'' he told about 4,000 people at the Entrepreneurs' Fair on Feb. 1 in Paris. ``The burden of red tape is still huge, but it's worth it. The French market is dynamic.''

Entrepreneurial Zeal

A survey by Paris-based pollster Ifop for the Trade Chambers and the Entrepreneurs Fair showed that 21 percent of French people want to start their own companies. Almost half of those ages 18 to 24 said they planned to do so.

Does this sound reasonable to those of you that know the French tax system well?
This fiscal year, her first in business, she is benefiting from deferred labor taxes. Next year, she will pay as much as 68 percent in income taxes, far more than the 46 percent rate in the U.S. or 35 percent in the U.K.

``Ideally, I would like to hire one person in the coming months, but I need to expand a bit more and I will have to think twice with the taxes,'' she said.

It just seems very quick for someone just starting their business to get into such a high tax bracket.  And actually the top individual rate in the US is 35% for Federal tax, so they must be adding a high state tax rate,,,,and then I'm not sure how they are handling social security.  

But anyway, an interesting article, and seemingly some great early results.

Comments >> (11 comments)

Private equity, public equity, & Venture Capital

by wchurchill Sun Mar 18th, 2007 at 05:36:56 AM EST

This started as a comment to InWales' diary entitled Call for G8 action on private equity, but turned into a diary.

I felt I initially had to address the differences in private equity and public equity, which is really the difference between a private company and a public company.  So I composed a story that took a private company through the steps of becoming a public company, and tried to point out the differences and use some examples.  In doing so I was able to use one facet of the private equity market, Venture Capital (which you will notice was addressed in the Wikipedia reference from Afew), since it is venture capital that is sometimes involved in taking a company from being a private company to becoming a public company.  I meant to move on to the other areas of Private Equity after drawing these distinctions, such as the buyout segment which is getting all of the publicity today, but I ran out of gas.  I'll see if this turns out to be a helpful diary, and if it is try to gather energy to write about the other segments of private equity.

From the diaries ~ whataboutbob

Read more... (55 comments, 2239 words in story)

Germany to lower corporate tax rate

by wchurchill Thu Mar 15th, 2007 at 07:47:45 PM EST

It would appear this tax rate decrease is just about done.

FRANKFURT: The German government agreed Thursday on a plan to cut its average corporate tax rate in a bid to encourage investment in Europe's largest economy. The step will take Germany from having the highest levy in Europe to one that is broadly in line with the other rich countries of Western Europe.

After months of negotiations, the Christian Democrats and Social Democrats - which form the unwieldy coalition currently governing Germany - decided to reduce the average rate from 38.7 percent to about 29 percent beginning on Jan. 1, 2008.

Germany had been higher than most of Europe, and seems to think this puts them more in line, lower than some.
With an average corporate tax rate around 29 percent, Germany will be on about the same footing as Britain, which stood at 30 percent at the beginning of the year, according to the consultancy KPMG. France is now slightly higher, at 33 percent, while Italy at 37 percent.
The article stresses that Germany has had some pressure from their Eastern neighbors, as well as other countries in the EU and the rest of the world.
The chancellor then, Gerhard Schröder, a Social Democrat, pushed the idea in response to Germany's neighbors to the East, which embraced much lower rates.

Slovakia, for example, in 2003 adopted a 19 percent flat tax applying to sales, corporations and individuals.

Austria, whose economy is closely linked with its eastern neighbors, dropped its tax rate to 25 percent from 34 percent in 2004 - a sign that the mood was changing in richer parts of Europe. Now, the view that countries have no choice but to play the reduction game seems to have arrived in Germany.

"There is no disagreement between the coalition parties that we have to tax companies differently than in past decades," Roland Koch, the Christian Democrats' chief negotiator, said in announcing the agreement, Bloomberg News reported. "Today, we're exposed to international and European tax competition."

This puts much of Europe below US corporate tax rates of 35%, though to really compare one would have to look at the impact of graduated tax rates in the US and other countries, as well as available tax deductions.

Comments >> (13 comments)

DEBUNKING MYTHS ABOUT THE THIRD WORLD-Hans Roslong

by wchurchill Mon Mar 5th, 2007 at 03:31:23 PM EST

I'm sure many of you are far more familiar with Prof Roslong than I.  But this presentation is amazing in its use of graphics, and unbelievably enjoyable (it is a 20 minute lecture, so if you go there have some time available--but it is really, really worth it.)  There is great data regarding the development of the third world along economic and health lines.  And Prof Roslong is incredibly entertaining.

DEBUNKING MYTHS ABOUT THE THIRD WORLD
Wednesday, 28 February 2007
We get a lot of letters expressing surprise here at NationMaster. The real world is far more complex than what our preconceived notions would have us believe. For example, the third world isn't one big block of large families and poor health. It's easy in the west to overlook the massive amount of development that has taken place in Asia, well beyond Japan. In this lecture, Hans Roslong, Professor of International Health, Karolinska Institutet of Stockholm, gives a graphical and entertaining summary of how the world has changed in the past 40 years. Highly recommended viewing.

Comments >> (12 comments)

The Big Meltdown, Paul Krugman

by wchurchill Fri Mar 2nd, 2007 at 07:24:29 PM EST

So Krugman has just issued his 9th forecast of a recession in the last four years.  Did I miss something?  Maybe there was a recession and I slept through it.  

The great market meltdown of 2007 began exactly a year ago, with a 9 percent fall in the Shanghai market, followed by a 416-point slide in the Dow. But as in the previous global financial crisis, which began with the devaluation of Thailand's currency in the summer of 1997, it took many months before people realized how far the damage would spread.
He "dates" the article Feb 27, 2008 and tries to be tongue in cheek about his forecast.  I honestly don't get it,,,,how does this guy call himself an economist, and how does he earn a living as a "forecaster".  The Big Meltdown seems to be Paul Krugman!!  Well I've disagreed with the last 8 recession forecasts, so there is no reason to change now.  You're hearing it here for free, NO RECESSION!  Here's the link, but it's behind that Times Select wall that costs $7.95 per month to read it.  I'm embarrassed to tell you I paid it because I needed a good laugh on a Friday afternoon.  Don't do it, he's worthless.

I am a little surprised that housing prices are still rising in the US, though therate of increase slowed in the fourth quarter.  I am not expecting the housing crash many of you have been forecasting, but I have been expecting the slowdown in sales we've been seeing for just under a year, and would have thought that would have shown some price falls--particularly given the torrid pace of housing price increases over the past several years.  

U.S. HOUSE PRICE APPRECIATION RATE STEADIES
WASHINGTON, DC - The rate of home price appreciation in the U.S. remained steady
in the fourth quarter of 2006, extending a general trend of deceleration begun earlier in
the year. Home prices, based on repeat sales and refinancings, were 1.1 percent
higher in the fourth quarter than they were in the third quarter of 2006. This is slightly
above the revised growth estimate of 1.0 percent from the second to the third quarter.
Prices in the fourth quarter of 2006 were 5.9 percent higher than they were in the same
quarter in 2005.
Price appreciation in 2006 was substantially smaller than the tremendous price gains of
recent years, which ranged from 7.4 percent in 2002 to 13.2 percent in 2005. The figures
were released today by OFHEO Director James B. Lockhart, as part of the House Price
Index (HPI), a quarterly report analyzing housing price appreciation trends.
"These data show that, on the whole, prices are still rising, albeit at a much slower
pace," said Lockhart. "This suggests that house price appreciation is, for now, more in
line with historical norms."

House prices grew faster over the past year than did prices of non-housing goods and
services reflected in the Consumer Price Index. House prices rose 5.9 percent, while
prices of other goods and services, excluding shelter, rose 0.9 percent.
I still think we'll say a fall in the first half of this year.  The only state to show an actual price fall was Michigan, where price declines were only 0.4%.  I would have expected a bigger drop in Michigan since for the past 15 years the auto industry has been moving out and to southern states, in the form of Japanese and German auto factories.

Comments >> (69 comments)

Healthcare trends

by wchurchill Wed Feb 21st, 2007 at 01:14:03 PM EST

I've been stuck in my office working for the last couple of months.  But a couple of articles that I read recently motivate me to write a short diary on healthcare.  These trends are very clear in the US, but I believe will carry over to Western Europe and Japan, other developed countries as well.

  1.  We are in the midst of an explosion of innovation that will lead to better treatment of diseases--some of the breakthroughs are fabulous, and I'll just highlight one that I read, but the list is incredible.
  2.  For a lot of reasons healthcare has been slow to change in adopting new productivity tools that are used in other industries.  But some of those tools are being specifically tailored to healthcare, and will allow more productivity, and have impact on both the quality of care and the cost.
  3.  As the demographics lead to a much older population in the western world, society will choose to spend far more of its growing wealth on life enhancing and life saving products,,,,,,as opposed to, say, more video games.

Here is one of the new technologies,
"The new robotic catheter system has the potential to fundamentally change the way electrophysiology procedures are performed worldwide and make it possible for a broader group of physicians to perform complex cardiac procedures such as cardiac arrhythmia mapping," said Wyn Davies, M.D., FRCP, FHRS, consultant cardiologist, St. Mary's Hospital, London, and principal investigator of the clinical trial.

Currently, cardiac electrophysiology procedures are performed using a manual technique that requires physicians to perform a series of complex manipulations at one end of the catheter with inadequate assurance that the tip of the catheter will respond as desired while inside a patient's heart. As a result, achieving stable contact at every anatomic site within the heart necessary for successful mapping can be difficult. Insufficient contact between the catheter tip and the inside of the heart wall can lead to highly variable and less than optimal procedure outcomes.

"There is a medical need for broader use of catheter-based procedures for diseases where catheters are rarely used today, and we believe our robotic platform will enable more physicians to perform complex interventional procedures through greater ease of use, and possibly improve patient outcomes," said Frederic Moll, M.D., founder and chief executive officer of Hansen Medical.

Here is the article I read today regarding an example of new technologies that can lower cost and at the same time improve patient care,

 "Today technology comes to the aid of those who help others," said Intel president and CEO Paul Otellini. "This is a great example of putting innovative technology to work solving real needs."

    The University of California, San Francisco (UCSF) Medical Center, one of the leading hospitals in the United States and a frontrunner in healthcare innovation, collaborated with Motion Computing on the C5's development.

    The medical center is now conducting pilots to measure improvements in workflow and nursing satisfaction with regard to patient care.

    UCSF chief medical information officer Michael Blum said Tuesday 's announcement represents a new kind of collaboration between hardware and software companies and end-users, such as UCSF, to bring a solution to the market that better meets the needs of nurses and doctors.

And here is the article which forecasts that American's will choose to allocate funding to these new products at a rate that will double the cost of healthcare over the next 10 years,

U.S. spending on prescription drugs, hospital care and other health services is expected to double to $4.1 trillion over the next decade, up from $2.1 trillion in 2006, a government report released on Wednesday found.

<snip>

Lead author John Poisal told reporters a major factor was an aging population as the "leading edge of the baby boom generation becomes eligible for Medicare," the nation's insurance program for those age 65 and older.

Greater spending for prescription medications is expected to fuel much of the increase, Poisal and his team said, especially amid more aggressive treatment of diabetes, heart issues and conditions affecting the central nervous system.

<snip>

At the same time, the report found the cost of drugs, devices and services such as doctors visits are expected to continue the rise, increasing out-of-pocket costs for those with private insurance.

While growth in spending on hospital and doctor care is seen slowing in 2006, the researchers expect that to change this year and continue to increase.

"Despite rising costs, consumers continue to purchase costly existing and new health care technologies," they wrote.

IMHO, today's US healthcare model will change.  A more organized approach to giving access to a basic level of healthcare will be developed, along with other changes.  However, I don't think the changes will take away the ability of American's to choose to buy the healthcare that they want.  The model will allow the society as a whole to spend more on healthcare, but it will also allow individuals to choose the new technologies, and pay for them, if they desire.  

Comments >> (18 comments)

Who really deserves that bottle of champagne from Jerome?

by wchurchill Sun Jan 7th, 2007 at 11:43:47 PM EST

Why it's Fran, of course.  It was a delight for me to edge out the competition in the price of a barrell of oil contest,,,,and that delight is enough for me to savor.  But there are many on this site who make it such a delightful place for all of us, and Fran with her constant and consistent good work that starts our day (as well as her many other contributions) is wonderful and deserving.  

So it is my honor to say thank you to Fran, and donate my, or should I say Jerome's, bottle of champagne to her,,,having already checked with Jerome that he concurs, and he strongly does.  I know Jerome has great taste in champagne, so I'm sure you'll enjoy it Fran.  Cheers, and to a wonderful New Year.

Comments >> (10 comments)

Dave Barry's thoroughly biased and rarely factual review of a year best forgotten

by wchurchill Sun Dec 31st, 2006 at 04:02:42 PM EST

Dave's hilarious annual review of events.  I've pulled out some of my favorites, but the full article is here

In the War on Terror, Osama bin Laden releases another audiotape, for the first time making it downloadable from iTunes. Bin Laden also starts a blog, in which he calls upon his followers to destroy the corrupt infidels and also try to find out how a person, hypothetically, can get Chinese food delivered to a cave.

FEBRUARY -- President Bush, delivering what is billed as a "major address on energy policy," reveals that the nation has an "addiction" to "foreign oil," which comes from "foreign countries" located "outside of the United States" which are getting this oil from "under the ground." To combat this problem, the president proposes the development of "new technology" in the form of "inventions" such as "a Lincoln Navigator that gets 827 miles per gallon," although he allows that this could take "time."

MAY -- On the terrorism front, the Bush administration comes under heavy criticism following press reports that the National Security Agency has been collecting telephone records of millions of Americans. Responding to the outcry, President Bush assures the nation that "the government is not collecting personal information on any individual citizen," adding, "Warren H. Glompett of Boston, call your wife back immediately, because your dog has eaten your entire Viagra supply."

In another controversial move, the president announces that he will use National Guard troops to stop illegal immigration. The initial troops are assigned to guard the border between Mexico and Arizona, with California, New Mexico and Texas being covered by Dick Cheney.

JUNE -- In politics, the debate over Iraq continues to heat up, with President Bush insisting that "we must stay the course, whatever it may or may not be," while the Democrats claim that they would bring the troops home "immediately," or "in about six months," or "maybe not for a long time." On a positive note in Iraq, Sunnis and the Shiites agree to try to come up with a simple way for Americans to remember which one is which.

As the situation in Lebanon deteriorates, Secretary of State Condoleezza Rice warns that, if violence continues, the United States will have no choice but to dispatch Vice President Cheney to the region to hunt doves. Within minutes a cease-fire breaks out.

Vice President Dick Cheney again becomes the center of controversy when, appearing on a radio show, he defends the interrogation technique known as "water-boarding" as a legitimate anti-terrorism tool, not torture. At first the host disagrees, but after several "commercial breaks," Dick brings him around.

As the election approaches, polls show that the Democrats have a good chance to regain control of Congress. But then disaster strikes in the form of John "Mister Laffs" Kerry, who, addressing a college audience, attempts to tell a joke, which is like a fish attempting to play the piano. Kerry's "joke" causes widespread outrage, prompting Kerry, with typical humility, to insist that it was obviously humorous, and anybody who disagrees is an idiot. He is finally subdued by Democratic strategists armed with duct tape.

Nobody really knows what will happen as the voters go to the polls. In Florida, nobody knows anything even after the voting is over, because-prepare to be shocked-many electronic balloting machines malfunction. Voters in one district report that their machines, instead of displaying the candidates for Congress, showed "Star Wars Episode IV." By an overwhelming margin, this district elects Jabba the Hutt.

Nationwide, however, it eventually becomes clear that the Democrats have gained control of both houses of Congress. President Bush handles the defeat with surprisingly good humor, possibly because his staff has not told him about it. For their part, future House and Senate majority leaders Nancy Pelosi and Harry Reid issue a joint statement promising to "make every effort to find common ground with the president," adding, "We are clearly lying."

The first major casualty of the GOP defeat is Defense Secretary Donald Rumsfeld, who, the day after the election, is invited to go quail-hunting with the vice president. He is never seen again.

New York City, having apparently solved all of its other problems, bans "trans fats." Hours later, police surround a Burger King in Brooklyn and fire 57 bullets into a man suspected of carrying a concealed Whopper. The medical examiner's office, after a thorough investigation, concludes that the man "definitely could have developed artery problems down the road."

Speaking of health problems, rumors that Fidel Castro is ailing gain new strength when, at an official state dinner in Havana, a waiter accidentally trips over the longtime Cuban leader's urn, spilling most of him on the floor.

In other deceased-Communist news, British police rule that the mysterious death of a former Russian spy in London was a murder, caused by the radioactive element polonium-210. New York immediately bans the element, forcing the closure of 70 percent of the city's Taco Bells.

But despite the well-founded fear of terrorism, the seemingly unbreakable and escalating cycle of violence in the Middle East, the uncertain world economic future, the menace of global warming, the near-certainty that rogue states run by lunatics will soon have nuclear weapons, and the fact that America is confronting these dangers with a federal government sharply divided into two hostile parties unable to agree on anything except that the other side is scum, Americans face the new year with a remarkable lack of worry, and for a very good reason: They are busy drinking beer and watching football.

So Happy New Year.

(Burp.)

Comments >> (3 comments)

Confused about capital taxes? Here it is,,,,

by wchurchill Fri Dec 29th, 2006 at 03:38:50 AM EST

We have had a number of diaries recently where this issue has come up--Sachs on the "Nordic" vs. "Anglo-Saxon" model and UPDATED: "Shareholder value" is wrongly interpreted, just to name two.  It seems to me that sometimes we have discussions on at ET where we have real disagreements on the issues, and other times we have arguments because we don't share a common understanding, or common terminology.  I think this is one of those issues, so I thought I would try to lay out a framework, and ask for dialogue from ET members to see if we might agree on the framework first, and then let the debates proceed.  And I would like to add that there are many contributors here that understand this issue as well or better than I--so I'm not trying to play instructor, but rather lay out a "strawman" for others to contradict, agree with, or whatever.

First just to lay out some terminology.  Capital refers to an individual's investment of his money in something like his home, a piece of property, or into a business,,,just as examples.  Capital taxes refer to any tax on the gain an individual gets from his investment in capital.  I'm going to mainly focus on an investment in a business, since that is what our discussions mainly focus on.  Typically if you invest, say $100,000, in a business, you are obviously doing that hoping your money will grow,,,,and you forego spending that $100,000 on, for example, a vacation or whatever today.  One way of achieving a financial gain on your investment, is to hold onto that investment for a period of time,,say 10 years,,,and then sell it.  And let me revert to a piece of property as an example--you buy it for $100,000 in 1995, and sell it for $200,000 in 2005.  You have a gain, which is typically called a capital gain, of $100,000.  And in I believe all western economies that gain is subject to a "capital gains tax".

If you made that $100,000 investment in a business, rather than a property, the business,,,depending upon its business policies, might choose to pay you a share of the earnings of the business--and let's say your share of the earnings might be $6,000, and the business policy is to pay half of those earnings to investors (shareholders), so you would be paid $3000, and it would normally be called a dividend.  And this dividend, since it is paid every year, would be taxed at some rate--let's call it a dividend tax rate.  And if you sold your shares in that business at the end of 10 years for, let's say, $180,000, you would pay a capital gains tax rate on the $80,000 gain. Both the capital gains tax and the dividend tax are considered taxes on capital.

If you wanted to invest your money, you could also loan it, either to a bank that will pay you a rate of interest, or you could buy a bond--that is a promise to pay a certain amount for a number of years and then give you your money back.  typically here you get an annual payment on the bond, or monthly from the bank, or whatever, and it's called interest income.  this interest income may be taxed at a different rate, depending on your country.

Just to complete this picture from a tax standpoint, another way of making money is of course from working every day and earning ordinary income--basically your salary, bonus, etc.  And this "ordinary income" is subject to different tax rates, usually progressive (the more you make the higher rate you pay) and depending upon the country.

I distinguish these four ways of making money because they are different, and typically they are taxed differently.  so we have taxes on capital gains, dividends, interest, and ordinary income--sometimes depending on the country, they may be the same tax rates or different tax rates.  

The investment in capital, a business or a piece of property, adds a complexity to investment and taxes.  first, using property as an example, you generally take a risk, because the price of that property could go up or down.  Let's say you buy a property for $100,000.  When you sell the property, let's say 10 years later and the property has gone up to a $200,000 value, there is clearly a $100,000 gain, and you have the cash, so you pay "capital gains tax".  But, at the end of the 5th year, you would have a piece of property worth some estimated value--say $150,000--but who is to say what it's worth, and if someone wanted to tax you on that "theoretical gain", how would you pay it?  You haven't sold it, so you would have to come up with the money somewhere else.  As a result, I'm not aware of any governments trying to tax you on an estimated gain on your property.  
this same logic of gains on capital carries over to an investment in a business, and an investment in buying stock (shares) in a business.  If an investor continues to hold a share he has bought in a business, he is not taxed on any "estimated" gain while he hold it.  Instead he is taxed on the gain when he sells the share, and gets money in return--and the cash is available to pay a "capital gains" tax.

this is where the goals of equal distribution of income,,,,and the goal of making the economy run well,,,divurge.  to make the economy run well, you would like investment monies, capital, to move to the most promising business areas.  So from a country's point of view, if an industry is slowing in growth, say the buggy whip industry 100 years ago, because automobiles are taking over, you would like people to move their money from the buggy whip industry to the auto industry,,,,and fuel that growth in your country to create jobs,,etc, etc.  And for now, let's just note that investor's are influenced by the "capital gains" tax rate as they think about selling buggy whip shares and buying auto shares.  If there is a 0 capital gains tax rate, that money moves very quickly.  If there is a 40% tax rate, it moves more slowly.  Example, $100,000 initially invested in buggy whips can be sold for $200,000,,,,with 0 tax, the whole $200,000 moves into the new fast growing industry, and the investor perceives himself as still having a $200,000 investment.  If in the same situation there is a 40% tax on the capital gain, the choice is to sell the buggy whips,,,pay $40,000 on the capital gain,,,,and invest $160,000 in autos--lowering his investment value to $160,000.  Clearly selling and paying the tax is the right thing to do, in retrospect,,,,but just recognize that buggywhips versus autos may not be so clear "in the moment",,,,and some hold onto the buggy whips----while another country's investors may move funds into their auto industry.

So for a country to grow its economy, a 0 capital gains tax puts no financial obstacles in the invesor's mind, and allows the money to move to the fast growth areas.

However, clearly a 0% tax on capital gains flies in the face of equal distribution of income.  After all, who has the money to make the largest investments in business, or property,,,capital,,,it's those with the money--either inherited or earned.  The poor may benefit in the sense of growing economies, but it's not going to give equal distribution of income,,,not at all.  Now you might say the idiot that can't see autos are going to replace buggy whips deserves to lose his money--and there is some truth in that.  But remember, this is an extreme example, seen in retrospect where we all know the answer.  Suffice it so say that higher capital gains tax rates slow down the movement of money from one industry to another--potentially to the benefit on one country versus another.

So that's the dilemma--balancing the needs for a fast growing economy with investment dollars going to the new growth industries, from the older slowing industries,,,,versus the desire to have more equality of income.  

I was going to write more on related issues such as dividends, but I'm a little worried that I may be boring some of you to tears, or appearing like a pedant,,,,so I think I'll wait to see if there are comments, or encouragement or arguments, or whatever. [Editor's note: Laurent GUERBY made some excellent points in the comments that lead me to try to make some points more effectively. I'm not arguing for a 0 capital gains tax. I was trying show the impact of various tax rates on investor's decisions, by using the extremes. But it would have been better if I used both the high and low extremes, rather than the 40% in my example. So let me use a 90% capital gains tax to better make the point. A parenthetical remark would be that this high of a capital gains tax would significantly lower investments. But in our example of the $100,000 investment having a $100,000 gain, the 0 tax example means the investor has no tax impediment to moving his $200,000 from buggy whips to autos. With a 90% tax on the capital gain, the investor pays $90,000 in taxes, and is left with $110,000 to invest in autos. A much harder decision, imho, as he looks at having either a $200,000 investment in buggywhips or a $110,000 investment in autos--(no fair using your 20/20 hindsight here). Laurent also correctly makes the point that the tax part of the decision is only one element of the decision.

My model is that money will move where the after tax perceived gain compared to perceived risk is the most interesting in the investor mind. So it's the relative gain between strategies that's important, as long as the tax rate is not 100%, I'd say it won't change the speed of moving capital between places where it doesn't earn anything (or loose) and places where it earns something. To me factors like information and transparency to the investor and fees are what is important for money moving speed, not taxes.
I don't agree with this point as extremely as it is made, as he says "not taxes",,,,,but also says "where the after tax perceived gain".... Taxes are a very important part of the after-tax gain, and therefore an important element--and increasingly important as the capital gains tax is raised higher. Perhaps Laurent would agree,,but even if not, I thank him for his input, and hope this note is helpful.]

Comments >> (50 comments)
Next 20 >>

News and Views

 20 - 26 Nov 2017

by Bjinse - Nov 20, 19 comments

Your take on this week's news

 13 - 19 Nov 2017

by Bjinse - Nov 14, 57 comments

Your take on this week's news

 Open Thread 13 - 26 Nov

by Bjinse - Nov 14, 12 comments

That thread which has drawn from every poet worthy of being read some attempt at description, or some lines of feeling

 Open Thread 6 - 12 Nov

by Bjinse - Nov 5, 38 comments

A new thread is the time for comfort, for good food and warmth, for the touch of a friendly hand and for a talk beside the fire

Occasional Series
Click for full list


Top Diaries