[Rhodes22-list] Economics - More Good News

[Brad Haslett]

Warren,

Wow, that's a lot but, I'll take a stab at it.  But first, a disclaimer:  I
am an hourly paid union employee.  If I knew where the market was going next
month I'd fly my Gulfstream to the coast and take the yacht out this
weekend.

The growth of this market is not sustainable.  No market ever is and that is
why we have business cycles.  This one has lasted longer and has been more
robust than I would have predicted, but hey, who is complaining? We saw what
9/11 did to the market - over a trillion dollars of wealth was wiped out as
soon as the markets re-opened.  The same thing would happen again with an
attack of that scale.  My time frame to retirement is a bit shorter than
yours and quite honestly, I'm probably more of a risk taker than is prudent
right now. But,  this market sure has been good.  When to get out?  I'm
seriously thinking about taking some winnings off the table, however, every
time I've done that in the past I missed the next run-up.  The time to buy
clothes is when they are on sale.  I'm not changing my savings rate right
now, I'm just scaling back to more conservative investments until things
cool a bit.  Unlike the Dot-Com bubble, this market is fundamentally sound,
just a bit pricey for my tastes.

To oversimplify the debt situation with China, we are a nation of spenders
and they are a nation of savers.  The US runs a huge trade deficit with
China and they have to park that money somewhere.  US debt is a pretty safe
bet.  China could wreak havoc if they dumped their holdings but it would
seriously harm their economy as well. A weaker dollar helps some, for
example, it makes American goods easier to sell overseas.  But like anything
in life, it has other repercussions as well.  Oil is priced in dollars.  For
OPEC  to keep the same purchasing power per barrel they have to charge more
for the stuff.  That hits us at the pump.  The upside is it should encourage
us to use less oil, but the demand for oil is stubbornly inelastic.  A weak
dollar also makes Disney World attractive to German tourists and beer in
Munich expensive for us.  Where's the happy medium?  I don't know, they
don't call economics the "dismal science" for nothing.

I love the next question.  Why do people spend so much to save on taxes?
Remember who you are talking to.  I've been asking myself that question a
lot lately.  Remove the politics, the social agendas, and the class warfare
from the argument and you come to this indisputable conclusion: lower taxes
make for a more productive economy. Our marginal income tax rates were as
high as 90% in the early 60's.  At those rates it makes no sense for the
most productive citizens to earn any more money.  Anytime you have this
discussion here on the list or on a national level everyone wants to hide
from the truth.  The top 5% of taxpayers pay over 50% of the federal income
tax.  We are not talking about so called "rich" people, we're talking about
married professionals, small business owners, a lot of people on this list.
People start looking for ways around paying more taxes when they don't think
they are getting a good value for their money.  You cannot avoid taxes, you
can only defer them to a later date.  For example, I'm aggressively using
the the tax provisions of the Katrina GO Zone Tax Act to expense
construction equipment rather than depreciate it.  The tax will be paid
sometime, either through the use of the equipment of the disposal of it.
The idea is to pay the tax at a later date and use the time value of the
money.  Losing money to save on taxes makes no sense at all and is based on
emotion.  That being said, in 1980, I could sell an airplane to a doctor,
lease it back, and the doctor would be positive cash flow for the first 18
months after debt service, even if the airplane never flew because of the
tax savings.  That is why there is a limit to marginal income tax rates
without things getting silly.  Now factor in class warfare, socialist
agendas, etc. and things really do get silly.

If you want to participate in an interesting experiment, fly to Gulfport and
we'll go knock on some FEMA trailer doors.  I'll offer them a job and you
record the reaction.  It will be something along these lines, "what, are you
crazy man, I've got a free place to live, no utilities, a monthly stipend,
why give-up all that for some risky job scheme"?  We need to evolve into a
nation of workers AND savers.  That's where politics rears its ugly head
again. Becoming wealthy in this country is really simple.  The secret is,
GET A JOB AND LIVE ON TEN PER CENT LESS THAN YOU EARN!

How is that for a short answer?

Brad

On 7/14/07, Foy, Warren <Warren.Foy at masonandhanger.com> wrote:
>
> Brad,
>
> Why is so much of the national debt held by China and why does the
> Federal Government allow this to happen? (honest question, I don't
> know).
>
> You mentioned in a previous post yesterday the apparent good economic
> news and rise of the S&P and workers 401k's.  Yes, I checked mine this
> morning and all of the funds I am investing in are at record highs as
> well as many of the individual companies I am invested in - I love it!
> (for today): (maybe, as the current funds going into these funds are
> purchasing fewer shares).
>
> (I'll pause for L.Sailor (Elle) - Do I use too much punctuation?)
>
> However, I remain concerned that because of political and terrorism
> issues, the growth of the market is not sustainable.  I am young enough
> (though not necessarily young, 47 with 20 or so years to retirement
> (maybe them I can purchase a Rhodes 22)) that I feel that my 401k
> retirement account can bridge more than one more significant market
> corrections due to (political/terrorism/Mr. Market/ whatever).
>
> I know I am rambling but my primary question (not necessarily to you but
> to the list) is, why don't Americans absorb the national debt ourselves
> rather than allow it to go to other countries?  Aren't we the wealthiest
> nation the world?  I think that the simple answer is the lack of
> confidence in the administrations, whether it was Bush, Clinton, Bush or
> however far back you want to go, and a thought that the stock market
> (whether American or International) will provide a better return, which
> is probably (no definitely) true.
>
> I my opinion, the typical American individual and companies view that a
> potential lower overall return of investment in the United States of
> America (via Saving Bonds or Treasury Bills), is super ceded by the
> perception of a potential additional rate of return by investing in the
> markets.  In short, I think that greed rules over national pride and
> provision of national security.
>
> Simi related question - Why do so many Americans look for ways to spend
> money to save on taxes?  I know people who have effectively blown
> thousands of dollars to keep from paying a couple of hundred in Federal
> taxes?  (I do understand that it is potentially better for the overall
> economy).
>
> Sorry for the long rant, I've got work to do and I can't go sailing as
> Rummy has my boat.  How is the boat Rummy?
>
> Warren Foy
>
>
>
> -----Original Message-----
> From: rhodes22-list-bounces at rhodes22.org
> [mailto:rhodes22-list-bounces at rhodes22.org] On Behalf Of Brad Haslett
> Sent: Friday, July 13, 2007 3:22 PM
> To: The Rhodes 22 mail list
> Subject: Re: [Rhodes22-list] Economics - More Good News
>
> Rob,
>
> And the bad news is - much of that debt is held by China.
>
> The good news is - much of that debt is held by China.
>
> This is like "mutually assured destruction" with the Soviets but with
> money
> instead of nukes.  Speaking of bombs, if we could just stop the ticking
> on
> the SS IED waiting down the road, I'd be happy.
>
> Brad
>
> PS - I'm going back to work this afternoon, I have my own deficit and
> debt
> issues looming.
>
> On 7/13/07, Rob Lowe <rlowe at vt.edu> wrote:
> >
> > Oh, I think Stan knows, but here goes anyway.
> >
> > The deficit is the yearly difference between spending and receipts.
> The
> > national debt is the sum of all the yearly deficits to date. The
> national
> > debt is approaching $7 trillion (yep, with a T).  Just think, your
> > personal
> > share is only about $30K, just short of the price of a new Rhodes.
> >
> > http://www.brillig.com/debt_clock/
> >
> > - rob
> >
> >
> > ----- Original Message -----
> > From: "stan" <stan at rhodes22.com>
> > To: "The Rhodes 22 mail list" <rhodes22-list at rhodes22.org>
> > Sent: Friday, July 13, 2007 2:52 PM
> > Subject: Re: [Rhodes22-list] Economics - More Good News
> >
> >
> > > help:  what is the difference between our national debt and our
> national
> > > deficit ?  And what are the comparison figures for the same years
> for
> > the
> > > national debt ?
> > >
> > > capitalistic minds need to know
> > >
> > > ss
> > >
> > > ----- Original Message -----
> > > From: "Brad Haslett" <flybrad at gmail.com>
> > > To: "The Rhodes 22 mail list" <rhodes22-list at rhodes22.org>
> > > Sent: Friday, July 13, 2007 2:45 PM
> > > Subject: [Rhodes22-list] Economics - More Good News
> > >
> > >
> > > > Yesterdays record S & P was indeed good news!  Anyone look at the
> > > > performance of their 401K lately?  No one needs to explain to me
> the
> > > > fundamental weaknesses of the current economy, but by all
> conventional
> > > > yardsticks, things look good.  If we had some fiscal discipline
> from
> > the
> > > > Congress and especially the White House, we could cut taxes again.
> > Alas,
> > > > that won't happen.  But the previous tax cuts and the robust
> economy
> > that
> > > > has resulted has made significant reductions in our debt load.
> > > >
> > > > Total US Deficit
> > > >
> > > > 2004 - $413 billion
> > > > 2005 - $318 billion
> > > > 2006 - $248 billion
> > > > 2007 - $205 billion
> > > >
> > > >
> > > > US Deficit as a percentage of GNP
> > > >
> > > > 2004 - 3.6%
> > > > 2005 - 2.6%
> > > > 2006 - 1.9%
> > > > 2007 - 1.5%
> > > >
> > > > I just love good economic news!
> > > >
> > > > Brad
> > > > __________________________________________________
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> > >
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> >
> >
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