Well, Here’s a Bright Idea December 2, 1999April 22, 2012 Economic growth for the last quarter was revised from a 4.8% to 5.5%, the strongest in ages. Unemployment is rock bottom. With the economy humming brilliantly and the Fed nervous about inflation, I’ve got an idea — LET’S SCREW IT ALL UP! OK, so the idea is not original with me. It is George W.’s idea. A trillion-dollar-plus tax cut, just at the time in the economic cycle you don’t need and shouldn’t risk fiscal stimulus. What’s so bad about the course we’re on? More and more new jobs, more and more economic growth, low interest rates and the highest homeownership in history . . . a stock market that is already a bit giddy, to say the least, and the prospect of paying down some of the extra $4 trillion or so in national debt we piled up in the Reagan/Bush years (after the last big tax cuts). What’s so bad about all that? And how about ol’ George W.’s spin? He’s not doing this for the thousands of well-to-do folks who sent him $1,000 each. All they’d save is maybe $30,000 or $60,000 a year, poor buggers. No, Reuters reported, “the Texas governor, addressing the Des Moines Chamber of Commerce, laid out a seven-point plan that he said would help all Americans but especially the poor, encourage upward economic mobility and prolong the current economic expansion. ‘We need a tax system that makes it easier, not harder, to join the ranks of the middle class,’ Bush said.” Granted, the poor pay no taxes, but this would surely help especially them . . . how, exactly? And granted, the working poor benefit from hiking the minimum wage and the earned-income credit, which Bush’s party resists. But what’s needed for the working poor to break into the ranks of the middle class is lower taxes on the middle class and the rich, because . . . why, exactly? And granted, a big tax cut now would very likely lead to higher interest rates. That’s not all bad for the rich, who tend to lend rather than borrow. But higher interest rates would actually be good for the average guy, inasmuch as . . . what, exactly? I’m not saying that it would never be appropriate to drop the top income tax rate. I pay it; I’d like to pay less. But I am saying the time to do it is not at the peak of a boom. And that the honest thing to do, when you do do it, is not to say you’re doing it especially to help the poor. You have to assume that since Alan Greenspan opposed the Republican Congress’s $792 billion tax cut (which the President rightly vetoed), he is positively horrified by this even larger one. You should be, too.
Preferred Stocks December 1, 1999February 13, 2017 “For some time, I have been interested in lowering my exposure to the US equity market and I have been looking for interesting yield plays. This, as you know, is an area that is highly out of fashion. I have tried in vain to find a publication, or research, that specializes in preferred shares in America. I have found absolutely no research, newsletters, websites, chatrooms etc that offer insights to the preferred market (I even spoke to Mark Hulbert and he knew of no newsletters focusing on the area). A few focus on convertibles or convertible preferreds, but zero on old fashioned straight preferreds. From what I can tell it seems that there are a number of preferred shares issued by medium sized companies in the States offering pretty compelling yields. What I would like to find would be a quirky newsletter, brokerage house, or some resource that would offer insights. My gut tells me this is an area that offers compelling opportunity. Any thoughts?” — Tobias Brown Preferred stock is not really like stock at all. You don’t own part of the company, you have just lent it money . . . often with no repayment date (!), just the promise of a dividend that will never go up (!!). Yes, some preferreds are convertible into common stock, so you may share some of the company’s good fortune,if it has any. But basically preferreds are like bonds, only they get in line behind bondholders in the event of a bankruptcy. Because of the tax break preferreds give corporations but not individuals (most of a preferred dividend is free of corporate income tax), common sense would suggest –though not prove! — that preferreds would be bid up by corporations to reflect that tax advantage . . . and thus not be a terribly good value for those who can’t take advantage of it. Then again, municipal bonds don’t seem adequately to reflect their tax advantages to high-bracket taxpayers these days. So maybe the market doesn’t work so rationally after all, and preferreds can be a better deal than common sense would suggest. (Likewise, municipals.) And with preferreds getting so relatively little attention, who knows? There could be some good deals out there. I don’t know of any newsletters or resources specializing in preferreds. Sorry. (Do any of you?) But I say again: preferred dividends are fully taxed to individuals, and have to compete with Treasury bonds, which are (a) safer; (b) simpler; (c) often easier to trade without taking a haircut; (d) non-callable; (e) tied to specific maturities; (f) taxed at the federal level but free of state income tax. (And preferreds have to compete with municipal bonds, whose interest payments can be free of ALL income taxes.) So I foresee no stampede toward preferreds.