Year: 2006

But first . . .

Do you seriously think the young founders of Google would have founded Google, thus creating thousands of jobs and boosting our economy, if the tax rate on long-term gains had been 20%? If dividends had been taxed as ordinary income? Would they have even bothered?

Or so seems to go the Party line (not our Party, you know which Party) – as confirmed on Sunday’s Meet the Press by third highest ranking Senate Republican, Rick Santorum.

Each time challenger Bob Casey said he’d shrink the budget deficit by rolling back the tax cut on income above $200,000, Santorum – incredulous at Casey’s economic naiveté – muttered something about ‘killing economic growth.’

Right? Why would anybody bother to start or try to expand a business if the tax rates on income above $200,000 were what they were from 1993 to 2000? (Except wait: weren’t those great years for new-business formation?)

Why would anyone have even gotten out of bed in the Fifties and Sixties, when the top federal bracket was 90% (and then 70%) and the top capital gains rate was 36% (and then 28%)? (Except wait: weren’t those decades of considerable energy and growth as well?)

No one I know is advocating a return to the crazy tax rates of the Fifties and Sixties and Seventies.

Almost no one I know is even advocating a roll back of the tax cuts on that portion of your income that falls below the first $100,000 or $200,000.

But what if – since we’re at war and deep in deficit, and since the ever more grotesque inequality gap is threatening the very character of our nation – what if we rolled back the tax cuts on that portion of your income above $200,000?

Republicans scoff. Better, they say, to cut taxes on the wealthy further – for example, eliminating the estate tax on billionheirs. This, in fact, is something the Republicans are so keen on doing they’d even be willing, grudgingly, to hike the minimum wage for the first time in a decade if that’s what it takes. (But without zeroing out the estate tax on the megarich, they won’t budge on the $5.15 an hour minimum wage.)

Happy Labor Day.

Greg Palast, author of the newly released best-seller Armed Madhouse, puts it this way:

. . . the USA now has more millionaires than ever — 7.4 million! And over the past decade, the number of billionaires has more than tripled, 341 of them! If that doesn’t make you feel like you’re missing out, this should: You, Mr. Median, are earning, after inflation, a little less than you earned when Richard Nixon reigned. . . . Since the Bush Putsch in 2000, median income has fallen 5.9%.

. . . Is America getting poorer? No, just its people, We the Median. In fact, we are producing an astonishing amount of new wealth in the USA. We are a lean, mean production machine. Output per worker in BushAmerica zoomed by 15% over four years through 2004. Problem is, although worker productivity keeps rising, the producers are getting less and less of it.

. . . It used to be that as the economic pie got bigger, everyone’s slice got bigger too. No more.

The One Percent have swallowed your share before you can get your fork in.

Randy Kirchhof: This paragraph that caught my eye: ‘Since 1990, the overall CEO-worker pay gap in the United States has grown from 107-to-1 to last year’s 411-to-1. . . . [And] if the minimum wage had risen at the same pace as CEO pay, it would now stand at $22.61 per hour . . .’

☞ But the Republicans hold the line at $5.15.

And now . . .

BUSH

M.J. Sweeney: ‘Did you notice W’s lie, in his interview Brian Williams, that he hadn’t even thought of toppling Saddam until after 9/11?’

☞ Actually: yes. Less than two weeks after his inauguration – and despite urgent warnings about Bin Laden – the agenda for his first National Security Council meeting was all about Iraq, not a word about Bin Laden.

CHENEY

Robert Kuttner, in very small part: ‘ . . . there are plenty of jokes (‘Bush is a heartbeat away from the presidency’). But you can count serious newspaper or magazine articles on Cheney’s operation on the fingers of one hand . . . Cheney’s the real president. It’d be nice if the press noticed.’ It’s worth reading his whole argument.

RUMSFELD

Frank Rich was even better than usual Sunday on Rumsfeld, Islamo-Fascism, Nazi appeasers, and the occupation.

THE LONG WEEKEND

Happy Labor Day Weekend. Those of you who actually labor for a living should be proud to know you are more productive than ever. (Thank you for that.)

Those of us who live off our investments (and, some might say, your labor) can, as I mentioned Tuesday, be pleased that you are getting paid less – and that, to sweeten our pot further, our taxes have been slashed. If you average $250,000 in dividends, $250,000 in municipal bond interest, and $500,000 in long-term capital gains each year, then you were paying $199,000 in federal income tax when President Clinton left office – a crushing 19.9% of your income. Today, thanks to Republican rule, you pay only $112,500 – 11.25% of your income. Like the President says: you have sacrificed in the wake of 9/11. You pay a lot of taxes!

AL-B-A MONKEY’S UNCLE

As some of you will recall, I’ve been writing about a company – or rather the warrants on the stock of a company – that didn’t do anything, but hoped to buy some other company that did.

I won’t reprise the whole thing here, but August 4 I bought more warrants at 36 cents. I liked this speculation, I explained, because the warrants (symbol: ALBAW) give us the right to buy the underlying stock (symbol: ALBA) at $5 a share anytime up to 2009 – and the stock was then trading at $5.35.

Yesterday the stock closed at $5.54, so the right to buy it for $5 should be worth close to 54 cents . . . and the right to buy it any time between now and 2009 should be worth somewhat more. (Being able to ‘keep your options open’ is always worth something in life, and here we get to keep them open for more than two years.) Yet the warrants closed at just 47 cents – which was 7 cents below their intrinsic value.

The company is in dredging. Or will be when the acquisition it made is completed. I don’t know anything about dredging. I just know the folks who bought the dredging company are smart folks. Maybe they know something about dredging. Heads, the stock in 2009 is $6 or $8 or $10 or $12 and our warrants, purchased for half a buck, are worth $1 or $3 or $5 or $7. Tails, the stock is $5 or below and our warrants expire worthless. For money you can truly afford to lose – because you truly may – this strikes me as a good bet.

RICH COFFEE

First it was ‘better coffee Rockefeller’s money can’t buy.’ Rockefeller sued. So it became, ‘better coffee a millionaire’s money can’t buy.’ That was the Fifties, maybe the Sixties. Who can remember his Chock Full o’ Nuts jingle history? (It’s hard enough to remember you have water boiling to make the coffee.) And now the jingle returns: ‘Better coffee a billionaire’s money can’t buy.’ We are a thousand times richer in fantasy than half a century ago. If that’s not progress, I don’t know what is.

AARON SORKIN

He’s back! The show is Studio 60, Monday nights at ten, ‘this fall’ on NBC. Someone just lent me the pilot, which you can get when you start a free trial with Netflix. It’s great.

OLBERMANN ON UBERMAN

A lot of you sent me this link to the video of Keith Olbermann’s comment on Secretary Rumsfeld’s recent speech.

THE DEADLIEST ANIMAL

Anthony: ‘The most deadly and most dangerous animal in Africa is not the hippopotamus or the lion, it is the mosquito. In fact in the entire world. Responsible for more deaths than all the mammals, reptiles, amphibians, fishes and birds combined. In fact you can throw in all the wars too. That is, if you will consider insects as animals.’

DRIVING HABITS

Marilyn Perry: ‘I have to say that we can change our driving routines without suffering undo hardship. I used to drive to work daily in Detroit, 28 miles round trip. Since I moved to Houston, I use public transportation. The Metro bus stop is right on my corner and stops right outside the door of the building I work. The benefits have been: 1. I am much more relaxed upon arrival of either work or home. 2. I don’t spend money on gas; one full tank will last 6-10 weeks (Honda Civic). 3. I have a reduced rate on my auto insurance. 4. My car is now two-and-a-half years old and has 7,000 miles.’

GIVE ME A W!

Nat Butler: ‘The Republicans are making a horrible mess of this country. And when I think George Bush and I were in the same Harvard Business School class, and that I met him when we were both teenagers, and cheerleaders at our respective rivals, Exeter and Andover, I feel that I have seen ‘up close’ a man who has caused a huge amount of devastation in this country and this world.’

HIS SIDE OF IT

The President spoke with Brian Williams. I quoted a little of it yesterday. Here’s a link to the whole thing.

KING OF THE JUNGLE

Okay, so the hippo didn’t eat the dwarf. On the other hand, which do you think is the most dangerous animal in Africa? According to this (notes faithful reader Stewart Dean): ‘Surprisingly, it is not the ferocious lion or fearsome crocodile. In fact, more people are killed by the hippopotamus than any other wild animal, either by being trampled to death or having their boat capsized. These giant herbivores can weigh up to 3200 kilos.”

☞ Rhymes with: wouldn’t want it to sit atop of us.

GRAND TIME

From Sunday’s New York Times: ‘In coming weeks, the Internal Revenue Service plans to start siccing private debt collectors on people with up to $25,000 in unpaid income taxes – and laying off nearly half of the auditors who examine estate tax returns of the wealthiest taxpayers.’

☞ Truly, it is a grand time to be rich and powerful in America. And if you had any doubt:

GRAND TIME II

From Monday’s New York Times: ‘The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity . . . has risen steadily over the same period.’

☞ Workers are producing more per hour and getting paid less. We shareholders should be thrilled! (The long-term implications are terrible – a declining middle class is one more way America has become weaker in the last six years. But who says you have to anchor your yacht in an American port?)

The Times continues:

‘ . . . wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s.’

Isn’t that great?

‘UBS, the investment bank, recently described the current period as ‘the golden era of profitability.”

I am loving it!

And as long as the current party rules, I think we need not worry. Republicans stand true to their core principles – as when, a few weeks ago, they refused for the tenth year running to hike the minimum wage (‘The buying power of the minimum wage is at a 50-year low,’ reports the Times) unless we completely eliminated the estate tax on billionheirs.

If any of this strikes you as cruel, you have not been listening. This is compassionate conservatism.

The president believes in a humble foreign policy. He and his allies in Congress are uniters, not dividers. And, most important to those of us who care about money . . . ‘by far, the vast majority of the help [from the tax cuts] goes to the people at the bottom end of the economic ladder.’

More good news from the same Times story: In 2004, the top 1 percent of earners got 11.2% of all the wage income, up from 6% three decades ago.

RECONSTRUCTION

And while we’re at it, there’s Paul Krugman’s devastating column from yesterday’s paper.

(But wait – isn’t it time you subscribed to New York Times Select – both because it’s great, and because the world needs a healthy New York Times? You can start with a free trial; you can give subscriptions as gifts; if you’re a student or faculty member, you can get it even cheaper. Click!)

So here is Paul Krugman:

Last September President Bush stood in New Orleans, where the lights had just come on for the first time since Katrina struck, and promised ‘one of the largest reconstruction efforts the world has ever seen.’ Then he left, and the lights went out again.

What happened next was a replay of what happened after Mr. Bush asked Congress to allocate $18 billion for Iraqi reconstruction. In the months that followed, congressmen who visited Iraq returned with glowing accounts of all the wonderful things we were doing there, like repainting schools and, um, repainting schools.

But when the Coalition Provisional Authority, which was running Iraq, closed up shop nine months later, it turned out that only 2 percent of the $18 billion had been spent, and only a handful of the projects that were supposed to have been financed with that money had even been started. In the end, America failed to deliver even the most basic repair of Iraq’s infrastructure; today, Baghdad gets less than seven hours of electricity a day.

And so it is along our own Gulf Coast. The Bush administration likes to talk about all the money it has allocated to the region, and it plans a public relations blitz to persuade America that it’s doing a heck of a job aiding Katrina’s victims. But as the Iraqis learned, allocating money and actually using it for reconstruction are two different things, and so far the administration has done almost nothing to make good on last year’s promises.

It’s true that tens of billions have been spent on emergency relief and cleanup. But even the cleanup remains incomplete: almost a third of the hurricane debris in New Orleans has yet to be removed. And the process of going beyond cleanup to actual reconstruction has barely begun.

For example, although Congress allocated $17 billion to the Department of Housing and Urban Development for Katrina relief, primarily to provide cash assistance to homeowners, as of last week the department had spent only $100 million. The first Louisiana homeowners finally received checks under a federally financed program just three days ago. Mississippi, which has a similar program, has sent out only about two dozen checks so far.

Local governments, which were promised aid in rebuilding facilities such as fire stations and sewer systems, have fared little better in actually getting that aid. A recent article in The National Journal describes a Kafkaesque situation in which devastated towns and parishes seeking federal funds have been told to jump through complex hoops, spending time and money they don’t have on things like proving that felled trees were actually knocked down by Katrina, only to face demands for even more paperwork.

Apologists for the administration will doubtless claim that blame for the lack of progress rests not with Mr. Bush, but with the inherent inefficiency of government bureaucracies. That’s the great thing about being an antigovernment conservative: even when you fail at the task of governing, you can claim vindication for your ideology.

But bureaucracies don’t have to be this inefficient. The failure to get moving on reconstruction reflects lack of leadership at the top.

Mr. Bush could have moved quickly to turn his promises of reconstruction into reality. But he didn’t. As months dragged by with little sign of White House action, all urgency about developing a plan for reconstruction ebbed away.

Mr. Bush could have appointed someone visible and energetic to oversee the Gulf Coast’s recovery, someone who could act as an advocate for families and local governments in need of help. But he didn’t. How many people can even name the supposed reconstruction ‘czar’?

Mr. Bush could have tried to fix FEMA, the agency whose effectiveness he destroyed through cronyism and privatization. But he didn’t. FEMA remains a demoralized organization, unable to replenish its ranks: it currently has fewer than 84 percent of its authorized personnel.

Maybe the aid promised to the gulf region will actually arrive some day. But by then it will probably be too late. Many former residents and small-business owners, tired of waiting for help that never comes, will have permanently relocated elsewhere; those businesses that stayed open, or reopened after the storm, will have gone under for lack of customers. In America as in Iraq, reconstruction delayed is reconstruction denied – and Mr. Bush has, once again, broken a promise.

HAPPY PLANET INDEX

It sounds like a Chinese restaurant – Happy Planet – but why not? Click here to see where various countries rank, how the index is calculated – and perhaps take the ‘survey’ to determine your personal score.

HOW TO MAKE A MILLION WITH A BLOG

Thanks to Jim Hickel for this comprehensive look at the blogo$phere.

TRADING VERIZON FOR COMCAST

Last September, I said I was selling the CMCSK I had in a taxable account for a small tax loss, to buy DD and GE (which have gone nowhere). Friday, I sold the CMCSK shares I had in my retirement account for a small profit and replaced them with VZ at essentially the identical price. A smart friend thinks Verizon’s $20 billion investment in fiber optic cable positions it to outperform Comcast and some of the other older cable companies.

HIPPO DOES NOT EAT DWARF

Oh, thank God. Click here.

DON’T SELL YOUR FMD

Suggested here in March at $38 and change, the stock closed at $54.80 yesterday. My smart friend says: hang on. It could be a very good few years.

DON’T BET ON A STRONG DOLLAR

Randy Kirchhof: ‘Have a look at this, from the CIA World Factbook. Now find the United States on it.’

ETHANOL

David D’Antonio: ‘Steve Baker says that a large chain of Canadian gas stations has converted to 10% ethanol. While it might not get to 40 below here in Eastern Massachusetts, stickers on the all the gas pumps I’ve seen have heralded the changeover from MTBE to (up to) 10% ethanol.’

Richard Factor: ‘Using my arguably excessive driving, Stephen Gilbert makes an important point. As he says, I ‘still used 632 gallons of gas in a 20 month period.’ But I also saved that amount simply by getting a Prius. To save most of the second 50% – the 632 gallons I did use – I would have stop going to work. (Would this wreck the economy? Not in my case!) This points up an interesting dichotomy: On the one hand, ‘Hey, Jack – this is America and I can do what I want.’ But on the other, consider that virtually every driver on the road – commuting, vacationing, delivering – is spending those minutes or hours or days WISHING HE WERE SOMEWHERE ELSE. If that doesn’t DEFINE ‘senseless waste of human life’ I don’t know what does. Maybe the most productive way to protect the environment is to seriously reconsider how much of this to-ing and fro-ing is really necessary. As you’ve mentioned, hybrids are wasted on those such as you who are able to work at home. Perhaps high-speed communications links, ‘telepresence’ equipment, and other innovative ways to avoid travel can be as much of a boon as is the hybrid vehicle in reducing pollution.’

☞ Perhaps. Though for some people, I think there’s no place they’d sometimes rather be than in their cars between work and home, listening to the CD of a KISS tribute band (or Jersey Boys), away from the capricious boss, the insane coworkers, the angry customers, the screaming children, and the nagging spouse – although I would not know about any of that because I work alone, my partner never nags, and our dozen nieces and nephews are an unalloyed joy.

MY READERS PLAY BRIDGE WITH
BILL GATES AND WARREN BUFFETT

Let’s hear you say that, genericcompetitiveblog.com. Click here for the story.

MY READERS PERFORM IN ATLANTIC CITY

Adam “Mini Peter Chris” Engst: ‘I’m not sure if you are familiar with San Francisco’s Gay Pride Parade, but if not, let me assure you that they put on quite a show. So much so that my fellow band members and I went unnoticed as we walked through the streets to get to our gig. This may seem like no big deal, but I must tell you that (click here:) I am the drummer for MiniKiss, a KISS tribute band comprised entirely of little people. I would like to invite your readers to our upcoming show in Atlantic City. We perform at the Borgata casino on Sunday, September 3rd.’

☞ Be there or be square.

UNTIL WE GET ELECTRIC CARS . . .

Steve Baker: ‘In Canada, where it gets very cold in the winter (40 below without wind chill), a large national chain of gas stations has converted to 10% ethanol, which requires no special cars, engines or modifications. It also runs cleaner and prevents gas line freezing in winter. Now wouldn’t it make sense to reduce overall gasoline consumption by 10% immediately?’

Stephen Gilbert: ‘Today’s remarks from Richard Factor show the seriousness of the energy problem we face. Factor no doubt thinks he’s doing his part for the environment, but he continues to drive an automobile more that 18,800 miles a year. Compared to other Americans, he may be economizing, but he still used 632 gallons of gas in a 20 month period. The environment doesn’t ‘care’ how many miles per gallon you get; it cares how much gas you burn.’

☞ Hey, don’t look at me: I never leave my keyboard.

Michael Kern: ‘Elon Musk writes: ‘However, let’s assume for the moment that the electricity is generated from a hydrocarbon source such as natural gas, the most popular fuel for U.S. power plants in recent years.’ This statement is false, and it strongly biases his conclusions. It is true that much new generating capacity has been gas turbines, and to a lesser extent gas co-generation. But this is for peaking capacity – what you use on a hot summer day. The base load is now and likely will be for a long time carried by coal – a much worse greenhouse gas emitter than gasoline; and by nuclear, which has no greenhouse problems but is nevertheless not loved by environmentalists.’

HOUSING NOTE

According to Grant’s Interest Rate Observer, which credited Yale University economist Robert Schiller for this information, U.S. residential real estate prices rose – in real terms, after inflation – by 66% from 1890 to 2004, or four-tenths of one percent a year. But between 1997 and 2005, the gain was 52% above inflation, which works out to 6.2% a year.

‘Many contend that a sustained pullback in house prices in unthinkable,’ Grant writes. ‘But the unthinkable – or, at least, the highly atypical – has already happened. In 2001-05, prices levitated.’

He goes on to say that ‘a return to the post-1968 trend-line would imply a drop of 22%. Which, of course, for these real estate-centric United States, would imply disaster. We do not predict disaster, but we do expect a pullback severe enough to inhibit the leveraged American consumer and to stunt the growth of the U.S. economy.’

So it’s official: the claimed Borealis tech wonders are worth less than nothing.

Here’s how I know.

Think of Borealis (BOREF) as a wallet with a bunch of things in it: an electric motor the size of a water melon that can drive a jumbo jet around like a golf cart . . . a hoped-for revolutionary way to make cheap solar panels . . . and on and on.

One of the things in the Borealis wallet is 5.4 million shares of stock in a company called Roche Bay Mining.

When it last traded, a share of Roche Bay (RCHBF) fetched $11.50. (The ask, yesterday, was $13.60 if you were buying; someone was bidding $11 for shares if you were selling.)

Borealis was $10 a share (or $9.50 if you were selling).

Borealis is divided into exactly 5 million shares.

Depending on what you got on you math SATs, this may be starting to come into focus.

Right?

Each of the 5 million Borealis shares in effect ‘owns’ 1.08 of the 5.4 million Roche Bay shares (in much the same way that three kids would each own two slices of a six-slice pizza, only in this case it’s 5 million kids and a 5.4-million-slice pizza).

So each Borealis share – which you can buy for $10 – owns $12.42 worth of Roche Bay shares. (That is: 1.08 shares at $11.50 each).

Which makes all the other stuff in the Borealis wallet worth . . . minus $2.42.

That’s not a high price to pay for a stake in what could conceivably be revolutionary new technologies. If Roche Bay is valued right (a big if), the market is in effect giving you $2.42 to take a chance on the rest.

Note, first, that there is absolutely no practical value in knowing any of this.

If these stocks were like real stocks – stocks that trade tens of thousands or millions of shares every day – you might consider buying Borealis shares and shorting a like number of Roche Bay shares, in the hope that, over the long-run, you would likely come out ahead as the prices came back into whack.

(Of course, as the geniuses at Long-Term Capital learned [and they really were geniuses], being right over the ‘long run’ doesn’t help if you get busted by market perversity before the long run arrives.)

But these stocks are not like real stocks that trade lots of shares every day. They are Pink Sheet stocks with giant spreads and very low volume. So forget it.

Note second, that the market could conceivably be right in its estimation. The stock prices may actually be in whack. You could have a situation where Roche Bay itself did nicely – maybe even paid out big dividends. But where Borealis took those dividends on its 5.4 million shares and siphoned them down the rat hole.

But that said, here’s what I’m thinking. I’m thinking, first, that according to Boeing and Air Canada’s chief pilots, they really did produce a prototype electric motor that moved the plane – so, yes, these guys may be dreamers with zero practical business experience, but they may also be honest.

And then I’m thinking, well, if they’re honest, maybe they really do have the giant iron ore deposit they claim to have on the edge of Eastern Canada.

And if they do, there’s a not entirely crazy chance it will be worth billions of dollars.

Even at $1 billion, that could be $100 per Roche Bay share. (Right now, there are about 8 million Roche Bay shares outstanding, but more would presumably have to be issued to finance development of their mine.)

So it’s a nutty, risky speculation and I may lose my money. But I ain’t selling my Borealis for $10 a share.