ARC – sell

The smart person who recommended ARC just above $14 fifteen months ago no longer has confidence in the company’s eventual recovery, so I’ve sold the balance of my shares. Next to the total wipe-out of my Google puts, I think this is the worst one we’ve had (down about 30% after dividends if you didn’t lighten up along the way). Sorry.

NTMD

Suresh Sunku: ‘Thanks for NTMD. I may sell my June puts in the next 30 days as I may need money.’

☞ Sell them immediately – puts are no place for money you might need.

BOREF

Robert: ‘I saw this posted on the Raging Bull Borealis thread recently. Perhaps you could comment?’

There will be no qualified product for installation in any class of commercial airliner before it is fully blessed and certified by the FAA. A process that will probably take the greater part of a decade . . . There is no way Borealis has the resources to fund the airframe qualification program the FAA requires.

The company communications have long been wildly optimistic – constantly projecting far more than they achieve. This may be how management keep their spirits up for what is inevitably a long haul. Consider that TV was invented in 1926. It did catch on, eventually (you may have one yourself), and it made some people money. But it took 25 years to get going. My hope is that as progress continues to be made across Borealis’s various technologies – if it does continue – the company’s market value, $75 million today, will rise. We’ll see.

As to the FAA certification process, my hunch is that a thing that drives the plane on the ground may not take a decade to approve. New engines or a new wing design might. But a new way to push the plane back from the gate?

In any event, if the Chorus Motor can move a 767, it can probably move a forklift. Does the FAA have jurisdiction over forklifts?

MONOMANIA

John Leonarz: ‘The reader who criticized your monomania – obsession with a single subject – reminded me of this. As I recall, it’s from See Here, Private Hargrove, back around 1940, and the story goes that an Army draftee, much put out with the conditions of his military draft service, could say only ‘That’s not it.’ He was referred to one office after another. Each time, paying no attention to persons in the room, he would start rifling through all the papers in the office, and for each paper would glance at it, say ‘That’s not it. That’s not it.’ and throw it away. Office after office, always the same. Finally he is sent to the personnel office and they hand him a medical discharge. Triumphantly he yells, ‘THAT’S IT!”

TAX CUTS DON’T INCREASE REVENUES

Republicans love to say that cutting taxes on the richest Americans actually increases revenue. It’s the famous Laffer curve – and it’s true, up to a point. When the top bracket was 90% under Eisenhower, then 70% under Kennedy, Johnson, Nixon, Ford, and Carter, people jumped through hoops not to pay it. Even 50% in Reagan’s first term was too high.

Lower the rate and you stimulate economic activity . . . you take much of the juice out of risky tax avoidance schemes . . . and you get investors to take more – taxable – profits.

All that raises tax revenues. Swell.

But Laffer recognized that at some point, what you gain from these effects is more than lost from simply collecting at a lower rate. (Imagine a rate of zero if you doubt this, and then work back up from there.)

Just where that ‘some point’ is . . . well, it’s hard to know precisely. (One clue: At the 39.6% top rate we had under Clinton/Gore – 20% for long-term capital gains – revenues and economic activity were strong. It seemed to be a pretty good balance.)

Now comes this column by Daniel Altman from Sunday’s New York Times. In most important part:

EARLY last month, without much fanfare, the Congressional Budget Office released a paper called “Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates.” At a modest seven pages, it didn’t elicit the same sort of interest as the budget office’s budgetary and economic outlooks. Yet it may be one of the most important government publications in years.

[. . .]

[It] dismisses the idea that tax cuts may actually improve the government’s fiscal situation. Even in his most generous scenario, only 28 percent of lost tax revenue is recouped over a 10-year period. The United States, it seems, is firmly planted on the left side of the Laffer Curve. [The side on which tax cuts lower, not raise, tax revenue. – A.T.]

Recent experience corroborates this prediction. In the second quarter of 2001, just before the first of President Bush’s tax cuts took effect, federal receipts from personal taxes accounted for 10.3 percent of the economy. By the end of the post-recession slump, receipts had dropped to 6.4 percent. But in the third quarter of 2005, with the economy booming, they were still under 7.5 percent – an enormous difference. In dollar terms, federal receipts from personal income taxes, at $802 billion in 2004, are still lower than they were in 1998 ($826 billion) and much lower than in 2001 ($994 billion). . . .

Meanwhile, the interest we paid this past year on the National Debt was equivalent to about 40% of all the money we paid in personal income tax. And as the debt – and interest rates – rise further, the interest we pay will eat up an even higher percentage of tax revenues.

That matters, because instead of using future tax revenue to meet urgent needs and strengthen our country, we will be paying it in interest to our friends the Chinese and Japanese and Saudis, from whom Presidents Reagan, Bush, and Bush have borrowed it on our behalf.

That won’t hurt the wealthy. The Reagan-Bush-Bush era – under which 80% of our soon-to-be $10 trillion National Debt will have been borrowed by the time President Bush steps down – has been a grand time to be rich and powerful in America. But it will hurt the other 99% of Americans. And their kids.

 

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