ERICOPOLY

The founding fathers are interesting. George was also a huge land speculator. Thomas Jefferson lived way beyond his means and died in debt. In so many ways they are the fathers of America as we know it today...

Here is the answer: http://en.wikipedia.org/wiki/Lend_lease America was repaid for the lend-lease program 10 cents on the dollar. Hoisington's conclusions that a massive trade surplus with a huge multiplier then are interesting to debate. He is contradicting himself when he says government spending can't work, then he also maintains that it has a huge spending multiplier. He calls it a trade surplus when we're getting paid with IOUs that get settled for 10 cents on the dollar. It undermines much of what he argues about in the current letter.

Yep, that's exactly why this is hard. There's a reason sound bites don't cut it, and politicians aren't actually stupid; they just have a very different set of constraints. Good point but some are pretty stupid. Here is a good example. Ignoring the religion part the look on his face at the end is priceless and I am still waiting for a youtube clip of this mom lady. That's why you'll never see Bill Maher on Fox -- they wouldn't dare invite him to a debate. Thanks for the video, I will be laughing at that one the rest of my day.

This makes me wonder. Hoisington thinks that would work, so why don't we just do it? Put 30 million people into make-work projects, suck enormous amounts of money from the private sector (sell war bonds), finance the whole thing with huge government debt... we could just skip the shooting war though. We could make lots of tanks and airplance, ships, grenades, food, etc... we can put them on huge convoys and just throw it all overboard before we get to England. Why does Hoisington think government programs won't work, yet he argues that such programs are exactly what cured the Depression during the WWII years? He says that sending all the war supplies to allies had a massive multiplier effect. We weren't paid for those items, it was lend-lease (is that really a trade "surplus" if your trading partners are broke and issue IOUs?). Or am I wrong... did we get substantially repaid?

Hoisington does point out that government action will work to cure debt deflation so long as the government starts a massive war that encourages people to put an unprecedented amount of their savings into war bonds, put 30 million people into uniform (a huge make work project) and send enormous amounts of munitions to our allies. Meanwhile, the public sector debt skyrockets in the process. http://www.hoisingtonmgt.com/pdf/HIM2009Q1NP.pdf However, the dynamics during the War were much different than from those of 1929 through 1941 and today. The U.S. ran huge trade surpluses as we supplied military and other goods to allies, which served to lift the U.S. economy through a massive multiplier effect. Additionally, 10% of our population, or 12 million persons, were moved into military services. This is equivalent to 30 million people today. Also, mandatory rationing of goods was instituted and people were essentially forced to use an unprecedented portion of their income to buy U.S. bonds or other saving instruments. This unparalleled saving permitted the U.S. economy to recover from the massive debt acquired prior to 1929.

To me, JOE is a low risk speculation. I paid $5,200 per acre for land where they're putting in an international airport. If I wasn't reading the Andrew Carnegie biography at the time, I might not have bought it. Carnegie (at least once) went in on a land investment 50/50 with a railroad executive. The railroad executive knew that his railroad was going to put a rail stop in at a certain place, so he and Carnegie bought up all the land there. Once the news of the rail stop went public, the price of the land went up. Duh! Well, insider trading was not illegal then. Carnegie might have been a great philanthropist but the way he made his money was morally suspect. So JOE just seemed too cheap for me given the airport going in, and even though it's hardly a secret I think it will be a catalyst. I figure some hedge funds will buy a bunch of JOE and then hype the airport angle. If a news story came out and said: "Look, you can buy acreage for $7,000 and they're putting an airport in with service to DC, Houston, Orlando... etc..." I would think the land is still cheap. And that would be after a 40% pop roughly over the price I paid. The place was called the Redneck Riviera which is enough to keep any sensible person away. Those people are completely insane -- I was at Walmart two days ago renewing my fishing license, and there are people there wearing "SS" t-shirts (literally it says "SS" on the front in 12 inch letters on the front -- then on the back it says "Support Your Local White Boy"). You've got to be kidding me! My Grandfathers' generation would have stuck these Nazi white trash in internment camps and thrown away the key! Yet they probably think they are true American patriots, what a laugh. Anyways, not saying there are any white supremists in the south, but that's what I think of when I hear the words "Redneck Riviera". I think the airport will drive up the prices and thereby drive those people out -- but it will take a while to work out.

Well, my holdings were all up in a manic move yesterday. C was up 7% yesterday. JOE was up 4%. FUR was up 6%. It's just a common theme. Just so happens that I own all three and they were all ideas I stole from Berkowitz. I saw nothing special from FUR yesterday that I didn't see across my portfolio (except for FFH which has been a dog, but it's a well loved pet).

I've heard this before, that Buffett regretted not selling KO when it was selling in the 80's. Yet, I've never seen the source. Can anyone source where he said he should have sold KO? He doesn't specifically mention KO here, but he is alluding to it along with likely the rest of his portfolio. http://www.berkshirehathaway.com/letters/2004ltr.pdf Nevertheless, I can properly be criticized for merely clucking about nose-bleed valuations during the Bubble rather than acting on my views. Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talked when I should have walked. He mentions the big positions, the desire not to sell for tax reasons etc... but what's wrong with a market short to hedge against market collapse? That's what Prem does and I think it would solve Buffett's argument about the problem with selling huge concentrated stakes and paying taxes. He is no stranger to writing S&P500 puts... after all. Pabrai and Buffett have said that shorting is no good because you can lose everything... but that ignores Prem's technique of buying out-of-the-money calls to hedge that risk.

Yes, not everyone. People wouldn't like being rich if everyone was rich. It would change nothing, wealth is relative. Rich people can pay others to cook for them, take them fishing, etc... well... who's going to do the work? And you're right about the ovarian lottery. But I'm not going to give my money to help Americans -- even the poor in America seem rich if you've traveled. Last year I gave money to a local nonprofit (neighbor founded it) that grants scholarships to deserving students of Omatepe, Nicaragua (a sister island of the one I live on here in Washington). My $6,000 total contribution will send one student through six years of medical school -- it costs $1,000 per year and that includes food+housing+supplies/books+tuition. That's a career in medicine that I bought for somebody for the cost maybe 50-100 medical students in America? That's value investing if you ask me. The other charity that impresses me is the Central Asia Institute run my Greg Mortenson (author of Three Cups of Tea).

Superannuation contributions are compulsory in Australia. So you don't have the case where people spend money on frivolous things when they are young and don't think about saving until they are 50. A superannuation fund is the same as an IRA here. I think actually it is the same as a RothIRA because my retired aunt (schoolteacher) and uncle (civil engineer) live on their superannuation fund and they claim they pay no tax at all on the distribution.

txlaw, One of the arguments in support of a reduced capital gains tax rate is to acknowledge that many capital gains are not "real" gains. Initially, when Austrialia first installed their capital gains tax, they had a system of indexing your capital gains against inflation to address this problem. It was complicated though because people can't agree on how to measure inflation. Today they've just given up on trying to precisely compute the effect inflation has on capital gains and just throw out a rough estimate that, "in the aggregate", they're about 1/2 of your gains from inflation alone. Of course, that's not accurate because during periods of low inflation they might be none of the capital gains, and during high inflation they might be much more than half. But at least they tried. So today in Australia your capital gains are taxed at 1/2 of the income tax rate. So if you are making more than $50k, then your capital gains are taxed at 24%.

Yes. One thing that Myth pointed out is that my margin loan strategy would avoid taxes but is inefficient -- that I could probably do better. That's what capital gains taxes and dividend taxes lead too. Inefficient deployment of capital and stupid decisions. Berkshire has held onto overvalued shares because after selling them and paying the tax the gap to exploit between market price and intrinsic value is eroded by a wide margin on the shares he's got a very low cost basis on. This lack of interest selling (for tax reasons) coupled no doubt with corporations buying back shares at those prices to avoid a dividend distribution (for tax reasons) leads to distortion and is general not a very good result -- an unintended consequence of the tax code.

You just said "dick" in two successive posts. What were you expecting after the first time? Maybe if you had instead written "asshole" instead of "dick" in the first post it would have been more polite.

Even I laughed out loud on that. Must have been Amy Goodman or something. --- Ericopoly - Well I dont even think we are talking about the same thing. You are talking about the American dream and the fact that people can make decisions right now which would increase their income in the future. Everyone else seems to be talking about averages and numbers. I can understand your point if I had $1million in salary each year and $100 million in net worth. I would feel underpaid, and not too rich. Its all relative I guess. I however would still know that I was doing better than most. At this point we can agree to disagree. You're right, I am talking about the American dream -- class mobility. I told you in the beginning not to believe what the media says about class mobility being dead in America. Then I provided an anecdote about how I did it -- and that path to the American dream would be threatened by much higher taxes on investment capital. I have been dropping all sorts of examples about how people from all wallks of life with the right mindset, drive, and initiative can scrap together the means to do what I did, if money and the freedom it brings is really important to them. For most people it's not worth pursuing, perhaps they value other things and don't pursue the money as much as they could if they were as hungry as I was before I started studying programming. You don't need a university education -- you can start your own plumbing business and work your way to my income level if you are successful. You can work a second job in an upscale restaurant in the evenings and make excellent tips instead of watching TV -- the government statistics don't show this. Not every waiter is in an upscale restaurant -- perhaps Kawihako didn't make the cut... I have no idea. He was, after all, only in college with little experience. There are a lot of other servers there who didn't do very well and he says they were there for 10 years... well, why were they not working at the places where you can't get a reservation and where the tips are very generous? Against this you talk about how the government statistics say that the average person doesn't make that much. Which is talking past each other, as you indeed recognize. I am talking about people who are driven to succeed and what they can hope to make if they apply themselves in their line of work, in return I just get back the same tired line about what average people earn. The important thing is in my job I wasn't making enough to raise a family and retire early unless I took a lot of initiative -- I would often for weeks on end in my early years come in at 9am, leave at 11pm, and then work weekends as well. I could have instead had a normal 9-5 daytime job paying $25k, then pulled in another $30k at least working evenings earning tips as a waiter. Same number of hours worked... and I would have actually had more money to invest the first few years with that approach because Microsoft started me so low in 1997 at $36k. I was a base-level software tester. Working that many hours per week, there was no room for a second job and Microsoft has an anti-moonlighting policy. The only "second job" I would have was buying businesses on a fractional basis... passive investing. Even assuming you have the stamina to work two jobs as a young single person instead of being out in bars running through your paycheck, working those nights and weekends as the waiter still won't make you rich. You need to invest it and compound at a high rate after-tax. In order to do that you need a tax code that is capital friendly. Remember when I said that high investment taxes are a barrier to social mobility? Ever since then you guys have been running this game of attacking a straw man over whether or not 100k is what an average worker in a number of industries can make. So what... with the hours I worked a person with two jobs could have made roughly the same that I did for the first 4 years.

I'll let you have your little victory that at $100k I was living wealthy in america -- it's a stupid thing to argue about... *Cough* *cough* dick *ack* *cough* :) The straw man is dead. Well done.

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement. It would be almost reasonable if you knew you would get full-time style work, but that isn't reality. A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it. They charge a lot less in China you see. The stuff I do telecommuting can just as easily be contracted out to people there. They don't outsource plumbing to China. How much do you pay for a visit from your plumber? I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor. I don't know what kind of work you do in IT, but outsourcing programming to China and India is not quite the same as consulting. Companies looking for consulting work still want people local and on site. I will be working for a former manager of mine who started his own company with a few other partners. He lives in Montana, his company is based out of Florida. I will not be traveling or going onsite anywhere. I will be doing programming and code reviews out of the office that I rent here on Bainbridge which I maintain anyway -- this office is cheap space I rent to get out of the house when I want to research investments. I will not be working with any other companies. This is a specific thing. It's a bit like being a loosely coupled employee, only I don't have to be bored when there are no projects to work on. Regardless, I will be making $65 an hour and I think it's an excellent wage. Full time, it's $130k a year but it won't be full time because the work won't be continuous. Just like a plumber... I'm not so different from a plumber. A plumber can make $100+ per hour if he has his own business (mine is a sole-proprieter)... it was his fathers' business (he was the sole proprieter too). My wife's family has been using them for a couple of generations (her family has been here on the island in the same house for four generations). Point being, he doesn't work for anybody else, he only does plumbing work, and for every hour that he spends fixing my sink I will need to work nearly 2 hours. It is what it is.

You'll find that I don't make any such claims. I do claim that a real go-getter can accomplish this. You are arguing that averages are far less than 100k. Well, so are the averages for IT workers. I busted my ass and made much more than average. I was in Forks, Washington yesterday chatting with my fishing guide. The town is full of people on welfare. Most of the kids in town join the military and many wind up in Afghanistan (my guides son is in Afghanistan now). There are not enough jobs and most are low paying government jobs. An out of town lady with very little capital started a business there last year and is now making $80,000 a month out of her "Twilight" store and running "Twilight" tours of the town. It turns out that somebody wrote a book about the town called Twilight (vampires) and a movie was made. So there are all these people coming in as "Twilighters" -- tourists. Explain to me why the locals in that town didn't have that opportunity? The point is... you can piss and moan or you can have initiative. You seem to imply that because I made $100k I am the only kind of person that can make it in America. My friend at Microsoft (won't reveal his identity) was in only his second year on the job, had maybe not quite $20k to invest (two years of savings), but swung hard at those FFH options in 2006 and quit his job later that year. He hasn't been employed since and is now worth enough money to trigger the inheritance tax next year. I think he made about $3,500% after-taxes leading up to the bottom of the market last year, then in Chinese microcaps has made another 7 bagger on top of that. Point being, you can turn $20k into $4.5m after-tax in just four years if you are determined instead of arguing about how you're poor if $20k is your life's savings. The difference is this... he believed he could do it and he put in the homework and risked his own capital. I'll let you have your little victory that at $100k I was living wealthy in america -- it's a stupid thing to argue about... I could be retired now even if I only made $60k during those years.

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour. If they can only make $50k per year maybe they are playing golf half the week. I can only make $65 an hour for my labor if I start my own consulting business. $100+ > $65 Distortion of facts. http://www.bls.gov/oco/ocos211.htm#earnings You should rely on your eyes more. What price do you pay when you call the plumber? Further, college workers get paid shit. So your college wage has no value to this discussion. When I was in college, I worked an IT job for $10 an hour. My wife and I go out to dinner every week and the bill is about $100. I pay a 20% tip and the server is making $20 from my table alone. She probably averages 3 tables at least per hour, so we're talking about some serious compensation. Your government statistics website... man, you can lie with statistics can't you? How much do they say that I made in my IT job? Was it $100k average?

rmitz, I earned $35 an hour cash compensation at Microsoft for the amount of time they ultimately required of me. Perhaps it's as much as $45 if you include benefits. I think people waiting tables (at a busy restaurant) do better than that -- better, than can pocket most of their income in cash (tips) and not report it to the IRS. Consulting at $65 is better than Microsoft at $45. Even after the self-employment tax it works out better.

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement. It would be almost reasonable if you knew you would get full-time style work, but that isn't reality. A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it. They charge a lot less in China you see. The stuff I do telecommuting can just as easily be contracted out to people there. They don't outsource plumbing to China. How much do you pay for a visit from your plumber? I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor.

He supports his argument with Japan beginning at 1989 -- another terminal point where a massive bubble collapse could instead be the cause of the slower GDP growth. He would be more convincing if he used an example that involved an increase in government spending but did not use a massive bubble collapse as it's terminal point. Otherwise he muddies the issue.

observation: Our GDP was growing at 4.8% ten years ago, and today we are staggering out of recession. conclusion: Thus, contrary to conventional wisdom, monumental government spending produced less growth, His analysis begs the question: Did the bursting of a massive bubble of overinvestment slow GDP growth, or was it the government spending that slowed GDP growth? In other words, did the 4.8% GDP growth of 10 years ago... did that in any way reflect the bubble? So as the bubble unwinds and GDP growth slows, should we ignore that and instead conclude that GDP growth is slowing down because of the government spending?

Of course they're not taxed and of course they shouldn't be. That's not the point. Think about Buffett's teaching for a minute here. Focus your mind on "owners earnings". I am the owner, those are my earnings. Those are the earnings I should be taxed on. Thinking about the dividends as my earnings is ridiculous. Dividends are a declared distribution of my earnings. There are other forms of distribution of earnings, like share buybacks. Share buybacks fortunately are not taxed -- people haven't yet recognized that this is how we tax evaders return cash to shareholders without people noticing that we are taking a distribution of our earnings. This forces the share price up at an above-average rate over time (relative to paying dividends) which is why it's possible to tap those earnings via margin loans. Stick to taxing owner earnings if you are trying to fill holes in the budget. I wish Mr. Buffett would mention that he is taxed on his owner earnings at a much higher rate than his secretary. He talks about owner earnings when he's thinking about how he buys shares, and he encourages every shareholder to think of their shares as pieces of the business as if they were wholly owned. But then sadly he carries on with this idea that his earnings are taxed at a lower rate than his secretary. Mr Buffett -- are these owners' earnings really your earnings or not?? Which is it?

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour. If they can only make $50k per year maybe they are playing golf half the week. I can only make $65 an hour for my labor if I start my own consulting business. $100+ > $65

our rates are historically *extremely* low, certainly relative to the taxes the middle class pays. When does history begin? There was no income tax prior to... 1913 I think? I might be getting the year wrong. Somewhere in there, I may be off by 10 years.