How many times do banana republics (and others) have to “nationalize” foreign investments before it seeps into the less avaricious portions of investors’ minds that perhaps it isn’t a good idea to start businesses, construct factories, build up the infrastructure, and hire and train locals while trusting generals in comic opera uniforms to abide by contracts and their pledged word? Okay, so Brazil’s top contender for Presidente is Dilma Rousseff, and elections are a scant two months away, but her gender and wardrobe aren’t as important as her ability to employ the politics of envy in order to play to her “something for nothing” crowd and please friends in high places.

The more I think about the timing, the more nervous about Brazil I get. What are those people thinking? Do most of the people in Brazil own land now? No. Were most of them in line to benefit directly from jobs with foreigners? No, but there was big money on the line for the top 5%. Was there a slight chance that small amounts of reals from enormous taxes and expenditures might filter down to those cheering now? A slight one. Does anyone care about the peasants? Only as voters and if they had any sense generals and juntas wouldn’t let the peons vote. Mexico has done quite well for decades with a variation on that theme. The ones with the most to gain, are those who already have the most, which is the way the world usually goes…which is what baffled me. Unless they think they can raise their own financing, why not hold off for a bigger pay-off?

What seems to me a bigger threat is the likelihood that politicos in Argentina, Belize, and Nicaragua might be inspired to go and do likewise, and some of us here in this very Bar have money on the line scattered around Latin America.

Brazil is an enormous country, rich in mineral deposits, with the potential to develop immense agricultural acreage at the optimal point in history when greatly increased populations are beginning to stagger into the late nineteenth century in terms of sufficient income to purchase more and more highly prized foodstuffs…which isn’t going to make the least bit of difference so long as the political structure in Brazil remains a combination of feudalism and socialism. One expert estimates that between 2006 and 2008 alone foreign investors dropped $2.5 Bn on land. That is certainly a nice chunk of money to confiscate by, um, repatriating the land, but the thought that anyone other than politicians and whatever the Brazilian equivalent of the haciendado class will benefit is risible. The rich will get richer, the poor will get poorer, and Brazil can sit there until the system changes…if it ever does.

Those enormous deep water oil deposits off the coast? Any country willing to confiscate foreigners’ cane fields won’t have any difficulty with the concept of nationalizing the rigs or 90% of the output, although I wouldn’t bet on Brazil’s ability to hire qualified personnel to keep the oil flowing afterwards. Brazil just turned off the money spigot and will learn that a big slice of pie is vastly superior to raw ingredients on the counter, no cook, and no oven. They will find out that “Brazilian land for Brazilians” means the status quo for most of the population and makes as much economic sense as doing their own dental work at home with nothing more than a rock. I don’t know what the average per capita income is in Brazil, but I doubt that it is much. Chuckle. I doubt that anyone is worrying about the peasants. (The things I do for you people! Wanting to know the precise term, I started Googling, and ended up on a terrorist site! For the record, amongst those who write in English the preferred term is “landless peasants,” not “peons,” or something quaint in Portugese.) To nobody’s surprise, half of all the arable land in Brazil belongs to 1% of the inhabitants, many of whom speak Deutsch.

Those who are not in the business have no conception of what it takes to turn scrub land into even pasture land, far less fertile fields. We spend a lot of time eying Potash here in the Bar, although it has certainly lost a lot of luster with me after the Brazilian ploy. From long experience, my surmise is that land currently being prepared for cultivation in Brazil will revert to scrub land in short order; I am quite certain that Brazil has vegetation similar to our smut grass, cacti, cedar, mesquite, broomweed, and others which engulf untended land in a very few years and return it to the wild within a decade or so. It is a constant battle to keep such pests at bay, and all of them devour nutrients and water. The mess over the sacred Cedar Waxwing in Central Texas placed a moratorium on cedar abatement programs for about a decade, and hundreds of thousands of acres are now covered thickly with cedar (which led to immense increases in allergic reactions) and mesquite. It turned out that Waxwings can live very happily many places and most of them migrated, I suppose because there isn’t nearly as much insect life left. Insects like crops and livestock, and there isn’t enough grass left to feed many cows and Boer goats.

Sure, beef is up and the demand is up, but range land requires fertilization, control of brush and weeds, and planting better quality grasses chosen to thrive in a specific climate. Crop land requires fertilization, control of brush and weeds, irrigation in many cases, erosion control following plowing, planting, cultivating, harvesting, and off-season maintenance. The last I heard the topsoil in the jungles which are being cleared is so thin that perhaps two crops can be grown before it reverts to wasteland. Land that is nourished and cared for needs to be planted in rotation and allowed to lie fallow on schedule. Unless the farmer puts as much back into it as he takes out, yields diminish rapidly — and then there are the Greens howling against pesticides, insecticides, herbicides, and artificial fertilizers.

The sub-equatorial climate of Brazil permits two crops a year. That may double the output, but it also doubles all of the ancillary costs other than land purchase. A diligent man can raise enough crops on an acre of land to feed a family…but I wouldn’t hunt for tenant farmers in the cardboard shacks crowding the cities. Perhaps 20% of the cane currently under cultivation is on land owned by foreigners, but can the indigenous personnel left continue operations? Ex-pat labor isn’t dumb, and the loss of income may well lead to increased anger against foreigners and/or an increase in activity of The Shining Path sort. One traditional solution is enslavement of the resident Indians.

Brazil will find it cannot go it alone. It simply does not have the know-how, the personnel, or the investment capital, and it doesn’t have my sympathy, either. “Brazilian land for Brazilians” now costs a great deal more, but the source of revenue dried up, and their rulers did it all by themselves.

I have little sympathy for Agribiz and they will get off quite lightly losing their investment at this stage — unless they know that there are always “exceptions” in dictatorships that create Blagojevich-type expenses, and doubtless they can hire a native front man. I rather think it is probably quite easy to work with Hugo Chavez if sufficient money changes hands under the table and on paper a firm is owned by Garcia, Rodriguez, Chavez, and Hernandez. Oh, sorry…that’s one of the loopholes Brazil just closed. I’m wondering again how those who made a hostile bid for Potash are feeling about now, because the premise was that Brazil would become the new bread basket of the world and require lots of it…

I’m glad that I passed up a rather attractive-appearing silver mining operation elsewhere in Souse America because between drug wars, the occasional coup d’etat, manana, and the chances of nationalization that didn’t sound like a good place to send my precious money even if the proffered rewards at present are quite appealing. I wouldn’t invest in a casino in Cuba, either, if an opportunity arose; any bunch that can run an excellent agrarian system into the ground isn’t my idea of a good candidate to provide a thriving industrial economy, although I admit cheerfully that no one in Cuba has nationalized American hotels and casinos in over fifty years, but only because Fidel and Raul have been in charge and don’t hold with Americans and their evil activities. Brazil didn’t even manage to attain a good agrarian economy.

Maybe I just need to get with the program…”American land for Americans!” We could nationalize everything that belongs to foreigners, particularly the Chinese, Japanese, and others holding large amounts of our debt, and proceed to “USA buildings for USA-uns.” Grab the cash, the inventory, and subsidiary holdings, and then take back the land given to Indians. Gee, maybe we could even repatriate all the land suitable for agriculture and oil leases the Feds have grabbed…”40 acres and a mule,” anyone?

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

August 31, 2010

“Eet Eez Ze Costom of Ze Contry, Signore” was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

One day, I took a vacation day, picked up my girl friend, and headed for Lake Tahoe. On the way, we stopped by a restaurant owned by a mutual friend. As we walked in the door, the friend said, “Sit down, I’ll be with you in a minute. I’ve only got ten more minutes on this shift.” We sat down and ten minutes later she joined us. She said, “One of the girls called in sick, so I had to take her shift.” She sipped her coffee, asked how we were, and stated taking her tips out of her pockets and counting them. I watched in amazement as she kept pulling bills and coins out. She began counting the money and I was astounded to find that she had made about $120 in tips. At the time, minimum wage was $5/hr, so the normal waitress would have made $40 for the shift in pay, plus $120 in tips. I asked about the “normal” waitress and was told that she was a college freshman working at the restaurant during summer break. I thought, “That gal is making more than ME. Maybe I should get a ‘minimum wage’ job.” (I’m sure the waitress claimed ALL the $120 for income tax purposes.)

I have been thinking about the concept of “minimum wage” for several years. One of the first questions that come to mind is, “Why does the government have the right to tell me the minimum I must pay someone?” or alternatively, “Why does the government have the right to tell me the minimum I must charge for my labor?” I recall that at one time in this country, people would work for room and board in order to have a job that would teach them a trade. It was a mutually beneficial arrangement—the employer obtained help he could not afford to pay and the employee obtained training. I recall talking to a restaurant owner that hired an employee for “nothing” (except tips). The employee “cut a deal” with the owner that if the owner would train him to be a waiter, he would work for nothing. I went back to that restaurant six months later and asked about the employee. I was told that he had gone to San Francisco and obtained a very well paid job in a fine dining restaurant. Such would not have been possible under a strict interpretation and/or enforcement of the minimum wage laws.

When one considers the logic underpinning the minimum wage laws, it is quite apparent that the laws are politically motivated. It is a blatant attempt to gather and garner the “poor” vote—even if that vote is harvested at the expense of that very population.

Let us consider some economic assumptions:

Assumption #1: It is assumed that the only reason an employee employs someone is to make a profit from that labor. The employer expects to “package” the work the employee performs and “resell” it for a profit.

Assumption #2: If you recall your pay last raise, you will note that you “saw” about half of it. The tax laws in this country are such that, at the margin, you receive about half of your wages.

Assumption #3: Generally, for every dollar you receive in wages, it costs your employer TWO dollars. This is a function of payroll taxes (Social Security, unemployment, disability, etc.), time off (e.g. holidays, vacation), and benefits. (Use some other figure if you wish.)

Assumption #4: Typically, product costs are 2/3 labor.

With the above assumptions in mind, let us consider some of the economic aspects of the minimum wage.

An acquaintance once said to me, “I wouldn’t mind paying a nickel more for a hamburger if the employee could get paid a dollar an hour more.” I suspect contained in that statement is the entire philosophy of those that support the minimum wage. First, they wish to speak for everyone. My immediate reaction was, “Why don’t YOU pay TEN cents more for YOUR hamburger and let ME pay the price I am presently paying?” Second, the statement is made with such assurance that one takes no notice of the fact that there is no thought behind it. When the statement is analyzed, it becomes absurd. In order for the employee to make a dollar an hour more, the employer is going to have to pay TWO dollars an hour more (assumption #3). In order for that employer to “break even” charging a nickel a hamburger more, that employee is going to have to sell FORTY MORE hamburgers an hour. However, for every employee at the cash register selling hamburgers, there are at least two (and probably three) employees preparing the food, cleaning up, on the drive-up window, etc.), so in order to pay each employee a dollar an hour more, that store must sell about a hundred hamburgers more EACH HOUR to break even. (Ironically enough, while the employer is paying two dollars an hour more for each employee, the employee is “seeing” only fifty cents because of the tax laws [assumption #2].) I suggest that the only way the employer can make this situation “work”—i.e. break even—is to reduce staff and work the remaining employees harder.

One must consider how small businesses work. In many cases, the owner is working right beside the employees. It is not unusual to see the owner of a small business sweeping the floor. Oftentimes he would rather hire someone to perform that task, but cannot afford the wages to do so. Assumption #1 states that an employer hires people to make a profit. Consider an employee making minimum wage. If the employee’s wages are increased by one dollar/hr, it costs the employer two dollars/hr (assumption #3). That means that in an eight-hour shift, it will cost the employer sixteen dollars. If the product markup is ten percent, then that employee must sell an additional $160 in merchandise each shift in order for the employer to “break even”. Clearly, in all probability, the employer is going to raise prices and/or reduce staff.

Finally, let us consider the impact on the population we are attempting to help. Let us assume a 10% raise in the minimum wage. Because of the payroll taxes, this will cost the employer 20% (assumption #3), and the employees will “see” 5% because of the tax laws (assumption #2). If 2/3 of the product costs are labor (assumption #4), then the employer will have to raise his prices by 2/3 x 20% or about 14% just to break even. (This assumes that his raw material costs do not increase due to the wage increases imposed upon his supplier.) So, the employer increases his costs by 14% and the employees see their (real) wages rise by 5%. As the increase percolates through the economy, the minimum wage employees are actually WORSE OFF than they were before the raise due to prices higher than their wage increase. It is a gradual, almost unnoticeable effect.

The reader may well wonder how this is different from (e.g. union) negotiated raises. It is quite simple. At contract time, labor and management sit down at the negotiating table and “divide the profits”. When the company is doing well, a generous settlement is made; when the company is doing poorly, labor may well believe it is best to settle for less rather than to bankrupt the company. The raise given to the employees is a function of the ability of the company to pay. On the other hand, the minimum wage is imposed upon ALL businesses, regardless of how well they are doing or their capability to comply. It is imposed by an external “force” regardless of the ability of the company to pay, and there is no “negotiating”.

One must be somewhat skeptical of a “system” that:

1. Causes people to lose jobs.

2. Curtails the rights of people to sell their services.

3. Hinders the efforts of people to obtain training.

4. Bankrupts businesses.

5. Causes woe and hardship for the very people it is supposedly designed to help.

In closing, I wish to state that at one time, the highest paid employee in Reno, Nevada was the head waiter at the show room at Harrah’s Club. He was officially paid minimum wage. He drove a Mercedes.

Regards,
Tony De Maio
Whiskey & Gunpowder

July 26, 2010

The Destructiveness of Minimum Wage Laws was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

No inflation now or in sight?! Wahoo, let’s stop living on hamburger chubs and picking over the marked down meat, happy days are here again.

As though the official forecast for 2010–as shown by denying a raise in COLA for SS, a very unusual act–weren’t enough, whaddya think, but the Fed’s seers concluded from the data on hand that there isn’t going to be any inflation for the next two years as well! They’re so sure that they have already said “No COLA in 2011 and 2012, either.” Mah goodness, the green shoots are real, peace and stability are here, all hail Obama and Congress for their wisdom and flooding the world with pretty green pieces of paper. Americans will go along with any promise that an Andrew Jackson will buy in 2013 what it buys today. Historically…well, what an Andrew Jackson bought twenty years ago now costs a Bernanke, aka Benjamin Franklin, and my guess is that it will take a Jackson to buy what a fiver will now within three years. If we’re lucky.

Now that all of us who haven’t had prefrontal lobotomies have had a good laugh, let’s take a look at what the Bureau of Labor Statistics, abbreviated BLS appropriately, has to say about the merry month of March, 2010. Plug in UE if you see what I see, which is blue, not green. I’ll lead you into it as gently as I can by noting that for fourteen months in a row the number drawing food stamps has increased. This has more significance than just that unemployment is high (which we all knew) and that a benevolent government is buying groceries for very close to forty million “Americans” (39.4 million, to be precise.) I can’t see any difference between Bernanke and Geithner’s counterfeit and food stamps except that I’m not getting any of either, can you? Both purport to be “money” (although there are purely theoretical restrictions on what the stamps can be swapped for), both create “value” out of thin air, and while food stamps may be destroyed after one use they still inflate the money supply. This is exactly like cashing a check at your bank or “pulsing” out of an ATM, a beautifully apt comparison since using your debit card can result in charges. In both instances your bank account is depleted.

The number of those collecting food stamps is up 22.4% over March, 2009. Supposing amnesty for what some have estimated as at least twenty million “illegals,” while others put the figure at near thirty million, is pushed through–can there be any doubt?–it seems at least probable that food stamp allocations within a few months will rise by a minimum of fifty per cent. That sanguine figure I pulled out of my left ear, since it supposes that “only” twenty million will be added to the public trough but not the tax rolls. Not that that will be the end of the depredations, since “qualifying” for food stamps opens the door to many other calls on the public purse.

By the most stringent restrictions I could devise inflation could not have been set at any less than 3% honestly for at least the last three years, and the way I came up with that would have the Obama government leaping to hire me for demonstrating such imaginative accounting techniques. The BLS’ Producer Price Index (PPI) my be considered a diagnostic tool to anticipate increases in prices which will hit the consumer in the not too distant future. The U-6 unemployment rate is “the broadest measure of unemployment,” otherwise known as traditional accounting methods and how sensible people would tabulate the jobless population. You will be pleased to know that U6 = U5 + PHds asking if you would like to supersize the fries, or close enough.

The government prefers to use “U-3,” which cuts the figures as calculated by honest folk almost exactly in half, and it is only coincidental that half of six is three. Jeff Harding of The Daily Capitalist notes that U-6 increased from 16.8% to 16.9%, which may not sound like much of an increase unless you are one of the fifteen million people out of work or part of the enormous number of households who still own stocks, over 50% a couple of years ago. When we get to discussing actual increases in the cost of food in the last year you’ll feel as though this is the economic version of a crush film. The only green shoots I see are the government fog of green spray paint covering the facts. Timmy said recently, “We’ve made a lot of progress, we’ve got some work to do still and it’s going to take some time to heal the damage.” Given Geithner’s net worth and work history perhaps Mrs. Timmy (if there is one) doesn’t have to worry her pretty little head about the food budget. Most of the rest of us do–including the Entitled who are eating our lunch and more.

Again, I’ll ease you into the bad news gently. According to the BLS computational artists “food prices for the month (March, 2010), rose by 2.4%.” That’s very bad. The sentence continues “its sixth consecutive monthly increase and the largest jump in over 26 years.” which is much worse. Inflation is cumulative, you see, although the government doesn’t. We can’t just say that “inflation was 2.4% last month,” because inflation was the total increases of October, November, December, January, February, and March. On top of whatever it was in September. Much more of this and we’ll be having all the fun India is undergoing in rapid inflation in food prices.

Carolyn Cui, writing for The Wall Street Journal, comments, “From its February lows to the present, the CRB Index of commodity prices is up 8%. The CRB’s advance is not just an ‘oil thing.’ Most commodities are advancing, including the long-slumbering agriculture complex. Several price indices are validating these recent inflationary signals coming from the commodity markets. The Producer Price Index is up 6% year over year; import prices are up 11.4%, and the ISM’s Prices Paid Index has more than doubled during the last 12 months.” (Lawdy, don’t she talk fine, and ain’t that jest dandy news?)

Producers and retailers cannot delay price increases forever; eventually they have no choice other than passing them along to consumers, and savvy ones should be punching their prices up discretely already. The value of anything is what it costs to replace it, which applies to the flour a baker has in inventory, how many tires a B. F. Goodrich dealer has in stock, and the food in your pantry or my feed room in the barn. All of us will lose money if we do not take into account replacement costs, although this must be balanced against losing trade now by adjusting prices to more realistic levels by retailers. Perhaps three years ago the price of charcoal skyrocketed and meat was high. Not as many Americans were grilling out, and those who did were buying house brand briquettes because Kingsford raised their price to a dollar a pound. Sure, Kingsford makes excellent charcoal, but not at over twice the price of Walmart’s Chinese version. It didn’t take long to decide they would rather keep selling charcoal at little or no profit and retain customer loyalty than to cede the market to WalMart and grocers, and Kingsford’s price dropped sharply.

Call whoever does the grocery shopping if you aren’t the one and see if anyone remembers what eggs cost a year ago. Or don’t bother. I’ll tell you: the price is up 33.6% in the last twelve months.

How about fresh and dry vegetables? If you haven’t noticed, those are up 56.1%, in part due to bad weather on both coasts and in South America and artificially-induced droughts in California. The same factors influenced the rise of fruit and melons, now up 28.8%, and almost all of the citrus fruit, in particular, is so tainted that even peeling it won’t remove the deleterious pesticides. Turns out those bagged salads have more possibilities of fecal contamination than most of us want to risk.

The “other white meat?” Up 19.1%, although bargains are still to be found in loss leaders. I have been quipping for years that when the rebellion begins it will start in front of the bacon display, when we shoppers decide that we simply will not pay what was asked for a “pound” of bacon which now weighs twelve ounces. I cannot advise taking a flyer in pork bellies even at current prices. One has to sympathize with hog breeders; their costs for feed, taxes, labor, energy, fuel, and regulatory compliance continue to climb rapidly. They deserve our sympathy anyway; hogs are large, bad-tempered, aggressive animals who squash their babies and smell worse than most anything else in the world. All the time. Forget about buying bacon and put your pork money in sirloin chops which you can find frequently for about $3/pound with almost no loss due to high fat content.

Beef and veal are now up 10.7% while dairy products, after a drop last year, have risen 9.7%. You will forgive me for saying, “I told you so.” I pointed out that beef and dairy cattle were being slaughtered because it cost too much to feed them, and that the average loss per head run through the Fort Worth Stock Yards last fall was $150. We had to feed hay last summer, and that condition continued throughout all of the hard winter and into a late spring. You would be horrified to know how quickly a hundred head of cattle can go through over $5,000 worth of hay. (Well, it may not be “worth” that, but that’s what it costs. Plus, of course, delivery fees and labor to put it in the barn and dispense it daily, which involves machinery you really don’t want to know the many costs of.) Just like the futility of eating your seed corn or turning 30% of the yearly corn crop into ethanol (which costs more than the energy it delivers), you can’t slaughter the mothers of future meat animals and expect prices not to rise. Being on this side of the expensive fence we’re repairing or replacing this week, I can attest that selling a head of beef at the local auction house for the current price of just under a dollar a pound isn’t going to finance a trip around the world on the “profits.” I’m not selling. It’s spring, the grass is lusher than in many a year, and th’ critters can wander around gaining a pound a day. If I don’t like the prices in the fall I’ll winter them over.

Very frequently I get into micro-economics, instead of my real brief, which is macro-economics. My reasoning is very practical: W&G is devoted to helping you make the most of your assets, and every tip I can give you to take advantage of trends frees up that much more capital. A side of beef six months ago would have been an excellent investment and kept you out of grocery stores. (It is a truism that even if you went to the store for nothing more than a loaf of bread your bill will be about eighty dollars.) Now is the right time to fill your propane tanks, since gas prices are increasing and it is a virtually invariable rule that it will cost more to do so in the fall no matter what energy costs are in any given spring.

Traditionally grocers attempt to make a massive 4% profit. The increases aren’t because farmers, ranchers, fruit growers, and your local Albertson’s have run amok (although it should be noted that everywhere I have ever been Albertson’s is more expensive, and so are Fred Meyer and Apple Tree, formerly Safeway.) Taxes, regulations, energy costs, labor costs, and the effects to come of Obamacare and other ultra-liberal legislation we expect to see rammed through Congress while the Demmies still have a lock cannot fail to increase the prices of all goods and services in coming years…and years…and years. Increases in the prices of food and gasoline were responsible for nearly 60% of the overall 3.85% rise in the cost of living since this time last year–which Carolyn Cui puts at six per cent.

If you haven’t filled your tank recently, gasoline is nudging three dollars a gallon, and so is diesel. America relies primarily on diesel fuel to get goods to market. Perhaps I should have mentioned in my recent article on how well Texas is weathering the current Depression how many of the railways are still in use, here. Tiny Hearne, twenty miles away, is known as “the crossroads of Texas” because major rail lines crossed and many of the most important railroad people lived there. You can still see many elegant old houses.

Figures and logic can seem dull until one grasps the joy of manipulating them and using them as a lie detector test. When we see the world in terms–at least occasionally–of “If A, then not B,” or “If A, then B but not C,” personal investment decisions become easier. What I’m most interested in at present (other than the steaks I can smell; one of the perquisities of being the, uh, sorta, very minor toast of four continents is that I don’t cook–something I love–any more, chained as I am to my computer about sixty hours a week rummaging through world happenings. My dear crew indulges me lavishly. Of course, I don’t ask them to write, which few relish as I do!)

To continue, what I am most interested in is what happens to the next $94 billion offering in treasures. It could be that the world is agog for the treat and will snap those babies up. Far more likely is that the result of this was covered in my archived article, the name of which no one should expect me to remember since I write at least two hundred of the things a year. If foreigners don’t step up to the plate, our biggest banks have to eat what’s left. Whaddawedo when the “too big to fails” can’t come up with the cash and/or Timmy and Benny can’t slip them any more under the table?

What if, some day–perhaps this week–the mega giants who are obliged to buy anything BRIC et alia don’t buy have to exclaim “Urk! We can’t cover that?!” One failed auction, and, as we say in Texas, it’s “Katie, bar the door!”

Matters are no better on a variety of other fronts: consumer credit has contracted 4% in the last year; household expenditures in terms of debt service have fallen from almost 14% to roughly 12.6%, but this almost certainly reflects those who have simply stopped paying their mortgages and credit card bills, not any real increse in income. News on the real estate front is not at all sanguine. According to RealityTrac YoY houses reposessed by mortgage holders rose 35% and auctions are up 21%, while filing foreclosure papers was up 16% in the first quarter compared to 2009. Their estimate calls for four million forclosure filings and a million seizures this year.

Wages continue to decline slightly while hours worked went up a similar tenth of a per cent, with a total for the last couple of months being .3% in each area over the last two months. BLS includes this tidbit: “In March, average hourly earnings of all employees on private nonfarm payrolls fell by 2 cents, or 0.1 percent, to $22.47, following a 4-cent gain in February. (Emphasis theirs. LBT) Over the past 12 months, average hourly earnings have risen by 1.8 percent. In March, average hourly earnings of private production and nonsupervisory employees fell by 2 cents, or 0.1 percent, to $18.90.” Laughter…I suspect the reason farm payrolls aren’t included is that we work longer hours for far less money. A cow hand makes all of five bucks an hour, with no benefits, eight if he’s stringing barbed wire fences.

You all know I’m staunchly in the Doom & Gloom contingent, and my basic “gut check” continues to insist that we should have as little fiat currency as possible when the Chinese turn the butterflies loose (very much to their advantage) or the Obama crowd can see no alternative to crashing the dollar deliberately. I am far more interested in not losing any value which can be stored than I am in making a “profit.” My brother points out that he found a few stocks paying spectacular dividends, but he spends most of his time in Latin America.

Today’s stats elicited a feeling that it is time to take even more serious precautions. My “instinct” (my term for an analysis I haven’t made on paper) is to get out of anything denominated in dollars (not that I like Euros, either) and buy anything of intrinsic value, preferable non-taxable and suitable for consumption or bartering…and don’t worry if you are down to salary or pensions we can’t expect to be worth much in times to come. I don’t have to live in Zimbabwe to know I wouldn’t like their method much. Very short term we might regret getting out of cash, bonds, tax-deferred pension plans, and most stocks, but let’s see how things look six months or a year hence. Sure, interest rates are low, but banks are in trouble and tend to hold on to their cash–and get more from the Fed for almost nothing and put it government paper at five times what it costs them. The joke is that the Feds are underwater far worse than mortgages are. Some consumerism is driven by current and foreseen tax situations, while some is spurred by those who have defaulted on mortgages and credit cards. Desperate merchants have reduced prices.

The only sector doing well is government. Sabers are rattled, but no jobs have really been shed, the “work” pays an average of 50% more than similar private sector jobs, raises continue, particularly at the higher levels, and the benefits are far more splendid. It’s the same old problem: out here we see rising prices, lower incomes, lost jobs, lost “equity” in our homes, and the difficulty individuals and small businesses have getting loans. The Statists persist in pretending Keynes was right, but the hog they’re riding high on is getting mighty skinny.

Here in the “No COLA because there is no inflation” group the old rules for how to build and manage capital are DEAD. The future belongs to those who plan now with that fact in mind.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

May 10, 2010

New BLS Hits was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Gary,

I used to enjoy W&G when it was about investing. Sadly it seems to have morphed into Fox and Whiskey News. The health care bill gives back to people who need it a tiny bit of our tax dollars. It passed. Please get over it.

Really, I keep wanting to renew the several newsletters I have paid for and used to enjoy but I (sic) every time I start to write a check I ask myself “do I really want to support an organization that hates American government, hates the fed, hates that minorities may actually get something for their taxes?” and put it away.

Please tell me this is just a phase!

Sorry, Writer, political forces have always had profound socioeconomic effects, which means that only a genuine free market in the absence of governmental pressures would allow us to analyze investment possibilities without considering what King John and the Sheriff of Nottingham are doing and whether Richard would be any better if he returned. If you want to reduce investment to sheer statistics and luck, divorced from what goes on in the real world, I suggest you play the slots, buy lottery tickets, or frequent Bingo parlors.

This “phase” will last as long as market forces are skewed by “I won!” and the politics of envy and robbing us, Chiun, and Matsumi to pay Pablo, Abdullah, those who are “entitled” to eat without working, the unions, the Greenies, lawyers, and other voting blocks. This is not racism or prejudice, it is a grasp of budgeting, cause and effect, and how we choose profitable investments.

Gary, does this person really subscribe to any of our newsletters? How could anyone who read Morning Whiskey conclude that we regard ourselves as entertainers or followers of others, that we “hate” the government and the Fed (in the sense the Writer meant that) or that we regard the health “care” bill as intended to give “minority taxpayers” something in return for their tax dollars? I read every word I don’t write published on W&G and during a year of articles and comments on what is wrong with the legislation we have never phrased them in any way other than the deleterious financial effects which will ensue, Constitutional issues, and mention of hardships which will accrue to “ordinary families” and businesses which have to make profits of some sort or cut jobs or go belly up, as all too many have already, including Circuit City, Linens ‘n’ Things, Block Buster, and just a bank or two. Recent disclosures, per regulations, reveal precisely how “little” corporate wealth will be redistributed to the government for the poor dears who don’t know about many ways to get health care for free, including just clogging emergency rooms, citizens or not.

Actions have consequences. If I employed 53 workers at present I would fire at least four of them immediately and decide whether it made more sense to automate or move my operation overseas. The Laws of Thermodynamics do not work precisely in the financial arena. Expect not “an equal and opposite reaction” but an expanded reaction to the massive tax hikes and increase in costs, bureaucracies, and regulations which will cause harm to family budgets, small firms, and even large corporations out of all proportion to the putative good expanded insurance coverage could produce. Those, in turn, will avalanche across the financial landscape resulting in more businesses closing, higher prices, and fewer goods and services purchased, which leads to fewer taxes collected, and higher and more taxes levied. What an odd world when trillions of dollars that must come out of working capital and widespread misery are touted as “giving back a tiny bit of our tax dollars,” even if we will all be covered for sex change operations. It would be interesting to know how much Obamacare will end up costing the Writer, along with the whack coming from Cap and Trade, the Food “Safety” Bill, and the drive towards “amnesty” for tens of millions of illegal aliens–in direct increases, that is, not in the ultimate causation. My personal concern stops well short of tripling my mandatory insurance costs for less adequate care.

The challenge is “to get over it” and return to analyzing business and financial, economic, sociological, resource, and foreign issues in the pragmatic lights of “this is now” and “this is what is coming from the folks who brought us Obamacare,” so I shall try. We can start with what Hank Reardon said, wearily: “We’ll just have to work a little harder.” Okay, a lot harder and smarter.

In order to choose good investments we must attempt to foresee future needs, desires, trends, and actions and the effects of behavior and legislation. Our bets must factor in the probability of inflation, the effects of taxation and proposed new legislation, and what is going on in BRIC, OPEC, and the EU, along with how much further it is “safe” to attempt to back Israel into dangerous corners and topple Netanyahu’s government. Writer, this is a process that deserves one of those warnings, “Closed course, professional driver, do not attempt this at home.” As the wise old gunslinger said to the wannabe, “Go to pitchin’ hay, son. You’ve got the hands for it.”

The goal is to increase our working capital/provide for our old ages in inflation-adjusted terms, to put it very simply, indeed. W&G experts specialize in gold, energy, emerging technologies, and commodities because the first necessity is to lock in current worth by investing in items with intrinsic value, which are also the ones we expect to hold and increase in value. We do not roll the dice casually and hope for the best. One method–which I sure wouldn’t try–is to “just get over it” and go with the political flow. You want investment advice, Writer? Short coal and go long LNG because the big money is behind destroying the coal industry in favor of LNG. Mercury is probably a good long term hold, against the fast-approaching day when it will be forbidden to manufacture or import far superior and safer incandescent light bulbs. That might be a method much to the Writer’s taste, because he appears to understand the politics of economics. Darn those profiteers selling the gullible wheel chairs and prosthetic devices…but consider buying a chair before the big tax hits.

When divorced from the politics of governmental greed and envy there can be excellent reasons for investments such as our own Byron King’s recommendation of uranium to fuel the vast number of nuclear power plants in China and elsewhere, although not, of course, in the USA.

The best courses for the foreseeable future are seeking cover or getting out from under before more of the Statists’ legislation and regulation are implemented, and analyzing which resources will be more in demand and/or in lessening supply. Concern over the growing insolvency of virtually every country on earth and the likelihood of more bubbles bursting in the coming eighteen months and placing additional stresses on other factors of the economy require that we protect our assets from what is, what we know will come to be, what we infer to be probable, and various combinations and permutations of those. Two lengthy, excellent articles I read this week covered the coming restrictions prognosticated to be placed on capital- and even human flight from the USA. A small blurb mentioned legislation being talked up in Congress at present concerning those, and Reality Check weighed in on this issue today. (Yes, Adam, I’m sure!) Most of my life there have been limits on how much physical cash could be taken out of countries. My conclusion is that anyone considering a move to Argentina, Belize, Panama, or a nation ending in -guay should decide one way or the other fairly soon, since there are reasons to suppose that such immigration will be subject to as much as a forty per cent. penalty in times to come. Some potential host nations are considering the possibility that potential immigrants may find their pension funds cease or will be withheld, rendering new citizens unable to support themselves. We are very close to proscriptions against overseas banking accounts.

More and more one factor needing our most scrupulous attention is taxes, particularly with reference to rising costs which will be the inevitable result of Obamacare, Cap and Trade, bailing out states and more bankers, and frantic attempts to deal with the sharp fall of tax revenue which results from raising rates and in part from giveaways to those who are jobless and not paying taxes. (Los Angeles will be out of money on 5 May and asked for a mere ninety million to tide itself over.) Another is the increasing conflict fomented deliberately by the “post-racial” president and his group. There are things which are far better left unsaid, such as referring to anyone who isn’t an Obamamaniac as a fascist, racist, homophobic, mean-spirited, rednecked, Bible-thumping potential terrorist, thereby raising the suspicions and hatreds of a great many groups against those of us who think we’re kind, hard-working, sensible, good Americans living the principles we were taught sixty and seventy years ago.

The author of the letter above expressed himself as politely as can be done when accusing us of being hate-filled, irrational, immature, elitist scum, but the fact remains that he insulted Gary, W&G, and even me directly and deliberately. It is my opinion, formed over many decades, that we just think the Statists are wrong and frequently very funny, but that they genuinely hate us and seek the destruction of the middle class, in particular that portion of it which creates jobs and enjoys fruits formerly reserved to the ruling, priestly, and warrior classes. They do it for a variety of reasons, but they all work together towards that common goal. The current legislation being pushed has nothing to do with bettering the lot of “the little people” or saving an “endangered” planet. All of it is concerned with increasing the scope and power of government at the cost of intellectual, economic, and uniquely American ideas of freedom. Wry laughter; I suppose that is sour grapes; “it’s immoral, it’s illegal, and I ain’t gettin’ any.”

“Please get over it.” One might as easily expect results from talking to Nancy Pelosi or attempting to explain corporate income tax to a grapefruit as to show this writer why it is irrational to endeavor to “get over it.” Wipe it out of our minds, do not consider the consequences, accept that we have no power to stop the destruction of our nation and a way of life that lead to increasing prosperity for all who worked for a hundred and seventy-five years? Discard our principles and stop being poor sports?`

The ways of the market are ineluctable, Writer, and the reactions of humans predictable. The “compassion” of Roosevelt, Marshall, LBJ, and Obama cost more than any nation can pay, something Cyrus of Persia demonstrated a couple of thousand years ago and King Saud is learning. A very expensive ruling class and bread and circuses plus fiat currency are always a recipe for disaster. The mortgage the House ran up is so far under water it cannot be paid off, period. Ours is the story of Detroit, writ large. During its heyday Detroit was the fourth largest city in the USA, the pride of American manufacturing. Today the population is 400,000 Hispanics, 300,000 Muslims, and a couple of hundred thousand who are also on the dole or running Mom & Pop stores. There is not one single chain grocery store left, and even WalMart has given up, there. Those who created jobs and had jobs left, driven away by unbearable rates of taxation and over-regulation and rising crime. The streets belong to gangs while City Hall yaps for higher taxes and demands even more aid from the state Capitol and the Feds. Sorry; they’re tapped out, too. Pampered union workers discovered that running a fork lift doesn’t pay $85K in the real world but commands little more than minimum wage elsewhere.

The best–for at least the short term–job in America isn’t being a doctor or a lawyer; it is any sort of government position. Higher wages, much better benefits, and great job security…for perhaps another five years.

The facts are all too clear. We aren’t going to get over this “bump in the road.” Those who can will relocate in Latin America or Greek islands, and some of us will continue our efforts to become as self-sufficient as possible. Those with great fortunes and/or political clout are making similar preparations. The bulk of the population is in for times that will make 2010 seem like “the good old days.”

If there is Internet and you can pay your enormous power, telephone, tax, grocery, gasoline, and server bills Christmas of 2012, Writer, tell us then how successful you and the country are in your national socialistic paradise. I will reply, “Get over it.”

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

April 8, 2010

Investing in a “Get Over It” World was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Thus sayeth L. E. Modesitt, Jr., an author and a fine piece of wisdom I commend to all of you. I don’t know if Mr. Modesitt regards himself as a philosopher and an analyst, as I am, or “just” the creator of many thousands of pages of superb fantasy, but once we strip away the wizards and sorceresses his grasp of human behavior, politics, financial affairs, and economics is superb. In ten words Mr. Modesitt has embodied both the problems and the basic strategy we need to cope with the dangers growing around us.

More and more most Americans cannot count on the preparations (if any) they have made for all of their tomorrows, whether we are speaking of the 40% who are on the dole, the approximately 21% who are without jobs, or those who have long been serious about the future and demonstrate that by choices including saving, trading, investing, and your devotion to reading Whiskey & Gunpowder. Those with the “entitlement” mentality give no thought to tomorrow because it is an article of faith that government will continue to provide food, shelter, medical care, assistance with utility bills, and “walking around” money, all free and without the effort of working. Surely it will, for in their lifetimes and for generations before them thus it has always been…

Wrong, drones. The federal and quite a few state and local governments resemble GM a couple of years ago, the primary differences being that they produce nothing of worth and have nothing for favored groups to benefit from when the “for profit corporation” known as the United States of America goes under. As it will.

If one did not loathe the Obamacrats fiercely one might be inclined to feel sorry for them. The time is here when some group has to be thrown off the sleigh to placate the wolves of BRIC, et alia. Harry, Nancy, Timmy, Ben, and Barry have nibbled as far as they dared on older citizens, an enormous voting block, putting a three-year hold on COLA increases to Social “Security” and whacking us hard with Socialized Medicine and increased premiums and taxes. They dare not crack down on trial lawyers, Wall Street (used loosely), or Unions, their major sources of funding. If the “entitled” stop getting their checks or the value of those and food stamps are destroyed through the coming inflation, cities will burn. Crime is already up significantly due to those who think the world owes them a living. Cut government budgets and staff? Unthinkable. The few efforts made are chosen carefully to outrage the rest of us, such as shutting down incarceration of violent teens. The worth of the nation is pledged for generations to come, and still they continue to dream up new “entitlements” and push the false issue of the sacred environment.

The end of the quarter is less than a week away and we shall see if the Fed follows through on the statement that it will buy no more treasuries. An astonishing amount of debt has been transfered to the Fed via purchasing the vast toxic debt of Fannie and Freddie. Nothing has changed concerning the prediction that I made that the Fed will be destroyed other than that the situation has grown even worse in terms of unfunded “obligations.” The “easy” solution remains to kill the Fed, and the enabling legislation is all in place. “Who? Us? Default on our currency? Of course not! The Fed was a private institution and it went bankrupt. Tough luck.”

To mock an old Hippie mantra, “What if they held a treasury auction and nobody came?” We all know what would happen (see assorted archived works), the major banks will be obliged to purchase whatever is offered. What is not realized widely is that those banks have already sopped up a third of a trillion in increasingly worthless government paper. Wells, Citi, BoA and so forth are loaded with promissory notes of dubious–at best–value. Commercial loans have taken a serious dive because the big banking houses are obliged to help attempt to disguise the worthlessness of newly-printed money and dare not make private loans in a world where an astounding number of mortgages are under water and defaults on credit cards are up dramatically. The dead cat has bounced suspiciously high, the bond market is tottering, those controlling the metals market deserve our scepticism, a devasting number of ARMs will reset this year, and the commercial real estate bubble cannot help bursting very shortly.

Look at your local areas; how many businesses have you lost? Modestly sized Sherman, Oklahoma, just saw the closing of the Folger’s coffee plant. Not too long ago it also had a major computer manufacturer (now located overseas) and a Johnson & Johnson plant. All that is left is a bill collection agency and local merchants. The three largest employers are gone and will not return. “Jobless recovery” is a vicious misuse of the English language. How many of the “big box” stores are gone in your area? How far is your community from a condition where the only jobs likely to be available are in convenience stores, gas stations, and waiting tables? I went into spasms of laughter when I read that the new head of GM says he thinks they can turn a profit this year. Like all new appointments, he is qualified superbly. After all, he says he has read all the car magazines and used to drive a Ferrari.

Ironic laughter…”Save your Confederate dollars, boys…” The South may not have risen again, although it and other areas are rumbling, but those dollars of 150 years ago now have historic value. Will the same ever be said of Helicoptor Ben’s works or all of the purely imaginary “electronic digit money” that has been created and can’t even be accounted for? My vote is a stern “No,” and bear in mind that it took 150 years for my Confederate dollars to have significant worth.

Our best–if not only–defense against coming inflation and devaluation is seeing to it that when the government begins issuing scrip instead of other forms of “money” (as some states and localities are doing already, including IOUs for tax refunds), we don’t have any Federal Reserve Notes left to lose. Because we have turned everything we own other than current income into hard goods or overseas investments. Even money stashed abroad isn’t entirely safe, since the government is already increasing the cost of repatriating such funds. Call me a cynic, but Perth Mint Certificates would appeal to me more if I lived in Australia.

Aaah, “money” is so much harder than it sounds! In Mr. Modesitt’s “Spellsinger” series, his heroine, a middle-aged concert soprano, is summoned to a different universe by an inept sorceress and becomes Regent for a bratty teen, having to deal with a collection of 33 Lords and several foreign countries who spend a lot of time plotting against her.

She has the bright idea of using her “magic” (which works through spells she invents and sing) to find gold on her own fiefdom (bequeathed to her by a dying wizard who kindly makes her look 18 forever, although she still feels forty-something and has to eat almost constantly to keep her energy and weight up; she has my sympathies since I hate stopping to eat when I’m writing) and turn it into coins.

She realizes almost immediately that having the equivalent of more money than the entire rest of the world combined restricts her spending lest she cause inflation, and the hunky Lord who will become her consort by the fifth book, unless I miss my guess, comes up with his own version of Gresham’s law. The Lady Anna, you see, didn’t realize that local coins are only 90% gold, while hers are 100%, meaning that others will store hers and spend the lesser coinage. I find it amusing that her coins are real money, of the same weight and better quality than the surrounding countries mint, but she still cannot “create” money out of nothing. (Spain had a similar problem, you may recall, with the wealth of the Andes.) Gold is real and very pretty, but even gold “money” is a symbol for stored labor and other value. That cannot be created by fiat.

More and more I feel an urgency about turning our Federal Reserve Notes into almost anything with intrinsic value. One of my earliest childhood memories is of a precious, all but unobtainable, ham being hoarded until it was no longer edible. One of the principles of investment is to put your surplus in that which can neither rust, decay, nor be subject to maggots. Preferably in those items which are not taxable or likely to be confiscated.

It is difficult enough to come up with good places to put money now, and I have the luxury of investing in livestock and farm machinery. So long as we don’t face really harsh weather, cattle will reproduce and hold their value plus covering their keep, even though they may not actually make money. I worry about those of you tied to the city, and continue to urge you to buy land in an isolated area or form a consortium with someone else who owns a ranch or farm. What will you do with devalued money when there are no goods for sale?

I expect to see a traditional chess phrase illustrated: “Move it or lose it.” You need to think of currency (even in your hand, and that in banks and much of the stock market are far more at risk) as coupons with unknown expiration dates. All we can say for certain is that every week is one week closer to rising interest and inflation rates and the time when those ugly new bills are worth far less than their face value.

The government won’t warn you of the dangers of holding its paper, but we at W&G do constantly. America’s coinage was debased decades ago and our currency is fantasy. It can only become worth less with every quarter that passes. So long as we (all of us) are spending “real” money, cash on hand, and not contracting debt, and so long as we have prioritized with safety first, we can even justify putting money into enduring goods that are “merely” beautiful and soul-satisfying. Even with silver at $16.92 I suggest searching e-Bay and buying yourself (or your wife or your mother) at least one set of sterling silver tableware. You will get far more silver for your money than you would buying bagged 90% silver coins, far less commemoratives, both of which cost you on the order of a 20% premium, and you will have one of life’s nicer luxuries that can go into the melting pot at any time if absolutely necessary.

Real estate isn’t safe even at incredibly low prices currently because it must be protected, insured, and kept up, and is subject to taxation at the whims of tax lords on many levels. If you intend to live on it, the neighborhood appears relatively “safe,” and you can buy a house you like without a mortgage I would go for it–particularly if said house were in the country or a small town. Even granting that gasoline is nudging $3/gallon and may well go to somewhere between six and ten, it is my conclusion that a lenghtier, more expensive commute in the relatively short term could pay handsome returns in times to come. Deferring maintenance is becoming far too common; if you own your home outright, once you have purchased all the metal your plans allow for and accumulated sensible stores of food, this would be a good year to paint, replace the water heater (get an “instant on;” it costs at least twice at much, but you’ll make that back quickly in lower electricity costs.), or install burglar bars.

You probably don’t want to put your IRA in Rolex, Omega, and Piaget, but if your children’s ages are in single or even low double digits you might want to look for a better place to stash their college funds than stocks, bonds, or in interest-bearing accounts that pay only minute amounts. I wouldn’t touch Treasuries, myself. The myth of the value of a college education is wearing thinner by the year. You get a black mark if you don’t have one but no guarantee that you will ever recoup the inflation-adjusted sum it took to get a basic degree and an MBA or other Masters. Colleges, too, have priced themselves out of business, particularly considering how little knowledge most of them impart and and how many fewer jobs there are. Smile…I might even suggest “buying” a degree. As our beloved C. Northcote Parkinson noted long ago, “Only the personnel pukes know where your degree is actually from.”

I see the desperation in our land. I see how excellent craftsmen are cutting their prices in debased dollars just to keep work coming in. We closed a deal tonight to have the 3600 square foot barn roof repainted with rust-retardant paint after the expert makes any repairs needed. I paid him $400 to do that on our work room (approximately 900 square feet) three years ago. His asking price is $700 for four times that much area, plus 1500 or more square feet of the West end of the barn. (All of our bad weather comes in from the west, causing rust and deteriorating wood.) I feel bad about “taking advantage of” Ed, but I understand that working on a slim margin is far better than not working at all. Besides, he set the price and I didn’t haggle.

My very beautiful daughter, the senior mortgage banker, had their first (custom-designed) house built last summer, and due to her negotiating skills, desperation among builders, and her knowledge of the industry ended up with all the chic extras while the builder cleared a massive $1500. He felt it was worth it because what he got kept his crews working and whittled away at his inventory. She just had quite a bit of privacy fence painted professionally for little more than she would have paid for the paint.

The bottom line is that you can but count on the wine you drink today. Unless you turn your “excess” into items of intrinsic value you will rue your decisions. I continue to urge the traditional choices of the Doom & Gloom crowd, beans, bandaids, bullets, gardens, isolation, and livestock, but it really doesn’t matter much so long as you exchange increasingly worthless dollars for something you can trade to advantage later. One Weimar Republic should have been enough for all of us to grasp that when fiat currency is involved we’re living on borrowed time.

I have suggested elsewhere that you attend to your physical needs, getting full physicals and taking care of any issues you have been putting off. It may be that the numerous states which are objecting (rightfully so) will kill Obamacare, which will take at least eight years, but caution is always advisable. We know rationing and denial of procedures for seniors are coming, along with higher prices. Don’t risk being told later that a full blood panel isn’t “necessary,” in the opinion of the Health Czar, who won’t be a doctor. I am pleased to report that my recent experience (involving enough blood to provide at least an excellent night-night snack for a vampire) reveals that I remain in splendid health. I have finally just barely tipped over the point where the bloodwork reveals that I have a touch of rheumatoid arthiritis–something most of you half my age have. Both old sins and wise decisions cast long shadows, and choices I made literally in 1972 have paid off handsomely. I do not have cancer, nor am I diabetic nor likely to face open heart surgery or aneurism. The price I paid for not being diabetic (prevalent in my maternal ancestry) was foregoing dessert other than Thanksgiving and birthday parties. Think about that, because it is the key.

What are you willing to give up for what you get? What is the value of not having your toes whittled away? As much as I adore carrot cake, creme brulee, and pecan pie, I found it no contest. Dessert isn’t worth giving up pedicures.

The same holds true in your “investment” decisions. I put that in quotation marks because I regard myself as a trader; my only long term investments are in the ranch, the decisions my darling Charles and I make, and trade goods I expect to appreciate handsomely if we have a full meltdown–and the last one may not be all that “long term.” The most starry-eyed Doom & Gloom seer I read concludes there will be a major melt down by 2015. The really glum ones are talking about this summer. The Democratic leadership felt that possible loss of both the House and the Senate was an acceptable price to pay for the damage Obamacare will cause. They have nothing more to lose and ten months to push through every other radical destructive dream they cherish, including Cap & Trade, the national ID card, the Food “Safety” Act, gays in the military, at least gun registration, “Card Check,” “amnesty” for tens of millions of illegals, higher taxes and more taxes, and pushing Israel much farther than is safe for any of us. (Note that not only is Capital Gains going up but you’ll get raped with a 3.8% Medicare tax when closing out some investments.)

Let me repeat that I am not an investment counselor. If you have serious funds to spare do give them to Byron King or Adrian Ashe or any of the other regulars here on W&G. My advice is for protecting your family and deciding how much you can afford to put into gold, energy, and emerging technologies after you have taken care of the basics in light of the worst that could happen. My private guru says the market will be up for the next two weeks…

I’m an expert in getting the most out of the money you have, and I grew up on tales of the Great Depression and The War Between The States. Never spurn the wisdom of the past; it was acquired at great cost.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

March 29, 2010

How Is Your Wine Supply? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

State Samples

• California
• Georgia
• Florida
• Michigan
• Massachusetts
• Illinois

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Boston.com is reporting, “Google Stock Boom Boosts California Coffers”:

“Someday, this era may simply be known as The Google Years. California, whose budget revenue slides up and down like a yo-yo with changes in capital gains and stock options, is once again counting on outsized income tax filings from a handful of tech executives to help balance its budget.

“For this wave, California can largely thank Google Inc.

“After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes — enough to cover the salaries of more than 3,000 state workers.

“Taxes paid by Google founders Sergey Brin and Larry Page account for nearly half the amount. There is virtually no way for them or other California billionaires to escape a 9.3% state capital gains tax or a recent voter-approved 1% tax on the wealthy to underwrite the state’s mental health programs.

“‘On behalf of a grateful state, I’ll be happy to wash their windows or mow their lawn,’ said H.D. Palmer, spokesman for California’s Department of Finance…

“Mega-sized tax filings from Google executives began flowing into state coffers in earnest in 2006, two years after the company went public. The receipts helped fuel a multibillion-dollar tax windfall last spring that allowed Gov. Arnold Schwarzenegger to pour money into roads, classrooms, and other popular programs, pleasing political enemies and helping smooth his path to re-election.

“Schwarzenegger’s good fortune, it turns out, did not end there.

“As Google’s stock topped $500 in 2006, company executives continued to sell hundreds of thousands of shares each month, according to an analysis of insider transaction data provided to The Associated Press by research firm Thomson Financial…

“Although the company is helping push capital gains revenue above historical averages, state finance experts say they are not overly concerned that the latest tech boost is another bubble ready to burst and wreak havoc with the state budget.

“According to the state’s latest figures, capital gains and stock options accounted for nearly 14 cents of every tax dollar collected in California in the fiscal year that ended last summer. Similar numbers are expected this year. That’s nearly double the percentage two years ago, following the dot-com bust…

“‘I admit, I’ve been looking at those insider trading sheets almost daily. It’s amazing; day after day, millions and millions of shares,’ said Brad Williams, senior fiscal forecaster for the state’s nonpartisan Legislative Analyst’s Office. ‘It’s not all attributable to one company, but Google is a big sign that we’re going to see capital gains again this year and that the budget won’t be as bad as it could be.’”

Two Questions

Ah, yes, The Google Years. Not to spoil the party, but I have two questions:

1. Is this sustainable?
2. California is in great shape, right?

Let’s leave the first question for the optimists. But with all of this money pouring in, California must be in great shape, right?

In an attempt to answer the second question, please consider the San Francisco Gate article “California Short $1 Billion in Tax Revenue, Controller Says”:

“Personal income tax receipts coming into the state in January fell $1.3 billion below Gov. Arnold Schwarzenegger’s revenue estimates in the spending plan he released last month, the state controller said Tuesday.

“The lower-than-expected revenue raises questions about whether Schwarzenegger will reach his stated goal of eliminating the state’s net operating deficit in the budget year beginning in July.

“The governor’s proposed 2007-2008 budget assumes tax revenue in the current budget year would grow by $1.1 billion, or 1%. In the coming fiscal year, Schwarzenegger also assumed a $6.8 billion boost, or 7% increase.

“‘Tax payments are down about $1 billion, and we don’t yet have the source of that decrease,’ said Controller John Chiang, holding a news conference at the state’s tax-collection center, where 2006 tax returns have begun to trickle in.

“Chiang speculated that the state’s slumping housing market might be a cause of the revenue decline. He also said revenue other than personal income tax rose in January, leaving the state short about $710 million for the month…

“During a press conference touting his plan to overhaul health care in California, Schwarzenegger on Tuesday dismissed news of January’s lower tax receipts. He said it would not affect his policy ambitions on health care reform.

“‘Revenues go up and down,’ he said. ‘I am very optimistic. Our economy is doing well and businesses are doing well, so I am very optimistic’…

“In addition to the uncertain tax revenue, Schwarzenegger’s $143.2 billion budget relies on other risky revenue assumptions, analysts say.

“The governor’s budget assumes increases in property tax revenue and higher income from a rebounding housing market in the second half of 2007.

“It bets that the legislature will immediately approve gambling compacts that it refused to pass last year, bringing more than $500 million in projected revenue to the state.

“Schwarzenegger also assumed the state will win appeals in two court cases that it already has lost at the superior court level. Those two cases could take another $1.1 billion out of the governor’s balanced-budget equation if the state does not prevail.”

Schwarzenegger Rolls the Dice On

• Improved gambling revenue
• Rising property taxes
• Continuation of Google income
• Winning 2 appeals cases it has lost twice
• Increasing payroll tax revenue
• Higher income from rebounding real estate market.

Bear in mind that Schwarzenegger needs that lotto parlay just to break even with projections. Like all gamblers betting with someone else’s money, Schwarzenegger had this to say: ‘I am very optimistic. Our economy is doing well and businesses are doing well, so I am very optimistic.’

Georgia

The Atlanta Journal-Constitution is reporting, “Revenue Drop May Hit Budget”:

“Georgia’s disappointing tax collections over the past six months have some lawmakers worried that the state may not raise enough money to pay for Gov. Sonny Perdue’s proposed $20.2 billion budget.

“Perdue is requesting a more than 8% increase in spending, from $18.6 billion this year to $20.2 billion for fiscal 2008, which begins July 1. Part of that increase will be funded with surplus money raised last year. And administration budget officials say the state should take in enough to meet the governor’s spending plan. However, most members of the General Assembly recall 2003 and 2004, when they had to slash spending, raise cigarette taxes, and gut the state’s rainy day fund to make ends meet.

“‘They worry an economic slowdown will force them to cut spending again if tax collections don’t improve. You’ve always got a concern in the back of your mind — this year more than others — about whether we are basing this [budget] on good numbers,’ said House Appropriations Chairman Ben Harbin (R-Evans).

“Sen. George Hooks (D-Americus), longtime former Senate Appropriations chairman, said, ‘Obviously, the governor and his economist are banking on a tremendously aggressive, strong economy. Indicators now are that the economy is not growing that strong.’

“Lawmakers who run the legislature’s appropriations committees closely watch revenue collection reports. And they have noticed the slower growth — particularly in the net sales tax take.

“Most of the state’s revenue comes from income and sales taxes, both of which are an indicator of the strength, or weakness, of the economy. ‘It’s just strange we haven’t had a good month [of collections] since July,’ said Senate Appropriations Chairman Jack Hill (R-Reidsville).

“Shelley Nickel, director of the Office of Planning and Budget, said she thinks Perdue’s estimate of how much money the state will collect during the upcoming year is ‘still fairly conservative.’

“However, Alan Essig, executive director of the Atlanta-based Georgia Budget and Policy Institute and a former state budget analyst, isn’t so sure. ‘It seems to me they [Perdue officials] are forecasting a better economy than what we have today,’ Essig said. ‘It seems very optimistic to me.’

“‘It’s just strange we haven’t had a good month [of collections] since July,’ said Senate Appropriations Chairman Jack Hill.”

No, that’s not what is strange. What is strange is that few see the recession that is staring them smack in the face. On the other hand, Alan Essig, unlike Schwarzenegger, is not clueless: “It seems to me they are forecasting a better economy than what we have today. It seems very optimistic to me.”

Illinois

The (Illinois) News Gazette is asking, “With Healthy Revenue, Why Is State Looking at Tax Increases?”:

“There are some interesting numbers in the latest report from the Illinois Commission on Government Forecasting and Accountability. The bottom line is that the state’s revenue numbers are very healthy, and that Illinois doesn’t look like a state with financial troubles.

“But government receipts unfortunately tell only part of the story. The other side of the ledger apparently is so bad that all sorts of fundraising schemes — an income tax increase, expanding the sales tax to include services, a gross receipts tax, selling the state lottery, selling the Illinois Tollway, and expanding legalized gambling — are being discussed by state lawmakers. Illinois’ biggest financial problem, as it has been for years, isn’t the result of meager revenue, but aggressive spending.

“Personal income tax collections are up 8.2%, corporate income tax revenue has grown 18.3%, sales taxes are up 4.2%, and public utility tax revenue is up 6.6%. Overall state revenue, even including a steep 12% drop in state lottery sales, is up 7.1%. In other states, governors would rejoice at economic growth like that. But in Illinois, that isn’t enough to overcome discussion of more tax increases or asset sales.

“Before lawmakers get ahead of themselves this spring with heated debate about revenue enhancements, they should stop to consider the effect that their overspending and their indifference to responsible fiscal management has had on the state’s financial condition. The reason Illinois’ budget is billions of dollars in the red can’t be blamed on weak revenue. Instead, it’s the fault of weak-willed political leaders who haven’t been able to spend within the state’s means.”

Illinois seems to be firing on all four cylinders, yet it still does not have its financial act together.

Illinois Proposals

• Raise income taxes
• Sell the state lottery
• Sell the Illinois Tollway
• Expand legalized gambling.

Is Illinois in any shape for a downturn if it needs to do those things when personal income tax collections are up 8.2%, corporate income tax revenue is up 18.3%, sales taxes are up 4.2% and public utility tax revenue is up 6.6%? Let’s face it, Illinois is a basket case, just as is California, if it cannot make ends meet with those windfalls.

Michigan

The South Bend Tribune is reporting, “Michigan Taxpayers Have Seen State Tax Bills Drop.” That seems like great news, but let’s look at the fine print:

“Shrinking tax revenue also has made it more difficult to balance the state budget. A shortfall of around $800 million exists this year, and the deficit in next year’s budget could be $1 billion or more.

“In the previous four years, the state wrestled with more than $4 billion in shortfalls. Tax cuts passed beginning in 2000 — including cuts in the single business tax, which expires at the end of the year — have chopped state revenue by $1.4 billion a year, according to state Treasurer Robert Kleine.”

Michigan is losing jobs, home prices are sinking, foreclosures are rising, and the state has a huge budget deficit. This is not exactly a pretty picture.

Florida

The St. Petersburg Times is reporting, “People Are Screaming for Relief”:

“Gov. Charlie Crist on Tuesday called for sweeping property tax reductions, seeking to deliver quickly on a second campaign promise and setting the stage for a fight with cities, counties, and school districts…

“At city and county halls across Florida, Crist’s call for widespread property tax cuts got an icy reception.

“‘Maybe he hasn’t thought this through,’ said Tampa City Council member Linda Saul-Sena.

“She said Crist’s proposal essentially caps local government revenue growth at 3% a year at a time when cities and counties are facing increasing pressures to provide services while grappling themselves with rising costs of insurance, health care, gasoline, and other essentials.

“‘I don’t see how we’re going to provide the basic services that our citizens expect,’ Saul-Sena said…

“Clearwater Mayor Frank Hibbard said he wanted to fully realize the long-term ramifications of major property tax law changes. He said the inequities that now exist in the Save Our Homes law were not evident when it was enacted 15 years ago.

“Hillsborough County Property Appraiser Rob Turner said he feared that cities and counties would simply raise their tax rates to offset the lost revenue.”

People are screaming for relief, huh? So the proposal is to just keep spending while cutting taxes? Sorry, only the federal government has the right to magic tricks like that. Florida, you have to decide to cut spending or raise taxes. Which is it? Then again, you can do what Schwarzenegger has done and mortgage the next umpteen years worth of revenue into state bonds while rolling the dice on an improving economy.

What I find most interesting is the Save Our Homes law seems to be backfiring. This, of course, is more proof that government programs over the long haul do exactly the opposite as intended.

Save Our Homes

Please consider this special report on Save Our Homes:

• “The Save Our Homes constitutional amendment doles out its benefits unevenly. Even among neighbors, the difference in annual taxes can be thousands of dollars”
• “The program that was supposed to save little old ladies from being forced from their homes has turned into a cash cow largely for the rich”
• “New owners in modest neighborhoods often pay the same tax bill as millionaire homeowners near the beach”
• “Some Florida property appraisers say illegitimate and fraudulent homesteading are among the largest problems they face, resulting in tens of millions of lost tax dollars every year.”

Massachusetts

The Boston Globe is reporting, “Lottery Revenue Drop Worries Officials”:

“The Massachusetts State Lottery, after years of increasing sales of scratch tickets and other games, is experiencing a substantial decline in revenue, setting off deep concern on Beacon Hill.

“According to figures filed with the governor’s office, revenues fell $71 million, or 3.8%, during the first five months of the fiscal year.

“State Treasurer Timothy P. Cahill is expected to brief legislative leaders today on the most recent sales figures.

“But some lawmakers already worry that Massachusetts residents are too tapped out by fluctuating gas prices to continue their regular lottery habit.

“The state lottery has been one of the most successful in the nation and has generated billions of dollars for cities and towns. Municipal officials are especially alarmed by the revenue decline.

“‘This is critical funding,’ said Sen. Karen E. Spilka, a Democrat who represents Framingham, Natick, and five other towns. ‘My communities are hurting…I don’t want there to be a deficit and then for us to have to tell our cities and towns the funding isn’t there.’

“Through November, sales were down for all lottery games except Keno, which was up 3.5% from the same time last year. The sharpest decline was in MegaMillions sales, which were off 47.7%. A former official attributed the decline to smaller jackpots; last year, there were three $100 million prizes…

“If lottery revenues don’t rebound, it will make it even more difficult for Gov. Deval Patrick to close an estimated $1 billion deficit in the next fiscal year’s budget. Yesterday, Patrick asked each of his agencies to identify 5-10% in savings within their budgets.

“Communities are already counting on this year’s lottery aid; it’s unclear whether the state would have to make up any shortfall.

“‘The lottery right now is extraordinarily important to cities and towns,’ said Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, which represents communities across the state. ‘We’re hoping that the lottery sales rebound. It’s something we’re watching very closely.

“But he said communities shouldn’t assume the lottery will continue to grow indefinitely…

“Michael Widmer, president of the Massachusetts Taxpayers Foundation, called declining lottery sales ‘a serious short- and long-term problem facing the state and cities and towns.’

“‘To have this major source decline after years and years of growth adds further to the dilemma facing the state’s political leaders,’ he said. ‘I’ve looked at the numbers, and the shortfall has been steady month to month. Every month, I’ve seen a shortfall.’”

Lottery Summation

• Massachusetts residents are hit too hard by gas prices to continue their regular lottery habit
• If lottery revenues don’t rebound, it will make it even more difficult for Massachusetts to close an estimated $1 billion deficit in the next fiscal year’s budget
• The lottery right now is very important to Massachusetts cities and towns
• Illinois is considering selling its state lottery.

Lottery playing is perhaps another significant shift in psychology. The masses simply can no longer afford to waste even a few bucks a week on dreams of a big payoff. This is coming at a time when cash-strapped cities and states are struggling to meet budgets and are dependent on that revenue.

Meanwhile, rising property taxes have people screaming for relief in Florida, a state whose property values, ironically enough, are crashing. And California is banking on an entire series of unlikely events, including rising property taxes, gambling revenue, and a recovering real estate market.

Are there any states in the country remotely prepared for a recession hitting this year? If so, which ones? When the recession does hit, states are going to have to choose between two very painful options: raising taxes or cutting services. The former will have people screaming, and the latter will throw more people out of work. Either way is going to be painful. We are in for some very rocky times ahead.

Regards,
Mike Shedlock ~ “Mish”

February 20, 2007

State Tax Revenues was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.