Monday, April 13, 2009

More Reflections on Tax Policy and Growth/Bought more PYV Thursday/Trying to Buy more Floaters

I am still fooling with my tax return so I am not devoting much attention to this blog.  Today, I received yet another K-1, two days before the filing deadline.  I thought there was some rule about delivering those forms sooner. 

For anyone interested, Richard Lehmann recommended a couple of floaters in his recent Forbes column but did not give any details that would enable anyone to place an order if they were interested in buying one of them . 
I am familiar with only one of the two.  He mentioned a Wells Fargo floater that paid just .19% above LIBOR.  He says that LIBOR plus .20% is typical for a AA bond, and I disagree with that assertion. The Wal-Mart floater (GJO) that I just sold is tied to a AA bond with a rate based on 1/2% above 3 MONTH LIBOR.
 I hope to buy it back at a better price, but have bought and am now trying to buy better ones than GJO.  Whatever, I believe Lehmann is referring to a Wachovia bond, symbol WB.QS which matures on 8/1/2013, Cusip 92976WBB1.  This is a link to the FINRA information. FINRA - Investor Information - Market Data - Bonds - Bond Detail
The term sheet can be found at  
This term sheet does say that the security is senior debt.  I do not own it.  If I were to buy it, my primary interest would be capturing the spread between par and cost.  I am finding more appealing floaters than this one, some with a short maturity dates as in 2013 or 2014.   I have not mentioned any of them in these posts, other than PYV,  and some of them have moved up in price over the past week.  I did buy more of PYV last Thursday at $19.05.

A question came up about the highest marginal income rates since the income tax was first instituted by Congress pursuant to 16th Amendment to the Constitution.  Income tax in the United States - Wikipedia, the free encyclopedia This is a link to the history of the marginal tax rate. Historical Top Tax Rate  I do remember Clinton raising the highest marginal rate to 39.6%  While I am not in favor of paying higher taxes, and I was personally satisfied with Reagan's top rate of 28%,  I never bought, as an intellectual matter, the GOP tribe's argument that economic growth was dependent on whether the top rate was 28% as opposed to 35%.   

Those who support lowering taxes on the rich as the magic elixir to grow GDP will point to a study by Kurt Hauser which showed that the amount collected in tax revenues remained at about 19.5% of GDP irrespective of the marginal tax rate. Hauser's Law - Wikipedia, the free encyclopedia Taken alone that kind of conclusion may raise more questions than it answers.  For as long as I can remember, the marginal rate was less important than the amount of adjustments that could be made to lower gross income under the tax code.  Those permissable adjustments are more important than the marginal rate.  Another problem is that it fails to explain why there was growth during the Clinton presidency, but the growth after Bush's tax cuts was at best anemic and rapidly evaporated once easy credit was withdrawn from the system.   Those who focus on Reagan's tax cuts often ignore or play down extremely important factors unrelated to Reagan's tax policy that facilitated growth for a few years in the 1980s.More Meanderings on Corporate Tax Rates & THE Multitude of Factors Impacting Growth/WMT, MDT, SNTA, AEG  Japan GDP/ Economists: Secular Theologians with a lot of Numbers  Most of this topics have been discussed in greater detail in prior posts linked below.  My main point is that those who frequently raise tax cuts primarily for the wealthy as the engine for growth are talking their own book so to speak, which is fine as long as the middle class who receives virtually nothing understands the motives of those advancing the arguments, the ones who pay the tab for the GOP.  

Bush cut taxes, and he had the worst record for job creation since the Labor Department started keeping records in 1939, according to the WSJ.WSJ  And, what few jobs were created were lost in the waning months of his presidency and soon thereafter.  That is just a fact.  Under Clinton, with a higher marginal tax rate, 23 million jobs were created compared to Bush's 3 million.  And 5.1 million jobs were lost since the beginning of the current recession.  Most of the construction jobs created during the Bush presidency were directly tied to new home construction precipitated by easy credit, not his tax cuts.  

Some argue that lowering the marginal rate will improve tax collections as those inclined to under report income will be more likely to comply with a lower tax rate.  Those who want to cheat will do so regardless of the tax rates.   Even after the Bush tax cuts for the wealthy, tens of thousands  of the very well healed evaded taxes by using the services of UBS and other Swiss banks.  
UBS alone has 52,000 Americans with secret bank accounts.   Some names have been discovered by the U.S. due to an informant and prosecutions for tax evasion have just started.  UBS is refusing to turn over the names that the U.S. does not already have.  Those Americans would most likely engage in tax evasion regardless of the tax rate.   The same would be true for the less prosperous in the underground economy.  Morally challenged people who break the law and lie about having foreign accounts, while proponents of lower rates for themselves and frequently contributors to the party who advocates their book, are not likely to change their behavior based on whether the marginal tax rate is 28% or 35%.   
Goldman Sachs announced after the close better than expected earnings and indicated its intent to sell 5 billion in stock which, along with other funds, would be use to pay back the 10 billion owed to the government.  GS earned $3.39 per share versus expectations of $1.59.   I was hoping to replace GSPRA with a better floater from GS that has a maturity date. 

When I mention Wall Street securitizations of mortgages into CDOs and ABSsSecuritization - Wikipedia, the free encyclopedia, I think some believe that refers to mortgages bought by Fannie and Freddie.  Those are pools sold to private investors.  Fannie would buy pools directly from a lender like  Abelson pointed out in his column that those securitizations originating from Wall Street accounted for 16% of the mortgages and 62% of the delinquencies.  Another common misconception is that Fannie and Freddie purchased the bulk of the subprime loans, a view promulgated by those who mislabel themselves as conservatives, when the bulk of subprime loans were generated by private mortgage companies, financed by Wall Street and sold to private investors. 
Those who promulgate the contrary view either do not know the facts or are engaged in deliberate distortion. 


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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