It should have been a wonderful weekend for financial news. The Berkshire Hathaway annual meeting was last weekend. It's the "Woodstock" of capitalism. It's a time to celebrate the wonder of American capitalism... and the American way of life. Or maybe not. OBAMA! picked last weekend to announce new taxes on America's best companies.
OBAMA! says it's time for U.S. corporations to pay their "fair" share of America's taxes. To that end, he is moving to close tax loopholes that permit multinational corporations headquartered in the U.S. to keep their foreign earnings offshore and untaxed. I'll spare you the details... but the net result is easy to understand: the largest tax increase on U.S. corporations since 1986.
The move will surely play well to OBAMA!'s fans, who sincerely believe giving the government more resources will make our country a better place. It doesn't occur to these people that any lasting reduction to a corporation's global profitability will injure the company's shareholders. It also doesn't seem to occur to these folks that for many large multinational companies, their foreign earnings are larger than their U.S. earnings. Paying U.S. taxes on a business you own in China or India doesn't make much sense. Why keep your headquarters in America, when most of your business is overseas?
I find the situation darkly ironic... America is the only developed nation in the world that taxes its citizens on their worldwide income. America is also the only developed nation in the world with a punitive "exit" tax. (The "Heroes Act" of 2008 requires anyone emigrating from America to pay the full value of their estate taxes before they leave.)
Rather than reversing the policy of taxing people on their worldwide income, OBAMA! plans to eliminate the multinational's "unfair" tax advantage by requiring them to follow the same global taxation rules individuals must follow. These policies are a kind of modern Berlin Wall: They prevent any sensible wealthy person from coming to America. And they attempt to prevent any sensible wealthy American from leaving. Unfortunately, history clearly shows attempts to "trap" the wealthy don't work. And the more antagonistic the government becomes toward the rich, the faster a country slides into poverty. America is becoming a kind of roach motel for the rich. That's a big mistake. You can shear a sheep year after year. But you can only skin it once.
When you think about taxes, remember this: Whatever their form, taxes are a drain of resources and a burden on the productive sectors of the economy. Increasing taxes on the rich, corporations, and coal users may be politically popular – but they won't make America a better place.
Oh... one more thing... When it comes to the rich, centuries of tradition and common law will no longer apply, such as the antiquated notion of being innocent until proven guilty beyond a reasonable doubt. OBAMA! proposes shifting the burden of proof when the IRS believes individuals are hiding money offshore. If a foreign bank refuses to divulge an American citizen's account information to the IRS, the individual will have to prove he or she doesn't own the account – previously, the IRS had to prove ownership. This change would generate an additional $9 billion in taxes between 2011-2019. I wonder how you could ever prove you don't own a secret account? You probably can't. And that seems to be the point.
"One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the [Chrysler] deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence," said Tom Lauria, of the law firm White & Case.
So... OBAMA! threatened to set loose his propaganda machine against one of the investment firms it didn't already control through TARP money, in order to get more assets for the union. Makes you wonder how much OBAMA! has promised (or threatened) the bankruptcy judge.
Let's get back to the good news. At the Berkshire Hathaway shareholders meeting this year, Warren Buffett debunked the stress tests of 19 banks, saying the government fails to account for different banks' business models... "The question is whether the people conducting tests have a bunch of markers. You get the impression from reading it, there will be percentage whacks (at various assets). That is not a very sophisticated way of looking at it."
Charlie Munger – Buffett's long-time partner – added the "one-size-fits-all reasoning in the case of bank stress tests is very likely to be done poorly." Buffett said Berkshire holdings Wells Fargo, U.S. Bancorp, and M&T Bank do not need any more equity and he would buy stock in all three at current prices.
Of the three banks Buffett mentioned, his favorite is Wells Fargo (WFC). He owns a 7.2% stake in the company. He went so far as to say, "If I had to put all my net worth in one stock, that would be the stock."
About six months ago, Tom Dyson and S&A Editor in Chief Brian Hunt began working on a unique trading service. The service combines what we know about finding the market's biggest trends with the explosive capital gains potential of microcap stocks (often called "penny stocks"). We've been trading this system in-house for three months, and we've been sharing the service in "beta" mode with our lifetime Alliance readers since March. The performance of this service, called Penny Trends, has been fantastic.
For instance, keep an eye on a microcap stock named Venoco (VQ). It's a $251 million oil and gas exploration company. We identified this stock back in February as a way to play the emerging uptrend in crude oil. The stock is up 61% in two months. Penny Trends also scored an 81% win in just over a month with microcap copper miner Taseko Mines (TGB). The latest pick is up 22% in a little more than a week.
We have an ambitious goal with Penny Trends: To make sure our readers know about – and are profiting from – every single big trend in the market. By applying a classic set of entry and exit strategies to the microcap market, we play the trends with the only companies capable of running up 200%... 300%... even 1,000% in a year. It's the most exciting product we'll launch this year. More on this service to come... For now, you can read more about Tom's strategy here.
New highs: None.
In the mailbag... dozens of satisfied Alliance members, plus an OBAMA! fan. Send your comments here: feedback@stansberryresearch.com.
"There will always be differences of opinion and you are entitled to yours but... please stop repeating the same rhetorical mantra about Obama, socialism, and the only way is to let the market forces do what the do best without interference. I would appreciate reading your thoughts on how the cascading effects of letting all these businesses simply go belly up would unfold? What would happen to the employees?
"What would happen to the investors (your favorites the 'Pension funds, teachers' unions, and school endowments to name a few')? WHAT WOULD HAPPEN? You know... a real economic forecast of 'your way'! My gut tells me that America would end up being owned by a select few and all the rest would be left with the choice to do what they are told or 'too bad'. Next thing you know, the select few will want titles like Lord Buffet, or Prince Trump... oh yea, that's the system we wanted to get away from when we emigrated to the USA!" – Paid-up subscriber Paul
Porter comment: I prefer capitalism to the various state-led economic schemes (socialism, communism) because capitalism is the only moral system. Under capitalism, the role of the state is to prevent coercion and safeguard personal property. That's the basis of a civil society. I think it's immoral to take something that doesn't belong to you. Yet at the heart of all the government's plans lies coercion. OBAMA! can only "spread the wealth around" by taking it first. Under capitalism, there is no such central direction and no role for the initiation of force. Instead, capitalism relies on persuasion and the free choices of consumers.
Asking for my economic forecast is senseless: America's economy hasn't been capitalist in a long, long time. Probably not since World War I. Nevertheless, our cultural preference for civil society and the protection of private property was America's main competitive advantage for 200 years. It did not disappear overnight. And it may not yet be completely dead. But... it sure seems forgotten by a surprisingly large amount of people who should really know better.
"Yes, Porter, I believe that I have and am continuing to get more than my money's worth from my Alliance membership. I also believe that you have honored your commitment to us and I respect your honesty and integrity... My joining Alliance was one of the smartest decisions I made several years ago... Keep up the good work. You and the Stansberry Associates are the best!" – Paid-up subscriber Judith Kitchen
"I knew full well at time of joining [the Alliance] (about 2004) that Phase 1 was not included. It has been the best 'investment' I have made. I feel that the PUT STRATEGY is the best service yet. Thanks so much!!" – Paid-up subscriber Sam Fallwell
"This has got to be a five star day for Porter and his minion Dan Ferris. Someone new to hate! Who? Why, Warren Buffet, of course. Warren has committed the ultimate sin. He has stated that perhaps the government is on the right track as to the rehabilitation of the economy. The Associated Press in an article appearing in the Denver Post on Sunday, May 3 states, 'Billionaire Warren Buffet said Saturday that the U.S. Government is generally taking the right actions to help the economy recover, and should be given some benefit of the doubt because officials have been reacting in the middle of a crisis'. What sacrelige. Sic 'im Porter." – Paid-up subscriber Eric P.
Porter comment: Buffett also says inflation is going to be real problem.
Regards,
Porter Stansberry
Baltimore, Maryland
May 4, 2009