Daniel Mankani "DynamicTrader – Trend Trading Dynamics" Trading for a living, systematically profiting from longer term trends.

22May/160

Demographic Trends – Changes Of Population Growth Determines Millennial Generation.

The global economy and finances are all about growth (increasing flow) and not about equilibrium (stock).  The ultimate driver of growing economies and finance has been millenniums of population growth.  A growing quantity of people has meant more buyers, more consumers, more demand.  So, if the growth or flow of demand is waning...that should matter...a lot.  Like entering an ice age after 10,000 years of warm.  The expected response to something like that would be all out.  Not a surprise that 4 decades of central bank mandated interest rate cuts have been used to incent a decelerating base of consumer growth to debts untold.  It's all in a vain attempt to maintain centrally determined rates of growth far above what rising population, jobs, wages, and savings can sustain.

QUANTITY of GROWTH

Take a gander at the chart below, annual global population growth from 1950 to present and the OECD population growth estimations through 2050.  You might notice a...HEAD AND SHOULDERS pattern!!!  1988 was the head of annual global population growth...1973 was the left shoulder and 2012 was the right shoulder.{ZH}
Annual-Global-Population-1951-2050-a
But what if the OECD and their future estimates are wrong???  The chart below is annual population growth (in total) vs. the annual growth of the under 45yr/old global population.  The base of population growth (young) has caved in and only been masked by the 45+yr/olds living a decade or two longer than their parents.  However, this extension of lifespans vs. the previous generation is a one off.  The current young are not likely to live decades longer again than the current generation.  Simply put, we have significant population longevity among the wealth and rapidly waning population growth most everywhere except the very poorest.  As you may have noticed, it's a night and day difference.
Annual-Global-Population-1951-2050-b
The chart below is the ultimate visual of stabilizing global population of young vs. globally swelling elderly populations.  What was a 9-1 ratio of babies (0-4yrs/old) per 75+yr/olds in 1950 has become a 2.7-1 ratio in 2016...and estimated to be a 1-1 ratio by 2050.  The global growth of young has essentially ceased but the growth of old is skyrocketing.
Global-Population-0-5-yrs-2-75_yr_olds

QUALITY of GROWTH

Where the growth is coming from broken down.  The chart below is global population growth split out among wealthy OECD, aspiring BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa), and the RoW (rest of the world).  From an economic standpoint, the sources of quality growth are slowing and lesser sources unable to replace this loss.  Simply put, those with income, savings, and access to credit are able to consume significantly more than those without.
Annual-Global-Population-Growth-Consumer-types-a
A focus solely on the population growth of those under 45yrs/old removes the confusion of the older generations living far longer.  Below, as of 2016 all net under 45yr/old net population growth is among the poor RoW as all growth has ceased among the OECD and BRIICS.  Among the RoW, the majority of all younger population growth is Africa.  The same Africa where 1/3 of the nations have average incomes below that of Haiti.  Africa is not an engine of consumptive growth.
Annual-Global-Population-Growth-millions-types-b
The chart below is a simple multiplication of under 45yr/old annual population growth by average GDP per capita (capability to consume).  One look at that chart, and the implementation of NIRP & ZIRP plus the global debt bomb should be no surprise. The collapse of growth has been underway for decades and central bankers and central planners are willing to do anything to maintain the appearance of "growth".
Annual-Global-Population-Growth-gdp-per-capita-c

Quality of Growth Really Matters 

The final charts below show the impact of quality (income, savings, and especially access to and utilization of credit) over quantity of population growth.  The chart is a breakdown of oil consumption by the wealthy 1.3 billion OECD residents, 3.8 billion persons of China-India-Africa, and the 2 billion "Rest of the World".
world_oil-Consumption
The chart below highlights the impact of rising wages but particularly (in China's case) the impact of rising credit / debt) in pushing Chinese oil consumption so far in advance of India or Africa over the same time frame.  Quantity + "quality" of credit growth.
world_oil-Consumption-india-china-africa
And a close up on China's rapidly slowing quantity of adult population growth vs. the equally rapid escalation of debt in place of population growth...and the impact to maintain China's "growth".  This sort of growth, particularly credit creation, is likely not reproducible in India or Africa (thank goodness for India and Africa).
china-core-population
And below, another view of China's decelerating growth among its adult population (and as of 2018, outright declining adult population) and the only answer to maintain "growth" has been debt on an unprecedented scale.  What happens in China and globally as China's depopulation sets in...for decades....is unknowable.
China-Annual
DT Conclusion: Central banks are throwing everything; they can, to defray the coming onslaught of economic depression and hope by doing so, they can at least lessen the economic pain and burden that comes with it, And since we are in times of historical monetary precedence, unlike anything seen before, the coming downturn will run much deeper, simply cause the system that is set up on continued inflating measures is like a balloon, that can only continue to grow, till bust.
This is what we call bubble and we all know how that ends, most importantly, this pattern can only continue till the time the growth in global population is also in tandem, once population growth starts to subside, the world becomes Japan. Stay tuned, invest wisely, we are currently in round two of the global currency wars.

Credits to Chirs Hamilton via Hambone's Stuff blog,

10Apr/160

Comparing 1930s with Today

"The Greater Depression Has Started" - Comparing 1930s & Today
Submitted by Doug Casey via InternationalMan.com.
You've heard the axiom "History repeats itself." It does, but never in exactly the same way. To apply the lessons of the past, we must understand the differences of the present.
During the American Revolution, the British came prepared to fight a successful war—but against a European army. Their formations, which gave them devastating firepower, and their red coats, which emphasized their numbers, proved the exact opposite of the tactics needed to fight a guerrilla war.
Before World War I, generals still saw the cavalry as the flower of their armies. Of course, the horse soldiers proved worse than useless in the trenches.
Before World War II, in anticipation of a German attack, the French built the "impenetrable" Maginot Line. History repeated itself and the attack came, but not in the way they expected. Their preparations were useless because the Germans didn't attempt to penetrate it; they simply went around it, and France was defeated.
The generals don't prepare for the last war out of perversity or stupidity, but rather because past experience is all they have to go by. Most of them simply don't know how to interpret that experience. They are correct in preparing for another war but wrong in relying upon what worked in the last one.
Investors, unfortunately, seem to make the same mistakes in marshaling their resources as do the generals. If the last 30 years have been prosperous, they base their actions on more prosperity. Talk of a depression isn't real to them because things are, in fact, so different from the 1930s. To most people, a depression means '30s-style conditions, and since they don't see that, they can't imagine a depression. That's because they know what the last depression was like, but they don't know what one is. It's hard to visualize something you don't understand.
Some of them who are a bit more clever might see an end to prosperity and the start of a depression but—al­though they're going to be a lot better off than most—they're probably looking for this depression to be like the last one.
Although nobody can predict with absolute certainty what this depression will be like, you can be fairly well-assured it won't be an instant replay of the last one. But just because things will be different doesn't mean you have to be taken by surprise.
To define the likely differences between this depres­sion and the last one, it's helpful to compare the situa­tion today to that in the early 1930s. The results aren't very reassuring.
CORPORATE BANKRUPTCY
1930s
Banks, insurance companies, and big corporations went under on a major scale. Institutions suffered the consequences of past mistakes, and there was no financial safety net to catch them as they fell. Mistakes were liquidated and only the prepared and efficient survived.
Today
The world’s financial institutions are in even worse shape than the last time, but now business ethics have changed and everyone expects the government to "step in." Laws are already in place that not only allow but require government inter­vention in many instances. This time, mistakes will be compounded, and the strong, productive, and ef­ficient will be forced to subsidize the weak, unproductive, and inefficient. It's ironic that businesses were bankrupted in the last depression because the prices of their products fell too low; this time, it'll be because they went too high.
UNEMPLOYMENT
1930s
If a man lost his job, he had to find another one as quickly as possible simply to keep from going hungry. A lot of other men in the same position competed desperately for what work was available, and an employer could hire those same men for much lower wages and expect them to work harder than what was the case before the depression. As a result, the men could get jobs and the employer could stay in business.
Today
The average man first has months of unemployment insurance; after that, he can go on welfare if he can't find "suitable work." Instead of taking whatever work is available, especially if it means that a white collar worker has to get his hands dirty, many will go on welfare. This will decrease the production of new wealth and delay the recovery. The worker no longer has to worry about some entrepreneur exploiting (i.e., employing) him at what he considers an unfair wage because the minimum wage laws, among others, precludes that possibility today. As a result, men stay unemployed and employers will go out of business.
WELFARE
1930s
If hard times really put a man down and out, he had little recourse but to rely on his family, friends, or local social and church group. There was quite a bit of opprobrium attached to that, and it was only a last resort. The breadlines set up by various government bodies were largely cosmetic measures to soothe the more terror-prone among the voting populace. People made do because they had to, and that meant radically reducing their standards of living and taking any job available at any wage. There were very, very few people on welfare during the last depression.
Today
It's hard to say how those who are still working are going to support those who aren't in this depression. Even in the U.S., 50% of the country is already on some form of welfare. But food stamps, aid to fami­lies with dependent children, Social Security, and local programs are already collapsing in prosperous times. And when the tidal wave hits, they'll be totally overwhelmed. There aren't going to be any breadlines because people who would be standing in them are going to be shopping in local supermarkets just like people who earned their money. Perhaps the most dangerous aspect of it is that people in general have come to think that these programs can just magically make wealth appear, and they expect them to be there, while a whole class of people have grown up never learning to survive without them. It's ironic, yet predictable, that the programs that were supposed to help those who "need" them will serve to devastate those very people.
REGULATIONS
1930s
Most economies have been fairly heavily regulated since the early 1900s, and those regulations caused distortions that added to the severity of the last depression. Rather than allow the economy to liquidate, in the case of the U.S., the Roosevelt regime added many, many more regulations—fixing prices, wages, and the manner of doing business in a static form. It was largely because of these regulations that the depression lingered on until the end of World War II, which "saved" the economy only through its massive reinflation of the currency. Had the government abolished most controls then in existence, instead of creating new ones, the depression would have been less severe and much shorter.
Today
The scores of new agencies set up since the last depression have created far more severe distortions in the ways people relate than those of 80 years ago; the potential adjustment needed is proportionately greater. Unless government restrictions and controls on wages, working conditions, energy consumption, safety, and such are removed, a dramatic economic turnaround during the Greater Depression will be impossible.
TAXES
1930s
The income tax was new to the U.S. in 1913, and by 1929, although it took a maximum 23.1% bite, that was only at the $1 million level. The average family’s income then was $2,335, and that put average families in the 1/10th of 1 percent bracket. And there was still no Social Security tax, no state income tax, no sales tax, and no estate tax. Furthermore, most people in the country didn't even pay the income tax because they earned less than the legal minimum or they didn't bother filing. The government, therefore, had immense untapped sources of revenue to draw upon to fund its schemes to "cure" the depression. Roosevelt was able to raise the average income tax from 1.35% to 16.56% during his tenure—an increase of 1,100%.
Today
Everyone now pays an income tax in addition to all the other taxes. In most Western countries, the total of direct and indirect taxes is over 50%. For that reason, it seems unlikely that direct taxes will go much higher. But inflation is constantly driving everyone into higher brackets and will have the same effect. A person has had to increase his or her income faster than inflation to compensate for taxes. Whatever taxes a man does pay will reduce his standard of living by just that much, and it's reasonable to expect tax evasion and the underground economy to boom in response. That will cushion the severity of the depression somewhat while it serves to help change the philosophical orientation of society.
PRICES
1930s
Prices dropped radically because billions of dollars of inflationary currency were wiped out through the stock market crash, bond defaults, and bank failures. The government, however, somehow equated the high prices of the inflationary '20s with prosperity and attempted to prevent a fall in prices by such things as slaughtering livestock, dumping milk in the gutter, and enacting price supports. Since the collapse wiped out money faster than it could be created, the government felt the destruction of real wealth was a more effective way to raise prices. In other words, if you can't increase the supply of money, decrease the supply of goods.
Nonetheless, the 1930s depression was a deflationary collapse, a time when currency became worth more and prices dropped. This is probably the most confusing thing to most Americans since they assume—as a result of that experience—that "depression" means "deflation." It's also perhaps the biggest single difference between this depression and the last one.
Today
Prices could drop, as they did the last time, but the amount of power the government now has over the economy is far greater than what was the case 80 years ago. Instead of letting the economy cleanse itself by allowing the nancial markets to collapse, governments will probably bail out insolvent banks, create mortgages wholesale to prop up real estate, and central banks will buy bonds to keep their prices from plummeting. All of these actions mean that the total money supply will grow enormously. Trillions will be created to avoid deflation. If you find men selling apples on street corners, it won't be for 5 cents apiece, but $5 apiece. But there won't be a lot of apple sellers because of welfare, nor will there be a lot of apples because of price controls.
Consumer prices will probably skyrocket as a result, and the country will have an inflationary depression. Unlike the 1930s, when people who held dollars were king, by the end of the Greater Depression, people with dollars will be wiped out.
THE SOCIETY
1930s
The world was largely rural or small-town. Communications were slow, but people tended to trust the media. The government exercised considerable moral suasion, and people tended to support it. The business of the country was business, as Calvin Coolidge said, and men who created wealth were esteemed. All told, if you were going to have a depression, it was a rather stable environment for it; despite that, however, there were still plenty of riots, marches, and general disorder.
Today
The country is now urban and suburban, and although communications are rapid, there's little interpersonal contact. The media are suspect. The government is seen more as an adversary or an imperial ruler than an arbitrator accepted by a consensus of concerned citizens. Businessmen are viewed as unscrupulous predators who take advantage of anyone weak enough to be exploited.
A major financial smashup in today's atmosphere could do a lot more than wipe out a few naives in the stock market and unemploy some workers, as occurred in the '30s; some sectors of society are now time bombs. It's hard to say, for instance, what third- and fourth-generation welfare recipients are going to do when the going gets really tough.
THE WAY PEOPLE WORK
1930s
Relatively slow transportation and communication localized economic conditions. The U.S. itself was somewhat insulated from the rest of the world, and parts of the U.S. were fairly self-contained. Workers were mostly involved in basic agriculture and industry, creating widgets and other tangible items. There wasn't a great deal of specialization, and that made it easier for someone to move laterally from one occupation into the next, without extensive retraining, since people were more able to produce the basics of life on their own. Most women never joined the workforce, and the wife in a marriage acted as a "backup" system should the husband lose his job.
Today
The whole world is interdependent, and a war in the Middle East or a revolution in Africa can have a direct and immediate effect on a barber in Chicago or Krakow. Since the whole economy is centrally controlled from Washington, a mistake there can be a national disaster. People generally aren’t in a position to roll with the punches as more than half the people in the country belong to what is known as the "service economy." That means, in most cases, they're better equipped to shuffle papers than make widgets. Even "necessary" services are often terminated when times get hard. Specialization is part of what an advanced industrial economy is all about, but if the economic order changes radically, it can prove a liability.
THE FINANCIAL MARKETS
1930s
The last depression is identified with the collapse of the stock market, which lost over 90% of its value from 1929 to 1933. A secure bond was the best possible investment as interest rates dropped radically. Commodities plummeted, reducing millions of farmers to near subsistence levels. Since most real estate was owned outright and taxes were low, a drop in price didn't make a lot of difference unless you had to sell. Land prices plummeted, but since people bought it to use, not unload to a greater fool, they didn't usually have to sell.
Today
This time, stocks—and especially commodities—are likely to explode on the upside as people panic into them to get out of depreciating dollars in general and bonds in particular. Real estate will be—next to bonds—the most devastated single area of the economy because no one will lend money long term. And real estate is built on the mortgage market, which will vanish.
Everybody who invests in this depression thinking that it will turn out like the last one will be very unhappy with the results. Being aware of the differences between the last depression and this one makes it a lot easier to position yourself to minimize losses and maximize profits.
* * *
So much for the differences. The crucial, obvious, and most important similarity, however, is that most people's standard of living will fall dramatically.
The Greater Depression has started. Most people don't know it because they can neither confront the thought nor understand the differences between this one and the last.
As a climax approaches, many of the things that you've built your life around in the past are going to change and change radically. The ability to adjust to new conditions is the sign of a psychologically healthy person.
Look for the opportunity side of the crisis. The Chinese symbol for "crisis" is a combination of two other symbols - one for danger and one for opportunity.
The dangers that society will face in the years ahead are regrettable, but there's no point in allowing anxiety, frustration, or apathy to overcome you. Face the future with courage, curiosity, and optimism rather than fear. You can be a winner, and if you plan carefully, you will be. The great period of change will give you a chance to regain control of your destiny. And that in itself is the single most important thing in life. This depression can give you that opportunity; it's one of the many ways the Greater Depression can be a very good thing for both you as an individual and society.

10Apr/160

Trends; Socialist Cycle.

Here is the socialist cycle we are going through written as a pseudo computer program:

Start
Lawmakers tout free stuff

People demand free government stuff

People elect lawmakers to pass laws for free stuff
Lawmakers try to raise taxes to pay for free stuff
People scream no we only wanted the free stuff
Lawmakers run deficits to pay for not so free stuff
More people get free stuff
Lawmakers raise the deficits higher

Test
Lawmakers forced to raise taxes to lower deficit
Central bank lowers interest rate to lower debt cost and make capital available to people
If taxes cannot be raised or interest rates cannot be lowered go to reset
People are now poorer and in need of more free stuff
Go back to start.

Reset
If Central bank has credit do a QE else Currency is devalued.
If Central bank is out of credit go to bust
Go back to start.

Bust
All forms of Credit and Debt are exhausted and the bubble is popped.
Debt devalued by large amounts.
Most Free stuff is done.

Country can only import using the exact credits of export because world credit is dead (for the moment) 

4Jul/12Off

INDIA NIFTY – Has 5400/5420 in view. This guy is not falling!

The last few sessions in the markets have been breath taking, Just a few days ago on FRIDAY, HOPIUM rose and the markets became once again happy go lucky!. Despite the geo political arena getting hotter, American Ships in the straits of Hormuz, plus IRAN completing their war cry exercise and demonstrating its war capability, and selectively saying, "Don't mess with me, I have the fire power", its possible, the USA now discounts the IRANIANS for all their empty threats.

Last year IRAN warned "No ships shall pass my seas" and a US SHIP turned back and headed further away, with that, IRAN said "IF YOU COME THIS WAY AGAIN!, I SHALL TAKE CARE OF U!.  A week later, when the SHIP returned, IRAN did nothing.

A whole lot of empty promises and lack of management displinary skills of IRANs arm forces, indeed raises many doubts, but then again, they have shown more than once, their inefficiencies, an example how they were not able to handle the naughty behavior of STUXNET or when their mililary depots blew up, due to "improperly of storage weapons" techniques.

A whole lot of questions are always raised, when it comes to IRAN, the sabre rattling has started to become boring, this could be the underestimation both parties could make, leading up to the escalation in world war three.

The USA may just push it further and strangle the IRANIAN even more, before the IRANIANS make the first move, due to fear attack.

indeed escalate world war 3, and the IRANIANS will indeed give them a tough fight, which will solve USA's economic problems and the Industrial War Complex will once again have their way.

 

26Jun/12Off

Global picture emerging

Quote from the web

“The picture that’s emerging is pretty clear: there’s a global slowdown of significant proportions,” said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages about C$100 billion ($97 billion) of assets. “Commodities are simply reacting to the facts as they are on the ground.”

Filed under: Socionomics Comments Off
26Jun/12Off

A week to Iran Sanctions, July 1st the Date.

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8433528
EU to implement sanctions against Iran July 1 as planned
Brussels (Platts)--25Jun2012/1125 am EDT/1525 GMT

The EU's sanctions against Iran -- including a ban on oil imports and a ban on the provision of insurance for tankers shipping Iranian oil -- will come into force as planned on July 1, EU foreign ministers said Monday.

The Response, http://www.dailystar.com.lb/News/Middle-East/2012/Jun-26/178183-four-us-navy-minesweepers-arrive-in-the-gulf.ashx#axzz1yqTv4bak

---------------
"They need the propping up of oil price, Russia has oil at 150$ on the barrel in its budget, with oil trading at almost half of that, and public dissent at historical highs, Russia needs high oil prices to quell any disharmony at home. A war is inevitable". -dtrader
-----------------------------------------

25Jun/12Off

Bearish forces at work!. Nifty 4500 on the cards?

Last year in Jan, near about 6300 on the Nifty, We advised a short, prior to doing so, our team visited Mumbai, saw the construction all over, saw the folly of the richest man in India with his tall billion dollar building as his home, and witnessed the hope in the AIR, "India Shining". All this presented a peak for the markets.

Efficiency in India is non present and as the euphoria of cheap money nears its end, Indians slowly realize the days of cheap money is over. In Economics its hard to see, how growth can be delivered by cheaper code writers that India Offers, or how this country could sustain itself on a global scale, from self sufficiency the country today is a net importer, its deficits are evidence on the Indian Rupee.

So after this trip on the day out, at the airport departure terminal, we headed to the smoking room of the airport. In Airports smoking room's, usually tips can be obtained on how the country looks in the eyes of departing travelers and more often than not, it's a worthy observation. A gentleman travelling back to the middle east asked us what we did. And we highlighted we made a quick study of the situation on the ground and believe that the up move of India is over, {we were short, a good size at 6000 areas}!.

This gentleman quickly became agitated and highlighted how the whole world was in Shit, including the middle east and how India will rise up to become a super power in the years ahead. We held back and gave him a grin and walked away. If it acts like a duck, quacks like a duck, then it is a duck.

Now if indeed we are right, how will it play out!

The debt exposures of the government and corporate's, which is hurting, especially those who borrowed FCCB's and in various foreign instruments will come to roost, devaluing the Indian Rupee even further, technically our charts indicate the region of 62-64 before any meaningful correction on the INR, while on the first phrase of devaluation the noise from government officials and verbal interventions will provide initial level support to the currency, but verbal interventions can only do so much.

Once additional momentum picks up to the downside and political dissents ramp up their voice on inflationary pressures, the stock markets will start to recognize and high frequency bots will be unable to continue providing the fake liquidity that is currently present, propping up markets is a strategy and belief shared by greenspan and bernanke, they believe higher stock valuations, provide a feel good factor and eventually reflect the true extend of the economy, this is indeed false.

India's RBI governor is also trying to act like them too, which will make Inflation easily accessible.

Their theory is flawed, it doesnt reflect anything near the true extend of the economy, in reality the economy is suffering, real estate values are held up as in stocks, due to the weaker rupee, which effectively makes the nifty trading at 4000 levels in real value terms, since the INR is almost 20% weaker than before.

Does anyone think, The same level of security and safe keeping as in gold, real estate or any other asset class that holds it value, than fiat currencies and shares will be in for a surprise.

The situation on the ground today is amplified ten times than 1991, as growth levels expanded to the upside, similarly their corrections and problems are also amplified. For those, who want to know better, are advised to take a look at Malaysia, Thailand, and Singapore (1997-2002) stock market charts vs Fx devaluations to reach their own conclusions on India.

22Jun/12Off

Investors cast doubt on “end of world” hedge strategies

Investors cast doubt on "end of world" hedge strategies

An office worker talks on his phone as he looks the stock board at the Australian Securities Exchange (ASX) building in central Sydney June 15, 2012. REUTERS/Daniel Munoz

LONDON | Fri Jun 22, 2012 4:24am EDT

(Reuters) - Hedge fund investors have voiced their concerns about complex funds designed to protect against major market meltdowns, just as fears of a break-up of the euro-zone have spurred huge interest in these products.

So-called "tail risk" funds, also known as "black swan" strategies after the popular book by Nassim Nicholas Taleb, are supposed to hedge against rare but dangerous events, such as the market sell-off following Lehman Brothers' demise.

http://www.reuters.com/article/2012/06/22/uk-hedgefunds-gaim-tail-idUSLNE85L00920120622

Filed under: Socionomics Comments Off
19Jun/12Off

Didn’t We Learn from Facebook? AutoTrader.com IPO Filing Shows Market Is as Sleazy as Ever

From Yahoo: Didn’t We Learn from Facebook? AutoTrader.com IPO Filing Shows Market Is as Sleazy as Ever

Just a month ago, Facebook (FB) was the ''poster child" for IPO reform. Its public debacle triggered countless lawsuits, Congressional probes and regulatory inquiries, and cast a cloud of doubt over Morgan Stanley (MS) - who brokered the deal, and the Nasdaq exchange (NDAQ) that botched an orderly open. It seems the only good thing being said about the Facebook IPO was that it just might mark a turning point for a deeply flawed system.
I hate to break it you, but it's not happening.New federal filings show that Autotrader.com is looking to become the first internet company to retest the waters of the IPO market since Facebook's May 18th debut. There's only one problem; six weeks ago AutoTrader insiders borrowed $400 million in order to turn around and pay themselves a one-time dividend in the same amount. I call it, cashing in before you cash out, while my co-host Jeff Macke is more blunt.

"There's nothing illegal about this, it's just kind of scummy," he says in the attached video. "They've made it a lesser company and immediately after doing so, they're pitching on to the public."

http://finance.yahoo.com/blogs/breakout/didn-t-learn-facebook-autotrader-com-ipo-filing-162815133.html

14Jun/12Off

Inequality: It’s Even Worse Than We Thought

Inequality: It’s Even Worse Than We Thought

The current debate about rich and poor -- the 1 percent versus the 99 percent -- is a bit misleading because the evidence usually is data about income, not wealth. Looking at wealth would make the comparison even starker.

There are some nice deals to be had in the income tax code these days, but most wealth accumulates and passes from generation to generation with no tax at all. Warren Buffett (who has selflessly taken on the role of all-purpose tape measure in these matters) is worth $45 billion or so. Do you think that all of that $45 billion, or even most of it, has appeared on any Form 1040 on its way to the cookie jar? Even at the special, low 15 percent rate the U.S. insanely confers on capital gains?

Unlikely. Much of that $45 billion is unrealized capital gains -- increases in the value of Buffett’s stock that have never been cashed in, and therefore have never been taxed. I’m not saying that unrealized capital gains should be taxed (although it’s a thought). I’m just noting that you only pay income tax when an investment is liquidated, and very wealthy people don’t have to liquidate until they actually need to spend the money.

For most of the very rich, this time is never. When you die, any unrealized capital gains disappear for tax purposes. Your heirs, if and when they sell, pay taxes only on any increase in value since they got the money. And there is no estate tax at the moment on estates of $5.12 million or less.

Really Skewed

The Federal Reserve released new numbers on Monday. Unsurprisingly, wealth distribution is even more skewed than income distribution. In 2010, the median family had assets (including their house but subtracting their mortgage) of $77,300. The top 10 percent had almost $1.2 million, or more than 15 times as much.

But the headlines -- and rightly so -- went to the dismal fact that household wealth has been sinking for all categories of Americans. As I said, the net worth of the median family in 2010 was $77,300. In 2007, the net worth of the median family was $126,400. That’s a drop of almost 40 percent in just three years. (All these numbers are corrected for inflation.)

Characteristically taking the longer view, the New York Times led with the fact that household savings were back to where they had been in the early 1990s, “erasing almost two decades of accumulated prosperity.”

Most of the lost household net worth of recent years is due to the drop in housing prices. This is comforting, in a way, because the price of land and things built on land -- and what, ultimately, is not? -- are different from the price of other goods and services.

Let me tell you about my favorite economist, an indulgence I allow myself every couple of decades. (The last time was 1989, pre-hyperlink, unfortunately.) He was an American named Henry George, who died in 1897 at the age of 58. If you took economics in college, there might have been one sentence about him in your textbook. He once ran for mayor of New York. (Fancy that. He lost.)

George would look at our present situation and ask: In what sense were we richer three or four years ago, when the exact same housing stock sold for up to twice as much? In what sense are we poorer now? Land is special because, as Realtors like to remind us, they aren’t making any more of it. This means that you can get rich owning land without doing anything productive with it. (Henry George: “You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon, or down a hole in the ground. …”) The natural increase in population will do the trick.

Tuna Fish

This is also true, to varying degrees, of other investments. It is true to some extent of any product that can’t be easily and quickly reproduced. It is somewhat true of houses, once they are built. (As Tolstoy didn’t write, “Cans of tuna fish are all alike, but every house is a house in its own way.”) But it is especially true of land.

My Bloomberg View colleague Clive Crook claimed recently to be a “supply-side liberal.” So was Henry George. He was as concerned about income equality as the most bleeding-heart liberal and as concerned about economic growth as the noisiest supply-side conservative.

George’s solution to everything was to eliminate all taxes on working, saving and investing, and to put the entire tax burden on unproductive land, which can’t escape the tax by moving. There are problems with this idea. But it’s provocative.

I don’t have room to do George justice, but take a look at his masterwork, “Progress and Poverty.” For an economics tract, it’s actually a fun read. And, yes, you’re responsible for it on the final exam.

(Michael Kinsley is a Bloomberg View columnist. The opinions expressed are his own.)

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View columns, editorials and op-ed articles.

Today’s highlights: The editors on measuring methane leaks and Putin’s attack helicopters in Syria; Caroline Baum on the Federal Reserve’s next move; William D. Cohan on Jamie Dimon’s day in Congress; Ezra Klein on Venture For America; Nicholas Polson on recognizing smart money; Amar Bhide and Christopher Papagianis on fixing money-market mutual funds; Jonathan Reiss on improving regional Fed boards.

To contact the writer of this article: Michael Kinsley at mkinsley@bloomberg.net.

To contact the editor responsible for this article: Michael Newman at mnewman43@bloomberg.net.

Filed under: Socionomics Comments Off