ERICOPOLY

What if though, the foreign nations who currently worry about our debt load cash out of their dollars and walk away with the gold that is backing the fractional reserve system? This isn't currently a fear because we're not backed by gold, but wouldn't it be the current fear if we were? Isn't that why we left the gold standard in the first place?

Yes as long as the money supply continually increases as needed the system will work out (stable purchasing power). However if you can just incorporate silver what do you say to the people who wish to be redeemed in gold? I understand the last gold standard fell apart when foreign creditors asked for their gold back. Are you in theory going to give back all of the gold if that's what they ask for? And then be left with just silver? How can it be designed to guarantee that the currency is redeemable in gold, without potential for failure?

The flaw I see in gold is that it essentially rises in real purchasing power over time yet is meant to remain stable. Observe: fixed quantity of gold at the same time as a rising quantity of goods&services. Doesn't this lead to the cost (priced in gold) of goods/services to fall? You can't forever increase goods and services and have stable prices vs a fixed amount of gold. Anyhow, that's the flaw I see in it. Creates deflation effectively.

txlaw once argued (back in February or March) that dividends are taxed a second time because corporations are individuals -- so it's a transfer from one individual to another (rather than being truly the "owners' earnings" being taxed twice). So that strengthens my argument that Buffett is underpaying via his holding company Berkshire. You see, if corps are individuals then WFC is actually a different individual than BRK. Proposal: if once corporation owns 5% of another corporation, then exclude 5% of the dividend from taxation and tax the other 95% of the dividend as regular corporate income (similar to Buffett's proposal of taxing personal dividends as personal income). Really, that's entirely fair. It means that his wholly owned subsidiaries don't get taxed twice (he'd get 100% dividend tax exclusion), but when he owns say only 1% of Walmart via Berkshire he doesn't suddenly get his tax rate reduced to only 10.5% via his corporate shelter. But he gets a 1% reduction in tax in recognition that Walmart is 1% the same individual as Berkshire via their intertwined ownership. I get txlaw's argument that corps are individuals, and I understand (yet disagree with) his point that my dividends received are not being taxed twice due to the fact that we are actually different individuals from corps... yet if that's the case then Berkshire is not the same individual as WFC or WMT, and so we can tax Berkshire's dividends much more heavily... to the extent that they are different individuals it is really obvious given the ownership rates. 1% ownership rate is obviously not really fair to qualify for say a 70% reduction in taxation vs what an individual would pay on that dividend. Summary: if corps are individuals then treat them as such when it comes to one "individual" paying a dividend to the other -- the more of that individual you own, the less the tax on the dividend. But we can get rid of the ridiculous automatic discount down to 10.5% tax rates.

One also has to wonder why people investing in real estate can do a "tax deferred" exchange, whereas I can't do one if I sell one stock to buy another. You want to raise taxes on Trump, that's the way to go. Go after places where there are no taxes at all collected on capital gains before further raising the existing capital gains taxes on stocks.

In theory are there that many necessary reasons why a corporation needs to hold say, a 10% stake in another company, while being taxed at a super low rate on the distributions? Often times (as in the case of Berkshire), this becomes a tax convenience for the owners. And if they do find such a reason, let them go ahead and do it. But this can very easily become a tax shelter. EDIT: I think even a 1% (or less!) ownership gives them a special rate of only 10% or so! Can anyone seriously argue that a 1% ownership stake is "strategic"? I can see why say a 60% ownership makes sense for a special "corporate" tax rate on dividends -- after all, this is the ownership level where the IRS allows/requires you to consolidate the earnings. Or is that 80%? I think it may be 80%. Raise the corporate tax rate on dividends to the same as the personal tax rate on dividends... unless the corporation consolidates the earnings under one tax umbrella. Doing this would then truly bring Buffett's tax rate in line with his secretary (combined with his proposal to raise the tax rates on personal dividends). Proposing instead to raise the tax rate on Berkshire's distributed dividend (which doesn't exist), won't go far enough IMO. He'll still be paying a paltry % in tax of his actual "look through" dividends.

I suppose neither does being "super rich" happen all that frequently ;D

The BAC calls are back down to $1.18 again today, so you were right.

I would like to see the tax code give the option of spreading capital gains taxes over a "look back" period of up to 7 years in recognition that just because you take a $1+m gain in 2009, it doesn't mean that it is repeatable every year. You may have paid no taxes over the prior 7 years, but rather owned something like Berkshire which deferred it all to a single capital gain event over a 7 year period. Your true "income" may just be $150k per year, but simply due to the nature of taking the capital gain all at once you get taxed under Buffett's "SUPER RICH" code. It seems that if you average just $150k per year, you should in all fairness be taxed as such. Not hit as if you are super-rich in one year out of 7, despite the fact that you had no "income" at all in the other 6. The IRS need only keep record of what you reported as "income" for the prior 6 years. And of course this would only apply to shares that you bought yourself rather than shares that were "gifted" to you.

Berkshire pays a dividend? There is also some obvious math error here: In the US system from our $100 first we take $35 at the corporate level. Then we take another $15, or the dividend tax rate of 15%, from the recipient. Giving us a tax rate of 50% on dividends. We’ve taken $50 from the total amount that was to be used to pay dividends.

I've got 27% in the BAC warrants now, but the rise in price will keep me from buying more (psychology). On Wednesday I was adding more, getting some of it below $2.70 which just seems really attractive for a very long term call warrant. Then early on Thursday I went off for a 3 night camping trip north of Mazama in the Roadtrek, out of all communications range -- that makes the market volatility a lot easier to deal with. Thanks for getting the board back up.

I know, but I've been playing that game for several years. Let's say I lose that 1/2 completely -- it's money I wouldn't have had in the first place. It will still be okay though 8) I put 2/3 of my taxable account in the warrants so that the govt will be cut out of the pie for a good long while. The BAC $10 calls are in my RothIRA where they can be sold tax free. EDIT: I also have 30% in MBI. Then a fair chunk in WFC calls. Oh well, you might not hear from me again after they all go under.

I was fully invested this whole year, but I changed things around to lever up -- selling things like DELL that held up well, down only 10% from where I'd bought. Things I added: 5% of portfolio put into BAC $10 strike calls 17% of portfolio put into BAC 2019 warrants. 34% in AIG 2021 warrants. Yes, die by the sword perhaps.

If yer not wantin' ta be a scallywag on this fine day, then ye best pass on by...

You...may have a point about Mr. Bove... http://www.youtube.com/watch?v=wEeSjp3Acs4&feature=channel_video_title He says in that video that "everyone is selling bank stocks". To whom? One could just as likely say that people are frantically buying banks stocks -- look at the volumes. It looks like to us? I think somebody wrote a song that goes like this (he was complaining about pop songs at the time, but you could just as well apply it to the folks like Bove and MSNBC): Burn down the disco Hang the blessed DJ Because the music that they constantly play IT SAYS NOTHING TO ME ABOUT MY LIFE

You...may have a point about Mr. Bove... http://www.youtube.com/watch?v=wEeSjp3Acs4&feature=channel_video_title He says in that video that "everyone is selling bank stocks". To whom? One could just as likely say that people are frantically buying banks stocks -- look at the volumes.

Write 1x the at-the-money SHLD 2013 $60 put for roughly $20, buy 2x the $60 2013 call for nearly $10. Leveraged 2x upside with 1x downside. Why would anyone buy the shares with this deal going on?

I just use their trading workstation app and when you plug in AIG or C you get that dropdown selection menu from which you can select the warrants. However AIG warrants trade as AIGWS on NYSE.

I'd be curious to know how much the collective redemption are to date over the past week. Sanjeev said the buybacks will begin in earnest and I agree. A company buying back shares helps stem the bleeding, and they have tons of cash to throw at it and the cash continues to pour in the door. Doesn't matter if your little distressed company can't buy back shares -- if MSFT buys back some shares, it gives a value manager some liquidity with which to pick up some severely pummeled stocks on the cheap. The rate of cash inflow to the fund managers just needs to meet the redemption flow. Collectively, how long will it take for the weak hands to be swamped by the cash rich corporate buyers? Then there are reinvested dividends of course. By 2013 (long before then) the supply/demand imbalance should be rectified and those calls appear attractive.

People are pouring money into the markets today and the past few weeks. In exactly the same proportion that people are pulling money out. Just different folks. Only thing changing is the price negotiated. No doubt I can troll the headlines tonight and find people saying that "investors are fleeing". Whatever.

My blase attitude comes from the discounted prices in the things I own. I own some WFC calls for example, 2013 with strikes $15 and $20. I expect they'll be earning nearly $4 a share by then and thus on that contract we're looking at forward expiration P/E of practically 5x right now, with probably at least $4 in earnings cumulatively before then. HPQ is at $30. Okay, that's only about 5x forward 18 months consensus earnings. This is just ridiculous.

For the record I think it's over.

I think the stock will be at least as high as $17 by expiration of those 2013 calls. Nearly 7x returns. I didn't go "all in" on the calls, if it blow up 100% I've only destroyed 5% of my fingers -- which I would expect to recover from the warrants. I have the same number of warrants in AIG as I do in BAC. I hope AIG gets their $10b back! That gain in book value alone would repay me for the cost of my BAC warrants.

I guess $50 is a reasonable number if they can grow book at 8% as they are doing now. Later perhaps it's worth more if interest rates go higher -- you can't make a lot from float with low rates. Doubling the book value in 10 years looks pretty doable. Warrants ended around $7 so you need like $115 for a 10x return. That would be like a 1.15x multiple to book. There are lesser outcomes that would still be quite acceptable -- and of course they might do much better. Maybe people go bananas about a hard market in a couple of years and the stock is at $85 all of a sudden? Could that be like a 7x return in just two years possibly? Then if you could triple it over the next 8 years you'd have a 21x return. Stranger things have happened.

I was going to sarcastically reply that the positive earning must be an infinite return on that negative tangible equity!