For the thousandth entry, I repost #1, my introduction from August 17th., 2004.

A blog of thoughts about financial and economic issues, in the hope that someone might find them useful. Or at least give me a record of my attempts to understand the world around me. I’m an independent investor whose only source of income is the investment returns on my assets. As a result, I care about truth and reality, not the smoke screens put up by the self-interest of the investment industry and the government. That doesn’t mean I won’t trade along with a lie, but it does mean I want to know that I am doing so.

There is a famous saying from George Soros, the well-known hedge fund operator:“Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited.”

Words to heed. This blog will contain my thoughts on what’s fact and what’s fiction along with editorial asides and rants that will no doubt have a decidedly libertarian and Austrian (economics) bent. Nothing in this blog should be taken as investment advice of any kind.

I think I have done OK on recognizing the false premise, but I’ve stepped off way too early. A learning experience. I would also like to extend my thanks to those who have come across my blog and posted comments. Truth comes out best from argument and discussion, and I welcome your views, whether we agree or not.

Naturally the other side of the coin from the borrower victims shows the lender victims. At least some of the lender victims have figured out that the Wall Street big boys were collecting all the money here - check those bonuses from 2006 - while taking none of the risk. So they are, per Bloomberg, suing. Lots of luck, lenders, you bought junk bonds and that’s what they turned out to be. Unfortunately, looks like at least a few people stuck their life savings in this garbage.

I must admit I’m sympathetic, the behavior of the big Wall Street firms is unconscionable. Fortunately for them, conscience is not something they are burdened with.

The Canadian government flip-flopped one more time on the income trust taxation issue, announcing that new trusts would be paying taxes next year while existing trusts would get four more years of tax-free status and then pay. The trigger appeared to be that a number of major corporations were getting ready to convert to trust status and the government wished to forestall this.

The (predictable) result was panic selling of the trusts.

This seems to me to be a really dumb move for a whole bunch of reasons. The basic idea behind the trust model is that a business that is in a position to commit to distributing most of its net income can sign up to do so, and in return avoid paying corporate taxes on said income. The income is then taxed in the hands of the recipient, who pays their personal income tax rate. Now for a taxable recipient with substantial income, I presume the difference will be minor. Canada allows a substantial tax credit on ordinary dividends anyway - to prevent double taxation of corporate income - which I presume would be available (it does not apply presently to the untaxed trust distributions). So those who will be hurt are the lower-income folks who are in such a low tax bracket that they get little benefit from the tax credit, or those who are receiving the distributions into RRSPs, RRIFs, or similar. Also, of course, foreign investors who are already paying a withholding tax and will be further penalized. This seems to me a very regressive step. Which is maybe what was intended, but it will certainly make the strategy seem unfair. It is clear that the government sees a loss of tax revenue that it needs to stop - but that revenue is, in effect, coming from those who can least afford it (other than the foreign investors, of course, who could easily have been targeted by other means if that was the intent). As usual.

However, although the selling seems to be widespread, it seems to me that there will be important differences between the trusts. In particular, many of the energy trusts have much less taxable income than distributable cash flow because of depletion. So before getting all concerned, one should look carefully to figure out how much tax your favorite energy trust will really be paying. I wouldn’t have touched the non-energy trusts anyway because of my overall bearishness.

Of course, the other big question is, will this stick? Who knows, your guess is as good as mine. But certainly the early feedback I have been seeing is that the Conservatives have touched a third rail here. Will they survive it?

I’m neither selling nor buying. There will be lots of time to bottom fish when energy prices have flushed some more.

Inflation, at 1,200% annually, is destroying the Zimbabwean currency.

“Ten minutes later, a car pulled up in the driveway. My friend took my $100, went to meet his man and, seconds later, returned with a knapsack bulging with thick bricks of Zimbabwean dollars — in notes of 20,000 — held together with rubber bands. It totaled 30 million Zimbabwean dollars.

“Here,” he said, handing me the heavy bag. “The Zimbabwean wallet.”

In the 1980s, when I lived in Zimbabwe, Z$30 million would have made me one of the richest men in the country. Today, it barely buys a family a week’s groceries.”

This inflation, like most if not all severe inflations, is caused by two factors. Firstly, a scarcity of goods. The Zimbabwean government has embarked on a program of “reforms” which has crippled the agricultural production which was the main basis of the economy. Secondly, uncontrolled government deficit spending. In this case, to support the military. The government simply prints money to pay the troops, even though it has negligible income. As a result, more and more money chases a shrinking supply of goods.

The US has the same problem. However, the dollar’s status as the world’s reserve currency allows a privilege not extended to Zimbabwe, that of making up the deficit of goods produced by imports. Unlike Zimbabwe, the US’s credit is still good. But for how long?

The US has committed payments through Social Security and Medicare far in excess of the economy’s ability to pay. According to the GAO: “The federal government’s fiscal exposures totaled more than $46 trillion at the end of 2005, up from about $20 trillion in 2000. This translates into a burden of about $156,000 per American, or approximately $375,000 per full-time worker - more than double what it was in 2000. These amounts are growing every second of every minute of every day due to continuing deficits, known demographic trends and compounding interest costs.”

US leadership in manufacturing and technology has largely been ceded to other countries with lower labor costs. This economic gap has been papered over, for the time being, with a boom in construction. But this bubble is already popping. What next?

Ben Stein writes in his column

“The Securities Industry Association (which, of course, wants us to buy securities) says that retirement saving is so inadequate that about half of us will have to substantially lower our standard of living in our golden years. About 20 percent of us will face genuine poverty in retirement.”