For Your Thursday Morning Pondering – March 5, 2015
Sunil Sharma
Rubio-Lee tax plan eliminates deductions and ties large, small business rates -Sen. Marco Rubio, R-Fla., and Sen. Mike Lee, R-Utah, introduced a plan that would establish two individual tax rates — 15% for incomes up to $75,000 and 35% for earnings above that level — and would eliminate all tax deductions except those for mortgage interest and charitable giving. The plan also would end the estate tax and taxation of capital gains and dividends. On the corporate side of the tax ledger, it would consolidate all business taxes into a 25% rate, a ceiling that also would apply to businesses that pay taxes through their owner’s personal income tax return.
Four strategies to boost Social Security benefits – It is key to know the right time to claim benefits. Collecting Social Security at 62 permanently reduces an individual’s benefits by 25%. If a person claims Social Security before full retirement age of 66, then he or she cannot use creative claiming strategies. That is why Ms. Franklin pointed out that 66 is the magic age, where one can engage in creative claiming strategies without an earnings cap
This Fed Official Just Perfectly Described Why Student Loans Are a Terrible Investment – “Unlike virtually all other forms of credit, student loans are generally not underwritten: They are frequently offered to young borrowers who have little or no credit history and little to no current income.” (Since it is not getting paid for the risk it takes in the form of superhigh interest rates, the government takes draconian measures to make sure it gets its money back, making it basically illegal to discharge student debt in bankruptcy and reserving the right to extract payment from people’s wages, tax returns, and Social Security income, in some cases.)
Aging Australia Faces Growth Slowdown, Government Report Finds – Treasurer Joe Hockey wants to raise the nation’s retirement age to 70, the highest in the world. Australia is leading the charge for a group of advanced economies from Japan to Germany that are pushing up the retirement age to head off a gray time bomb caused by a growing army of pensioners and a declining pool of taxpayers.
How to follow in Warren Buffett’s big footsteps – We cannot all be 84 years old — not for a while, anyway — but it is strange that so few funds or companies work like Berkshire Hathaway, given its enormous success. Mindful of time passing, Mr Buffett and Mr Munger both reflect at length in their letter on how he operates. It seems to me to boil down to three precepts, two of which can be applied by others, and the third not.
Rajan’s Next India Rate Move Divides Goldman, Morgan Stanley – While inflation targets are supposed to make central banks more predictable, Rajan’s successive moves outside of scheduled meetings have contributed to uncertainty, according to Jyotinder Kaur and other economists at HDFC Bank Ltd. near New Delhi. “The shift in the central bank’s strategy to make out-of-turn rate cuts something of a habit is likely to increase market volatility instead of anchoring it,” she said. “The out of policy move, in our view, highlights a sense of urgency that can only be associated with the RBI realizing that it could in fact be ’behind the curve’ in terms of monetary policy action.”
We Tried to Re-Create JPMorgan’s Mutual Fund Returns and Gave Up – Last month at JPMorgan Chase’s 2015 investor day—where executives discuss results for the previous year in front of analysts and shareholders—the bank displayed impressive numbers for the performance of its mutual funds. Pie charts in the asset management unit’s presentation showed the percentage of money invested in funds that ranked in the top half of their categories: In fixed-income funds with 10-year records, the figure was 85 percent; for stock funds with 10-year records, it was 83 percent.
Earnings: More or Less Erosion? – At the end of last year and early this year, I lowered my earnings forecasts for this year and next year by a total of $10 each to $120 per share in 2015 and $130 in 2016 for the S&P 500. I did so in response to the plunge in oil prices, which depressed earnings for the Energy sector, and the jump in the trade-weighted dollar, which depressed earnings for corporations with significant overseas earnings.
Vanguard Shuns Bogle, Increases International Exposure – John Bogle made headlines a few weeks back when he declared that a US investor shouldn’t have any foreign exposure. He was making a fairly active allocation decision here by saying that an investor should maintain a strict home bias. I said this wasn’t consistent with the idea of a “passive” portfolio selection and actually exhibited a strong bias and active deviation from global market cap weighting. Several other people agreed with me.
NASDAQ 5000 – Crash? Bubble? Fair Value? – In preparing that piece we evaluated the stock market and made a theoretical calculation in which we merged two companies, Cisco and Microsoft. We assumed that their reported earnings were accurate. We found that the two companies merged together had earnings of $10 billion and their merged theoretical market valuation amounted to $1 trillion. Our conclusion at the time was fairly straightforward. There was nothing wrong with either company. Both Cisco and Microsoft were fine, large, developing, worldwide leaders in the Technology sector. The stock price, however, was wrong. At 100 times earnings, the price of the theoretically merged company’s shares was not justified by any valuation technique. The combined GDP of all countries in the world was estimated at $30 trillion.
