Weighing in on the economy...

John McCain and his Veep candidate Sarah Palin are being hammered a bit for insinuating in not so many words that Senator Obama's proposed economic policy sounds a lot like socialism.

O.K. - so by way of background, in one of my previous lives, I was a licensed stockbroker. I worked for a financial planning firm while at Fuller working on my (as yet unfinished) Masters. I was the one guy in a million that you could trust NOT to sell your mother what she didn't need. My company however thought that I should be the kind of guy who would be willing to sell your mother whatever I could talk her into buying..... and then some. We parted company and I have tried to stay out of "sales" since then. I did however learn a thing or three about markets and the economy - so I thought I'd weigh in a bit given the current state of affairs we find ourselves in - market-wise.


Without going into too much detail - there is plenty of blame to go around as far as the current banking crisis goes - on both sides of the aisle and dating back to the implementation of the CRA rules against Red-lining during the Carter administration. That's all I've got to say about that.


As I wrote a couple of weeks ago: What I fail to understand is how raising taxes on corporations and raising capital gains taxes on investments will do anything to fix this crisis. Lemme 'splain -no, lemme' sum-up.

Most economists and many investors (in my experience) are free-market types, unless they have a particular political agenda they want to prop up.

Case in point - here. In this case - saying that Warren Buffet's tax "rate" is less than his secretary's is a true statement - but Mr. Buffet is being taxed on capital gains vs. earned income. Why is this inherently unfair? One does not need to be rich in order to pay capital gains tax - they simply need to sell something at a profit. This was intentionally misleading in my opinion and, speaking coloquially, the whole argument was simply meant to stir up the burgoo in the ol' class-warfare cauldron.

As I pointed out in the previous post - since most of us ARE investors to one degree or another, these tax hikes will affect us all. If you don't believe me, check this out. Basically, 51 MILLION households own at least some mutual funds. More than half of mutual fund assets are in stock funds. Which leads me to these two basic points about Mr. Obama's plan to increase taxes on corporations and to raise the capital gains tax rates in order to "spread the wealth" around a bit.

Here goes:

• Raising Capital gains tax could affect those of us among 51,000,000 households who own mutual fund shares outside of a retirement plan or otherwise tax-sheltered plan. Both stock and bond funds distribute realized capital gains to shareholders. Notwithstanding, many of us *poor folk* occasionally buy and sell stock when we aren't out scrounging in trash bins for aluminum cans so we can afford gas for our cars. :) One does not need to be "RICH" to be an investor - just ask 51 Million of us if we consider ourselves "Rich" folks.
• Secondly. Raising taxes on corporations affects everyone! Where do jobs come from? Who hires most people. This tax hike will also affect the overall stock market for one simple reason: More taxes paid, means less profit - which translates to lower earnings per share. Stocks prices trade on multiples of EPS (Earnings Per Share) - plain and simple - as compared with other similar companies within their respective industries. Hence - if you raise taxes - you lower earnings - you lower share prices - shareholders (51,000,000 households in the US alone who own mutual funds) get hit. It doesn't just affect WALL STREET, it affects Main Street too!

By way of example:
When I use the statement - "Hey hon, I'm off to work now." Where am I going? Who signs my paycheck? Chances are - that *place* where I go 5 days a week to get my monthly paycheck has the abbreviation *Inc.* somewhere in the title. And, if they happen to be a somewhat successful *Inc.* (let's hope so...), then Mr. Obama wants them to pay more than they currently are! Let 's just mention here that we have the SECOND HIGHEST corporate tax rate in the world! (This just might explain why some companies have migrated overseas...)

Well, that's all I've got to say about that today.....