Mutual funds (MFs) must get 90% of their income from stocks, bonds and traditional securities. To bypass this, MFs that invest in derivatives and commodities set up shell corps in the Caymans to do it. They then sell shares in the offshore subsidiary shells to the mutual funds. This way the funds technically invest in SEC allowed instruments, profits go to mutual fund investors free of corp. tax and the investments escape CFTC scrutiny. Scared?
Taller is Richer
The Friday File: Tall men make more money than short men, about $1,000/ year for each inch they are above average. 3 smart economists (are there any other kind?) from the Univ. of PA explain why. They find that men who were short in high school earn like short men, while short men who were tall in high school earn like tall men. So height (and thus self esteem) at age 16 seems critical.
Birmingham Bankruptcy
The biggest civic bankruptcy in America is official with Jefferson County, AL (Birmingham, AL) filing for Chapter 9 last week. Harrisburg, PA had held this dubious honor. The full impact of the filing will not be known until a judge approves the move at hearing next month and the county learns how much of its $4.15 billion in debts will still have to be paid. In the short run, legal expenses will skyrocket.
Stupor Committee
With barely a week before the deficit reduction panel must make its recommendations to Congress, and with little hope of success, bank on the goalposts being moved! If the Panel totally fails, expect Congress to pass a law canceling the $600 billion cuts in both defense and social programs. And, if the Panel passes something short of $1.2 trillion, expect Congress to declare victory and then delay the hard choices till ’13.
Tax Cut Stimulus
If Congress does not extend the temporary Social Security payroll tax cut on employees of 2% (from 6.2% to 4.2% on the first $106,800 of income) beyond the end of ’11, that would cut about $120 billion off GDP. And, if long-term unemployment compensation is not extended that’s another $30 billion. Together, that’s a 1% GDP haircut. Given ’11 GDP growth of less than 2% and the turmoil in Europe, households need the money.
NBA Fouls Fans
NBA Players are proposing a 53%-47% split of revenues while owners want a 50%-50% split. Each 1% is worth $40 million and since the contract is for 6 years, that $720 million. Not chump change. But, it also means a full season is worth $3 to $4 billion. Since the lock-out has already wiped out 15 games they have already lost more than the $720 million they are fighting over!! Positions will harden as losses mount.
Tax the Rich
The inheritance tax hurts the poor by encouraging the rich to overspend because they can’t leave it all to Junior. This tax-avoidance induced spending on jets, boats and lavish parties reduces the money available for new plant and equipment. Look, America already overconsumes. We shouldn’t pass tax increases that exacerbate this. So go ahead and tax the rich, but in a less harmful way.
Dodging Debt
Frank McCourt, embattled owner of the LA Dodgers is selling the club. By craftily splitting the sale of the team and the sale of the team’s media rights, he expects to net $1 billion. But, he has bills! The club is already carrying about $500 million of debt, it owes Major League Baseball $150 million and capital gains taxes will be about $150 million. He also owe his ex wife $131 million. Luckily, he only paid $421 million for the club in ’04.
Crushed by the Heat
Picking grapes at night results in better wine, lower energy costs and happier workers. High daytime temperatures (90 and up) change the sugar composition of grapes leading to possible uncontrolled fermentation due to wild yeast. To bring down the temperature, grapes are put through a cold bath or heat exchanger before being crushed. While that gives vintners more control, it costs money. Picking at night obviates this need and keeps workers from heat stroke.
Poor Granny
To put the absolutely dismal interest rates we are getting on savings into perspective think of it this way. The highest yielding 1-yr CD pays 1%. At that rate, it takes 70 years to double your money. By contrast at 5% it takes only 14 years. And, at 10%, it takes just 7 glorious years. Because rates are so low, investors speculate in gold, oil, copper, and other commodities while interest poor granny sits alone in the dark.